ALTERNATIVE DISPUTE

RESOLUTION COMPILED
CASES

THIRD DIVISION
G.R. No. 132848-49

June 26, 2001

PHILROCK, INC., petitioner,

vs.
CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION and Spouses VICENTE and NELIA CID,
respondents.
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, attorneys 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
Decision1 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 CIACs 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 appellants
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.

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

2. P65,000.00 representing retrofitting costs.

Issues
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.

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.

"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 CIAC5 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 CIACs 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.

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 Courts 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 Reference10 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 RTCs final resolution of the dispute
by arguing that the regular court also lost jurisdiction after the
arbitral tribunals 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 petitioners
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.
Petitioners 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 Philrocks
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 tribunals 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, Attorneys 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 familys 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 attorneys fees, arguing that
respondent spouses did not engage the services of legal
counsel. Also, it contends that attorneys fees and litigation
expenses are awarded only if the opposing party acted in gross
and evident bad faith in refusing to satisfy plaintiffs valid,
just and demandable claim.
We disagree. The award is not only for attorneys 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.1wphi1.nt
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.
______________________________________________

G.R. No. 126619

December 20, 2006

UNIWIDE SALES REALTY AND RESOURCES

CORPORATION, petitioner,
vs.
TITAN-IKEDA CONSTRUCTION AND
DEVELOPMENT CORPORATION, respondent.

DECISION

TINGA, J.:
This Petition for Review on Certiorari under Rule 45 seeks the
partial reversal of the 21 February 1996 Decision1 of the Court
of Appeals Fifteenth Division in CA-G.R. SP No. 37957
which modified the 17 April 1995 Decision2 of the
Construction Industry Arbitration Commission (CIAC).
The case originated from an action for a sum of money filed
by Titan-Ikeda Construction and Development Corporation

(Titan) against Uniwide Sales Realty and Resources

Corporation (Uniwide) with the Regional Trial Court (RTC),
Branch 119,3 Pasay City arising from Uniwide's non-payment
of certain claims billed by Titan after completion of three
projects covered by agreements they entered into with each
other. Upon Uniwide's motion to dismiss/suspend proceedings
and Titan's open court manifestation agreeing to the
suspension, Civil Case No. 98-0814 was suspended for it to
undergo arbitration.4 Titan's complaint was thus re-filed with
the CIAC.5 Before the CIAC, Uniwide filed an answer which
was later amended and re-amended, denying the material
allegations of the complaint, with counterclaims for refund of
overpayments, actual and exemplary damages, and attorney's
fees. The agreements between Titan and Uniwide are briefly
described below.
PROJECT 1.6
The first agreement (Project 1) was a written "Construction
Contract" entered into by Titan and Uniwide sometime in May
1991 whereby Titan undertook to construct Uniwide's
Warehouse Club and Administration Building in Libis,
Quezon City for a fee of P120,936,591.50, payable in monthly
progress billings to be certified to by Uniwide's
representative.7 The parties stipulated that the building shall be
completed not later than 30 November 1991. As found by the
CIAC, the building was eventually finished on 15 February
19928 and turned over to Uniwide.
PROJECT 2.
Sometime in July 1992, Titan and Uniwide entered into the
second agreement (Project 2) whereby the former agreed to
construct an additional floor and to renovate the latter's
warehouse located at the EDSA Central Market Area in
Mandaluyong City. There was no written contract executed
between the parties for this project. Construction was
allegedly to be on the basis of drawings and specifications
provided by Uniwide's structural engineers. The parties
proceeded on the basis of a cost estimate of P21,301,075.77
inclusive of Titan's 20% mark-up. Titan conceded in its
complaint to having received P15,000,000.00 of this amount.
This project was completed in the latter part of October 1992
and turned over to Uniwide.
PROJECT 3.9
The parties executed the third agreement (Project 3) in May
1992. In a written "Construction Contract," Titan undertook to
construct the Uniwide Sales Department Store Building in
Kalookan City for the price of P118,000,000.00 payable in
progress billings to be certified to by Uniwide's
representative.10 It was stipulated that the project shall be
completed not later than 28 February 1993. The project was
completed and turned over to Uniwide in June 1993.
Uniwide asserted in its petition that: (a) it overpaid Titan for
unauthorized additional works in Project 1 and Project 3; (b) it
is not liable to pay the Value-Added Tax (VAT) for Project 1;
(c) it is entitled to liquidated damages for the delay incurred in
constructing Project 1 and Project 3; and (d) it should not have
been found liable for deficiencies in the defectively
constructed Project 2.
An Arbitral Tribunal consisting of a chairman and two
members was created in accordance with the CIAC Rules of
Procedure Governing Construction Arbitration. It conducted a
preliminary conference with the parties and thereafter issued a
Terms of Reference (TOR) which was signed by the parties.
The tribunal also conducted an ocular inspection, hearings,
and received the evidence of the parties consisting of
affidavits which were subject to cross-examination. On 17
April 1995, after the parties submitted their respective

memoranda, the Arbitral Tribunal promulgated a Decision,11

the decretal portion of which is as follows:
"WHEREFORE, judgment is hereby rendered as
follows:
On Project 1 Libis:
[Uniwide] is absolved of any liability for the claims
made by [Titan] on this Project.
Project 2 Edsa Central:
[Uniwide] is absolved of any liability for VAT
payment on this project, the same being for the
account of the [Titan]. On the other hand, [Titan] is
absolved of any liability on the counterclaim for
defective construction of this project.
[Uniwide] is held liable for the unpaid balance in the
amount of P6,301,075.77 which is ordered to be paid
to the [Titan] with 12% interest per annum
commencing from 19 December 1992 until the date
of payment.
On Project 3 Kalookan:
[Uniwide] is held liable for the unpaid balance in the
amount of P5,158,364.63 which is ordered to be paid
to the [Titan] with 12% interest per annum
commencing from 08 September 1993 until the date
of payment.
[Uniwide] is held liable to pay in full the VAT on this
project, in such amount as may be computed by the
Bureau of Internal Revenue to be paid directly
thereto. The BIR is hereby notified that [Uniwide]
Sales Realty and Resources Corporation has assumed
responsibility and is held liable for VAT payment on
this project. This accordingly exempts Claimant
Titan-Ikeda Construction and Development
Corporation from this obligation.
Let a copy of this Decision be furnished the
Honorable Aurora P. Navarette Recina, Presiding
Judge, Branch 119, Pasay City, in Civil Case No. 940814 entitled Titan-Ikeda Construction Development
Corporation, Plaintiff versus Uniwide Sales
Realty and Resources Corporation, Defendant,
pending before said court for information and proper
action.
SO ORDERED."12
Uniwide filed a motion for reconsideration of the 17 April
1995 decision which was denied by the CIAC in its Resolution
dated 6 July 1995. Uniwide accordingly filed a petition for
review with the Court of Appeals,13 which rendered the
assailed decision on 21 February 1996. Uniwide's motion for
reconsideration was likewise denied by the Court of Appeals
in its assailed Resolution14 dated 30 September 1996.
Hence, Uniwide comes to this Court via a petition for review
under Rule 45. The issues submitted for resolution of this
Court are as follows:15 (1) Whether Uniwide is entitled to a
return of the amount it allegedly paid by mistake to Titan for
additional works done on Project 1; (2) Whether Uniwide is
liable for the payment of the Value-Added Tax (VAT) on
Project 1; (3) Whether Uniwide is entitled to liquidated
damages for Projects 1 and 3; and (4) Whether Uniwide is
liable for deficiencies in Project 2.

As a rule, findings of fact of administrative agencies and

quasi-judicial bodies, which have acquired expertise because
their jurisdiction is confined to specific matters, are generally
accorded not only respect, but also finality, especially when
affirmed by the Court of Appeals.16 In particular, factual
findings of construction arbitrators are final and conclusive
and not reviewable by this Court on appeal.17 This rule,
however admits of certain exceptions.
In David v. Construction Industry and Arbitration
Commission,18 we ruled that, as exceptions, factual findings of
construction arbitrators may be reviewed by this Court 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 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.19
Other recognized exceptions are as follows: (1) when there is
a very clear showing of grave abuse of discretion 20 resulting in
lack or loss of jurisdiction as when a party was deprived of a
fair opportunity to present its position before the Arbitral
Tribunal or when an award is obtained through fraud or the
corruption of arbitrators,21 (2) when the findings of the Court
of Appeals are contrary to those of the CIAC,22 and (3) when a
party is deprived of administrative due process. 23
Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders,
Inc.,24 we refused to review the findings of fact of the CIAC
for the reason that petitioner was requiring the Court to go
over each individual claim and counterclaim submitted by the
parties in the CIAC. A review of the CIAC's findings of fact
would have had the effect of "setting at naught the basic
objective of a voluntary arbitration and would reduce
arbitration to a largely inutile institution." Further, petitioner
therein failed to show any serious error of law amounting to
grave abuse of discretion resulting in lack of jurisdiction on
the part of the Arbitral Tribunal, in either the methods
employed or the results reached by the Arbitral Tribunal, in
disposing of the detailed claims of the respective parties. In
Metro Construction, Inc. v. Chatham Properties, Inc.,25 we
reviewed the findings of fact of the Court of Appeals because
its findings on the issue of whether petitioner therein was in
delay were contrary to the findings of the CIAC. Finally, in
Megaworld Globus Asia, Inc. v. DSM Construction and
Development Corporation,26 we declined to depart from the
findings of the Arbitral Tribunal considering that the
computations, as well as the propriety of the awards, are
unquestionably factual issues that have been discussed by the
Arbitral Tribunal and affirmed by the Court of Appeals.
In the present case, only the first issue presented for resolution
of this Court is a question of law while the rest are factual in
nature. However, we do not hesitate to inquire into these
factual issues for the reason that the CIAC and the Court of
Appeals, in some matters, differed in their findings.
We now proceed to discuss the issues in seriatim.
Payment by Mistake for Project 1
The first issue refers to the P5,823,481.75 paid by Uniwide for
additional works done on Project 1. Uniwide asserts that Titan
was not entitled to be paid this amount because the additional
works were without any written authorization.

It should be noted that the contracts do not contain stipulations

on "additional works," Uniwide's liability for "additional
works," and prior approval as a requirement before Titan
could perform "additional works."
Nonetheless, Uniwide cites Article (Art. ) 1724 of the New
Civil Code as basis for its claim that it is not liable to pay for
"additional works" it did not authorize or agree upon in
writing. The provision states:
Art. 1724. The contractor who undertakes to build a
structure or any other work for a stipulated price, in
conformity with plans and specifications agreed upon
with the landowner, can neither withdraw from the
contract nor demand an increase in the price on
account of the higher cost of labor or materials, save
when there has been a change in the plans and
specifications, provided:
(1) Such change has been authorized by the
proprietor in writing; and
(2) The additional price to be paid to the contractor
has been determined in writing by both parties.
The Court of Appeals did take note of this provision, but
deemed it inapplicable to the case at bar because Uniwide had
already paid, albeit with unwritten reservations, for the
"additional works." The provision would have been operative
had Uniwide refused to pay for the costs of the "additional
works." Instead, the Court of Appeals applied Art. 1423 27 of
the New Civil Code and characterized Uniwide's payment of
the said amount as a voluntary fulfillment of a natural
obligation. The situation was characterized as being akin to
Uniwide being a debtor who paid a debt even while it knew
that it was not legally compelled to do so. As such debtor,
Uniwide could no longer demand the refund of the amount
already paid.
Uniwide counters that Art. 1724 makes no distinction as to
whether payment for the "additional works" had already been
made. It claims that it had made the payments, subject to
reservations, upon the false representation of Titan-Ikeda that
the "additional works" were authorized in writing. Uniwide
characterizes the payment as a "mistake," and not a
"voluntary" fulfillment under Art. 1423 of the Civil Code.
Hence, it urges the application, instead, of the principle of
solutio indebiti under Arts. 215428 and 215629 of the Civil
Code.
To be certain, this Court has not been wont to give an
expansive construction of Art. 1724, denying, for example,
claims that it applies to constructions made of ship vessels,30
or that it can validly deny the claim for payment of
professional fees to the architect.31 The present situation
though presents a thornier problem. Clearly, Art. 1724 denies,
as a matter of right, payment to the contractor for additional
works which were not authorized in writing by the proprietor,
and the additional price of which was not determined in
writing by the parties.
Yet the distinction pointed out by the Court of Appeals is
material. The issue is no longer centered on the right of the
contractor to demand payment for additional works
undertaken because payment, whether mistaken or not, was
already made by Uniwide. Thus, it would not anymore be
incumbent on Titan to establish that it had the right to demand
or receive such payment.
But, even if the Court accepts Art. 1724 as applicable in this
case, such recognition does not ipso facto accord Uniwide the
right to be reimbursed for payments already made, since Art.
1724 does not effect such right of reimbursement. It has to be

understood that Art. 1724 does not preclude the payment to

the contractor who performs additional works without any
prior written authorization or agreement as to the price for
such works if the owner decides anyway to make such
payment. What the provision does preclude is the right of the
contractor to insist upon payment for unauthorized additional
works.
Accordingly, Uniwide, as the owner who did pay the
contractor for such additional works even if they had not been
authorized in writing, has to establish its own right to
reimbursement not under Art. 1724, but under a different
provision of law. Uniwide's burden of establishing its legal
right to reimbursement becomes even more crucial in the light
of the general presumption contained in Section 3(f), Rule 131
of the Rules of Court that "money paid by one to another was
due to the latter."
Uniwide undertakes such a task before this Court, citing the
provisions on solutio indebiti under Arts. 2154 and 2156 of the
Civil Code. However, it is not enough to prove that the
payments made by Uniwide to Titan were "not due" because
there was no prior authorization or agreement with respect to
additional works. There is a further requirement that the
payment by the debtor was made either through mistake or
under a cloud of doubt. In short, for the provisions on solutio
indebiti to apply, there has to be evidence establishing the
frame of mind of the payor at the time the payment was
made.32
The CIAC refused to acknowledge that the additional works
on Project 1 were indeed unauthorized by Uniwide. Neither
did the Court of Appeals arrive at a contrary determination.
There would thus be some difficulty for this Court to agree
with this most basic premise submitted by Uniwide that it did
not authorize the additional works on Project 1 undertaken by
Titan. Still, Uniwide does cite testimonial evidence from the
record alluding to a concession by employees of Titan that
these additional works on Project 1 were either authorized or
documented.33
Yet even conceding that the additional works on Project 1
were not authorized or committed into writing, the undisputed
fact remains that Uniwide paid for these additional works.
Thus, to claim a refund of payments made under the principle
of solutio indebiti, Uniwide must be able to establish that these
payments were made through mistake. Again, this is a factual
matter that would have acquired a mantle of invulnerability
had it been determined by both the CIAC and the Court of
Appeals. However, both bodies failed to arrive at such a
conclusion. Moreover, Uniwide is unable to direct our
attention to any pertinent part of the record that would indeed
establish that the payments were made by reason of mistake.
We note that Uniwide alleged in its petition that the CIAC
award in favor of Titan in the amount P5,158,364.63 as the
unpaid balance in Project 3 included claims for additional
works of P1,087,214.18 for which no written authorization
was presented. Unfortunately, this issue was not included in its
memorandum as one of the issues submitted for the resolution
of the Court.

provision in the contract as to who should pay the VAT, it is

presumed that it would be the seller.35
The contract for Project 1 is silent on which party should
shoulder the VAT while the contract for Project 3 contained a
provision to the effect that Uniwide is the party responsible for
the payment of the VAT.36 Thus, when Uniwide paid the
amount of P2,400,000.00 as billed by Titan for VAT, it
assumed that it was the VAT for Project 3. However, the
CIAC and the Court of Appeals found that the same was for
Project 1.
We agree with the conclusions of both the CIAC and the Court
of Appeals that the amount of P2,400,000.00 was paid by
Uniwide as VAT for Project 1. This conclusion was drawn
from an Order of Payment37 dated 7 October 1992 wherein
Titan billed Uniwide the amount of P2,400,000.00 as "Value
Added Tax based on P60,000,000.00 Contract," computed on
the basis of 4% of P60,000,000.00. Said document which was
approved by the President of Uniwide expressly indicated that
the project involved was the "UNIWIDE SALES
WAREHOUSE CLUB & ADMIN BLDG." located at "90 E.
RODRIGUEZ JR. AVE., LIBIS, Q.C." The reduced base for
the computation of the tax, according to the Court of Appeals,
was an indication that the parties agreed to pass the VAT for
Project 1 to Uniwide but based on a lower contract price.
Indeed, the CIAC found as follows:
Without any documentary evidence than Exhibit "H"
to show the extent of tax liability assumed by
[Uniwide], the Tribunal holds that the parties is [sic]
obliged to pay only a share of the VAT payment up
to P60,000,000.00 out of the total contract price of
P120,936,591.50. As explained by Jimmy Gow,
VAT is paid on labor only for construction
contracts since VAT had already been paid on the
materials purchased. Since labor costs is [sic]
proportionately placed at 60%-40% of the
contract price, simplified accounting computes
VAT at 4% of the contract price. Whatever is the
balance for VAT that remains to be paid on Project 1
Libis shall remain the obligation of [Titan].
(Emphasis supplied.)38
Liquidated Damages
On the third issue of liquidated damages, the CIAC rejected
such claim while the Court of Appeals held that the matter
should be left for determination in future proceedings where
the issue has been made clear.
In rejecting Uniwide's claim for liquidated damages, the CIAC
held that there is no legal basis for passing upon and resolving
Uniwide's claim for the following reasons: (1) no claim for
liquidated damages arising from the alleged delay was ever
made by Uniwide at any time before the commencement of
Titan's complaint; (2) the claim for liquidated damages was
not included in the counterclaims stated in Uniwide's answer
to Titan's complaint; (3) the claim was not formulated as an
issue to be resolved by the CIAC in the TOR;39 and (4) no
attempt was made to modify the TOR to accommodate the
same as an issue to be resolved.

Liability for the Value-Added Tax (VAT)

The second issue takes us into an inquiry on who, under the
law, is liable for the payment of the VAT, in the absence of a
written stipulation on the matter. Uniwide claims that the VAT
was already included in the contract price for Project 1. Citing
Secs. 99 and 102 of the National Internal Revenue Code,
Uniwide asserts that VAT, being an indirect tax, may be
shifted to the buyer by including it in the cash or selling price
and it is entirely up to the buyer to agree or not to agree to
absorb the VAT.34 Thus, Uniwide concludes, if there is no

Uniwide insists that the CIAC should have applied Section 5,

Rule 10 of the Rules of Court.40 On this matter, the Court of
Appeals held that the CIAC is an arbitration body, which is
not necessarily bound by the Rules of Court. Also, the Court
of Appeals found that the issue has never been made concrete
enough to make Titan and the CIAC aware that it will be an
issue. In fact, Uniwide only introduced and quantified its
claim for liquidated damages in its Memorandum submitted to
the CIAC at the end of the arbitration proceeding. The Court
of Appeals also noted that the only evidence on record to

prove delay in the construction of Project 1 is the testimony of

Titan's engineer regarding the date of completion of the
project while the only evidence of delay in the construction of
Project 3 is the affidavit of Uniwide's President.
According to Uniwide, the ruling of the Court of Appeals on
the issue of liquidated damages goes against the established
judicial policy that a court should always strive to settle in one
proceeding the entire controversy leaving no root or branch to
bear the seeds of future litigations.41 Uniwide claims that the
required evidence for an affirmative ruling on its claim is
already on the record. It cites the pertinent provisions of the
written contracts which contained deadlines for liquidated
damages. Uniwide also noted that the evidence show that
Project 1 was completed either on 15 February 1992, as found
by the CIAC, or 12 March 1992, as shown by Titan's own
evidence, while Project 3, according to Uniwide's President,
was completed in June 1993. Furthermore, Uniwide asserts,
the CIAC should have applied procedural rules such as
Section 5, Rule 10 with more liberality because it was an
administrative tribunal free from the rigid technicalities of
regular courts.42
On this point, the CIAC held:
The Rule of Procedure Governing Construction
Arbitration promulgated by the CIAC contains no
provision on the application of the Rules of Court to
arbitration proceedings, even in a suppletory
capacity. Hypothetically admitting that there is such a
provision, suppletory application is made only if it
would not contravene a specific provision in the
arbitration rules and the spirit thereof. The Tribunal
holds that such importation of the Rules of Court
provision on amendment to conform to evidence
would contravene the spirit, if not the letter of the
CIAC rules. This is for the reason that the
formulation of the Terms of Reference is done with
the active participation of the parties and their
counsel themselves. The TOR is further required to
be signed by all the parties, their respective counsel
and all the members of the Arbitral Tribunal. Unless
the issues thus carefully formulated in the Terms of
Reference were expressly showed [sic] to be
amended, issues outside thereof may not be resolved.
As already noted in the Decision, "no attempt was
ever made by the [Uniwide] to modify the TOR in
order to accommodate the issues related to its belated
counterclaim" on this issue. (Emphasis supplied.)
Arbitration has been defined as "an arrangement for taking and
abiding by the judgment of selected persons in some disputed
matter, instead of carrying it to established tribunals of justice,
and is intended to avoid the formalities, the delay, the expense
and vexation of ordinary litigation."43 Voluntary arbitration,
on the other hand, involves the reference of a dispute to an
impartial body, the members of which are chosen by the
parties themselves, which parties freely consent in advance to
abide by the arbitral award issued after proceedings where
both parties had the opportunity to be heard. The basic
objective is to provide a speedy and inexpensive method of
settling disputes by allowing the parties to avoid the
formalities, delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which goes
through the entire hierarchy of courts.44 As an arbitration
body, the CIAC can only resolve issues brought before it by
the parties through the TOR which functions similarly as a
pre-trial brief. Thus, if Uniwide's claim for liquidated damages
was not raised as an issue in the TOR or in any modified or
amended version of it, the CIAC cannot make a ruling on it.
The Rules of Court cannot be used to contravene the spirit of
the CIAC rules, whose policy and objective is to "provide a
fair and expeditious settlement of construction disputes

through a non-judicial process which ensures harmonious and

friendly relations between or among the parties." 45
Further, a party may not be deprived of due process of law by
an amendment of the complaint as provided in Section 5, Rule
10 of the Rules of Court. In this case, as noted by the Court of
Appeals, Uniwide only introduced and quantified its claim for
liquidated damages in its memorandum submitted to the CIAC
at the end of the arbitration proceeding. Verily, Titan was not
given a chance to present evidence to counter Uniwide's claim
for liquidated damages.
Uniwide alludes to an alleged judicial admission made by
Engr. Luzon Tablante wherein he stated that Project 1 was
completed on 10 March 1992. It now claims that by virtue of
Engr. Tablante's statement, Titan had admitted that it was in
delay. We disagree. The testimony of Engr. Tablante was
offered only to prove that Project 1 was indeed completed. It
was not offered to prove the fact of delay. It must be
remembered that the purpose for which evidence is offered
must be specified because such evidence may be admissible
for several purposes under the doctrine of multiple
admissibility, or may be admissible for one purpose and not
for another, otherwise the adverse party cannot interpose the
proper objection. Evidence submitted for one purpose may not
be considered for any other purpose.46 Furthermore, even
assuming, for the sake of argument, that said testimony on the
date of completion of Project 1 is admitted, the establishment
of the mere fact of delay is not sufficient for the imposition of
liquidated damages. It must further be shown that delay was
attributable to the contractor if not otherwise justifiable.
Contrarily, Uniwide's belated claim constitutes an admission
that the delay was justified and implies a waiver of its right to
such damages.
Project 2: "as-built" plans, overpricing, defective construction
To determine whether or not Uniwide is liable for the unpaid
balance of P6,301,075.77 for Project 2, we need to resolve
four sub-issues, namely: (1) whether or not it was necessary
for Titan to submit "as-built" plans before it can be paid by
Uniwide; (2) whether or not there was overpricing of the
project; (3) whether or not the P15,000,000.00 paid by
Uniwide to Titan for Project 2 constitutes full payment; and
(4) whether or not Titan can be held liable for defective
construction of Project 2.
The CIAC, as affirmed by the Court of Appeals, held Uniwide
liable for deficiency relating to Project 2 in the amount of
P6,301,075.77. It is nonetheless alleged by Uniwide that Titan
failed to submit any "as-built" plans for Project 2, such plans
allegedly serving as a condition precedent for payment.
Uniwide further claims that Titan had substantially
overcharged Uniwide for Project 2, there being uncontradicted
expert testimony that the total cost of Project 2 did not exceed
P7,812,123.60. Furthermore, Uniwide alleged that the works
performed were structurally defective, as evidenced by the
structural damage on four columns as observed on ocular
inspection by the CIAC and confirmed by Titan's project
manager.
On the necessity of submitting "as-built" plans, this Court
rules that the submission of such plans is not a pre-requisite
for Titan to be paid by Uniwide. The argument that said plans
are required by Section 308 of Presidential Decree No. 1098
(National Building Code) and by Section 2.11 of its
Implementing Rules before payment can be made is untenable.
The purpose of the law is "to safeguard life, health, property,
and public welfare, consistent with the principles of sound
environmental management and control." The submission of
these plans is necessary only in furtherance of the law's
purpose by setting minimum standards and requirements to
control the "location, site, design, quality of materials,

construction, use, occupancy, and maintenance" of buildings

constructed and not as a requirement for payment to the
contractor.47 The testimony of Engr. Tablante to the effect that
the "as-built" plans are required before payment can be
claimed by Titan is a mere legal conclusion which is not
binding on this Court.
Uniwide claims that, according to one of its consultants, the
true price for Project 2 is only P7,812,123.60. The CIAC and
the Court of Appeals, however, found the testimony of this
consultant suspect and ruled that the total contract price for
Project 2 is P21,301,075.77. The CIAC held:
The Cost Estimate for Architectural and Site
Development Works for the EDSA Central, Dau
Branch Project (Exhibit "2-A" for [Uniwide] and
made as a common exhibit by [Titan] who had it
marked at [sic] its own Exhibit "U"), which was
admittedly prepared by Fermindoza and Associates,
[Uniwide]'s own architects, shows that the amount of
P17,750,896.48 was arrived at. Together with the
agreed upon mark-up of 20% on said amount, the
total project cost was P21,301,075.77.
The Tribunal holds that the foregoing document is
binding upon the [Uniwide], it being the mode agreed
upon by which its liability for the project cost was to
be determined.48 (Emphasis supplied.)
Indeed, Uniwide is bound by the amount indicated in the
above document. Claims of connivance or fraudulent
conspiracy between Titan and Uniwide's representatives
which, it is alleged, grossly exaggerated the price may
properly be dismissed. As held by the CIAC:
The Tribunal holds that [Uniwide] has not introduced
any evidence to sustain its charge of fraudulent
conspiracy. As a matter of fact, [Uniwide]'s own
principal witness, Jimmy Gow, admitted on crossexamination that he does not have any direct
evidence to prove his charge of connivance or
complicity between the [Titan] and his own
representatives. He only made that conclusion by the
process of his own "logical reasoning" arising from
his consultation with other contractors who gave him
a much lower estimate for the construction of the Dau
Project. There is thus no reason to invalidate the
binding character of Exhibit "2-A" which, it is
significant to point out, is [Uniwide]'s own
evidence.49 (Emphasis supplied.)
Accordingly, deducting the P15,000,000.00 already paid by
Uniwide from the total contract price of P21,301,075.77, the
unpaid balance due for Project 2 is P6,301,075.77. This is the
same amount reflected in the Order of Payment prepared by
Uniwide's representative, Le Consultech, Inc. and signed by
no less than four top officers and architects of Le Consultech,
Inc. endorsing for payment by Uniwide to Titan the amount of
P6,301,075.77.50
Uniwide asserts that Titan should not have been allowed to
recover on Project 2 because the said project was defective
and would require repairs in the amount of P800,000.00. It
claims that the CIAC and the Court of Appeals should have
applied Nakpil and Sons v. Court of Appeals51 and Art. 1723
of the New Civil Code holding a contractor responsible for
damages if the edifice constructed falls within fifteen years
from completion on account of defects in the construction or
the use of materials of inferior quality furnished by him or due
to any violation of the terms of the contract.

On this matter, the CIAC conducted an ocular inspection of

the premises on 30 January 1995. What transpired in the said
ocular inspection is described thus:
On 30 January 1995, an ocular inspection was
conducted by the Arbitral Tribunal as requested by
[Uniwide]. Photographs were taken of the alleged
construction defects, an actual ripping off of the
plaster of a certain column to expose the alleged
structural defect that is claimed to have resulted in its
being "heavily damaged" was done, clarificatory
questions were asked and manifestations on
observations were made by the parties and their
respective counsels. The entire proceedings were
recorded on tape and subsequently transcribed. The
photographs and transcript of the ocular inspection
form part of the records and considered as evidence. 52
And, according to these evidence, the CIAC concluded as
follows:
It is likewise the holding of this Tribunal that
[Uniwide]'s counterclaim of defective construction
has not been sufficiently proven. The credibility of
Engr. Cruz, [Uniwide]'s principal witness on this
issue, has been severely impaired. During the ocular
inspection of the premises, he gave such assurance of
the soundness of his opinion as an expert that a
certain column was heavily damaged judging from
the external cracks that was readily apparent x x x
xxxx
On insistence of the Tribunal, the plaster was chipped
off and revealed a structurally sound column x x x
Further, it turns out that what was being passed off as
a defective construction by [Titan], was in fact an old
column, as admitted by Mr. Gow himself x x x x53
(Emphasis supplied.)
Uniwide had the burden of proving that there was defective
construction in Project 2 but it failed to discharge this burden.
Even the credibility of its own witness was severely impaired.
Further, it was found that the concrete slab placed by Titan
was not attached to the old columns where cracks were
discovered. The CIAC held that the post-tensioning of the new
concrete slab could not have caused any of the defects
manifested by the old columns. We are bound by this finding
of fact by the CIAC.
It is worthy to stress our ruling in Hi-Precision Steel Center,
Inc. v. Lim Kim Steel Builders, Inc.54 which was reiterated in
David v. Construction Industry and Arbitration Commission,55
that:
x x x Executive Order No. 1008 created an arbitration
facility to which the construction industry in the
Philippines can have recourse. The Executive Order
was enacted to encourage the early and
expeditious settlement of disputes in the
construction industry, a public policy the
implementation of which is necessary and
important for the realization of national
development goals.
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 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 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. (Emphasis supplied.)
WHEREFORE, premises considered, the petition is DENIED
and the Decision of the Court of Appeals dated 21 February
1996 in CA-G.R. SP No. 37957 is hereby AFFIRMED.
SO ORDERED.
______________________________________________
G.R. No. 143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding
Judge of Branch 256 of Regional Trial Court of
Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of
resolving disputes, particularly in civil and commercial
disputes. Arbitration along with mediation, conciliation, and
negotiation, being inexpensive, speedy and less hostile
methods have long been favored by this Court. The petition
before us puts at issue an arbitration clause in a contract
mutually agreed upon by the parties stipulating that they
would submit themselves to arbitration in a foreign country.
Regrettably, instead of hastening the resolution of their
dispute, the parties wittingly or unwittingly prolonged the
controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a
Korean corporation which is engaged in the supply and
installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific
General Steel Manufacturing Corp. (PGSMC) is a domestic
corporation.
On March 5, 1997, PGSMC and KOGIES executed a
Contract1 whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was
executed in the Philippines. On April 7, 1997, the parties
executed, in Korea, an Amendment for Contract No. KLP970301 dated March 5, 19972 amending the terms of payment.
The contract and its amendment stipulated that KOGIES will

ship the machinery and facilities necessary for manufacturing

LPG cylinders for which PGSMC would pay USD 1,224,000.
KOGIES would install and initiate the operation of the plant
for which PGSMC bound itself to pay USD 306,000 upon the
plants production of the 11-kg. LPG cylinder samples. Thus,
the total contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of
Lease3 with Worth Properties, Inc. (Worth) for use of Worths
5,079-square meter property with a 4,032-square meter
warehouse building to house the LPG manufacturing plant.
The monthly rental was PhP 322,560 commencing on January
1, 1998 with a 10% annual increment clause. Subsequently,
the machineries, equipment, and facilities for the manufacture
of LPG cylinders were shipped, delivered, and installed in the
Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties
on January 22, 1998, after the installation of the plant, the
initial operation could not be conducted as PGSMC
encountered financial difficulties affecting the supply of
materials, thus forcing the parties to agree that KOGIES
would be deemed to have completely complied with the terms
and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation
and initial operation of the plant, PGSMC issued two
postdated checks: (1) BPI Check No. 0316412 dated January
30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413
dated March 30, 1998 for PhP 4,500,000. 5
When KOGIES deposited the checks, these were dishonored
for the reason "PAYMENT STOPPED." Thus, on May 8,
1998, KOGIES sent a demand letter6 to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in
case of nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES
President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different
brand of hydraulic press from that agreed upon but it had not
delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it
issued KOGIES were fully funded but the payments were
stopped for reasons previously made known to KOGIES. 7
On June 1, 1998, PGSMC informed KOGIES that PGSMC
was canceling their Contract dated March 5, 1997 on the
ground that KOGIES had altered the quantity and lowered the
quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer the
machineries, equipment, and facilities installed in the
Carmona plant. Five days later, PGSMC filed before the
Office of the Public Prosecutor an Affidavit-Complaint for
Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun
Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the
latter that PGSMC could not unilaterally rescind their contract
nor dismantle and transfer the machineries and equipment on
mere imagined violations by KOGIES. It also insisted that
their disputes should be settled by arbitration as agreed upon
in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating
the contents of its June 1, 1998 letter threatening that the
machineries, equipment, and facilities installed in the plant
would be dismantled and transferred on July 4, 1998. Thus, on
July 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration Board
(KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as
amended.

On July 3, 1998, KOGIES filed a Complaint for Specific

Performance, docketed as Civil Case No. 98-1178 against
PGSMC before the Muntinlupa City Regional Trial Court
(RTC). The RTC granted a temporary restraining order (TRO)
on July 4, 1998, which was subsequently extended until July
22, 1998. In its complaint, KOGIES alleged that PGSMC had
initially admitted that the checks that were stopped were not
funded but later on claimed that it stopped payment of the
checks for the reason that "their value was not received" as the
former allegedly breached their contract by "altering the
quantity and lowering the quality of the machinery and
equipment" installed in the plant and failed to make the plant
operational although it earlier certified to the contrary as
shown in a January 22, 1998 Certificate. Likewise, KOGIES
averred that PGSMC violated Art. 15 of their Contract, as
amended, by unilaterally rescinding the contract without
resorting to arbitration. KOGIES also asked that PGSMC be
restrained from dismantling and transferring the machinery
and equipment installed in the plant which the latter threatened
to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO
arguing that KOGIES was not entitled to the TRO since Art.
15, the arbitration clause, was null and void for being against
public policy as it ousts the local courts of jurisdiction over the
instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim9 asserting that it had the full right to dismantle
and transfer the machineries and equipment because it had
paid for them in full as stipulated in the contract; that KOGIES
was not entitled to the PhP 9,000,000 covered by the checks
for failing to completely install and make the plant
operational; and that KOGIES was liable for damages
amounting to PhP 4,500,000 for altering the quantity and
lowering the quality of the machineries and equipment.
Moreover, PGSMC averred that it has already paid PhP
2,257,920 in rent (covering January to July 1998) to Worth
and it was not willing to further shoulder the cost of renting
the premises of the plant considering that the LPG cylinder
manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23,
1998, the RTC issued an Order denying the application for a
writ of preliminary injunction, reasoning that PGSMC had
paid KOGIES USD 1,224,000, the value of the machineries
and equipment as shown in the contract such that KOGIES no
longer had proprietary rights over them. And finally, the RTC
held that Art. 15 of the Contract as amended was invalid as it
tended to oust the trial court or any other court jurisdiction
over any dispute that may arise between the parties. KOGIES
prayer for an injunctive writ was denied.10 The dispositive
portion of the Order stated:
WHEREFORE, in view of the foregoing
consideration, this Court believes and so holds that
no cogent reason exists for this Court to grant the
writ of preliminary injunction to restrain and refrain
defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties,
Incorporated at Carmona, Cavite and transfer the
same to another site: and therefore denies plaintiffs
application for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and
Answer to Counterclaim.11 KOGIES denied it had altered the
quantity and lowered the quality of the machinery, equipment,
and facilities it delivered to the plant. It claimed that it had
performed all the undertakings under the contract and had
already produced certified samples of LPG cylinders. It
averred that whatever was unfinished was PGSMCs fault
since it failed to procure raw materials due to lack of funds.
KOGIES, relying on Chung Fu Industries (Phils.), Inc. v.

Court of Appeals,12 insisted that the arbitration clause was

without question valid.
After KOGIES filed a Supplemental Memorandum with
Motion to Dismiss13 answering PGSMCs memorandum of
July 22, 1998 and seeking dismissal of PGSMCs
counterclaims, KOGIES, on August 4, 1998, filed its Motion
for Reconsideration14 of the July 23, 1998 Order denying its
application for an injunctive writ claiming that the contract
was not merely for machinery and facilities worth USD
1,224,000 but was for the sale of an "LPG manufacturing
plant" consisting of "supply of all the machinery and facilities"
and "transfer of technology" for a total contract price of USD
1,530,000 such that the dismantling and transfer of the
machinery and facilities would result in the dismantling and
transfer of the very plant itself to the great prejudice of
KOGIES as the still unpaid owner/seller of the plant.
Moreover, KOGIES points out that the arbitration clause
under Art. 15 of the Contract as amended was a valid
arbitration stipulation under Art. 2044 of the Civil Code and as
held by this Court in Chung Fu Industries (Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of
Things16 to determine whether there was indeed alteration of
the quantity and lowering of quality of the machineries and
equipment, and whether these were properly installed.
KOGIES opposed the motion positing that the queries and
issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1)
granting PGSMCs motion for inspection; (2) denying
KOGIES motion for reconsideration of the July 23, 1998
RTC Order; and (3) denying KOGIES motion to dismiss
PGSMCs compulsory counterclaims as these counterclaims
fell within the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration17 of the September 21, 1998 RTC Order
granting inspection of the plant and denying dismissal of
PGSMCs compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the
resolution of its October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the Court of Appeals
(CA) a petition for certiorari18 docketed as CA-G.R. SP No.
49249, seeking annulment of the July 23, 1998 and September
21, 1998 RTC Orders and praying for the issuance of writs of
prohibition, mandamus, and preliminary injunction to enjoin
the RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona
plant, and to direct the RTC to enforce the specific agreement
on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied
KOGIES urgent motion for reconsideration and directed the
Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in
CA-G.R. SP No. 49249 informing the CA about the October
19, 1998 RTC Order. It also reiterated its prayer for the
issuance of the writs of prohibition, mandamus and
preliminary injunction which was not acted upon by the CA.
KOGIES asserted that the Branch Sheriff did not have the
technical expertise to ascertain whether or not the machineries
and equipment conformed to the specifications in the contract
and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs
Report21 finding that the enumerated machineries and
equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22
affirming the RTC Orders and dismissing the petition for
certiorari filed by KOGIES. The CA found that the RTC did
not gravely abuse its discretion in issuing the assailed July 23,
1998 and September 21, 1998 Orders. Moreover, the CA
reasoned that KOGIES contention that the total contract price
for USD 1,530,000 was for the whole plant and had not been
fully paid was contrary to the finding of the RTC that PGSMC
fully paid the price of USD 1,224,000, which was for all the
machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the
ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA
agreed with the lower court that an arbitration clause which
provided for a final determination of the legal rights of the
parties to the contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and nonattachment of a certificate of non-forum shopping by PGSMC,
the CA held that the counterclaims of PGSMC were
compulsory ones and payment of docket fees was not required
since the Answer with counterclaim was not an initiatory
pleading. For the same reason, the CA said a certificate of
non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had
been filed prematurely since KOGIES did not wait for the
resolution of its urgent motion for reconsideration of the
September 21, 1998 RTC Order which was the plain, speedy,
and adequate remedy available. According to the CA, the RTC
must be given the opportunity to correct any alleged error it
has committed, and that since the assailed orders were
interlocutory, these cannot be the subject of a petition for
certiorari.
Hence, we have this Petition for Review on Certiorari under
Rule 45.
The Issues
Petitioner posits that the appellate court committed the
following errors:
a. PRONOUNCING THE QUESTION OF
OWNERSHIP OVER THE MACHINERY AND
FACILITIES AS "A QUESTION OF FACT"
"BEYOND THE AMBIT OF A PETITION FOR
CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION
OR GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING THAT THE
TRIAL COURTS FINDING ON THE SAME
QUESTION WAS IMPROPERLY RAISED IN THE
PETITION BELOW;
b. DECLARING AS NULL AND VOID THE
ARBITRATION CLAUSE IN ARTICLE 15 OF
THE CONTRACT BETWEEN THE PARTIES FOR
BEING "CONTRARY TO PUBLIC POLICY" AND
FOR OUSTING THE COURTS OF
JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS
COUNTERCLAIMS TO BE ALL COMPULSORY
NOT NECESSITATING PAYMENT OF DOCKET
FEES AND CERTIFICATION OF NON-FORUM
SHOPPING;

d. RULING THAT THE PETITION WAS FILED

PREMATURELY WITHOUT WAITING FOR THE
RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING
THE TRIAL COURT AN OPPORTUNITY TO
CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED
JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE
PROPER SUBJECTS OF CERTIORARI AND
PROHIBITION FOR BEING "INTERLOCUTORY
IN NATURE;"
f. NOT GRANTING THE RELIEFS AND
REMEDIES PRAYED FOR IN HE (SIC) PETITION
AND, INSTEAD, DISMISSING THE SAME FOR
ALLEGEDLY "WITHOUT MERIT."23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first
tackle the procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the
counterclaims, it should have paid docket fees and filed a
certificate of non-forum shopping, and that its failure to do so
was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were
incorporated in its Answer with Compulsory Counterclaim
dated July 17, 1998 in accordance with Section 8 of Rule 11,
1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was filed.
Sec. 8 on existing counterclaim or cross-claim states, "A
compulsory counterclaim or a cross-claim that a defending
party has at the time he files his answer shall be contained
therein."
On July 17, 1998, at the time PGSMC filed its Answer
incorporating its counterclaims against KOGIES, it was not
liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective
August 16, 2004 under Sec. 7, Rule 141, as amended by A.M.
No. 04-2-04-SC, docket fees are now required to be paid in
compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping,
PGSMCs Answer is not an initiatory pleading which requires
a certification against forum shopping under Sec. 5 24 of Rule
7, 1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible
error in denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that
"certiorari and Prohibition are neither the remedies to question
the propriety of an interlocutory order of the trial court." 26 The
CA erred on its reliance on Gamboa. Gamboa involved the
denial of a motion to acquit in a criminal case which was not
assailable in an action for certiorari since the denial of a
motion to quash required the accused to plead and to continue
with the trial, and whatever objections the accused had in his

motion to quash can then be used as part of his defense and

subsequently can be raised as errors on his appeal if the
judgment of the trial court is adverse to him. The general rule
is that interlocutory orders cannot be challenged by an
appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing
Corporation, we held:
The proper remedy in such cases is an ordinary
appeal from an adverse judgment on the merits,
incorporating in said appeal the grounds for assailing
the interlocutory orders. Allowing appeals from
interlocutory orders would result in the sorry
spectacle of a case being subject of a
counterproductive ping-pong to and from the
appellate court as often as a trial court is perceived to
have made an error in any of its interlocutory rulings.
However, where the assailed interlocutory order was
issued with grave abuse of discretion or patently
erroneous and the remedy of appeal would not afford
adequate and expeditious relief, the Court allows
certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the
floodgates to endless occasions for dilatory motions. Thus,
where the interlocutory order was issued without or in excess
of jurisdiction or with grave abuse of discretion, the remedy is
certiorari.29
The alleged grave abuse of discretion of the respondent court
equivalent to lack of jurisdiction in the issuance of the two
assailed orders coupled with the fact that there is no plain,
speedy, and adequate remedy in the ordinary course of law
amply provides the basis for allowing the resort to a petition
for certiorari under Rule 65.

We now go to the core issue of the validity of Art. 15 of the

Contract, the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies,
or differences which may arise between the parties,
out of or in relation to or in connection with this
Contract or for the breach thereof, shall finally be
settled by arbitration in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the Korean
Commercial Arbitration Board. The award
rendered by the arbitration(s) shall be final and
binding upon both parties concerned. (Emphasis
supplied.)
Petitioner claims the RTC and the CA erred in ruling that the
arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the
place where the contract is made governs. Lex loci contractus.
The contract in this case was perfected here in the Philippines.
Therefore, our laws ought to govern. Nonetheless, Art. 2044
of the Civil Code sanctions the validity of mutually agreed
arbitral clause or the finality and binding effect of an arbitral
award. Art. 2044 provides, "Any stipulation that the
arbitrators award or decision shall be final, is valid,
without prejudice to Articles 2038, 2039 and 2040."
(Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances
where a compromise or an arbitral award, as applied to Art.
2044 pursuant to Art. 2043,34 may be voided, rescinded, or
annulled, but these would not denigrate the finality of the
arbitral award.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum
shopping in filing the petition for certiorari. Note that
KOGIES motion for reconsideration of the July 23, 1998
RTC Order which denied the issuance of the injunctive writ
had already been denied. Thus, KOGIES only remedy was to
assail the RTCs interlocutory order via a petition for certiorari
under Rule 65.
While the October 2, 1998 motion for reconsideration of
KOGIES of the September 21, 1998 RTC Order relating to the
inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in
this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a
motion for reconsideration and said motion should have been
first resolved by the court a quo. The reason behind the rule is
"to enable the lower court, in the first instance, to pass upon
and correct its mistakes without the intervention of the higher
court."30
The September 21, 1998 RTC Order directing the branch
sheriff to inspect the plant, equipment, and facilities when he
is not competent and knowledgeable on said matters is
evidently flawed and devoid of any legal support. Moreover,
there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would
prejudice the interests of KOGIES. Indeed, there is real and
imminent threat of irreparable destruction or substantial
damage to KOGIES equipment and machineries. We find the
resort to certiorari based on the gravely abusive orders of the
trial court sans the ruling on the October 2, 1998 motion for
reconsideration to be proper.
The Core Issue: Article 15 of the Contract

The arbitration clause was mutually and voluntarily agreed

upon by the parties. It has not been shown to be contrary to
any law, or against morals, good customs, public order, or
public policy. There has been no showing that the parties have
not dealt with each other on equal footing. We find no reason
why the arbitration clause should not be respected and
complied with by both parties. In Gonzales v. Climax Mining
Ltd.,35 we held that submission to arbitration is a contract and
that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a
contract.36 Again in Del Monte Corporation-USA v. Court of
Appeals, we likewise ruled that "[t]he provision to submit to
arbitration any dispute arising therefrom and the relationship
of the parties is part of that contract and is itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration
must be done in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the KCAB, and that the
arbitral award is final and binding, is not contrary to public
policy. This Court has sanctioned the validity of arbitration
clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had
occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual terms
is valid. In BF Corporation v. Court of Appeals, we held that
"[i]n this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of
Republic Act No. 876, this Court has countenanced the
settlement of disputes through arbitration. Republic Act No.
876 was adopted to supplement the New Civil Codes
provisions on arbitration."39 And in LM Power Engineering
Corporation v. Capitol Industrial Construction Groups, Inc.,
we declared that:

Being an inexpensive, speedy and amicable method

of settling disputes, arbitrationalong with
mediation, conciliation and negotiationis
encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens
the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of
the future" in international civil and commercial
disputes. Brushing aside a contractual agreement
calling for arbitration between the parties would be a
step backward.
Consistent with the above-mentioned policy of
encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses.
Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an
order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.40
Having said that the instant arbitration clause is not against
public policy, we come to the question on what governs an
arbitration clause specifying that in case of any dispute arising
from the contract, an arbitral panel will be constituted in a
foreign country and the arbitration rules of the foreign country
would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular
agencies to arbitrate disputes arising from contractual
relations. In case a foreign arbitral body is chosen by the
parties, the arbitration rules of our domestic arbitration bodies
would not be applied. As signatory to the Arbitration Rules of
the UNCITRAL Model Law on International Commercial
Arbitration41 of the United Nations Commission on
International Trade Law (UNCITRAL) in the New York
Convention on June 21, 1985, the Philippines committed itself
to be bound by the Model Law. We have even incorporated
the Model Law in Republic Act No. (RA) 9285, otherwise
known as the Alternative Dispute Resolution Act of 2004
entitled An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish
the Office for Alternative Dispute Resolution, and for Other
Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of
Chapter 4 of the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL
ARBITRATION
SEC. 19. Adoption of the Model Law on International
Commercial Arbitration.International commercial
arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model
Law") adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended for
enactment by the General Assembly in Resolution
No. 40/72 approved on December 11, 1985, copy of
which is hereto attached as Appendix "A".
SEC. 20. Interpretation of Model Law.In
interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in
its interpretation and resort may be made to the
travaux preparatories and the report of the Secretary
General of the United Nations Commission on
International Trade Law dated March 25, 1985
entitled, "International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264."

While RA 9285 was passed only in 2004, it nonetheless

applies in the instant case since it is a procedural law which
has a retroactive effect. Likewise, KOGIES filed its
application for arbitration before the KCAB on July 1, 1998
and it is still pending because no arbitral award has yet been
rendered. Thus, RA 9285 is applicable to the instant case.
Well-settled is the rule that procedural laws are construed to
be applicable to actions pending and undetermined at the time
of their passage, and are deemed retroactive in that sense and
to that extent. As a general rule, the retroactive application of
procedural laws does not violate any personal rights because
no vested right has yet attached nor arisen from them. 42
Among the pertinent features of RA 9285 applying and
incorporating the UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over
disputes that are properly the subject of arbitration pursuant to
an arbitration clause, and mandates the referral to arbitration
in such cases, thus:
SEC. 24. Referral to Arbitration.A court before
which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at
least one party so requests not later than the pre-trial
conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it
finds that the arbitration agreement is null and void,
inoperative or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the
parties in the arbitration clause to be final and binding are not
immediately enforceable or cannot be implemented
immediately. Sec. 3543 of the UNCITRAL Model Law
stipulates the requirement for the arbitral award to be
recognized by a competent court for enforcement, which court
under Sec. 36 of the UNCITRAL Model Law may refuse
recognition or enforcement on the grounds provided for. RA
9285 incorporated these provisos to Secs. 42, 43, and 44
relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.
The New York Convention shall govern the
recognition and enforcement of arbitral awards
covered by said Convention.
The recognition and enforcement of such arbitral
awards shall be filed with the Regional Trial Court
in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural
rules shall provide that the party relying on the award
or applying for its enforcement shall file with the
court the original or authenticated copy of the award
and the arbitration agreement. If the award or
agreement is not made in any of the official
languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country in
which foreign arbitration award was made in party to
the New York Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign
Arbitral Awards Not Covered by the New York
Convention.The recognition and enforcement of
foreign arbitral awards not covered by the New York

Convention shall be done in accordance with

procedural rules to be promulgated by the Supreme
Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention
award as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign
Judgment.A foreign arbitral award when confirmed
by a court of a foreign country, shall be recognized
and enforced as a foreign arbitral award and not as a
judgment of a foreign court.
A foreign arbitral award, when confirmed by the
Regional Trial Court, shall be enforced in the same
manner as final and executory decisions of courts of
law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for
recognition and enforcement of an arbitration
agreement or for vacations, setting aside, correction
or modification of an arbitral award, and any
application with a court for arbitration assistance and
supervision shall be deemed as special proceedings
and shall be filed with the Regional Trial Court (i)
where arbitration proceedings are conducted; (ii)
where the asset to be attached or levied upon, or the
act to be enjoined is located; (iii) where any of the
parties to the dispute resides or has his place of
business; or (iv) in the National Judicial Capital
Region, at the option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In a
special proceeding for recognition and enforcement
of an arbitral award, the Court shall send notice to the
parties at their address of record in the arbitration, or
if any part cannot be served notice at such address, at
such partys last known address. The notice shall be
sent al least fifteen (15) days before the date set for
the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by
the RTC are deemed not as a judgment of a foreign court but
as a foreign arbitral award, and when confirmed, are enforced
as final and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding
arbitral award is similar to judgments or awards given by
some of our quasi-judicial bodies, like the National Labor
Relations Commission and Mines Adjudication Board, whose
final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be
judicially reviewed, upon the instance of any party. Therefore,
the final foreign arbitral awards are similarly situated in that
they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral
awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and
vested the RTC with specific authority and jurisdiction to set
aside, reject, or vacate a foreign arbitral award on grounds
provided under Art. 34(2) of the UNCITRAL Model Law.
Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.
The New York Convention shall govern the
recognition and enforcement of arbitral awards
covered by said Convention.

The recognition and enforcement of such arbitral

awards shall be filed with the Regional Trial Court
in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural
rules shall provide that the party relying on the award
or applying for its enforcement shall file with the
court the original or authenticated copy of the award
and the arbitration agreement. If the award or
agreement is not made in any of the official
languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country in
which foreign arbitration award was made is party to
the New York Convention.
If the application for rejection or suspension of
enforcement of an award has been made, the
Regional Trial Court may, if it considers it proper,
vacate its decision and may also, on the application of
the party claiming recognition or enforcement of the
award, order the party to provide appropriate
security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A
party to a foreign arbitration proceeding may oppose
an application for recognition and enforcement of the
arbitral award in accordance with the procedures and
rules to be promulgated by the Supreme Court only
on those grounds enumerated under Article V of the
New York Convention. Any other ground raised shall
be disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes
governed by arbitration mutually agreed upon by the parties,
still the foreign arbitral award is subject to judicial review by
the RTC which can set aside, reject, or vacate it. In this sense,
what this Court held in Chung Fu Industries (Phils.), Inc.
relied upon by KOGIES is applicable insofar as the foreign
arbitral awards, while final and binding, do not oust courts of
jurisdiction since these arbitral awards are not absolute and
without exceptions as they are still judicially reviewable.
Chapter 7 of RA 9285 has made it clear that all arbitral
awards, whether domestic or foreign, are subject to judicial
review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and
foreign arbitral awards
The differences between a final arbitral award from an
international or foreign arbitral tribunal and an award given by
a local arbitral tribunal are the specific grounds or conditions
that vest jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first be
confirmed by the RTC, the grounds for setting aside, rejecting
or vacating the award by the RTC are provided under Art.
34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need
confirmation by the RTC pursuant to Sec. 23 of RA 876 44 and
shall be recognized as final and executory decisions of the
RTC,45 they may only be assailed before the RTC and vacated
on the grounds provided under Sec. 25 of RA 876. 46
(5) RTC decision of assailed foreign arbitral award
appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as
the remedy of an aggrieved party in cases where the RTC sets

aside, rejects, vacates, modifies, or corrects an arbitral award,

thus:
SEC. 46. Appeal from Court Decision or Arbitral
Awards.A decision of the Regional Trial Court
confirming, vacating, setting aside, modifying or
correcting an arbitral award may be appealed to the
Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of
the court confirming an arbitral award shall be
required by the appellate court to post a counterbond
executed in favor of the prevailing party equal to the
amount of the award in accordance with the rules to
be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or
reviewed before this Court through a petition for review under
Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC
must submit to the foreign arbitration as it bound itself
through the subject contract. While it may have misgivings on
the foreign arbitration done in Korea by the KCAB, it has
available remedies under RA 9285. Its interests are duly
protected by the law which requires that the arbitral award that
may be rendered by KCAB must be confirmed here by the
RTC before it can be enforced.
With our disquisition above, petitioner is correct in its
contention that an arbitration clause, stipulating that the
arbitral award is final and binding, does not oust our courts of
jurisdiction as the international arbitral award, the award of
which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the
UNCITRAL Model Law on ICA as applied and incorporated
in RA 9285.
Finally, it must be noted that there is nothing in the subject
Contract which provides that the parties may dispense with the
arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract
is valid and binding on the parties, and not contrary to public
policy; consequently, being bound to the contract of
arbitration, a party may not unilaterally rescind or terminate
the contract for whatever cause without first resorting to
arbitration.
What this Court held in University of the Philippines v. De Los
Angeles47 and reiterated in succeeding cases,48 that the act of
treating a contract as rescinded on account of infractions by
the other contracting party is valid albeit provisional as it can
be judicially assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where an
arbitration clause in a contract is availing, neither of the
parties can unilaterally treat the contract as rescinded since
whatever infractions or breaches by a party or differences
arising from the contract must be brought first and resolved by
arbitration, and not through an extrajudicial rescission or
judicial action.
The issues arising from the contract between PGSMC and
KOGIES on whether the equipment and machineries delivered
and installed were properly installed and operational in the
plant in Carmona, Cavite; the ownership of equipment and
payment of the contract price; and whether there was

substantial compliance by KOGIES in the production of the

samples, given the alleged fact that PGSMC could not supply
the raw materials required to produce the sample LPG
cylinders, are matters proper for arbitration. Indeed, we note
that on July 1, 1998, KOGIES instituted an Application for
Arbitration before the KCAB in Seoul, Korea pursuant to Art.
15 of the Contract as amended. Thus, it is incumbent upon
PGSMC to abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in
granting PGSMCs Motion for Inspection of Things on
September 21, 1998, as the subject matter of the motion is
under the primary jurisdiction of the mutually agreed arbitral
body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the
RTC Branch Sheriff from the inspection made on October 28,
1998, as ordered by the trial court on October 19, 1998, is of
no worth as said Sheriff is not technically competent to
ascertain the actual status of the equipment and machineries as
installed in the plant.
For these reasons, the September 21, 1998 and October 19,
1998 RTC Orders pertaining to the grant of the inspection of
the equipment and machineries have to be recalled and
nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised
on whether the total contract price of USD 1,530,000 was for
the whole plant and its installation is beyond the ambit of a
Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an
original action for certiorari.49 Whether or not there was full
payment for the machineries and equipment and installation is
indeed a factual issue prohibited by Rule 65.
However, what appears to constitute a grave abuse of
discretion is the order of the RTC in resolving the issue on the
ownership of the plant when it is the arbitral body (KCAB)
and not the RTC which has jurisdiction and authority over the
said issue. The RTCs determination of such factual issue
constitutes grave abuse of discretion and must be reversed and
set aside.
RTC has interim jurisdiction to protect the rights of the
parties
Anent the July 23, 1998 Order denying the issuance of the
injunctive writ paving the way for PGSMC to dismantle and
transfer the equipment and machineries, we find it to be in
order considering the factual milieu of the instant case.
Firstly, while the issue of the proper installation of the
equipment and machineries might well be under the primary
jurisdiction of the arbitral body to decide, yet the RTC under
Sec. 28 of RA 9285 has jurisdiction to hear and grant interim
measures to protect vested rights of the parties. Sec. 28
pertinently provides:
SEC. 28. Grant of interim Measure of Protection.
(a) It is not incompatible with an arbitration
agreement for a party to request, before
constitution of the tribunal, from a Court to grant
such measure. After constitution of the arbitral
tribunal and during arbitral proceedings, a request for
an interim measure of protection, or modification
thereof, may be made with the arbitral or to the

extent that the arbitral tribunal has no power to

act or is unable to act effectivity, the request may
be made with the Court. The arbitral tribunal is
deemed constituted when the sole arbitrator or the
third arbitrator, who has been nominated, has
accepted the nomination and written communication
of said nomination and acceptance has been received
by the party making the request.
(b) The following rules on interim or provisional
relief shall be observed:
Any party may request that provisional relief be
granted against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance
of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or
omission.
(c) The order granting provisional relief may be
conditioned upon the provision of security or any act
or omission specified in the order.
(d) Interim or provisional relief is requested by
written application transmitted by reasonable means
to the Court or arbitral tribunal as the case may be
and the party against whom the relief is sought,
describing in appropriate detail the precise relief, the
party against whom the relief is requested, the
grounds for the relief, and the evidence supporting
the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for
assistance in implementing or enforcing an interim
measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall
be liable for all damages resulting from
noncompliance, including all expenses, and
reasonable attorney's fees, paid in obtaining the
orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an
"interim measure" of protection as:
Article 17. Power of arbitral tribunal to order interim
measures
xxx xxx xxx
(2) An interim measure is any temporary measure,
whether in the form of an award or in another form,
by which, at any time prior to the issuance of the
award by which the dispute is finally decided, the
arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending
determination of the dispute;
(b) Take action that would prevent, or refrain from
taking action that is likely to cause, current or

imminent harm or prejudice to the arbitral process

itself;
(c) Provide a means of preserving assets out of which
a subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and
material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants
courts power and jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an
interim measure in relation to arbitration proceedings,
irrespective of whether their place is in the territory
of this State, as it has in relation to proceedings in
courts. The court shall exercise such power in
accordance with its own procedures in consideration
of the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon
Hydro Corporation, we were explicit that even "the pendency
of an arbitral proceeding does not foreclose resort to the courts
for provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral
proceedings does not foreclose resort to the courts for
provisional reliefs. The Rules of the ICC, which
governs the parties arbitral dispute, allows the
application of a party to a judicial authority for
interim or conservatory measures. Likewise, Section
14 of Republic Act (R.A.) No. 876 (The Arbitration
Law) recognizes the rights of any party to petition the
court to take measures to safeguard and/or conserve
any matter which is the subject of the dispute in
arbitration. In addition, R.A. 9285, otherwise known
as the "Alternative Dispute Resolution Act of 2004,"
allows the filing of provisional or interim measures
with the regular courts whenever the arbitral tribunal
has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and
jurisdiction to grant interim measures of protection.
Secondly, considering that the equipment and machineries are
in the possession of PGSMC, it has the right to protect and
preserve the equipment and machineries in the best way it can.
Considering that the LPG plant was non-operational, PGSMC
has the right to dismantle and transfer the equipment and
machineries either for their protection and preservation or for
the better way to make good use of them which is ineluctably
within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining
the equipment and machineries in Worths property is not to
the best interest of PGSMC due to the prohibitive rent while
the LPG plant as set-up is not operational. PGSMC was losing
PhP322,560 as monthly rentals or PhP3.87M for 1998 alone
without considering the 10% annual rent increment in
maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions
or petitions relating to the preservation or transfer of the
equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries given the nonrecognition by the lower courts of the arbitral clause, has
accorded an interim measure of protection to PGSMC which
would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already

been paid a substantial amount based on the contract.
Moreover, KOGIES is amply protected by the arbitral action it
has instituted before the KCAB, the award of which can be
enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with
KOGIES.
PGSMC to preserve the subject equipment and
machineries
Finally, while PGSMC may have been granted the right to
dismantle and transfer the subject equipment and machineries,
it does not have the right to convey or dispose of the same
considering the pending arbitral proceedings to settle the
differences of the parties. PGSMC therefore must preserve and
maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of
the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in
that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC
Orders in Civil Case No. 98-117 are REVERSED and SET
ASIDE;
(3) The parties are hereby ORDERED to submit themselves
to the arbitration of their dispute and differences arising from
the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer
the equipment and machineries, if it had not done so, and
ORDERED to preserve and maintain them until the finality of
whatever arbitral award is given in the arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.
______________________________________________
G.R. No. 136154

February 7, 2001

DEL MONTE CORPORATION-USA, PAUL E. DERBY,

JR., DANIEL COLLINS and LUIS HIDALGO, petitioners,
vs.
COURT OF APPEALS, JUDGE BIENVENIDO L.
REYES in his capacity as Presiding Judge, RTC-Br. 74,
Malabon, Metro Manila, MONTEBUENO MARKETING,
INC., LIONG LIONG C. SY and SABROSA FOODS,
INC., respondents.
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July 1998
Decision1 of the Court of Appeals affirming the 11 November
1997 Order2 of the Regional Trial Court which denied
petitioners' Motion to Suspend Proceedings in Civil Case No.
2637-MN. It also questions the appellate court's Resolution3 of
30 October 1998 which denied petitioners' Motion for
Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner Del
Monte Corporation-USA (DMC-USA) appointed private
respondent Montebueno Marketing, Inc. (MMI) as the sole
and exclusive distributor of its Del Monte products in the

Philippines for a period of five (5) years, renewable for two

(2) consecutive five (5) year periods with the consent of the
parties. The agreement provided, among others, for an
arbitration clause which states
12. GOVERNING LAW AND ARBITRATION4
This Agreement shall be governed by the laws of the
State of California and/or, if applicable, the United
States of America. All disputes arising out of or
relating to this Agreement or the parties'
relationship, including the termination thereof, shall
be resolved by arbitration in the City of San
Francisco, State of California, under the Rules of the
American Arbitration Association. The arbitration
panel shall consist of three members, one of whom
shall be selected by DMC-USA, one of whom shall be
selected by MMI, and third of whom shall be selected
by the other two members and shall have relevant
experience in the industry x x x x
In October 1994 the appointment of private respondent MMI
as the sole and exclusive distributor of Del Monte products in
the Philippines was published in several newspapers in the
country. Immediately after its appointment, private respondent
MMI appointed Sabrosa Foods, Inc. (SFI), with the approval
of petitioner DMC-USA, as MMI's marketing arm to
concentrate on its marketing and selling function as well as to
manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMI's
Managing Director Liong Liong C. Sy (LILY SY) filed a
Complaint5 against petitioners DMC-USA, Paul E. Derby, Jr.,6
Daniel Collins7 and Luis Hidalgo,8 and Dewey Ltd.9 before the
Regional Trial Court of Malabon, Metro Manila. Private
respondents predicated their complaint on the alleged
violations by petitioners of Arts. 20,10 2111 and 2312 of the
Civil Code. According to private respondents, DMC-USA
products continued to be brought into the country by parallel
importers despite the appointment of private respondent MMI
as the sole and exclusive distributor of Del Monte products
thereby causing them great embarrassment and substantial
damage. They alleged that the products brought into the
country by these importers were aged, damaged, fake or
counterfeit, so that in March 1995 they had to cause, after
prior consultation with Antonio Ongpin, Market Director for
Special Markets of Del Monte Philippines, Inc., the
publication of a "warning to the trade" paid advertisement in
leading newspapers. Petitioners DMC-USA and Paul E.
Derby, Jr., apparently upset with the publication, instructed
private respondent MMI to stop coordinating with Antonio
Ongpin and to communicate directly instead with petitioner
DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly
and surreptitiously continued to deal with the former in bad
faith by involving disinterested third parties and by proposing
solutions which were entirely out of their control. Private
respondents claimed that they had exhausted all possible
avenues for an amicable resolution and settlement of their
grievances; that as a result of the fraud, bad faith, malice and
wanton attitude of petitioners, they should be held responsible
for all the actual expenses incurred by private respondents in
the delayed shipment of orders which resulted in the extra
handling thereof, the actual expenses and cost of money for
the unused Letters of Credit (LCs) and the substantial
opportunity losses due to created out-of-stock situations and
unauthorized shipments of Del Monte-USA products to the
Philippine Duty Free Area and Economic zone; that the bad
faith, fraudulent acts and willful negligence of petitioners,
motivated by their determination to squeeze private
respondents out of the outstanding and ongoing
Distributorship Agreement in favor of another party, had
placed private respondent LILY SY on tenterhooks since then;

and, that the shrewd and subtle manner with which petitioners
concocted imaginary violations by private respondent MMI of
the Distributorship Agreement in order to justify the untimely
termination thereof was a subterfuge. For the foregoing,
private respondents claimed, among other reliefs, the payment
of actual damages, exemplary damages, attorney's fees and
litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend
Proceedings13 invoking the arbitration clause in their
Agreement with private respondents.1wphi1.nt
In a Resolution14 dated 23 December 1996 the trial court
deferred consideration of petitioners' Motion to Suspend
Proceedings as the grounds alleged therein did not constitute
the suspension of the proceedings considering that the action
was for damages with prayer for the issuance of Writ of
Preliminary Attachment and not on the Distributorship
Agreement.
On 15 January 1997 petitioners filed a Motion for
Reconsideration to which respondents filed their
Comment/Opposition. On 31 January 1997 petitioners filed
their Reply. Subsequently, private respondents filed an Urgent
Motion for Leave to Admit Supplemental Pleading dated 2
April 1997. This Motion was admitted, over petitioners'
opposition, in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint,
petitioners filed on 22 July 1997 a Manifestation adopting
their Motion to Suspend Proceedings of 17 October 1996 and
Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings
was denied by the trial court on the ground that it "will not
serve the ends of justice and to allow said suspension will only
delay the determination of the issues, frustrate the quest of the
parties for a judicious determination of their respective
claims, and/or deprive and delay their rights to seek
redress."15
On appeal, the Court of appeals affirmed the decision of the
trial court. It held that the alleged damaging acts recited in the
Complaint, constituting petitioners' causes of action, required
the interpretation of Art. 21 of the Civil Code16 and that in
determining whether petitioners had violated it "would require
a full blown trial" making arbitration "out of the question." 17
Petitioners' Motion for Reconsideration of the affirmation was
denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute
between the parties warrants an order compelling them to
submit to arbitration.
Petitioners contend that the subject matter of private
respondents' causes of action arises out of or relates to the
Agreement between petitioners and private respondents. Thus,
considering that the arbitration clause of the Agreement
provides that all disputes arising out of or relating to the
Agreement or the parties' relationship, including the
termination thereof, shall be resolved by arbitration, they insist
on the suspension of the proceedings in Civil Case No. 2637MN 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 date20 petitioner DMC-USA
filed a petition to compel private respondent MMI to arbitrate
before the United States District Court in Northern California,
docketed as Case No. C-98-4446. They insist that the filing of
the petition to compel arbitration in the United States made the
petition filed before this Court an alternative remedy and, in a
way, an abandonment of the cause they are fighting for her in
the Philippines, thus warranting the dismissal of the present
petition before this Court.
There is no doubt that arbitration is valid and constitutional in
our jurisdiction.21 Even before the enactment of RA 876, this
Court has countenanced the settlement of disputes through
arbitration. Unless the agreement is such as absolutely to close
the doors of the courts against the parties, which agreement
would be void, the courts will look with favor upon such
amicable arrangement and will only interfere with great
reluctance to anticipate or nullify the action of the arbitrator.22
Moreover, as RA 876 expressly authorizes arbitration of
domestic disputes, foreign arbitration as a system of settling
commercial disputes was likewise recognized when the
Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards
of 1958" under the 10 May 1965 Resolution No. 71 of the
Philippine Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements between
parties of different nationalities within a contracting state.23
A careful examination of the instant case shows that the
arbitration clause in the Distributorship Agreement between
petitioner DMC-USA and private respondent MMI is valid
and the dispute between the parties is arbitrable. However, this
Court must deny the petition.
The Agreement between petitioner DMC-USA and private
respondent MMI is a contract. The provision to submit to
arbitration any dispute arising therefrom and the relationship
of the parties is part of that contract and is itself a contract. As
a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their
assigns and heirs.24 Clearly, only parties to the Agreement,
i.e., petitioners DMC-USA and its Managing Director for
Export Sales Paul E. Derby, Jr., and private respondents MMI
and its Managing Director LILY SY are bound by the
Agreement and its arbitration clause as they are the only
signatories thereto. Petitioners Daniel Collins and Luis
Hidalgo, and private respondent SFI, not parties to the
Agreement and cannot even be considered assigns or heirs of
the parties, are not bound by the Agreement and the arbitration
clause therein. Consequently, referral to arbitration in the State

of California pursuant to the arbitration clause and the

suspension of the proceedings in Civil Case No. 2637-MN
pending the return of the arbitral award could be called 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. This is consistent with the recent
case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty
Corporation,26 which superseded that of Toyota Motor
Philippines Corp. v. Court of Appeals.27
In Toyota, the Court ruled that "[t]he contention that the
arbitration clause has become dysfunctional because of the
presence of third parties is untenable" ratiocinating that
"[c]ontracts are respected as the law between the contracting
parties"28 and that "[a]s such, the parties are thereby expected
to abide with good faith in their contractual commitments." 29
However, in Salas, Jr., only parties to the Agreement, their
assigns or heirs have the right to arbitrate or could be
compelled to arbitrate. The Court went further by declaring
that in recognizing the right of the contracting parties to
arbitrate or to compel arbitration, the splitting of the
proceedings to arbitration as to some of the parties on one
hand and trial for the others on the other hand, or the
suspension of trial pending arbitration between some of the
parties, should not be allowed as it would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary
delay.30
The object of arbitration is to allow the expeditious
determination of a dispute.31 Clearly, the issue before us could
not be speedily and efficiently resolved in its entirety if we
allow simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly, the
interest of justice would only be served if the trial court hears
and adjudicates the case in a single and complete proceeding. 32
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals affirming the Order of the Regional Trial
Court of Malabon, Metro Manila, in Civil Case No. 2637-MN,
which denied petitioners' Motion to Suspend Proceedings, is
AFFIRMED. The Regional Trial Court concerned is directed
to proceed with the hearing of Civil Case No. 2637-MN with
dispatch. No costs.

SO ORDERED.
__________________________________________
FIRST DIVISION
G.R. No. 156660

August 24, 2009

ORMOC SUGARCANE PLANTERS' ASSOCIATION,

INC. (OSPA),OCCIDENTAL LEYTE FARMERS
MULTI-PURPOSE COOPERATIVE, INC. (OLFAMCA),
UNIFARM MULTI-PURPOSE COOPERATIVE, INC.
(UNIFARM) and ORMOC NORTH DISTRICT
IRRIGATION MULTI-PURPOSE COOPERATIVE, INC.
(ONDIMCO), Petitioners,
vs.
THE COURT OF APPEALS (Special Former Sixth
Division), HIDECO SUGAR MILLING CO., INC., and
ORMOC SUGAR MILLING CO., INC., Respondents.

dated October 30, 2002 of the Court of Appeals (CA) in CAG.R. SP No. 56166 which set aside the Joint Orders2 dated
August 26, 1999 and October 29, 1999 issued by the Regional
Trial Court (RTC) of Ormoc City, Branch 12 upholding
petitioners legal personality to demand arbitration from
respondents and directing respondents to nominate two
arbitrators to represent them in the Board of Arbitrators.
Petitioners are associations organized by and whose members
are individual sugar planters (Planters). The membership of
each association follows: 264 Planters were members of
OSPA; 533 Planters belong to OLFAMCA; 617 Planters
joined UNIFARM; 760 Planters enlisted with ONDIMCO;
and the rest belong to BAP-MPC which did not join the
lawsuit.
Respondents Hideco Sugar Milling Co., Inc. (Hideco) and
Ormoc Sugar Milling Co, Inc. (OSCO) are sugar centrals
engaged in grinding and milling sugarcane delivered to them
by numerous individual sugar planters, who may or may not
be members of an association such as petitioners.
Petitioners assert that the relationship between respondents
and the individual sugar planters is governed by milling
contracts. To buttress this claim, petitioners presented
representative samples of the milling contracts.3
Notably, Article VII of the milling contracts provides that
34% of the sugar and molasses produced from milling the
Planters sugarcane shall belong to the centrals (respondents)
as compensation, 65% thereof shall go to the Planter and the
remaining 1% shall go the association to which the Planter
concerned belongs, as aid to the said association. The 1% aid
shall be used by the association for any purpose that it may
deem fit for its members, laborers and their dependents. If the
Planter was not a member of any association, then the said 1%
shall revert to the centrals. Article XIV, paragraph B 4 states
that the centrals may not, during the life of the milling
contract, sign or execute any contract or agreement that will
provide better or more benefits to a Planter, without the
written consent of the existing and recognized associations
except to Planters whose plantations are situated in areas
beyond thirty (30) kilometers from the mill. Article XX
provides that all differences and controversies which may
arise between the parties concerning the agreement shall be
submitted for discussion to a Board of Arbitration, consisting
of five (5) memberstwo (2) of which shall be appointed by
the centrals, two (2) by the Planter and the fifth to be
appointed by the four appointed by the parties.
On June 4, 1999, petitioners, without impleading any of their
individual members, filed twin petitions with the RTC for
Arbitration under R.A. 876, Recovery of Equal Additional
Benefits, Attorneys Fees and Damages, against HIDECO and
OSCO, docketed as Civil Case Nos. 3696-O and 3697-O,
respectively.
Petitioners claimed that respondents violated the Milling
Contract when they gave to independent planters who do not
belong to any association the 1% share, instead of reverting
said share to the centrals. Petitioners contended that
respondents unduly accorded the independent Planters more
benefits and thus prayed that an order be issued directing the
parties to commence with arbitration in accordance with the
terms of the milling contracts. They also demanded that
respondents be penalized by increasing their member Planters
65% share provided in the milling contract by 1%, to 66%.

DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a special civil action for certiorari assailing
the Decision1 dated December 7, 2001 and the Resolution

Respondents filed a motion to dismiss on ground of lack of

cause of action because petitioners had no milling contract
with respondents. According to respondents, only some eighty
(80) Planters who were members of OSPA, one of the
petitioners, executed milling contracts. Respondents and these

80 Planters were the signatories of the milling contracts. Thus,

it was the individual Planters, and not petitioners, who had
legal standing to invoke the arbitration clause in the milling
contracts. Petitioners, not being privy to the milling contracts,
had no legal standing whatsoever to demand or sue for
arbitration.
On August 26, 1999, the RTC issued a Joint Order5 denying
the motion to dismiss, declaring the existence of a milling
contract between the parties, and directing respondents to
nominate two arbitrators to the Board of Arbitrators, to wit:
When these cases were called for hearing today, counsels for
the petitioners and respondents argued their respective stand.
The Court is convinced that there is an existing milling
contract between the petitioners and respondents and these
planters are represented by the officers of the associations.
The petitioners have the right to sue in behalf of the planters.
This Court, acting on the petitions, directs the respondents to
nominate two arbitrators to represent HIDECO/HISUMCO
and OSCO in the Board of Arbitrators within fifteen (15) days
from receipt of this Order. xxx
However, if the respondents fail to nominate their two
arbitrators, upon proper motion by the petitioners, then the
Court will be compelled to use its discretion to appoint the two
(2) arbitrators, as embodied in the Milling Contract and R.A.
876.
xxx

latter is precisely that there should be no appeal. It is

elementary that for certiorari to prosper, it is not enough that
the trial court committed grave abuse of discretion amounting
to lack or excess of jurisdiction; the requirement that there is
no appeal, nor any plain, speedy and adequate remedy in the
ordinary course of law must likewise be satisfied.8 The proper
mode of recourse for petitioners was to file a petition for
review of the CAs decision under Rule 45.
Petitioners principally argue that the CA committed a grave
error in setting aside the challenged Joint Orders of the RTC
which allegedly unduly curtailed the right of petitioners to
represent their planters-members and enforce the milling
contracts with respondents. Petitioners assert the said which
orders were issued in accordance with Article XX of the
Milling Contract and the applicable provisions of Republic
Act (R.A.) No. 876.
Where the issue or question involved affects the wisdom or
legal soundness of the decision not the jurisdiction of the
court to render said decision the same is beyond the province
of a special civil action for certiorari. Erroneous findings and
conclusions do not render the appellate court vulnerable to the
corrective writ of certiorari. For where the court has
jurisdiction over the case, even if its findings are not correct,
they would, at most constitute errors of law and not abuse of
discretion correctable by certiorari.9
Moreover, even if this Court overlooks the procedural lapse
committed by petitioners and decides this matter on the merits,
the present petition will still not prosper.

Their subsequent motion for reconsideration having been

denied by the RTC in its Joint Order6 dated October 29, 1999,
respondents elevated the case to the CA through a Petition for
Certiorari with Prayer for the Issuance of Temporary
Restraining Order and/or Writ of Preliminary Injunction.

Stripped to the core, the pivotal issue here is whether or not

petitioners sugar planters associations are clothed with
legal personality to file a suit against, or demand arbitration
from, respondents in their own name without impleading the
individual Planters.

On December 7, 2001, the CA rendered its challenged

Decision, setting aside the assailed Orders of the RTC. The
CA held that petitioners neither had an existing contract with
respondents nor were they privy to the milling contracts
between respondents and the individual Planters. In the main,
the CA concluded that petitioners had no legal personality to
bring the action against respondents or to demand for
arbitration.

On this point, we agree with the findings of the CA.

Petitioners filed a motion for reconsideration, but it too was

denied by the CA in its Resolution7 dated October 30, 2002.
Thus, the instant petition.
At the outset, it must be noted that petitioners filed the instant
petition for certiorari under Rule 65 of the Rules of Court, to
challenge the judgment of the CA. Section 1 of Rule 65 states:
Section 1. Petition for Certiorari. When any tribunal, board
or officer exercising judicial or quasi-judicial functions has
acted without or in excess of its jurisdiction, or with grave
abuse of discretion amounting to lack or excess of its or his
jurisdiction and there is no appeal, or any plain, speedy and
adequate remedy in the 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 relief as
law and justice require. xxx xxx xxx (emphasis ours)
The instant recourse is improper because the resolution of the
CA was a final order from which the remedy of appeal was
available under Rule 45 in relation to Rule 56. The existence
and availability of the right of appeal proscribes resort to
certiorari because one of the requirements for availment of the

Section 2 of R.A. No. 876 (the Arbitration Law) 10 pertinently

provides:
Sec. 2. Persons and matters subject to arbitration. Two or
more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing between them at the
time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract
agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract. xxx (Emphasis ours)
The foregoing provision speaks of two modes of arbitration:
(a) an agreement to submit to arbitration some future dispute,
usually stipulated upon in a civil contract between the parties,
and known as an agreement to submit to arbitration, and (b) an
agreement submitting an existing matter of difference to
arbitrators, termed the submission agreement. Article XX of
the milling contract is an agreement to submit to arbitration
because it was made in anticipation of a dispute that might
arise between the parties after the contracts execution.
Except where a compulsory arbitration is provided by statute,
the first step toward the settlement of a difference by
arbitration is the entry by the parties into a valid agreement to
arbitrate. An agreement to arbitrate is a contract, the relation
of the parties is contractual, and the rights and liabilities of the
parties are controlled by the law of contracts.11 In an
agreement for arbitration, the ordinary elements of a valid
contract must appear, including an agreement to arbitrate some
specific thing, and an agreement to abide by the award, either
in express language or by implication.

The requirements that an arbitration agreement must be

written and subscribed by the parties thereto were enunciated
by the Court in B.F. Corporation v. CA.12
During the proceedings before the CA, it was established that
there were more than two thousand (2,000) Planters in the
district at the time the case was commenced at the RTC in
1999. The CA further found that of those 2,000 Planters, only
about eighty (80) Planters, who were all members of petitioner
OSPA, in fact individually executed milling contracts with
respondents. No milling contracts signed by members of the
other petitioners were presented before the CA.
By their own allegation, petitioners are associations duly
existing and organized under Philippine law, i.e. they have
juridical personalities separate and distinct from that of their
member Planters. It is likewise undisputed that the eighty (80)
milling contracts that were presented were signed only by the
member Planter concerned and one of the Centrals as parties.
In other words, none of the petitioners were parties or
signatories to the milling contracts. This circumstance is fatal
to petitioners' cause since they anchor their right to demand
arbitration from the respondent sugar centrals upon the
arbitration clause found in the milling contracts. There is no
legal basis for petitioners' purported right to demand
arbitration when they are not parties to the milling contracts,
especially when the language of the arbitration clause
expressly grants the right to demand arbitration only to the
parties to the contract.
Simply put, petitioners do not have any agreement to arbitrate
with respondents. Only eighty (80) Planters who were all
members of OSPA were shown to have such an agreement to
arbitrate, included as a stipulation in their individual milling
contracts. The other petitioners failed to prove that any of their
members had milling contracts with respondents, much less,
that respondents had an agreement to arbitrate with the
petitioner associations themselves.
Even assuming that all the petitioners were able to present
milling contracts in favor of their members, it is undeniable
that under the arbitration clause in these contracts it is the
parties thereto who have the right to submit a controversy or
dispute to arbitration.
Section 4 of R.A. 876 provides:
Section 4. Form of Arbitration Agreement A contract to
arbitrate a controversy thereafter arising between the parties,
as well as a submission to arbitrate an existing controversy,
shall be in writing and subscribed by the party sought to be
charged, or by his lawful agent.
The making of a contract or submission for arbitration
described in section two hereof, providing for arbitration of
any controversy, shall be deemed a consent of the parties to
the jurisdiction of the Court of First Instance of the province
or city where any of the parties resides, to enforce such
contract of submission.
The formal requirements of an agreement to arbitrate are
therefore the following: (a) it must be in writing and (b) it
must be subscribed by the parties or their representatives. To
subscribe means to write underneath, as ones name; to sign at
the end of a document. That word may sometimes be
construed to mean to give consent to or to attest.13
Petitioners would argue that they could sue respondents,
notwithstanding the fact that they were not signatories in the
milling contracts because they are the recognized
representatives of the Planters.

This claim has no leg to stand on since petitioners did not sign
the milling contracts at all, whether as a party or as a
representative of their member Planters. The individual
Planter and the appropriate central were the only signatories to
the contracts and there is no provision in the milling contracts
that the individual Planter is authorizing the association to
represent him/her in a legal action in case of a dispute over the
milling contracts.
Moreover, even assuming that petitioners are indeed
representatives of the member Planters who have milling
contracts with the respondents and assuming further that
petitioners signed the milling contracts as representatives of
their members, petitioners could not initiate arbitration
proceedings in their own name as they had done in the
present case. As mere agents, they should have brought the
suit in the name of the principals that they purportedly
represent. Even if Section 4 of R.A. No. 876 allows the
agreement to arbitrate to be signed by a representative, the
principal is still the one who has the right to demand
arbitration.
Indeed, Rule 3, Section 2 of the Rules of Court requires suits
to be brought in the name of the real party in interest, to wit:
Sec. 2. Parties in interest. A real party in interest is the party
who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must
be prosecuted or defended in the name of the real party in
interest.
We held in Oco v. Limbaring14 that:
As applied to the present case, this provision has two
requirements: 1) to institute an action, the plaintiff must be the
real party in interest; and 2) the action must be prosecuted in
the name of the real party in interest. Necessarily, the purposes
of this provision are 1) to prevent the prosecution of actions by
persons without any right, title or interest in the case; 2) to
require that the actual party entitled to legal relief be the one
to prosecute the action; 3) to avoid a multiplicity of suits; and
4) to discourage litigation and keep it within certain bounds,
pursuant to sound public policy.
Interest within the meaning of the Rules means material
interest or an interest in issue to be affected by the decree
or judgment of the case, as distinguished from mere curiosity
about the question involved. One having no material interest
to protect cannot invoke the jurisdiction of the court as the
plaintiff in an action. When the plaintiff is not the real party
in interest, the case is dismissible on the ground of lack of
cause of action.
xxx

xxx

xxx

The parties to a contract are the real parties in interest in

an action upon it, as consistently held by the Court. Only
the contracting parties are bound by the stipulations in the
contract; they are the ones who would benefit from and
could violate it. Thus, one who is not a party to a contract,
and for whose benefit it was not expressly made, cannot
maintain an action on it. One cannot do so, even if the
contract performed by the contracting parties would
incidentally inure to ones benefit. (emphasis ours)
In Uy v. Court of Appeals,15 this Court held that the agents of
the parties to a contract do not have the right to bring an action
even if they rendered some service on behalf of their
principals. To quote from that decision:

[Petitioners] are mere agents of the owners of the land

subject of the sale. As agents, they only render some service or
do something in representation or on behalf of their principals.
The rendering of such service did not make them parties to
the contracts of sale executed in behalf of the latter. Since a
contract may be violated only by the parties thereto as against
each other, the real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must, generally,
either be parties to said contract. (emphasis and words in
brackets ours)
The main cause of action of petitioners in their request for
arbitration with the RTC is the alleged violation of the clause
in the milling contracts involving the proportionate sharing in
the proceeds of the harvest. Petitioners essentially demand that
respondents increase the share of the member Planters to 66%
to equalize their situation with those of the non-member
Planters. Verily, from petitioners' own allegations, the party
who would be injured or benefited by a decision in the
arbitration proceedings will be the member Planters involved
and not petitioners. In sum, petitioners are not the real parties
in interest in the present case.
Assuming petitioners had properly brought the case in the
name of their members who had existing milling contracts
with respondents, petitioners must still prove that they were
indeed authorized by the said members to institute an action
for and on the members' behalf. In the same manner that an
officer of the corporation cannot bring action in behalf of a
corporation unless it is clothed with a board resolution
authorizing an officer to do so, an authorization from the
individual member planter is a sine qua non for the association
or any of its officers to bring an action before the court of law.
The mere fact that petitioners were organized for the purpose
of advancing the interests and welfare of their members does
not necessarily mean that petitioners have the authority to
represent their members in legal proceedings, including the
present arbitration proceedings.
As we see it, petitioners had no intention to litigate the case in
a representative capacity, as they contend. All the pleadings
from the RTC to this Court belie this claim. Under Section 3
of Rule 3, where the action is allowed to be prosecuted by a
representative, the beneficiary shall be included in the title of
the case and shall be deemed to be the real party in interest. As
repeatedly pointed out earlier, the individual Planters were not
even impleaded as parties to this case. In addition, petitioners
need a power-of-attorney to represent the Planters whether in
the lawsuit or to demand arbitration.16 None was ever
presented here.
Lastly, petitioners theorize that they could demand and sue for
arbitration independently of the Planters because the milling
contract is a contract pour autrui under Article 1311 of the
Civil Code.
ART. 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. The heir
is not liable beyond the value of the property he received from
the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.

stipulation must be a part, not the whole, of the contract, (3)

the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental
benefit or interest, (4) the third person must have
communicated his acceptance to the obligor before its
revocation, and (5) neither of the contracting parties bears the
legal representation or authorization of the third party. 17 These
requisites are not present in this case.
Article VI of the Milling Contract is the solitary provision that
mentions some benefit in favor of the association of which the
planter is a member and we quote:
VI
SHARE IN THE SUGAR
Thirty four per centrum (34%) of the sugar ad molasses
resulting from the milling of the PLANTERs sugarcane, as
computed from the weight and analysis of the sugarcane
delivered by the PLANTER, shall belong to the CENTRAL;
sixty five per centum (65%) thereof to the PLANTER, and one
per centum (1%) as aid to the association of the PLANTER;
provided that, if the PLANTER is not a member of any
association recognized by the CENTRAL, said one per centum
(1%) shall revert to the CENTRAL. The 1% aid shall be used
by the association for any purpose that it may deem fit for its
members, laborers and their dependents, or for its other socioeconomic projects.
The foregoing provision cannot, by any stretch of the
imagination, be considered as a stiputation pour autrui or for
the benefit of the petitioners. The primary rationale for the
said stipulation is to ensure a just share in the proceeds of the
harvest to the Planters. In other words, it is a stipulation meant
to benefit the Planters. Even the 1% share to be given to the
association as aid does not redound to the benefit of the
association but is intended to be used for its member Planters.
Not only that, it is explicit that said share reverts back to
respondent sugar centrals if the contracting Planter is not
affiliated with any recognized association.
To be considered a pour autrui provision, an incidental benefit
or interest, which another person gains, is not sufficient. The
contracting parties must have clearly and deliberately
conferred a favor upon a third person.18 Even the clause
stating that respondents must secure the consent of the
association if respondents grant better benefits to a Planter has
for its rationale the protection of the member Planter. The only
interest of the association therein is that its member Planter
will not be put at a disadvantage vis a vis other Planters. Thus,
the associations interest in these milling contracts is only
incidental to their avowed purpose of advancing the welfare
and rights of their member Planters.
In all, the Court finds no grave abuse of discretion nor
reversible error committed by the CA in setting aside the Joint
Orders issued by the RTC.
WHEREFORE, petition is hereby DISMISSED.
Costs against petitioners.
SO ORDERED.
__________________________________________

.R. No. 175404

To summarize, the requisites of a stipulation pour autrui or a
stipulation in favor of a third person are the following: (1)
there must be a stipulation in favor of a third person, (2) the

January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

vs.

SAN FERNANDO REGALA TRADING, INC.,

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

award shall be final and binding on both parties, thus, ousting

the courts of jurisdiction.
In its Reply, petitioner maintained that the cited decisions
were already inapplicable, having been rendered prior to the
effectivity of the New Civil Code in 1950 and the Arbitration
Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause
relied upon by petitioner is invalid and unenforceable,
considering that the requirements imposed by the provisions
of the Arbitration Law had not been complied with.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading,
Inc. filed with the Regional Trial Court (RTC) of Makati City
a Complaint for Rescission of Contract with Damages3 against
petitioner Cargill Philippines, Inc. In its Complaint,
respondent alleged that it was engaged in buying and selling
of molasses and petitioner was one of its various sources from
whom it purchased molasses. Respondent alleged that it
entered into a contract dated July 11, 1996 with petitioner,
wherein it was agreed upon that respondent would purchase
from petitioner 12,000 metric tons of Thailand origin cane
blackstrap molasses at the price of US$192 per metric ton; that
the delivery of the molasses was to be made in
January/February 1997 and payment was to be made by means
of an Irrevocable Letter of Credit payable at sight, to be
opened by September 15, 1996; that sometime prior to
September 15, 1996, the parties agreed that instead of
January/February 1997, the delivery would be made in
April/May 1997 and that payment would be by an Irrevocable
Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with
its obligations under the contract, despite demands from
respondent, thus, the latter prayed for rescission of the contract
and payment of damages.
On July 24, 1998, petitioner filed a Motion to
Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration,4 wherein it argued that the alleged
contract between the parties, dated July 11, 1996, was never
consummated because respondent never returned the proposed
agreement bearing its written acceptance or conformity nor
did respondent open the Irrevocable Letter of Credit at sight.
Petitioner contended that the controversy between the parties
was whether or not the alleged contract between the parties
was legally in existence and the RTC was not the proper
forum to ventilate such issue. It claimed that the contract
contained an arbitration clause, to wit:

By way of Sur-Rejoinder, petitioner contended that respondent

had even clarified that the issue boiled down to whether the
arbitration clause contained in the contract subject of the
complaint is valid and enforceable; that the arbitration clause
did not violate any of the cited provisions of the Arbitration
Law.
On September 17, 1998, the RTC rendered an Order, 8 the
dispositive portion of which reads:
Premises considered, defendant's "Motion To
Dismiss/Suspend Proceedings and To Refer Controversy To
Voluntary Arbitration" is hereby DENIED. Defendant is
directed to file its answer within ten (10) days from receipt of
a copy of this order.9
In denying the motion, the RTC found that there was no clear
basis for petitioner's plea to dismiss the case, pursuant to
Section 7 of the Arbitration Law. The RTC said that the
provision directed the court concerned only to stay the action
or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not
impose the sanction of dismissal. However, the RTC did not
find the suspension of the proceedings warranted, since the
Arbitration Law contemplates an arbitration proceeding that
must be conducted in the Philippines under the jurisdiction
and control of the RTC; and before an arbitrator who resides
in the country; and that the arbitral award is subject to court
approval, disapproval and modification, and that there must be
an appeal from the judgment of the RTC. The RTC found that
the arbitration clause in question contravened these
procedures, i.e., the arbitration clause contemplated an
arbitration proceeding in New York before a non-resident
arbitrator (American Arbitration Association); that the arbitral
award shall be final and binding on both parties. The RTC said
that to apply Section 7 of the Arbitration Law to such an
agreement would result in disregarding the other sections of
the same law and rendered them useless and mere surplusages.

ARBITRATION
Any dispute which the Buyer and Seller may not be able to
settle by mutual agreement shall be settled by arbitration in the
City of New York before the American Arbitration
Association. The Arbitration Award shall be final and binding
on both parties.5
that respondent must first comply with the arbitration clause
before resorting to court, thus, the RTC must either dismiss
the case or suspend the proceedings and direct the parties to
proceed with arbitration, pursuant to Sections 6 6 and 77 of
Republic Act (R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the
RTC has jurisdiction over the action for rescission of contract
and could not be changed by the subject arbitration clause. It
cited cases wherein arbitration clauses, such as the subject
clause in the contract, had been struck down as void for being
contrary to public policy since it provided that the arbitration

Petitioner filed its Motion for Reconsideration, which the RTC

denied in an Order10 dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the
sole issue that the RTC acted in excess of jurisdiction or with
grave abuse of discretion in refusing to dismiss or at least
suspend the proceedings a quo, despite the fact that the party's
agreement to arbitrate had not been complied with.
Respondent filed its Comment and Reply. The parties were
then required to file their respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision
denying the petition and affirming the RTC Orders.
In denying the petition, the CA found that stipulation
providing for arbitration in contractual obligation is both valid
and constitutional; that arbitration as an alternative mode of
dispute resolution has long been accepted in our jurisdiction
and expressly provided for in the Civil Code; that R.A. No.

876 (the Arbitration Law) also expressly authorized the

arbitration of domestic disputes. The CA found error in the
RTC's holding that Section 7 of R.A. No. 876 was
inapplicable to arbitration clause simply because the clause
failed to comply with the requirements prescribed by the law.
The CA found that there was nothing in the Civil Code, or
R.A. No. 876, that require that arbitration proceedings must be
conducted only in the Philippines and the arbitrators should be
Philippine residents. It also found that the RTC ruling
effectively invalidated not only the disputed arbitration clause,
but all other agreements which provide for foreign arbitration.
The CA did not find illegal or against public policy the
arbitration clause so as to render it null and void or ineffectual.
Notwithstanding such findings, the CA still held that the case
cannot be brought under the Arbitration Law for the purpose
of suspending the proceedings before the RTC, since in its
Motion to Dismiss/Suspend proceedings, petitioner alleged, as
one of the grounds thereof, that the subject contract between
the parties did not exist or it was invalid; that the said contract
bearing the arbitration clause was never consummated by the
parties, thus, it was proper that such issue be first resolved by
the court through an appropriate trial; that the issue involved a
question of fact that the RTC should first resolve. Arbitration
is not proper when one of the parties repudiated the existence
or validity of the contract.
Petitioner's motion for reconsideration was denied in a
Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in
ruling that arbitration cannot proceed despite the fact that: (a)
it had ruled, in its assailed decision, that the arbitration clause
is valid, enforceable and binding on the parties; (b) the case of
Gonzales v. Climax Mining Ltd.11 is inapplicable here; (c)
parties are generally allowed, under the Rules of Court, to
adopt several defenses, alternatively or hypothetically, even if
such
defenses are inconsistent with each other; and (d) the
complaint filed by respondent with the trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions
when it found the arbitration clause between the parties as
valid and enforceable and yet in the same breath decreed that
the arbitration cannot proceed because petitioner assailed the
existence of the entire agreement containing the arbitration
clause. Petitioner claims the inapplicability of the cited
Gonzales case decided in 2005, because in the present case, it
was respondent who had filed the complaint for rescission and
damages with the RTC, which based its cause of action against
petitioner on the alleged agreement dated July 11, 2006
between the parties; and that the same agreement contained
the arbitration clause sought to be enforced by petitioner in
this case. Thus, whether petitioner assails the genuineness and
due execution of the agreement, the fact remains that the
agreement sued upon provides for an arbitration clause; that
respondent cannot use the provisions favorable to him and
completely disregard those that are unfavorable, such as the
arbitration clause.
Petitioner contends that as the defendant in the RTC, it
presented two alternative defenses, i.e., the parties had not
entered into any agreement upon which respondent as plaintiff
can sue upon; and, assuming that such agreement existed,
there was an arbitration clause that should be enforced, thus,
the dispute must first be submitted to arbitration before an
action can be instituted in court. Petitioner argues that under
Section 1(j) of Rule 16 of the Rules of Court, included as a
ground to dismiss a complaint is when a condition precedent
for filing the complaint has not been complied with; and that

submission to arbitration when such has been agreed upon is

one such condition precedent. Petitioner submits that the
proceedings in the RTC must be dismissed, or at least
suspended, and the parties be ordered to proceed with
arbitration.
On March 12, 2007, petitioner filed a Manifestation12 saying
that the CA's rationale in declining to order arbitration based
on the 2005 Gonzales ruling had been modified upon a motion
for reconsideration decided in 2007; that the CA decision lost
its legal basis, because it had been ruled that the arbitration
agreement can be implemented notwithstanding that one of the
parties thereto repudiated the contract which contained such
agreement based on the doctrine of separability.
In its Comment, respondent argues that certiorari under Rule
65 is not the remedy against an order denying a Motion to
Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration. It claims that the Arbitration Law
which petitioner invoked as basis for its Motion prescribed,
under its Section 29, a remedy, i.e., appeal by a petition for
review on certiorari under Rule 45. Respondent contends that
the Gonzales case, which was decided in 2007, is inapplicable
in this case, especially as to the doctrine of separability
enunciated therein. Respondent argues that even if the
existence of the contract and the arbitration clause is
conceded, the decisions of the RTC and the CA declining
referral of the dispute between the parties to arbitration would
still be correct. This is so because respondent's complaint filed
in Civil Case No. 98-1376 presents the principal issue of
whether under the facts alleged in the complaint, respondent is
entitled to rescind its contract with petitioner and for the latter
to pay damages; that such issue constitutes a judicial question
or one that requires the exercise of judicial function and
cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court,
which allowed a defendant to adopt in the same action several
defenses, alternatively or hypothetically, even if such defenses
are inconsistent with each other refers to allegations in the
pleadings, such as complaint, counterclaim, cross-claim, thirdparty complaint, answer, but not to a motion to dismiss.
Finally, respondent claims that petitioner's argument is
premised on the existence of a contract with respondent
containing a provision for arbitration. However, its reliance on
the contract, which it repudiates, is inappropriate.
In its Reply, petitioner insists that respondent filed an action
for rescission and damages on the basis of the contract, thus,
respondent admitted the existence of all the provisions
contained thereunder, including the arbitration clause; that if
respondent relies on said contract for its cause of action
against petitioner, it must also consider itself bound by the rest
of the terms and conditions contained thereunder
notwithstanding that respondent may find some provisions to
be adverse to its position; that respondents citation of the
Gonzales case, decided in 2005, to show that the validity of
the contract cannot be the subject of the arbitration proceeding
and that it is the RTC which has the jurisdiction to resolve the
situation between the parties herein, is not correct since in the
resolution of the Gonzales' motion for reconsideration in 2007,
it had been ruled that an arbitration agreement is effective
notwithstanding the fact that one of the parties thereto
repudiated the main contract which contained it.
We first address the procedural issue raised by respondent that
petitioners petition for certiorari under Rule 65 filed in the
CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to
Voluntary Arbitration was a wrong remedy invoking Section
29 of R.A. No. 876, which provides:
Section 29.

x x x An appeal may be taken from an order made in a

proceeding under this Act, or from a judgment entered upon
an award through certiorari proceedings, but such appeals
shall be limited to question of law. x x x.
To support its argument, respondent cites the case of Gonzales
v. Climax Mining Ltd.13 (Gonzales case), wherein we ruled the
impropriety of a petition for certiorari under Rule 65 as a
mode of appeal from an RTC Order directing the parties to
arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of
Makati a petition to compel arbitration under R.A. No. 876,
pursuant to the arbitration clause found in the Addendum
Contract it entered with Gonzales. Judge Oscar Pimentel of
the RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with Us
contending that Judge Pimentel acted with grave abuse of
discretion in immediately ordering the parties to proceed with
arbitration despite the proper, valid and timely raised
argument in his Answer with counterclaim that the Addendum
Contract containing the arbitration clause was null and void.
Climax-Arimco assailed the mode of review availed of by
Gonzales, citing Section 29 of R.A. No. 876 contending that
certiorari under Rule 65 can be availed of only if there was no
appeal or any adequate remedy in the ordinary course of law;
that R.A. No. 876 provides for an appeal from such order. We
then ruled that Gonzales' petition for certiorari should be
dismissed as it was filed in lieu of an appeal by certiorari
which was the prescribed remedy under R.A. No. 876 and the
petition was filed far beyond the reglementary period.
We found that Gonzales petition for certiorari raises a
question of law, but not a question of jurisdiction; that Judge
Pimentel acted in accordance with the procedure prescribed in
R.A. No. 876 when he ordered Gonzales to proceed with
arbitration and appointed a sole arbitrator after making the
determination that there was indeed an arbitration agreement.
It had been held that as long as a court acts within its
jurisdiction and does not gravely abuse its discretion in the
exercise thereof, any supposed error committed by it will
amount to nothing more than an error of judgment reviewable
by a timely appeal and not assailable by a special civil action
of certiorari.14
In this case, petitioner raises before the CA the issue that the
respondent Judge acted in excess of jurisdiction or with grave
abuse of discretion in refusing to dismiss, or at least suspend,
the proceedings a quo, despite the fact that the partys
agreement to arbitrate had not been complied with. Notably,
the RTC found the existence of the arbitration clause, since it
said in its decision that "hardly disputed is the fact that the
arbitration clause in question contravenes several provisions of
the Arbitration Law x x x and to apply Section 7 of the
Arbitration Law to such an agreement would result in the
disregard of the afore-cited sections of the Arbitration Law
and render them useless and mere surplusages." However,
notwithstanding the finding that an arbitration agreement
existed, the RTC denied petitioner's motion and directed
petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,15 it was
held that R.A. No. 876 explicitly confines the courts authority
only to the determination of whether or not there is an
agreement in writing providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an
order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof. If the court,
upon the other hand, finds that no such agreement exists, the
proceedings shall be dismissed.

In issuing the Order which denied petitioner's Motion to

Dismiss/Suspend Proceedings and to Refer Controversy to
Voluntary Arbitration, the RTC went beyond its authority of
determining only the issue of whether or not there is an
agreement in writing providing for arbitration by directing
petitioner to file an answer, instead of ordering the parties to
proceed to arbitration. In so doing, it acted in excess of its
jurisdiction and since there is no plain, speedy, and adequate
remedy in the ordinary course of law, petitioners resort to a
petition for certiorari is the proper remedy.
We now proceed to the substantive issue of whether the CA
erred in finding that this case cannot be brought under the
arbitration law for the purpose of suspending the proceedings
in the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has
long been recognized and accepted in our jurisdiction. 16 R.A.
No. 87617 authorizes arbitration of domestic disputes. Foreign
arbitration, as a system of settling commercial disputes of an
international character, is likewise recognized.18 The
enactment of R.A. No. 9285 on April 2, 2004 further
institutionalized the use of alternative dispute resolution
systems, including arbitration, in the settlement of disputes.19
A contract is required for arbitration to take place and to be
binding.20 Submission to arbitration is a contract 21 and a
clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a
contract.22 The provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part of
the contract and is itself a contract.23
In this case, the contract sued upon by respondent provides for
an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to
settle by mutual agreement shall be settled by arbitration in the
City of New York before the American Arbitration
Association, The Arbitration Award shall be final and binding
on both parties.
The CA ruled that arbitration cannot be ordered in this case,
since petitioner alleged that the contract between the parties
did not exist or was invalid and arbitration is not proper when
one of the parties repudiates the existence or validity of the
contract. Thus, said the CA:
Notwithstanding our ruling on the validity and enforceability
of the assailed arbitration clause providing for foreign
arbitration, it is our considered opinion that the case at bench
still cannot be brought under the Arbitration Law for the
purpose of suspending the proceedings before the trial court.
We note that in its Motion to Dismiss/Suspend Proceedings,
etc, petitioner Cargill alleged, as one of the grounds thereof,
that the alleged contract between the parties do not legally
exist or is invalid. As posited by petitioner, it is their
contention that the said contract, bearing the arbitration clause,
was never consummated by the parties. That being the case, it
is but proper that such issue be first resolved by the court
through an appropriate trial. The issue involves a question of
fact that the trial court should first resolve.
Arbitration is not proper when one of the parties repudiates the
existence or validity of the contract. Apropos is Gonzales v.
Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where
the Supreme Court held that:

The question of validity of the contract containing the

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

Respondent claims that in the case before Us, petitioner who is

the party insistent on arbitration also claimed in their Motion
to Dismiss/Suspend Proceedings that the contract sought by
respondent to be rescinded did not exist or was not
consummated; thus, there is no room for the application of the
separability doctrine, since there is no container or main
contract or an arbitration clause to speak of.

Consequently, the petitioner herein cannot claim that the

contract was never consummated and, at the same time,
invokes the arbitration clause provided for under the contract
which it alleges to be non-existent or invalid. Petitioner claims
that private respondent's complaint lacks a cause of action due
to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a
fallback position. The petitioner must first adduce evidence in
support of its claim that there is no valid contract between
them and should the court a quo find the claim to be
meritorious, the parties may then be spared the rigors and
expenses that arbitration in a foreign land would surely
entail.24

We are not persuaded.

However, the Gonzales case,25 which the CA relied upon for

not ordering arbitration, had been modified upon a motion for
reconsideration in this wise:

Moreover, it is worthy to note that respondent filed a

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

x x x The adjudication of the petition in G.R. No. 167994

effectively modifies part of the Decision dated 28 February
2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit
to arbitration does not affect the applicability of the
arbitration clause itself. A contrary ruling would suggest
that a party's mere repudiation of the main contract is
sufficient to avoid arbitration. That is exactly the situation
that the separability doctrine, as well as jurisprudence
applying it, seeks to avoid. We add that when it was declared
in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the
case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main
contract on the ground of fraud, as it had already been
determined that the case should have been brought before the
regular courts involving as it did judicial issues.26
In so ruling that the validity of the contract containing the
arbitration agreement does not affect the applicability of the
arbitration clause itself, we then applied the doctrine of
separability, thus:
The doctrine of separability, or severability as other writers
call it, enunciates that an arbitration agreement is independent
of the main contract. The arbitration agreement is to be treated
as a separate agreement and the arbitration agreement does not
automatically terminate when the contract of which it is a part
comes to an end.
The separability of the arbitration agreement is especially
significant to the determination of whether the invalidity of the
main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also
referred to as the "container" contract, does not affect the
validity of the arbitration agreement. Irrespective of the fact
that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.27
Respondent argues that the separability doctrine is not
applicable in petitioner's case, since in the Gonzales case,
Climax-Arimco sought to enforce the arbitration clause of its
contract with Gonzales and the former's move was premised
on the existence of a valid contract; while Gonzales, who
resisted the move of Climax-Arimco for arbitration, did not
deny the existence of the contract but merely assailed the
validity thereof on the ground of fraud and oppression.

Applying the Gonzales ruling, an arbitration agreement which

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

Respondent contends that assuming that the existence of the

contract and the arbitration clause is conceded, the CA's
decision declining referral of the parties' dispute to arbitration
is still correct. It claims that its complaint in the RTC presents
the issue of whether under the facts alleged, it is entitled to
rescind the contract with damages; and that issue constitutes a
judicial question or one that requires the exercise of judicial
function and cannot be the subject of an arbitration
proceeding. Respondent cites our ruling in Gonzales, wherein
we held that a panel of arbitrator is bereft of jurisdiction over
the complaint for declaration of nullity/or termination of the
subject contracts on the grounds of fraud and oppression
attendant to the execution of the addendum contract and the
other contracts emanating from it, and that the complaint
should have been filed with the regular courts as it involved
issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the
Gonzales case to support its argument.
In Gonzales, petitioner Gonzales filed a complaint before the
Panel of Arbitrators, Region II, Mines and Geosciences
Bureau, of the Department of Environment and Natural
Resources (DENR) against respondents Climax- Mining Ltd,
Climax-Arimco and Australasian Philippines Mining Inc,
seeking the declaration of nullity or termination of the
addendum contract and the other contracts emanating from it
on the grounds of fraud and oppression. The Panel dismissed
the complaint for lack of jurisdiction. However, the Panel,
upon petitioner's motion for reconsideration, ruled that it had
jurisdiction over the dispute maintaining that it was a mining
dispute, since the subject complaint arose from a contract
between the parties which involved the exploration and
exploitation of minerals over the disputed area.1wphi1
Respondents assailed the order of the Panel of Arbitrators via
a petition for certiorari before the CA. The CA granted the
petition and declared that the Panel of Arbitrators did not have
jurisdiction over the complaint, since its jurisdiction was

limited to the resolution of mining disputes, such as those

which raised a question of fact or matter requiring the
technical knowledge and experience of mining authorities and
not when the complaint alleged fraud and oppression which
called for the interpretation and application of laws. The CA
further ruled that the petition should have been settled through
arbitration under R.A. No. 876 the Arbitration Law as
provided under the addendum contract.
On a review on certiorari, we affirmed the CAs finding that
the Panel of Arbitrators who, under R.A. No. 7942 of the
Philippine Mining Act of 1995, has exclusive and original
jurisdiction to hear and decide mining disputes, such as
mining areas, mineral agreements, FTAAs or permits and
surface owners, occupants and claimholders/concessionaires,
is bereft of jurisdiction over the complaint for declaration of
nullity of the addendum contract; thus, the Panels' jurisdiction
is limited only to those mining disputes which raised question
of facts or matters requiring the technical knowledge and
experience of mining authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court
observed that the trend has been to make the adjudication of
mining cases a purely administrative matter. Decisions of the
Supreme Court on mining disputes have recognized a
distinction between (1) the primary powers granted by
pertinent provisions of law to the then Secretary of Agriculture
and Natural Resources (and the bureau directors) of an
executive or administrative nature, such as granting of license,
permits, lease and contracts, or approving, rejecting,
reinstating or canceling applications, or deciding conflicting
applications, and (2) controversies or disagreements of civil or
contractual nature between litigants which are questions of a
judicial nature that may be adjudicated only by the courts of
justice. This distinction is carried on even in Rep. Act No.
7942.28
We found that since the complaint filed before the DENR
Panel of Arbitrators charged respondents with disregarding
and ignoring the addendum contract, and acting in a fraudulent
and oppressive manner against petitioner, the complaint filed
before the Panel was not a dispute involving rights to mining
areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said
that the Panel of Arbitrators did not have jurisdiction over
such issue, since it does not involve the application of
technical knowledge and expertise relating to mining. It is in
this context that we said that:
Arbitration before the Panel of Arbitrators is proper only when
there is a disagreement between the parties as to some
provisions of the contract between them, which needs the
interpretation and the application of that particular knowledge
and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or
validity of such contract or agreement on the ground of fraud
or oppression as in this case. The validity of the contract
cannot be subject of arbitration proceedings. Allegations of
fraud and duress in the execution of a contract are matters
within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and
interpretation of laws and jurisprudence which is necessarily a
judicial function.29
In fact, We even clarified in our resolution on Gonzales
motion for reconsideration that "when we declared that the
case should not be brought for arbitration, it should be
clarified that the case referred to is the case actually filed by
Gonzales before the DENR Panel of Arbitrators, which was
for the nullification of the main contract on the ground of
fraud, as it had already been determined that the case should
have been brought before the regular courts involving as it did
judicial issues." We made such clarification in our resolution
of the motion for reconsideration after ruling that the parties in

that case can proceed to arbitration under the Arbitration Law,

as provided under the Arbitration Clause in their Addendum
Contract.
WHEREFORE, the petition is GRANTED. The Decision
dated July 31, 2006 and the Resolution dated November 13,
2006 of the Court of Appeals in CA-G.R. SP No. 50304 are
REVERSED and SET ASIDE. The parties are hereby
ORDERED to SUBMIT themselves to the arbitration of their
dispute, pursuant to their July 11, 1996 agreement.
SO ORDERED.
__________________________________________
G.R. No. 161957

January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS,

Petitioners,
vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING
CORP., and AUSTRALASIAN PHILIPPINES MINING
INC., Respondents.
x-------------------------------------------------------------------------------- x
G.R. No. 167994

January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as
PRESIDING JUDGE of BR. 148 of the REGIONAL
TRIAL COURT of MAKATI CITY, and CLIMAXARIMCO 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
20051 denied the Rule 45 petition of petitioner Jorge Gonzales
(Gonzales). It held that the DENR Panel of Arbitrators had no
jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the
Constitution and that the action should have been brought
before the regular courts as it involved judicial issues. Both
parties filed separate motions for reconsideration. Gonzales
avers in his Motion for Reconsideration2 that the Court erred
in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a
mining dispute that properly falls within the ambit of the
Panels 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 jurisprudence5 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 Gonzaless 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 Gonzaless having "impugn[ed] the existence or
validity" of the addendum contract. If so, it supposedly
conveys the idea that Gonzaless unilateral repudiation of the
contract or mere allegation of its invalidity is all it takes to
avoid arbitration. Hence, respondents submit that the courts
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 partys motion for reconsideration/clarification. 7
Respondents filed their Comment on 17 August 2005, 8 while
Gonzales filed his only on 25 July 2006.9
On the other hand, G.R. No. 167994 is a Rule 65 petition filed
on 6 May 2005, or while the motions for reconsideration in
G.R. No. 16195710 were pending, wherein Gonzales
challenged the orders of the Regional Trial Court (RTC)
requiring him to proceed with the arbitration proceedings as
sought by Climax-Arimco Mining Corporation (ClimaxArimco).
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, ClimaxArimco had sent Gonzales a Demand for Arbitration pursuant
to Clause 19.111 of the Addendum Contract and also in
accordance with Sec. 5 of R.A. No. 876. The petition for
arbitration was subsequently filed and Climax-Arimco sought
an order to compel the parties to arbitrate pursuant to the said
arbitration clause. The case, docketed as Civil Case No. 00444, 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-Arimcos acts of
fraud, oppression and violation of the Constitution. Thus, the
arbitration clause, Clause 19.1, contained in the Addendum
Contract is also null and void ab initio and legally
inexistent.1awphi1.net
On 18 May 2000, the RTC issued an order declaring
Gonzaless 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 Gonzaless 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:

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. Gonzaless
proposition contradicts both the trial courts limited
jurisdiction and the summary nature of the proceeding itself.
Climax-Arimco further notes that Gonzaless 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

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 courts 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

The grounds Gonzales invokes for the revocation of the

Addendum Contractfraud and oppression in the execution
thereofare 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 courts 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 Law24 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-Arimcos Motion for Partial
Reconsideration and/or Clarification in G.R. No. 161957 and
Gonzaless 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 Gonzaless 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 Appeals28 cited by
Gonzales support his theory. Gonzales argues that said case
recognized and allowed a petition for certiorari under Rule 65
"appealing the order of the Regional Trial Court disregarding
the arbitration agreement as an acceptable remedy." 29 The BF
Corporation case had its origins in a complaint for collection
of sum of money filed by therein petitioner BF Corporation
against Shangri-la Properties, Inc. (SPI). SPI moved to
suspend the proceedings alleging that the construction
agreement or the Articles of Agreement between the parties
contained a clause requiring prior resort to arbitration before
judicial intervention. The trial court found that an arbitration
clause was incorporated in the Conditions of Contract
appended to and deemed an integral part of the Articles of
Agreement. Still, the trial court denied the motion to suspend
proceedings upon a finding that the Conditions of Contract
were not duly executed and signed by the parties. The trial
court also found that SPI had failed to file any written notice
of demand for arbitration within the period specified in the
arbitration clause. The trial court denied SPI's motion for
reconsideration and ordered it to file its responsive pleading.
Instead of filing an answer, SPI filed a petition for certiorari
under Rule 65, which the Court of Appeals, favorably acted
upon. In a petition for review before this Court, BF
Corporation alleged, among others, that the Court of Appeals
should have dismissed the petition for certiorari since the
order of the trial court denying the motion to suspend
proceedings "is a resolution of an incident on the merits" and
upon the continuation of the proceedings, the trial court would
eventually render a decision on the merits, which decision
could then be elevated to a higher court "in an ordinary
appeal."30
The Court did not uphold BF Corporations 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, Gonzaless 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 arbitrators decision. Necessarily,
a contract is required for arbitration to take place and to be
binding. R.A. No. 876 recognizes the contractual nature of the
arbitration agreement, thus:
Sec. 2. Persons and matters subject to arbitration.Two or
more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing, between them at the
time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract
agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.
Such submission or contract may include question arising out
of valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue
between the parties.
A controversy cannot be arbitrated where one of the parties to
the controversy is an infant, or a person judicially declared to
be incompetent, unless the appropriate court having
jurisdiction approve a petition for permission to submit such
controversy to arbitration made by the general guardian or

guardian ad litem of the infant or of the incompetent.

[Emphasis added.]
Thus, we held in Manila Electric Co. v. Pasay Transportation
Co.35 that a submission to arbitration is a contract. A clause in
a contract providing that all matters in dispute between the
parties shall be referred to arbitration is a contract, 36 and in
Del Monte Corporation-USA v. Court of Appeals37 that "[t]he
provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that
contract and is itself a contract. As a rule, contracts are
respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs." 38
The special proceeding under Sec. 6 of R.A. No. 876
recognizes the contractual nature of arbitration clauses or
agreements. It provides:
Sec. 6. Hearing by court.A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an
order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of
the hearing of such application shall be served either
personally or by registered mail upon the party in default. The
court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith
is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in
issue the court shall proceed to summarily hear such issue. If
the finding be that no agreement in writing providing for
arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If
the finding be that a written provision for arbitration was made
and there is a default in proceeding thereunder, an order shall
be made summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications
filed under the provisions of this Act, within ten days after
such motions, petitions, or applications have been heard by it.
[Emphasis added.]
This special proceeding is the procedural mechanism for the
enforcement of the contract to arbitrate. The jurisdiction of the
courts in relation to Sec. 6 of R.A. No. 876 as well as the
nature of the proceedings therein was expounded upon in La
Naval Drug Corporation v. Court of Appeals.39 There it was
held that R.A. No. 876 explicitly confines the court's authority
only to the determination of whether or not there is an
agreement in writing providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an
order "summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof." If the court,
upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed."40 The cited case also stressed
that the proceedings are summary in nature.41 The same thrust
was made in the earlier case of Mindanao Portland Cement
Corp. v. McDonough Construction Co. of Florida42 which
held, thus:
Since there obtains herein a written provision for arbitration as
well as failure on respondent's part to comply therewith, the
court a quo rightly ordered the parties to proceed to arbitration
in accordance with the terms of their agreement (Sec. 6,
Republic Act 876). Respondent's arguments touching upon the
merits of the dispute are improperly raised herein. They
should be addressed to the arbitrators. This proceeding is
merely a summary remedy to enforce the agreement to
arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they
should proceed to arbitration or not. x x x x43

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 CorporationUSA 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 & Cs motion, and the U.S. Supreme
Court affirmed.
The U.S. Supreme Court did not address Prima Paints
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 Actwhich 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.
Gonzaless 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, Gonzaless 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 partys mere repudiation
of the main contract is sufficient to avoid arbitration. That is
exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when it
was declared in G.R. No. 161957 that the case should not be
brought for arbitration, it should be clarified that the case
referred to is the case actually filed by Gonzales before the
DENR Panel of Arbitrators, which was for the nullification of
the main contract on the ground of fraud, as it had already
been determined that the case should have been brought before
the regular courts involving as it did judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No.
161957 should also be denied. In the motion, Gonzales raises
the same question of jurisdiction, more particularly that the
complaint for nullification of the Addendum Contract
pertained to the DENR Panel of Arbitrators, not the regular
courts. He insists that the subject of his complaint is a mining
dispute since it involves a dispute concerning rights to mining
areas, the Financial and Technical Assistance Agreement
(FTAA) between the parties, and it also involves claimowners.
He adds that the Court failed to rule on other issues he raised,
such as whether he had ceded his claims over the mineral
deposits located within the Addendum Area of Influence;
whether the complaint filed before the DENR Panel of
Arbitrators alleged ultimate facts of fraud; and whether the
action to declare the nullity of the Addendum Contract on the
ground of fraud has prescribed.1avvphi1.net
These are the same issues that Gonzales raised in his Rule 45
petition in G.R. No. 161957 which were resolved against him
in the Decision of 28 February 2005. Gonzales does not raise
any new argument that would sway the Court even a bit to
alter its holding that the complaint filed before the DENR
Panel of Arbitrators involves judicial issues which should
properly be resolved by the regular courts. He alleged fraud or
misrepresentation in the execution of the Addendum Contract
which is a ground for the annulment of a voidable contract.
Clearly, such allegations entail legal questions which are
within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over
the mineral deposits in the Addendum Area of Influence is a
factual question which is not proper for determination before
this Court. At all events, moreover, the question is irrelevant
to the issue of jurisdiction of the DENR Panel of Arbitrators.
It should be pointed out that the DENR Panel of Arbitrators
made a factual finding in its Order dated 18 October 2001,
which it reiterated in its Order dated 25 June 2002, that
Gonzales had, "through the various agreements, assigned his
interest over the mineral claims all in favor of [ClimaxArimco]" 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 Gonzaless
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-Arimcos 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, Gonzaless 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 Gonzaless 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.
__________________________________________
G.R. No. 182248

December 18, 2008

EQUITABLE PCI BANKING CORPORATION,1

GEORGE L. GO, PATRICK D. GO, GENEVIEVE W.J.
GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR
P. LOPEZ-DEE, RENE J. BUENAVENTURA, GLORIA
L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C.
PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V.
VERGARA, EDILBERTO V. JAVIER, ANTHONY F.
CONWAY, ROMULAD U. DY TANG, WALTER C.
WESSMER, and ANTONIO N. COTOCO, petitioners,
vs.
RCBC CAPITAL CORPORATION, respondent.
DECISION
VELASCO, JR., J.:
The Case

This Petition for Review on Certiorari under Rule 45 seeks the

reversal of the January 8, 20082 and March 17, 20083 Orders
of the Regional Trial Court (RTC), Branch 148 in Makati City
in SP Proc. Case No. 6046, entitled In the Matter of ICC
Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC
Capital Corporation, (Claimant), and Equitable PCI Banking
Corporation, Inc. et al., (Respondents). The assailed January
8, 2008 Order confirmed the Partial Award dated September
27, 20074 rendered by the International Chamber of
Commerce-International Court of Arbitration (ICC-ICA) in
Case No. 13290/MS/JB/JEM, entitled RCBC Capital
Corporation (Philippines) v. Equitable PCI Bank, Inc. &
Others (Philippines). The March 17, 2008 Order denied
petitioners motion for reconsideration of the January 8, 2008
Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc.
(EPCIB) and the individual shareholders of Bankard, Inc., as
sellers, and respondent RCBC Capital Corporation (RCBC), as
buyer, executed a Share Purchase Agreement5 (SPA) for the
purchase of petitioners interests in Bankard, representing
226,460,000 shares, for the price of PhP 1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the
conduct of a due diligence audit on the financial status of
Bankard.
Under the SPA, RCBC undertakes, on the date of contract
execution, to deposit, as downpayment, 20% of the purchase
price, or PhP 357,353,880, in an escrow account. The
escrowed amount, the SPA stated, should be released to
petitioners on an agreed-upon release date and the balance of
the purchase price shall be delivered to the share buyers upon
the fulfillment of certain conditions agreed upon, in the form
of a managers check.
The other relevant provisions of the SPA are:
Section 5. Sellers Representations and Warranties
The SELLERS jointly and severally
represent and warrant to the BUYER that:
xxxx
The Financial Condition of Bankard
g. The audited financial statements of Bankard for the
three (3) fiscal years ended December 31, 1997, 1998
and 1999, and the unaudited financial statements for
the first quarter ended 31 March 2000, are fair and
accurate, and complete in all material respects, and
have been prepared in accordance with generally
accepted accounting principles consistently followed
throughout the period indicated and:
i) the balance sheet of Bankard as of 31
December 1999, as prepared and certified by
SGV & Co. ("SGV"), and the unaudited
balance sheet for the first quarter ended 31
March 2000, present a fair and accurate
statement as of those dates, of Bankards
financial condition and of all its assets and
liabilities, and is complete in all material
respects; and
ii) the statements of Bankards profit and
loss accounts for the fiscal years 1996 to
1999, as prepared and certified by SGV, and
the unaudited profit and loss accounts for
the first quarter ended 31 March 2000, fairly

and accurately present the results of the

operations of Bankard for the periods
indicated, and are complete in all material
respects.
h. Except as disclosed in the Disclosures, and except
to the extent set forth or reserved in the audited
financial statements of Bankard as of 31 December
1999 and its unaudited financial statements as of 31
March 2000, Bankard, as of such dates and up to 31
May 2000, had and shall have no liabilities,
omissions or mistakes in its records which will have
material adverse effect on the net worth or financial
condition of Bankard to the extent of more than One
Hundred Million Pesos (P100,000,000.00) in the
aggregate. In the event such material adverse effect
on the net worth or financial condition of Bankard
exceeds One Hundred Million Pesos
(P100,000,000.00), the Purchase Price shall be
reduced in accordance with the following formula:
Reduction in Purchase Price = X multiplied
by 226,460,000
where

X=

Amount by which negative adjustme

exceeds P100 Million
-------------------------------------------338,000,000

xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any
or all of the SELLERS or the BUYER (the
"Defaulting Party") contained in Sections 5 and 6
shall be found to be untrue when made and/or as of
the Closing Date, the other party, i.e., the BUYER if
the Defaulting Party is any or all of the SELLERS
and the SELLERS if the Defaulting Party is the
BUYER (hereinafter referred to as the "NonDefaulting Party") shall have the right to require the
Defaulting Party, at the latters expense, to cure such
breach, and/or seek damages, by providing notice or
presenting a claim to the Defaulting Party, reasonably
specifying therein the particulars of the breach. The
foregoing remedies shall be available to the NonDefaulting Party only if the demand therefor is
presented in writing to the Defaulting Party within
three (3) years from the Closing Date except that the
remedy for a breach of the SELLERS representation
and warrant in Section 5 (h) shall be available only if
the demand therefor is presented to the Defaulting
Party in writing together with schedules and to
substantiate such demand, within six (6) months from
the Closing Date.6
On June 2, 2000, RCBC deposited the stipulated
downpayment amount in an escrow account after which it was
given full management and operational control of Bankard.
June 2, 2000 is also considered by the parties as the Closing
Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share
Purchase Agreement (ASPA) dated September 19, 2000.7 Its
paragraph 2(e) provided that:
2. Notwithstanding any provisions to the contrary in
the Share Purchase Agreement and/or any agreement,
instrument or document entered into or executed by

the Parties in relation thereto (the "Related

Agreements"), the Parties hereby agree that:
xxxx
e) Notwithstanding the provisions of Sec. 7 of the
Share Purchase Agreement to the contrary, the
remedy for a breach of the SELLERS
representation and warranty in Section 5(h) of the
Share Purchase Agreement shall be available if the
demand therefor is presented to the SELLERS in
writing together with schedules and data to
substantiate such demand, on or before 31 December
2000. (Emphasis added.)
Sometime in September 2000, RCBC had Bankards accounts
audited, creating for the purpose an audit team led by a certain
Rubio, the Vice-President for Finance of RCBC at the time.
Rubios conclusion was that the warranty, as contained in
Section 5(h) of the SPA (simply Sec. 5[h] hereinafter), was
correct.
On December 28, 2000, RCBC paid the balance of the
contract price. The corresponding deeds of sale for the shares
in question were executed in January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed
petitioners of its having overpaid the purchase price of the
subject shares, claiming that there was an overstatement of
valuation of accounts amounting to PhP 478 million, resulting
in the overpayment of over PhP 616 million. Thus, RCBC
claimed that petitioners violated their warranty, as sellers,
embodied in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in
accordance with Sec. 10 of the SPA, filed a Request for
Arbitration dated May 12, 20048 with the ICC-ICA. In the
request, RCBC charged Bankard with deviating from,
contravening and not following generally accepted accounting
principles and practices in maintaining their books. Due to
these improper accounting practices, RCBC alleged that both
the audited and unaudited financial statements of Bankard
prior to the stock purchase were far from fair and accurate
and, hence, violated the representations and warranties of
petitioners in the SPA. Per RCBC, its overpayment amounted
to PhP 556 million. It thus prayed for the rescission of the
SPA, restitution of the purchase price, payment of actual
damages in the amount of PhP 573,132,110, legal interest on
the purchase price until actual restitution, moral damages, and
litigation and attorneys fees. As alternative to rescission and
restitution, RCBC prayed for damages in the amount of at
least PhP 809,796,092 plus legal interest.
To the Request for Arbitration, petitioners filed an Answer
dated July 28, 2004,9 denying RCBCs inculpatory averments
and setting up the following affirmative allegations: the period
for filing of the asserted claim had already lapsed by force of
Sec. 7 of the SPA; RCBC is not entitled to rescission having
had ample opportunity and reasonable time to file a claim
against petitioners; RCBC is not entitled to its alternative
prayer of damages, being guilty of laches and failing to set out
the details of the breach as required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of
the arbitration tribunal consisting of retired Justice Santiago
M. Kapunan, nominated by petitioners; Neil Kaplan, RCBCs
nominee; and Sir Ian Barker, appointed by the ICC-ICA.
After drawn out proceedings with each party alleging
deviation and non-compliance by the other with arbitration
rules, the tribunal, with Justice Kapunan dissenting, rendered a
Partial Award dated September 27, 2007,10 the dispositive
portion of which states:

15 AWARD AND DIRECTIONS

15.1 The Tribunal makes the following declarations
by way of Partial Award:
(a) The Claimants claim is not time-barred under the
provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the
equitable doctrine of laches from pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has
established the following breaches by the
Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of
Bankard were overstated by reason of its
policy on and recognition of Late Payment
Fees;
ii) reported receivables were higher than
their realizable values by reason of the
bucketing method, thus overstating
Bankards assets; and
iii) the relevant Bankard statements were
inadequate and misleading in that their
disclosures caused readers to be
misinformed about Bankards 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 majoritys
conclusion on the claim of estoppel brought by the
respondents.
On the matter of prescription, the tribunal held that RCBCs
claim is not time-barred, the claim properly falling under the
contemplation of Sec. 5(g) and not Sec. 5(h). As such, the
tribunal concluded, RCBCs claim was filed within the three
(3)-year period under Sec. 5(g) and that the six (6)-month
period under Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter
having sought relief within the three (3)-year period
prescribed in the SPA. On the matter of estoppel suggested in
petitioners answer, the tribunal stated in par. 10.27 of the
Partial Award the following:
10.27 Clearly, there has to be both an admission or
representation by (in this case) the Claimant [RCBC],
plus reliance upon it by (in this case) the Respondents
[herein petitioners]. The Tribunal cannot find as
proved any admission/representation that the

Claimant was abandoning a 5(g) claim, any reliance

by the Respondents on an admission, and any
detriment to the Respondents such as would entitle
them to have the Claimant deprived of the benefit of
clause 5(g). These aspects of the claim for estoppels
are rejected.11
Notably, the tribunal considered the rescission of the SPA and
ASPA as impracticable and "totally out of the question." 12
In his Dissenting Opinion13 which he submitted to and which
was received on September 24, 2007 by the ICC-ICA, Justice
Kapunan stated the observation that RCBCs claim is timebarred, falling as such claim did under Sec. 5(h), which
prescribes a comparatively shorter prescriptive period, not
5(g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of
P431 million on account of alleged "overvaluation of
the net worth of Bankard," allegedly for "improper
accounting practices" resulting in "its book value per
share as of 31 December 1999 [being] overstated."
Claimants witness, Dean Echanis asserts that "the
inadequate provisioning for Bankards doubtful
accounts result[ed] in an overstatement of its
December 31, 1999 total assets and net worth of by
[sic] least P418.2 million."
In addition, Claimants demand letter addressed to
the Respondents alleged that "we overpaid for the
Shares to the extent of the impact of the said
overstatement on the Book Value per share".
These circumstances establish beyond dispute that the
Claim is based on the alleged overstatement of the
1999 net worth of Bankard, which the parties relied
on in setting the purchase price of the shares.
Moreover, it is clear that there was an overstatement
because of "improper accounting practices" which led
Claimant to overpay for the shares.
Ultimately, the Claim is one for recovery of
overpayment in the purchase price of the shares. x x x
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubios findings merely corroborated
the disclosures made in the Information
Memorandum that Claimant received from the
Respondents prior to the execution of the SPA. In
this connection, I note that Bankards policy on
provisioning and setting of allowances using the
Bucketed Method and income recognition from
AR/Principal, AR/Interest and AR/LPFs were
disclosed in the Information Memorandum. Thus,
these alleged improper accounting practices were
known to the Claimant even prior to the execution of
the SPA.
Thus, when Claimant paid the balance of the
purchase price, it did so with full knowledge of these
accounting practices of Bankard that it now assails.
By paying the balance of the purchase price without
taking exception or objecting to the accounting
practices disclosed through Mr. Rubio s review and
the Information Memorandum, Claimant is deemed
to have accepted such practices as correctly reporting
the 1999 net worth. x x x
xxxx

As last point, I note that my colleagues invoke a

principle that for estoppels to apply there must be
positive indication that the right to sue was waived. I
am of the view that there is no such principle under
Philippine law. What is applicable is the holding in
Knecht and in Coca- Cola that prior knowledge of
an unfavorable fact is binding on the party who has
such knowledge; "when the purchaser proceeds to
make investigations by himself, and the vendor does
nothing to prevent such investigation from being as
complete as the former might wish, the purchaser
cannot later allege that the vendor made false
representations to him" (Cf. Songco v. Sellner, 37
Phil 254 citations omitted).
Applied to this case, the Claimant cannot seek relief
on the basis that when it paid the purchase price in
December 2000, it was unaware that the accounting
practices that went into the reporting of the 1999 net
worth as amounting to P1,387,275,847 were not in
conformity with GAAP [generally accepted
accounting principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to
Confirm Partial Award. On the same day, petitioners
countered with a Motion to Vacate the Partial Award. On
November 9, 2007, petitioners again filed a Motion to
Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order
confirming the Partial Award and denying the adverted
separate motions to vacate and to suspend and inhibit. From
this order, petitioners sought reconsideration, but their motion
was denied by the RTC in the equally assailed second order of
March 17, 2008.
From the assailed orders, petitioners came directly to this
Court through this petition for review.
The Issues
This petition seeks the review, reversal and setting
aside of the orders Annexes A and B and, in lieu of
them, it seeks judgment vacating the arbitrators
liability award, Annex C, on these grounds:
(a) The trial court acted contrary to law and judicial
authority in refusing to vacate the arbitral award,
notwithstanding it was rendered in plain disregard of
the parties contract and applicable Philippine law,
under which the claim in arbitration was indubitably
time-barred.
(b) The trial court acted contrary to law and judicial
authority in refusing to vacate and in confirming the
arbitral award, notwithstanding that the arbitrators
had plainly and admittedly failed to accord
petitioners due process by denying them a hearing
on the basic factual matter upon which their liability
is predicated.
(c) The trial court committed grave error in
confirming the arbitrators award, which held
petitioners-sellers liable for an alleged improper
recording of accounts, allegedly affecting the value of
the shares they sold, notwithstanding that the
respondent-buyer knew before contracting that the
accounts were kept in the manner complained of, and
in fact ratified and adopted the questioned accounting
practice and policies.14
The Courts Ruling

The petition must be denied.

On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICAs Partial Award dated
September 27, 2007 was confirmed by the RTC in its first
assailed order of January 8, 2008. Thereafter, the RTC, by
order of March 17, 2008, denied petitioners motion for
reconsideration. Therefrom, petitioners came directly to this
Court on a petition for review under Rule 45 of the Rules of
Court.
This is a procedural miscue for petitioners who erroneously
bypassed the Court of Appeals (CA) in pursuit of its appeal.
While this procedural gaffe has not been raised by RCBC, still
we would be remiss in not pointing out the proper mode of
appeal from a decision of the RTC confirming, vacating,
setting aside, modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the proper
mode of appeal assailing the decision of the RTC confirming
as arbitral award is an appeal before the CA pursuant to Sec.
46 of Republic Act No. (RA) 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004, or completely, An
Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for other
Purposes, promulgated on April 2, 2004 and became effective
on April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter
alia, that the RTC decision of an assailed arbitral award is
appealable to the CA and may further be appealed to this
Court, thus:
Sec. 46 of RA 9285 provides for an appeal before the
CA as the remedy of an aggrieved party in cases
where the RTC sets aside, rejects, vacates, modifies,
or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral
Awards.A decision of the Regional Trial Court
confirming, vacating, setting aside, modifying or
correcting an arbitral award may be appealed to the
Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of
the court confirming an arbitral award shall be
required by the appellate court to post a counterbond
executed in favor of the prevailing party equal to the
amount of the award in accordance with the rules to
be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed
or reviewed before this Court through a petition for
review under Rule 45 of the Rules of Court.15
It is clear from the factual antecedents that RA 9285 applies to
the instant case. This law was already effective at the time the
arbitral proceedings were commenced by RCBC through a
request for arbitration filed before the ICC-ICA on May 12,
2004. Besides, the assailed confirmation order of the RTC was
issued on March 17, 2008. Thus, petitioners clearly took the
wrong mode of appeal and the instant petition can be outright
rejected and dismissed.
Even if we entertain the petition, the outcome will be the
same.
The Court Will Not Overturn an Arbitral Award
Unless It Was Made in Manifest Disregard of the Law

In Asset Privatization Trust v. Court of Appeals,16 the Court

passed on similar issues as the ones tendered in the instant
petition. In that case, the arbitration committee issued an
arbitral award which the trial court, upon due proceedings,
confirmed despite the opposition of the losing party. Motions
for reconsideration by the losing party were denied. An appeal
interposed by the losing party to the CA was denied due
course. On appeal to this Court, we established the parameters
by which an arbitral award may be set aside, to wit:
As a rule, the award of an arbitrator cannot be set
aside for mere errors of judgment either as to the
law or as to the facts. Courts are without power to
amend or overrule merely because of
disagreement with matters of law or facts
determined by the arbitrators. They will not
review the findings of law and fact contained in an
award, and will not undertake to substitute their
judgment for that of the arbitrators, since any
other rule would make an award the
commencement, not the end, of litigation. Errors
of law and fact, or an erroneous decision of
matters submitted to the judgment of the
arbitrators, are insufficient to invalidate an award
fairly and honestly made. Judicial review of an
arbitration is, thus, more limited than judicial
review of a trial.
Nonetheless, the arbitrators awards is not absolute
and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission
agreement. The parties to such an agreement are
bound by the arbitrators award only to the extent and
in the manner prescribed by the contract and only if
the award is rendered in conformity thereto. Thus,
Sections 24 and 25 of the Arbitration Law provide
grounds for vacating, rescinding or modifying an
arbitration award. Where the conditions described in
Articles 2038, 2039 and 2040 of the Civil Code
applicable to compromises and arbitration are
attendant, the arbitration award may also be annulled.
xxxx
Finally, it should be stressed that while a court is
precluded from overturning an award for errors in
determination of factual issues, nevertheless, if an
examination of the record reveals no support
whatever for the arbitrators determinations, their
award must be vacated. In the same manner, an
award must be vacated if it was made in "manifest
disregard of the law."17 (Emphasis supplied.)
Following Asset Privatization Trust, errors in law and fact
would not generally justify the reversal of an arbitral award. A
party asking for the vacation of an arbitral award must show
that any of the grounds for vacating, rescinding, or modifying
an award are present or that the arbitral award was made in
manifest disregard of the law. Otherwise, the Court is dutybound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard
of the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Jaros18 expounded on the phrase "manifest disregard of the
law" in the following wise:
This court has emphasized that manifest disregard of
the law is a very narrow standard of review.
Anaconda Co. v. District Lodge No. 27, 693 F.2d 35
(6th Cir.1982). A mere error in interpretation or
application of the law is insufficient. Anaconda, 693

F.2d at 37-38. Rather, the decision must fly in the

face of clearly established legal precedent. When
faced with questions of law, an arbitration panel does
not act in manifest disregard of the law unless (1) the
applicable legal principle is clearly defined and not
subject to reasonable debate; and (2) the arbitrators
refused to heed that legal principle.
Thus, to justify the vacation of an arbitral award on account of
"manifest disregard of the law," the arbiters findings must
clearly and unequivocally violate an established legal
precedent. Anything less would not suffice.
In the present case, petitioners, in a bid to establish that the
arbitral award was issued in manifest disregard of the law,
allege that the Partial Award violated the principles of
prescription, due process, and estoppel. A review of
petitioners arguments would, however, show that their
arguments are bereft of merit. Thus, the Partial Award dated
September 27, 2007 cannot be vacated.
RCBCs Claim Is Not Time-Barred
Petitioners argue that RCBCs claim under Sec. 5(g) is based
on overvaluation of Bankards revenues, assets, and net worth,
hence, for price reduction falling under Sec. 5(h), in which
case it was belatedly filed, for RCBC presented the claim to
petitioners on May 5, 2003, when the period for presenting it
under Sec. 5(h) expired on December 31, 2000. As a
counterpoint, RCBC asserts that its claim clearly comes under
Sec. 5(g) in relation to Sec. 7 which thus gave it three (3)
years from the closing date of June 2, 2000, or until June 1,
2003, within which to make its claim. RCBC contends having
acted within the required period, having presented its claimdemand on May 5, 2003.
To make clear the issue at hand, we highlight the pertinent
portions of Secs. 5(g), 5(h), and 7 bearing on what petitioners
warranted relative to the financial condition of Bankard and
the remedies available to RCBC in case of breach of warranty:
g. The audited financial statements of Bankard for
the three (3) fiscal years ended December 31, 1997,
1998 and 1999, and the unaudited financial
statements for the first quarter ended 31 March
2000, are fair and accurate, and complete in all
material respects, and have been prepared in
accordance with generally accepted accounting
principles consistently followed throughout the
period indicated and:
i) the balance sheet of Bankard as of 31
December 1999, as prepared and certified
by SGV & Co. ("SGV"), and the unaudited
balance sheet for the first quarter ended 31
March 2000, present a fair and accurate
statement as of those dates, of Bankards
financial condition and of all its assets
and liabilities, and is complete in all
material respects; and
ii) the statements of Bankards profit and
loss accounts for the fiscal years 1996 to
1999, as prepared and certified by SGV, and
the unaudited profit and loss accounts for
the first quarter ended 31 March 2000,
fairly and accurately present the results
of the operations of Bankard for the
periods indicated, and are complete in all
material respects.
h. Except as disclosed in the Disclosures, and except
to the extent set forth or reserved in the audited

financial statements of Bankard as of 31 December

1999 and its unaudited financial statements for the
first quarter ended 31 March 2000, Bankard, as of
such dates and up to 31 May 2000, had and shall
have no liabilities, omissions or mistakes in its
records which will have a material adverse effect
on the net worth or financial condition of Bankard
to the extent of more than One Hundred Million
Pesos (P 100,000,000.00) in the aggregate. In the
event such material adverse effect on the net worth or
financial condition of Bankard exceeds One Hundred
Million Pesos (P 100,000,000.00), the Purchase Price
shall be reduced in accordance with the following
formula:
xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or
all of the SELLERS or the BUYER (the "Defaulting
Party") contained in Sections 5 and 6 shall be found
to be untrue when made and/or as of the Closing
Date, the other party, i.e., the BUYER if the
Defaulting is any of the SELLERS and the SELLERS
if the Defaulting Party is the BUYER (hereinafter
referred to as the "Non-Defaulting Party") shall have
the right to require the Defaulting Party, at the
latters expense, to cure such breach, and/or seek
damages, by providing notice or presenting a
claim to the Defaulting Party, reasonably
specifying therein the particulars of the breach. The
foregoing remedies shall be available to the NonDefaulting Party only if the demand therefor is
presented in writing to the Defaulting Party
within three (3) years from the Closing Date,
except that the remedy for a breach of the
SELLERS representation and warranty in
Section 5 (h) shall be available only if the demand
therefor is presented to the Defaulting Party in
writing together with schedules and data to
substantiate such demand, within six (6) months
from the Closing Date. (Emphasis supplied.)
Before we address the issue put forward by petitioners, there is
a necessity to determine the nature and application of the
reliefs provided under Sec. 5(g) and Sec. 5(h) in conjunction
with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price reduction
as said section explicitly states that the "Purchase Price shall
be reduced in accordance with the following formula x x x." In
addition, Sec. 7 gives the aggrieved party the right to ask
damages based on the stipulation that the non-defaulting party
"shall have the right to require the Defaulting Party, at the
latters expense, to cure such breach and/or seek damages."
On the other hand, the remedy under Sec. 5(g) in conjunction
with Sec. 7 can include specific performance, damages, and
other reliefs excluding price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements
(AFS) for the three (3) years ending December 31, 1997 to
1999 and the unaudited financial statements (UFS) for the first
quarter ending March 31, 2000. On the other hand, the Sec.
5(h) warranty refers only to the AFS for the year ending
December 31, 1999 and the UFS up to May 31, 2000. It is
undenied that Sec. 5(h) refers to price reduction as it covers
"only the most up-to-date audited and unaudited financial
statements upon which the price must have been based." 19
(3) Under Sec. 5(h), the responsibility of petitioners for its
warranty shall exclude the disclosures and reservations made

in AFS of Bankard as of December 31, 1999 and its UFS up to

May 31, 2000. No such exclusions were made under Sec. 5(g)
with respect to the warranty of petitioners in the AFS and UFS
of Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse effect
in the net worth in excess of PhP 100 million and it provides a
formula for price reduction.20 On the other hand, Sec. 5(g) can
be the basis for remedies like specific performance, damages,
and other reliefs, except price reduction, even if the
overvaluation is less or above PhP 100 million and there is no
formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written
demand to the defaulting party within three (3) years from
closing date. Under Sec. 5(h), the written demand shall be
presented within six (6) months from closing date. In
accordance with par. 2(c) of the ASPA, the deadline to file the
demand under Sec. 5(h) was extended to December 31, 2000.
From the above determination, it becomes clear that the
aggrieved party is entitled to two (2) separate alternative
remedies under Secs. 5 and 7 of the SPA, thus:
1. A claim for price reduction under Sec. 5(h) and/or
damages based on the breach of warranty by Bankard
on the absence of liabilities, omissions and mistakes
on the financial statements as of 31 December 1999
and the UFS as of 31 May 2000, provided that the
material adverse effect on the net worth exceeds PhP
100M and the written demand is presented within six
(6) months from closing date (extended to 31
December 2000); and
2. An action to cure the breach like specific
performance and/or damages under Sec. 5(g) based
on Bankards breach of warranty involving its AFS
for the three (3) fiscal years ending 31 December
1997, 1998, and 1999 and the UFS for the first
quarter ending 31 March 2000 provided that the
written demand shall be presented within three (3)
years from closing date.
Has RCBC the option to choose between Sec. 5(g) or Sec.
5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is
discretionary on the aggrieved parties to avail themselves of
any remedy mentioned above. They may choose one and
dispense with the other. Of course, the relief for price
reduction under Sec. 5(h) will have to conform to the
prerequisites and time frame of six (6) months; otherwise, it is
waived.
Preliminarily, petitioners basic posture that RCBCs claim is
for the recovery of overpayment is specious. The records show
that in its Request for Arbitration dated May 12, 2004, RCBC
prayed for the rescission of the SPA, restitution of the whole
purchase price, and damages not for reduction of price or for
the return of any overpayment. Even in its May 5, 2000
letter,21 RCBC did not ask for the recovery of any
overpayment or reduction of price, merely stating in it that the
accounts of Bankard, as reflected in its AFS for 1999, were
overstated which, necessarily, resulted in an overpayment
situation. RCBC was emphatic and unequivocal that
petitioners violated their warranty covered by Sec. 5(g) of the
SPA.
It is thus evident that RCBC did not avail itself of the option
under Sec. 5(h), i.e., for price reduction or the return of any
overpayment arising from the overvaluation of Bankards
financial condition. Clearly, RCBC invoked Sec. 5(g) to claim
damages from petitioners which is one of the alternative

reliefs granted under Sec. 7 in addition to rescission and

restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim
under Sec. 5(g) which is anchored on the material
overstatement or overvaluation of Bankards revenues, assets,
and net worth and, hence, the overstatement of the purchase
price. They, however, assert that such claim for overpayment
is actually a claim under Sec. 5(h) of the SPA for price
reduction which it forfeited after December 31, 2000.
We cannot sustain petitioners position.
It cannot be disputed that an overstatement or overvaluation of
Bankards financial condition as of closing date translates into
a misrepresentation not only of the accuracy and truthfulness
of the financial statements under Sec. 5(g), but also as to
Bankards actual net worth mentioned in Sec. 5(h).
Overvaluation presupposes mistakes in the entries in the
financial statements and amounts to a breach of petitioners
representations and warranties under Sec. 5. Consequently,
such error in the financial statements would impact on the
figure representing the net worth of Bankard as of closing
date. An overvaluation means that the financial condition of
Bankard as of closing date, i.e., June 2, 2000, is overstated, a
situation that will definitely result in a breach of EPCIBs
representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of
the SPA would indicate the following remedies available to
RCBC should it be discovered, as of closing date, that there is
overvaluation which will constitute breach of the warranty
clause under either Sec. 5(g) or (h), to wit:
(1) An overvaluation of Bankards actual financial condition
as of closing date taints the veracity and accuracy of the AFS
for 1997, 1998, and 1999 and the UFS for the first quarter of
2000 and is an actionable breach of petitioners warranties
under Sec. 5(g).
(2) An overvaluation of Bankards financial condition as of
May 31, 2000, encompassing the warranted financial
condition as of December 31, 1999 through the AFS for 1999
and as of March 31, 2000 through the UFS for the first quarter
of 2000, is a breach of petitioners representations and
warranties under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies in case of
an overvaluation of Bankards financial condition. It may
invoke Sec. 5(h) when the conditions of the threshold
aggregate overvaluation and the claim made within the sixmonth time-bar are present. In the alternative, it may invoke
Sec. 5(g) when it finds that a claim for "curing the breach"
and/or damages will be more advantageous to its interests
provided it is filed within three (3) years from closing date.
Since it has two remedies, RCBC may opt to exercise either
one. Of course, the exercise of either one will preclude the
other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is
clear and bereft of any ambiguity. The SPAs stipulations
reveal that the non-use or waiver of Sec. 5(h) does not
preclude RCBC from availing itself of the second relief under
Sec. 5(g). Article 1370 of the Civil Code is explicit that "if
terms of a contract are clear and leave no doubt upon the
intention of the contracting parties the literal meaning of its
stipulations shall control." Since the terms of a contract have
the force of law between the parties,22 then the parties must
respect and strictly conform to it. Lastly, it is a long held
cardinal rule that when the terms of an agreement are reduced
to writing, it is deemed to contain all the terms agreed upon
and no evidence of such terms can be admitted other than the
contents of the agreement itself.23 Since the SPA is

unambiguous, and petitioners failed to adduce evidence to the

contrary, then they are legally bound to comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the
SELLERS is deemed to be a separate
representation and warranty, and the BUYER has
placed complete reliance thereon in agreeing to the
Purchase Price and in entering into this Agreement.
The representations and warranties of the SELLERS
shall be correct as of the date of this Agreement and
as of the Closing Date with the same force and effect
as though such representations and warranties had
been made as of the Closing Date.24 (Emphasis
supplied.)
The Court sustains the finding in the Partial Award that Sec.
5(g) of the SPA is a free standing warranty and not constricted
by Sec. 5(h) of the said agreement.

particular provision are inconsistent, the latter is

paramount to the former [so] a particular intent
will control a general one that is inconsistent with it."
This is also consistent with existing doctrines on
statutory construction, the application of which is
illustrated in the case of Commissioner of Customs
vs. Court of Tax Appeals, GR No. L-41861, dated
March 23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by
way of actual damages.27 x x x (Emphasis supplied.)
Justice Kapunan noted that without Sec. 5(h), RCBCs claim
would fall under Sec. 5(g), impliedly admitting that both
provisions could very well cover RCBCs claim, except that
Sec. 5(h) excludes the situation contemplated in it from the
general terms of Sec. 5(g).
Such view is incorrect.

Upon the foregoing premises and in the light of the undisputed

facts on record, RCBCs claim for rescission of the SPA and
damages due to overvaluation of Bankards accounts was
properly for a breach of the warranty under Sec. 5(g) and was
not time-barred. To repeat, RCBC presented its written claim
on May 5, 2003, or a little less than a month before closing
date, well within the three (3)-year prescriptive period
provided under Sec. 7 for the exercise of the right provided
under Sec. 5(g).
Petitioners bemoan the fact that "the arbitrators liability
award (a) disregarded the 6-month contractual limitation for
RCBCs overprice claim, and [b] substituted in its place the
3-year limitation under the contract for other claims," 25
adopting in that regard the interpretation of the SPA made by
arbitral tribunal member, retired Justice Kapunan, in his
Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of
overpayment in the purchase price of the shares. And
it is in this context, that I respectfully submit that
Section 5(h) and not Section 5(g), applies to the
present controversy.26
xxxx
True, without Section 5(h), the Claim for price
recovery would fall under Section 5(g). The recovery
of the pecuniary loss of the Claimant in the form of
the excess price paid would be in the nature of a
claim for actual damages by way of compensation. In
that situation, all the accounts in the 1999 financial
statements would be the subject of the warranty in
Section 5(g).
However, since the parties explicitly included Section
5(h) in their SPA, which assures the Claimant that
there were no "omissions or mistakes in the records"
that would misstate the 1999 net worth account, I am
left with no other conclusion but that the accuracy
of the net worth was the subject of the warranty in
Section 5(h), while the accuracy or correctness of
the other accounts that did not bear on, or affect
Bankards net worth, were guaranteed by Section
5(g).
xxxx
This manner of reconciling the two provisions is
consistent with the principle in Rule 130, Section 12
of the Rules of Court that "when a general and a

While it is true that Sec. 5(h), as couched, is a warranty on the

accuracy of the Bankards net worth while Sec. 5(g), as also
couched, is a warranty on the veracity, accuracy, and
completeness of the AFS in all material respects as prepared in
accordance with generally accepted accounting principles
consistently followed throughout the period audited, yet both
warranties boil down to the same thing and stem from the
same accounts as summarized in the AFS. Since the net worth
is the balance of Bankards assets less its liabilities, it
necessarily includes all the accounts under the AFS. In
short, there are no accounts in the AFS that do not bear on
the net worth of Bankard. Moreover, as earlier elucidated,
any overvaluation of Bankards net worth is necessarily a
misrepresentation of the veracity, accuracy, and completeness
of the AFS and also a breach of the warranty under Sec. 5(g).
Thus, the subject of the warranty in Sec. 5(h) is also covered
by the warranty in Sec. 5(g), and Sec. 5(h) cannot exclude
such breach from the ambit of Sec. 5(g). There is no need to
rely on Sec. 12, Rule 130 of the Rules of Court for both Sec.
5(g) and Sec. 5(h) as alternative remedies are of equal footing
and one need not categorize one section as a general provision
and the other a particular provision.
More importantly, a scrutiny of the four corners of the SPA
does not explicitly reveal any stipulation nor even impliedly
that the parties intended to limit the scope of the warranty in
Sec. 5(g) or gave priority to Sec. 5(h) over Sec. 5(g).
The arbitral tribunal did not find any legal basis in the SPA
that Sec. 5(h) "somehow cuts down" the scope of Sec. 5(g),
thus:
9.10 In the opinion of the Tribunal, there is nothing
in the wording used in the SPA to give priority to
one warranty over the other. There is nothing in
the wording used to indicate that the parties
intended to limit the scope of the warranty in 5(g).
If it be contended that, on a true construction of the
two warranties, 5(h) somehow cuts down the scope of
5(g), the Tribunal can find no justification for
such conclusion on the wording used. Furthermore,
the Tribunal is of the view that very clear words
would be needed to cut down the scope of the 5(g)
warranty.28
The Court upholds the conclusion of the tribunal and rules that
the claim of RCBC under Sec. 5(g) is not time-barred.
Petitioners Were Not Denied Due Process

Petitioners impute on RCBC the act of creating summaries of

the accounts of Bankard which "in turn were used by its
experts to conclude that Bankard improperly recorded its
receivables and committed material deviations from GAAP
requirements."29 Later, petitioners would assert that "the
arbitrators partial award admitted and used the Summaries as
evidence, and held on the basis of the information contained
in them that petitioners were in breach of their warranty in
GAAP compliance."
To petitioners, the ICC-ICAs use of such summaries but
without presenting the source documents violates their right to
due process. Pressing the point, petitioners had moved, but to
no avail, for the exclusion of the said summaries. Petitioners
allege that they had reserved the right to cross-examine the
witnesses of RCBC who testified on the summaries, pending
the resolution of their motion to exclude. But, according to
them, they were effectively denied the right to cross-examine
RCBCs witnesses when the ICC-ICA admitted the summaries
of RCBC as evidence.
Petitioners position is bereft of merit.
Anent the use but non-presentation of the source documents as
the jumping board for a claim of denial of due process,
petitioners cite Compania Maritima v. Allied Free Workers
Union.30 It may be stated, however, that such case is not on all
fours with the instant case and, therefore, cannot be applied
here considering that it does not involve an administrative
body exercising quasi-judicial function but rather the regular
court.
In a catena of cases, we have ruled that "[t]he essence of due
process is the opportunity to be heard. What the law prohibits
is not the absence of previous notice but the absolute absence
thereof and the lack of opportunity to be heard." 31
We also explained in Lastimoso v. Asayo that "[d]ue process
in an administrative context does not require trial type
proceedings similar to those in courts of justice. Where an
opportunity to be heard either through oral arguments or
through pleadings is accorded, there is no denial of procedural
due process."32
Were petitioners afforded the opportunity to refute the
summaries and pieces of evidence submitted by RCBC which
became the bases of the experts opinion?

Dismiss36 while RCBC filed a "Claimants Position Paper (Re:

[Petitioners] Assertion that RCBC CAPITAL
CORPORATIONs Present Claim Is Time Barred)." 37
Then, the tribunal issued Procedural Order No. 1 dated
January 12, 2005,38 denying the motion to dismiss and setting
the initial hearing of the case on April 11, 2005.
In a letter dated February 9, 2005,39 petitioners requested that
the tribunal direct RCBC to produce certain documents. At the
same time, petitioners sought the postponement of the hearing
on April 11, 2005 to March 21, 2005, in light of their own
request.
On February 11, 2005, petitioners received RCBCs brief of
evidence and supporting documentation in accordance with
the provisional timetable.40 In the brief of evidence, RCBC
provided summaries of the accounts of Bankard, which
petitioners now question.
Later, in a letter dated February 14, 2005,41 petitioners
complained to the tribunal with regard to their lack of access
to RCBCs external auditor. Petitioners sought an audit by an
accounting firm of the records of Bankard with respect to the
claims of RCBC. By virtue of such requests, petitioners also
sought a rescheduling of the provisional timetable, despite
their earlier assurance to the tribunal that if they received the
documents that they requested on February 9, 2005 on or
before February 21, 2005, they would abide by the provisional
timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated
February 18, 2005,42 in which it allowed the discovery and
inspection of the documents requested by petitioners that were
also scheduled on February 18, 2005. The request for an audit
of Bankards accounts was denied without prejudice to the
conduct of such audit during the course of the hearings.
Consequently, the tribunal amended the provisional timetable,
extending the deadline for petitioners to file their brief of
evidence and documents to March 21, 2005. The date of the
initial hearing, however, remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the
documents that they requested RCBC.43 The parties also
agreed to meet again on February 23, 2005 to provide
petitioners with a "walk-through" of Bankards Statistical
Analysis System and to provide petitioners with a soft copy of
all of Bankards cardholders.44

The answer is in the affirmative.

We recall the events that culminated in the issuance of the
challenged Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for
Arbitration dated May 12, 2004 from RCBC seeking
rescission of the SPA and restitution of all the amounts paid
by RCBC to petitioners, with actual and moral damages,
interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request
for Arbitration dated July 28, 2004, setting up a counterclaim
for USD 300,000 for actual and exemplary damages.
RCBC filed its Reply33 dated August 31, 2004 to petitioners
Answer to the Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of
Reference.34 At the same time, the chairperson of the arbitral
tribunal issued a provisional timetable35 for the arbitration.
On October 25, 2004, as previously agreed upon in the
meeting on October 4, 2004, petitioners filed a Motion to

During the February 23, 2005 meeting, EPCIBs

counsels/representatives were accompanied to the Bankards
Credit-MIS Group. There, Bankards representative, Amor
Lazaro, described and explained to petitioners representatives
the steps involved in procuring and translating raw data on
customer transactions. Lazaro explained that Bankard captures
cardholder information and transactions through encoding or
electronic data capture. Thereafter, such data are transmitted
to its main credit card administration system. Such raw data
are then sent to Bankards Information Technology Group.
Using a proprietary software called SAS, the raw data is then
converted into SAS files which may be viewed, handled, and
converted into Excel files for reporting purposes. During the
walk-through, petitioners representatives asked questions
which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L.
Sincoegue, accompanied two auditors/representatives of
petitioners to examine the journal vouchers and supporting
documents of Bankard consisting of several boxes. The
auditors randomly sifted through the boxes which they had
earlier requested to be inspected.

In addition, petitioners were furnished with an electronic copy

of the details of all cardholders, including relevant data for
aging of receivables for the years 2000 to 2003, as well as data
containing details of written-off accounts from 1999 to March
2000 contained in compact discs.45
On March 4, 2005, petitioners sent a letter46 to the tribunal
requesting for a postponement of the April 11, 2005 hearing of
the case. Petitioners claim that they could not confirm the
summaries prepared by RCBC, considering that RCBC
allegedly did not cooperate in providing data that would
facilitate their verification. Petitioners specifically mentioned
the following data: (1) list of names of cardholders whose
accounts are sources of data gathered or calculated in the
summaries; (2) references to the basic cardholder documents
from which such data were collected; and (3) access to the
underlying cardholder documents at a time and under
conditions mutually convenient to the parties. As regards the
compact discs of information provided to petitioners, it is
claimed that such information could not be accessed as the
software necessary for the handling of the data could not be
made immediately available to them.
In Procedural Order No. 3 dated March 11 2005, 47 the initial
hearing was moved to June 13 to 16, 2005, considering that
petitioners failed to pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on
costs.48
49

On April 22, 2005, petitioners sent the tribunal a letter,

requesting for the postponement of the hearing scheduled on
June 13 to 16, 2005 on the ground that they could not submit
their witness statements due to the volume of data that they
acquired from RCBC.
In a letter dated April 25, 2005,50 petitioners demanded from
RCBC that they be allowed to examine the journal vouchers
earlier made available to them during the February 23, 2005
meeting. This demand was answered by RCBC in a letter
dated April 26, 2005,51 stating that such demand was being
denied by virtue of Procedural Order No. 2, in which it was
ruled that further requests for discovery would not be made
except with leave of the chairperson of the tribunal.
In Procedural Order No. 4,52 the tribunal granted petitioners
request for the postponement of the hearing on June 13, 2005
and rescheduled it to November 21, 2005 in light of the
pending motions filed by EPCIB with the RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was
agreed that petitioners would be provided with hard and soft
copies of the inventory of the journal vouchers earlier
presented to its representatives, while making the journal
vouchers available to petitioners for two weeks for
examination and photocopying.53
On September 2, 2005, petitioners applied for the
postponement of the November 21, 2005 hearing due to the
following: (1) petitioners had earlier filed a motion dated
August 11, 2005 with the RTC, in which the issue of whether
the non-Filipino members of the tribunal were illegally
practicing law in the Philippines by hearing their case, which
was still pending; and (2) the gathering and processing of the
data and documents made available by RCBC would require
26 weeks.54 Such application was denied by the tribunal in
Procedural Order No. 5 dated September 16, 2005. 55
On October 21, 2005, the tribunal issued Procedural Order No.
6,56 postponing the November 21, 2005 hearing by virtue of an
order issued by the RTC in Makati City directing the tribunal
to reset the hearing for April 21 and 24, 2006.

Thereafter, in a letter dated January 18, 2006,57 petitioners

wrote the tribunal requesting that RCBC be directed to: (1)
provide petitioners with information identifying the journal
vouchers and other supporting documents that RCBC used to
arrive at the figures set out in the summaries and other
relevant information necessary to enable them to reconstruct
and/or otherwise understand the figures or amounts in each
summary; and (2) submit to petitioners the requested pieces of
information as soon as these are or have become available, or
in any case not later than five days.
In response to such letter, RCBC addressed a letter dated
January 31, 200658 to the tribunal claiming that the pieces of
information that petitioners requested are already known to
petitioners considering that RCBC merely maintained the
systems that they inherited when it bought Bankard from
petitioners. RCBC added that the documents that EPCIB
originally transmitted to it when RCBC bought Bankard were
all being made available to petitioners; thus, any missing
supporting documents from these files were never transmitted
to them in the first place.
Later, petitioners sent to the tribunal a letter dated February
10, 2006,59 asking that it direct RCBC to provide petitioners
with the supporting documents that RCBC mentioned in its
letter dated January 31, 2006. Petitioners wrote that should
RCBC fail to present such documents, RCBCs summaries
should be excluded from the records.
In a letter dated March 10, 2006,60 petitioners requested that
they be given an additional period of at least 47 days within
which to submit their evidence-in-chief with the
corresponding request for the cancellation of the hearing on
April 24, 2006. Petitioners submit that should such request be
denied, RCBCs summaries should be excluded from the
records.
On April 6, 2006, petitioners filed their arbitration briefs and
witness statements. By way of reply, on April 17, 2006,
RCBC submitted Volumes IV and V of its exhibits and
Volume II of its evidence-in-chief.61
On April 18, 2006, petitioners requested the tribunal that they
be allowed to file rejoinder briefs, or otherwise exclude
RCBCs reply brief and witness statements.62 In this request,
petitioners also requested that the hearing set for April 24,
2006 be moved. These requests were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal
conducted hearings on the case.63
On December 4, 2006, petitioners submitted rejoinder
affidavits, raising new issues for the first time, to which
RCBC submitted Volume III of its evidence-in-chief by way
of a reply.
On January 16, 2007, both parties simultaneously submitted
their memoranda. On January 26, 2007, both parties
simultaneously filed their reply to the others memorandum.64
Thus, on September 27, 2007, the Partial Award was rendered
by the Tribunal.
Later, petitioners moved to vacate the said award before the
RTC. Such motion was denied by the trial court in the first
assailed order dated January 8, 2008. Petitioners then moved
for a reconsideration of such order, but their motion was also
denied in the second assailed order dated March 17, 2008.
The foregoing events unequivocally demonstrate ample
opportunity for petitioners to verify and examine RCBCs
summaries, accounting records, and reports. The pleadings

reveal that RCBC granted petitioners requests for production

of documents and accounting records. More so, they had more
than three (3) years to prepare for their defense after RCBCs
submission of its brief of evidence. Finally, it must be
emphasized that petitioners had the opportunity to appeal the
Partial Award to the RTC, which they in fact did. Later,
petitioners even moved for the reconsideration of the denial of
their appeal. Having been able to appeal and move for a
reconsideration of the assailed rulings, petitioners cannot
claim a denial of due process.65
Petitioners right to due process was not breached.
As regards petitioners claim that its right to due process was
violated when they were allegedly denied the right to crossexamine RCBCs witnesses, their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:
Section 15. Hearing by arbitrators. Arbitrators
may, at the commencement of the hearing, ask both
parties for brief statements of the issues in
controversy and/or an agreed statement of facts.
Thereafter the parties may offer such evidence as
they desire, and shall produce such additional
evidence as the arbitrators shall require or deem
necessary to an understanding and determination of
the dispute. The arbitrators shall be the sole judge
of the relevancy and materiality of the evidence
offered or produced, and shall not be bound to
conform to the Rules of Court pertaining to
evidence. Arbitrators shall receive as exhibits in
evidence any document which the parties may
wish to submit and the exhibits shall be properly
identified at the time of submission. All exhibits
shall remain in the custody of the Clerk of Court
during the course of the arbitration and shall be
returned to the parties at the time the award is made.
The arbitrators may make an ocular inspection of any
matter or premises which are in dispute, but such
inspection shall be made only in the presence of all
parties to the arbitration, unless any party who shall
have received notice thereof fails to appear, in which
event such inspection shall be made in the absence of
such party. (Emphasis supplied.)
The well-settled rule is that administrative agencies exercising
quasi-judicial powers shall not be fettered by the rigid
technicalities of procedure, albeit they are, at all times
required, to adhere to the basic concepts of fair play. The
Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
While administrative tribunals exercising quasijudicial powers, like the NLRC and Labor Arbiters,
are free from the rigidity of certain procedural
requirements, they are nonetheless bound by law and
practice to observe the fundamental and essential
requirements of due process. The standard of due
process that must be met in administrative tribunals
allows a certain degree of latitude as long as fairness
is not ignored. Hence, it is not legally objectionable,
for being violative of due process, for the Labor
Arbiter to resolve a case based solely on the position
papers, affidavits or documentary evidence submitted
by the parties. The affidavits of witnesses in such
case may take the place of their direct testimony.66
Of the same tenor is our holding in Quiambao v. Court of
Appeals:
In resolving administrative cases, conduct of fullblown trial is not indispensable to dispense justice to
the parties. The requirement of notice and hearing

does not connote full adversarial proceedings.

Submission of position papers may be sufficient for
as long as the parties thereto are given the
opportunity to be heard. In administrative
proceedings, the essence of due process is simply
an opportunity to be heard, or an opportunity to
explain ones side or opportunity to seek a
reconsideration of the action or ruling complained
of. This constitutional mandate is deemed satisfied
if a person is granted an opportunity to seek
reconsideration of an action or a ruling. It does not
require trial-type proceedings similar to those in the
courts of justice. Where opportunity to be heard
either through oral arguments or through pleadings is
accorded, there is no denial of procedural due
process.67 (Emphasis supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry denial of due
process when they were allegedly denied the right to crossexamine the witnesses presented by RCBC. It is true that in
Vertudes, we stated: "The right of a party to confront and
cross-examine opposing witnesses in a judicial litigation, be it
criminal or civil in nature, or in proceedings before
administrative tribunals with quasi-judicial powers, is a
fundamental right which is part of due process." 68
It is, however, equally true that:
[T]he right is a personal one which may be waived
expressly or impliedly by conduct amounting to a
renunciation of the right of cross-examination. Thus,
where a party has had the opportunity to crossexamine a witness but failed to avail himself of it,
he necessarily forfeits the right to cross-examine
and the testimony given on direct examination of the
witness will be received or allowed to remain in the
record.69 (Emphasis supplied.)
We also held in one case:
However, the right has always been understood as
requiring not necessarily an actual crossexamination but merely an opportunity to exercise
the right to cross-examine if desired. What is
proscribed by statutory norm and jurisprudential
precept is the absence of the opportunity to crossexamine. The right is a personal one and may be
waived expressly or impliedly. There is an implied
waiver when the party was given the opportunity to
confront and cross-examine an opposing witness but
failed to take advantage of it for reasons attributable
to himself alone. If by his actuations, the accused lost
his opportunity to cross-examine wholly or in part the
witnesses against him, his right to cross-examine is
impliedly waived.70 (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded
on the above rulings, adding that in administrative
proceedings, cross-examination is not indispensable, thus:
Due process of law in administrative cases is not
identical with "judicial process" for a trial in court is
not always essential to due process. While a day in
court is a matter of right in judicial proceedings, it is
otherwise in administrative proceedings since they
rest upon different principles. The due process clause
guarantees no particular form of procedure and its
requirements are not technical. Thus, in certain
proceedings of administrative character, the right to a
notice or hearing [is] not essential to due process of
law. The constitutional requirement of due process is
met by a fair hearing before a regularly established
administrative agency or tribunal. It is not essential

that hearings be had before the making of a

determination if thereafter, there is available trial and
tribunal before which all objections and defenses to
the making of such determination may be raised and
considered. One adequate hearing is all that due
process requires. What is required for "hearing" may
differ as the functions of the administrative bodies
differ.
The right to cross-examine is not an indispensable
aspect of due process.71 x x x (Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a
fundamental right of a party, may be waived. Petitioners
themselves admit having had the opportunity to cross-examine
RCBCs witnesses during the hearings before the tribunal, but
declined to do so by reserving such right at a later time.
Having had the opportunity to cross-examine RCBCs
witnesses, petitioners were not denied their right to due
process.
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard
On estoppel, petitioners contend that RCBC already knew the
recording of the Bankard accounts before it paid the balance
of the purchase price and could no longer challenge the
financial statements of Bankard. RCBC, they claim, had full
control of the operations of Bankard since June 2, 2000 and
RCBCs audit team reviewed the accounts in September 2000.
Thus, RCBC is now precluded from denying the fairness and
accuracy of said accounts since it did not seek price reduction
under Sec. 5(h). Lastly, they asseverate that RCBC continued
with Bankards accounting policies and practices and found
them to conform to the generally accepted accounting
principles, contrary to RCBCs allegations.
It also bears stating that in his dissent, retired Justice Kapunan,
an arbitral tribunal member, argued that Bankards accounting
practices were disclosed in the information memorandum
provided to RCBC; hence, RCBC was supposed to know such
accounting practices and to have accepted their propriety even
before the execution of the SPA. He then argued that when it
paid the purchase price on December 29, 2000, RCBC could
no longer claim that the accounting practices that went into the
reporting of the 1999 AFS of Bankard were not in accord with
generally accepted accounting principles. He pointed out that
RCBC was bound by the audit conducted by a certain Rubio
prior to the full payment of the purchase price of Bankard.
Anchored on these statements by Justice Kapunan, petitioners
conclude that RCBC is estopped from claiming that the former
violated their warranties under the SPA.
Petitioners contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel,
provides: "Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon."
The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith, and justice; and its purpose is
to forbid one to speak against ones own acts, representations,
or commitments to the injury of one to whom they were
directed and who reasonably relied on them. 72
We explained the principle of estoppel in Philippine Savings
Bank v. Chowking Food Corporation:

Under the doctrine of estoppel, an admission

or representation is rendered conclusive
upon the person making it, and cannot be
denied or disproved as against the person
relying thereon. A party may not go back on
his own acts and representations to the
prejudice of the other party who relied upon
them. In the law of evidence, whenever a
party has, by his own declaration, act, or
omission, intentionally and deliberately led
another to believe a particular thing true, to
act upon such belief, he cannot, in any
litigation arising out of such declaration, act,
or omission, be permitted to falsify it.
The principle received further elaboration in
Maneclang v. Baun:
In estoppel by pais, as related to the party
sought to be estopped, it is necessary that
there be a concurrence of the following
requisites: (a) conduct amounting to false
representation or concealment of material
facts or at least calculated to convey the
impression that the facts are otherwise than,
and inconsistent with, those which the party
subsequently attempts to assert; (b) intent, or
at least expectation that this conduct shall be
acted upon, or at least influenced by the
other party; and (c) knowledge, actual or
constructive of the actual facts.
Estoppel may vary somewhat in definition, but all
authorities agree that a party invoking the doctrine
must have been misled to ones prejudice. That is
the final and, in reality, most important of the
elements of equitable estoppel. It is this element that
is lacking here.73 (Emphasis supplied.)
The elements of estoppel pertaining to the party estopped are:
(1) conduct which amounts to a false representation
or concealment of material facts, or, at least, which
calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which
the party subsequently attempts to assert; (2)
intention, or at least expectation, that such conduct
shall be acted upon by the other party; and (3)
knowledge, actual or constructive, of the actual
facts.74
In the case at bar, the first element of estoppel in relation to
the party sought to be estopped is not present. Petitioners
claim that RCBC misrepresented itself when RCBC made it
appear that they considered petitioners to have sufficiently
complied with its warranties under Sec. 5(g) and 5(h), in
relation to Sec. 7 of the SPA. Petitioners position is that
"RCBC was aware of the manner in which the Bankard
accounts were recorded, well before it consummated the SPA
by taking delivery of the shares and paying the outstanding
80% balance of the contract price." 75
Petitioners, therefore, theorize that in this case, the first
element of estoppel in relation to the party sought to be
estopped is that RCBC made a false representation that it
considered Bankards accounts to be in order and, thus, RCBC
abandoned any claim under Sec. 5(g) and 5(h) by its inaction.
Such contention is incorrect.

x x x The equitable doctrine of estoppel was

explained by this Court in Caltex (Philippines), Inc.
v. Court of Appeals:

It must be emphasized that it was only after a second audit that

RCBC presented its claim to petitioners for violation of Sec.
5(g), within the three (3)-year period prescribed. In other

words, RCBC, prior to such second audit, did not have full
and thorough knowledge of the correctness of Bankards
accounts, in relation to Sec. 5(g). RCBC, therefore, could not
have misrepresented itself considering that it was still in the
process of verifying the warranties covered under Sec. 5(g).
Considering that there must be a concurrence of the elements
of estoppel for it to arise, on this ground alone such claim is
already negated. As will be shown, however, all the other
elements of estoppel are likewise absent in the case at bar.
As to the second element, in order to establish estoppel,
RCBC must have intended that petitioners would act upon its
actions. This element is also missing. RCBC by its actions did
not mislead petitioners into believing that it waived any claim
for violation of a warranty. The periods under Sec. 5(g) and
5(h) were still available to RCBC.
The element that petitioners relied on the acts and conduct of
RCBC is absent. The Court finds that there was no reliance on
the part of petitioners on the acts of RCBC that would lead
them to believe that the RCBC will forego the filing of a claim
under Sec. 5(g). The allegation that RCBC knew that the
Bankard accounts did not comply with generally accepted
accounting principles before payment and, hence, it cannot
question the financial statements of Bankard is meritless.
Precisely, the SPA explicitly provides that claims for violation
of the warranties under Sec. 5(g) can still be filed within three
(3) years from the closing date. Petitioners contention that
RCBC had full control of Bankard operations after payment of
the price and that an audit undertaken by the Rubio team did
not find anything wrong with the accounts could not have
plausibly misled petitioners into believing that RCBC will
waive its right to file a claim under Sec. 5(g). After all, the
period to file a claim under Sec. 5(g) is three (3) years under
Sec. 7, much longer than the six (6)-month period under Sec.
5(h). Petitioners are fully aware that the warranties under Sec.
5(g) (1997 up to March 2000) are of a wider scope than that of
Sec. 5(h) (AFS of 1999 and UFS up to May 31, 2000),
necessitating a longer audit period than the six (6)-month
period under Sec. 5(h).
The third element of estoppel in relation to the party sought to
be estopped is also absent considering that, as stated, RCBC
was still in the process of verifying the correctness of
Bankards accounts prior to presenting its claim of
overvaluation to petitioners. RCBC, therefore, had no
sufficient knowledge of the correctness of Bankards accounts.
On another issue, RCBC could not have immediately changed
the Bankard accounting practices until it had conducted a
more extensive and thorough audit of Bankards voluminous
records and transactions to uncover any irregularities. That
would be the only logical explanation why Bankards alleged
irregular practices were maintained for more than two (2)
years from closing date. The fact that RCBC continued with
the audit of Bankards AFS and records after the termination
of the Rubio audit can only send the clear message to
petitioners that RCBC is still entertaining the possibility of
filing a claim under Sec. 5(g). It cannot then be said that
petitioners reliance on RCBCs acts after full payment of the
price could have misled them into believing that no more
claim will be presented by RCBC.
The Arbitral Tribunal explained in detail why estoppel is not
present in the case at bar, thus:
10.18 The audit exercise conducted by Mr. Legaspi
and Mr. Rubio was clearly not one comprehensive
enough to have discovered the problems later
unearthed by Dr. Laya and Dean Ledesma. x x x
10.19 Although the powers of the TC [Transition
Committee] may have been widely expressed in the

view of Mr. Rogelio Chua, then in charge of Bankard

x x x the TC conducted meetings only to get updated
on the status and progress of Bankards operations.
Commercially, one would expect that an unpaid
vendor expecting to receive 80% of a large purchase
price would not be receptive to a purchaser making
vast policy changes in the operation of the business
until the purchaser has paid up its money. It is more
likely that, until the settlement date, there was a
practice of maintaining the status quo at Bankard.
10.20 But neither the Claimant nor the TC did
anything, in the Tribunals view, which would have
given the Respondents the impression that they were
being relieved over the next three years of
susceptibility to a claim under clause 5(g). Maybe the
TC could have been more proactive in
commissioning further or more in-depth audits but it
was not. It did not have to be. It is commercially
unlikely that it have been done so, with the necessary
degree of attention to detail, within the relatively
short time between the appointment of the TC and the
ultimate settlement date of the purchase a period of
some three months. An interim arrangement was
obviously sensible to enable the Claimant and its
staff to become familiar with the practices and
procedures of Bankard.
10.21 The core consideration weighing with the
Tribunal in assessing these claims for estoppel is that
the SPA allowed two types of claim; one within six
months under 5(h) and one within three years under
5(g). The Tribunal has already held the present claim
is not barred by clause 5(h). It must therefore have
been within the reasonable contemplation of the
parties that a 5(g) claim could surface within the
three-year period and that it could be somewhat
differently assessed than the claim under 5(h). The
Tribunal cannot find estoppel by conduct either from
the formation of the TC or from the limited auditing
exercise done by Mr. Rubio and Mr. Legaspi. The
onus proving estoppel is on the Respondents and it
has not been discharged.
10.22 If the parties had wished the avenues of relief
for misrepresentation afforded to the Claimant to
have been restricted to a claim under Clause 5(h),
then they could have said so. The special audit may
have provided an answer to any claim based on
clause 5(h) but it cannot do so in respect of a claim
based on Clause 5(g). Clause 5(g) imposed a positive
obligation on the Respondents from which they
cannot be excused, simply by reason of either the
formation and conduct of the TC or of the limited
audit.
10.23 The three-year limitation period obviously
contemplated that it could take some time to ascertain
whether there had been a breach of the GAAP
standards, etc. Such was the case. A six-month
limitation period under Clause 5(h), in contrast,
presaged a somewhat less stringent enquiry of the
kind carried out by Mr. Rubio and Mr. Legaspi.
10.24 Clause 2(3) of the Amendment to the SPA
strengthens the conclusion that the parties were
concerned only with a 5(h) claim during the TCs
reign. The focus of the audit however intense it
was conducted by Mr. Rubio and Mr. Legaspi, was
on establishing possible liability under that section
and thus as a possible reduction in the price to be
paid on settlement.

10.25 The fact that the purchase price was paid over
in full without any deduction in terms of clause 5(h)
is not a bar to the Claimant bringing a claim under
5(g) within the three-year period. The fact that
payment was made can be, as the Tribunal has held, a
barrier to a claim for rescission and restitution ad
inegrum. A claim for estoppel needs a finding of
representation by words of conduct or a shared
presumption that a right would not be relied upon.
The party relying on estoppel has to show reliance to
its detriment or that, otherwise, it would be
unconscionable to resile from the provision.
10.26 Article 1431 of the Civil Code states:
"Through estoppel an admission or representation is
rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person
relying thereon."
10.27 Clearly, there has to both an admission or
representation by (in this case) the Claimant, plus
reliance upon it by (in this case) the Respondents.
The Tribunal cannot find as proved any
admission/representation that the Claimant was
abandoning a 5(g) claim, any reliance by
Respondents on an admission, and any detriment to
the Respondents such as would entitle them to have
the Claimant deprived of the benefit of clause 5(g).
These aspects of the claim of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for
deciding whether there have been any regulatory or
ethical infractions by Bankard and/or the Claimant in
setting the buy-back price. It has no bearing on
whether the Claimant must be considered as having
waived its right to claim against the Respondents.
10.43 In the Tribunals view, neither any infraction
by Bankard in failing to advise the Central Bank of
the experts findings, nor a failure to put a tag on the
accounts nor to have said something to the
shareholders in the buy-back exercise operates as a
"technical knock-out" of Claimants claim.
10.44 The Tribunal notes that the conciliation process
mandated by the SPA took most of 2003 and this
may explain a part of the delay in commencing
arbitral proceedings.
10.45 Whatever the status of Mr. Rubios and Mr.
Legaspis enquiries in late 2000, the Claimant was
quite entitled to commission subsequent reports from
Dr. Laya and Dr. Echanis and, on the basis of those
reports, make a timeous claim under clause 5(g) of
the SPA.
10.46 In the Tribunals view, therefore, there is no
merit in Respondents various submissions that the
Claimant is debarred from prosecuting its claims on
the grounds of estoppel. There is just no proof of the
necessary representation to the Respondent, nor any
detriment to the Respondent proved. The grounds of
delay and laches are not substantiated.
In summary, the tribunal properly ruled that petitioners failed
to prove that the formation of the Transition Committee and
the conduct of the audit by Rubio and Legaspi were
admissions or representations by RCBC that it would not
pursue a claim under Sec. 5(g) and that petitioners relied on

such representation to their detriment. We agree with the

findings of the tribunal that estoppel is not present in the
situation at bar.
Additionally, petitioners claim that in Knecht v. Court of
Appeals76 and Coca-Cola Bottlers Philippines, Inc. v. Court of
Appeals (Coca-Cola),77 this Court ruled that the absence of the
element of reliance by a party on the representation of another
does not negate the principle of estoppel. Those cases are,
however, not on all fours with and cannot be applied to this
case.
In Knecht, the buyer had the opportunity of knowing the
conditions of the land he was buying early on in the
transaction, but proceeded with the sale anyway. According to
the Court, the buyer was estopped from claiming that the
vendor made a false representation as to the condition of the
land. This is not true in the instant case. RCBC did not
conduct a due diligence audit in relation to Sec.5(g) prior to
the sale due to petitioners express representations and
warranties. The examination conducted by RCBC, through
Rubio, after the execution of the SPA on June 2, 2000, was
confined to finding any breach under Sec. 5(h) for a possible
reduction of the purchase price prior to the payment of its
balance on December 31, 2000. Further, the parties clearly
agreed under Sec. 7 of the SPA to a three (3)-year period from
closing date within which to present a claim for damages for
violation of the warranties under the SPA. Hence, Knecht is
not a precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well
aware of the nature and situation of the land relative to its
intended use prior to the signing of the contract. Its subsequent
assertion that the land was not suited for the purpose it was
leased was, therefore, cast aside for being unmeritorious. Such
circumstance does not obtain in the instant case. There was no
prior due diligence audit conducted by RCBC, it having relied,
as earlier stated, on the warranties of petitioners with regard to
the financial condition of Bankard under Sec. 5(g). As such,
Sec. 5(g) guaranteed RCBC that it could file a claim for
damages for any mistakes in the AFS and UFS of Bankard.
Clearly, Coca-Cola also cannot be applied to the instant case.
It becomes evident from all of the foregoing findings that the
ICC-ICA is not guilty of any manifest disregard of the law on
estoppel. As shown above, the findings of the ICC-ICA in the
Partial Award are well-supported in law and grounded on
facts. The Partial Award must be upheld.
We close this disposition with the observation that a member
of the three-person arbitration panel was selected by
petitioners, while another was respondents choice. The
respective interests of the parties, therefore, are very much
safeguarded in the arbitration proceedings. Any suggestion,
therefore, on the partiality of the arbitration tribunal has to be
dismissed.
WHEREFORE, the instant petition is hereby DENIED. The
assailed January 8, 2008 and March 17, 2008 Orders of the
RTC, Branch 148 in Makati City are hereby AFFIRMED.
SO ORDERED.
______________________________________________
G.R. No. 169332

February 11, 2008

ABS-CBN BROADCASTING CORPORATION,

petitioner,
vs.
WORLD INTERACTIVE NETWORK SYSTEMS
(WINS) JAPAN CO., LTD., respondent.

then allowed respondent to recover temperate damages,

attorney's fees and one-half of the amount it paid as arbitrator's
fee.

DECISION
CORONA, J.:
This petition for review on certiorari under Rule 45 of the
Rules of Court seeks to set aside the February 16, 2005
decision1 and August 16, 2005 resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting
Corporation entered into a licensing agreement with
respondent World Interactive Network Systems (WINS) Japan
Co., Ltd., a foreign corporation licensed under the laws of
Japan. Under the agreement, respondent was granted the
exclusive license to distribute and sublicense the distribution
of the television service known as "The Filipino Channel"
(TFC) in Japan. By virtue thereof, petitioner undertook to
transmit the TFC programming signals to respondent which
the latter received through its decoders and distributed to its
subscribers.
A dispute arose between the parties when petitioner accused
respondent of inserting nine episodes of WINS WEEKLY, a
weekly 35-minute community news program for Filipinos in
Japan, into the TFC programming from March to May 2002.3
Petitioner claimed that these were "unauthorized insertions"
constituting a material breach of their agreement.
Consequently, on May 9, 2002,4 petitioner notified respondent
of its intention to terminate the agreement effective June 10,
2002.
Thereafter, respondent filed an arbitration suit pursuant to the
arbitration clause of its agreement with petitioner. It contended
that the airing of WINS WEEKLY was made with petitioner's
prior approval. It also alleged that petitioner only threatened to
terminate their agreement because it wanted to renegotiate the
terms thereof to allow it to demand higher fees. Respondent
also prayed for damages for petitioner's alleged grant of an
exclusive distribution license to another entity, NHK (Japan
Broadcasting Corporation).5
The parties appointed Professor Alfredo F. Tadiar to act as
sole arbitrator. They stipulated on the following issues in their
terms of reference (TOR)6:
1. Was the broadcast of WINS WEEKLY by the
claimant duly authorized by the respondent [herein
petitioner]?
2. Did such broadcast constitute a material breach of
the agreement that is a ground for termination of the
agreement in accordance with Section 13 (a) thereof?
3. If so, was the breach seasonably cured under the
same contractual provision of Section 13 (a)?
4. Which party is entitled to the payment of damages
they claim and to the other reliefs prayed for?
xxx

xxx

xxx

The arbitrator found in favor of respondent. 7 He held that

petitioner gave its approval to respondent for the airing of
WINS WEEKLY as shown by a series of written exchanges
between the parties. He also ruled that, had there really been a
material breach of the agreement, petitioner should have
terminated the same instead of sending a mere notice to
terminate said agreement. The arbitrator found that petitioner
threatened to terminate the agreement due to its desire to
compel respondent to re-negotiate the terms thereof for higher
fees. He further stated that even if respondent committed a
breach of the agreement, the same was seasonably cured. He

Petitioner filed in the CA a petition for review under Rule 43

of the Rules of Court or, in the alternative, a petition for
certiorari under Rule 65 of the same Rules, with application
for temporary restraining order and writ of preliminary
injunction. It was docketed as CA-G.R. SP No. 81940. It
alleged serious errors of fact and law and/or grave abuse of
discretion amounting to lack or excess of jurisdiction on the
part of the arbitrator.
Respondent, on the other hand, filed a petition for
confirmation of arbitral award before the Regional Trial Court
(RTC) of Quezon City, Branch 93, docketed as Civil Case No.
Q-04-51822.
Consequently, petitioner filed a supplemental petition in the
CA seeking to enjoin the RTC of Quezon City from further
proceeding with the hearing of respondent's petition for
confirmation of arbitral award. After the petition was admitted
by the appellate court, the RTC of Quezon City issued an
order holding in abeyance any further action on respondent's
petition as the assailed decision of the arbitrator had already
become the subject of an appeal in the CA. Respondent filed a
motion for reconsideration but no resolution has been issued
by the lower court to date.8
On February 16, 2005, the CA rendered the assailed decision
dismissing ABS-CBNs petition for lack of jurisdiction. It
stated that as the TOR itself provided that the arbitrator's
decision shall be final and unappealable and that no motion for
reconsideration shall be filed, then the petition for review must
fail. It ruled that it is the RTC which has jurisdiction over
questions relating to arbitration. It held that the only instance it
can exercise jurisdiction over an arbitral award is an appeal
from the trial court's decision confirming, vacating or
modifying the arbitral award. It further stated that a petition
for certiorari under Rule 65 of the Rules of Court is proper in
arbitration cases only if the courts refuse or neglect to inquire
into the facts of an arbitrator's award. The dispositive portion
of the CA decision read:
WHEREFORE, the instant petition is hereby
DISMISSED for lack of jurisdiction. The application
for a writ of injunction and temporary restraining
order is likewise DENIED. The Regional Trial Court
of Quezon City Branch 93 is directed to proceed with
the trial for the Petition for Confirmation of Arbitral
Award.
SO ORDERED.
Petitioner moved for reconsideration. The same was denied.
Hence, this petition.
Petitioner contends that the CA, in effect, ruled that: (a) it
should have first filed a petition to vacate the award in the
RTC and only in case of denial could it elevate the matter to
the CA via a petition for review under Rule 43 and (b) the
assailed decision implied that an aggrieved party to an arbitral
award does not have the option of directly filing a petition for
review under Rule 43 or a petition for certiorari under Rule 65
with the CA even if the issues raised pertain to errors of fact
and law or grave abuse of discretion, as the case may be, and
not dependent upon such grounds as enumerated under
Section 24 (petition to vacate an arbitral award) of RA 876
(the Arbitration Law). Petitioner alleged serious error on the
part of the CA.
The issue before us is whether or not an aggrieved party in a
voluntary arbitration dispute may avail of, directly in the CA,

a petition for review under Rule 43 or a petition for certiorari

under Rule 65 of the Rules of Court, instead of filing a petition
to vacate the award in the RTC when the grounds invoked to
overturn the arbitrators decision are other than those for a
petition to vacate an arbitral award enumerated under RA 876.

fault with their impartiality and integrity. Evidently,

the nullification of the award rendered at the case
at bar was not made on the basis of any of the
grounds provided by law.
xxx

RA 876 itself mandates that it is the Court of First Instance,

now the RTC, which has jurisdiction over questions relating to
arbitration,9 such as a petition to vacate an arbitral award.
Section 24 of RA 876 provides for the specific grounds for a
petition to vacate an award made by an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of
the following cases, the court must make an order
vacating the award upon the petition of any party to
the controversy when such party proves affirmatively
that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or
other undue means; or
(b) That there was evident partiality or corruption in
the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient
cause shown, or in refusing to hear evidence pertinent
and material to the controversy; that one or more of
the arbitrators was disqualified to act as such under
section nine hereof, and willfully refrained from
disclosing such disqualifications or of any other
misbehavior by which the rights of any party have
been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to
them was not made.

Adamson v. Court of Appeals10 gave ample warning that a

petition to vacate filed in the RTC which is not based on the
grounds enumerated in Section 24 of RA 876 should be
dismissed. In that case, the trial court vacated the arbitral
award seemingly based on grounds included in Section 24 of
RA 876 but a closer reading thereof revealed otherwise. On
appeal, the CA reversed the decision of the trial court and
affirmed the arbitral award. In affirming the CA, we held:
The Court of Appeals, in reversing the trial court's
decision held that the nullification of the decision of
the Arbitration Committee was not based on the
grounds provided by the Arbitration Law and that
xxx private respondents (petitioners herein) have
failed to substantiate with any evidence their claim of
partiality. Significantly, even as respondent judge
ruled against the arbitrator's award, he could not find

xxx

It is clear, therefore, that the award was vacated

not because of evident partiality of the arbitrators
but because the latter interpreted the contract in a
way which was not favorable to herein petitioners
and because it considered that herein private
respondents, by submitting the controversy to
arbitration, was seeking to renege on its obligations
under the contract.
xxx

xxx

xxx

It is clear then that the Court of Appeals reversed

the trial court not because the latter reviewed the
arbitration award involved herein, but because the
respondent appellate court found that the trial
court had no legal basis for vacating the award.
(Emphasis supplied).
In cases not falling under any of the aforementioned grounds
to vacate an award, the Court has already made several
pronouncements that a petition for review under Rule 43 or a
petition for certiorari under Rule 65 may be availed of in the
CA. Which one would depend on the grounds relied upon by
petitioner.
In Luzon Development Bank v. Association of Luzon
Development Bank Employees,11 the Court held that a
voluntary arbitrator is properly classified as a "quasi-judicial
instrumentality" and is, thus, within the ambit of Section 9 (3)
of the Judiciary Reorganization Act, as amended. Under this
section, the Court of Appeals shall exercise:
xxx

Based on the foregoing provisions, the law itself clearly

provides that the RTC must issue an order vacating an arbitral
award only "in any one of the . . . cases" enumerated therein.
Under the legal maxim in statutory construction expressio
unius est exclusio alterius, the explicit mention of one thing in
a statute means the elimination of others not specifically
mentioned. As RA 876 did not expressly provide for errors of
fact and/or law and grave abuse of discretion (proper grounds
for a petition for review under Rule 43 and a petition for
certiorari under Rule 65, respectively) as grounds for
maintaining a petition to vacate an arbitral award in the RTC,
it necessarily follows that a party may not avail of the latter
remedy on the grounds of errors of fact and/or law or grave
abuse of discretion to overturn an arbitral award.

xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all final

judgments, decisions, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, including
the Securities and Exchange Commission, the
Employees Compensation Commission and the Civil
Service Commission, except 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. (Emphasis supplied)
As such, decisions handed down by voluntary arbitrators fall
within the exclusive appellate jurisdiction of the CA. This
decision was taken into consideration in approving Section 1
of Rule 43 of the Rules of Court.12 Thus:
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 Number 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)
This rule was cited in Sevilla Trading Company v. Semana,13
Manila Midtown Hotel v. Borromeo,14 and Nippon Paint
Employees Union-Olalia v. Court of Appeals.15 These cases
held that the proper remedy from the adverse decision of a
voluntary arbitrator, if errors of fact and/or law are raised, is a
petition for review under Rule 43 of the Rules of Court. Thus,
petitioner's contention that it may avail of a petition for review
under Rule 43 under the circumstances of this case is correct.
As to petitioner's arguments that a petition for certiorari under
Rule 65 may also be resorted to, we hold the same to be in
accordance with the Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides
that:
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)
As may be gleaned from the above stated provision, it is well
within the power and jurisdiction of the Court to inquire
whether any instrumentality of the Government, such as a
voluntary arbitrator, has gravely abused its discretion in the
exercise of its functions and prerogatives. Any agreement
stipulating that "the decision of the arbitrator shall be final and
unappealable" and "that no further judicial recourse if either
party disagrees with the whole or any part of the arbitrator's
award may be availed of" cannot be held to preclude in proper
cases the power of judicial review which is inherent in
courts.16 We will not hesitate to review a voluntary arbitrator's
award where there is a showing of grave abuse of authority or
discretion and such is properly raised in a petition for
certiorari17 and there is no appeal, nor any plain, speedy
remedy in the course of law.18
Significantly, Insular Savings Bank v. Far East Bank and
Trust Company19 definitively outlined several judicial
remedies an aggrieved party to an arbitral award may
undertake:
(1) a petition in the proper RTC to issue an order to
vacate the award on the grounds provided for in
Section 24 of RA 876;
(2) a petition for review in the CA under Rule 43 of
the Rules of Court on questions of fact, of law, or
mixed questions of fact and law; and
(3) a petition for certiorari under Rule 65 of the Rules
of Court should the arbitrator have acted without or

in excess of his jurisdiction or with grave abuse of

discretion amounting to lack or excess of jurisdiction.
Nevertheless, although petitioners position on the judicial
remedies available to it was correct, we sustain the dismissal
of its petition by the CA. The remedy petitioner availed of,
entitled "alternative petition for review under Rule 43 or
petition for certiorari under Rule 65," was wrong.
Time and again, we have ruled that the remedies of appeal and
certiorari are mutually exclusive and not alternative or
successive.20
Proper issues that may be raised in a petition for review under
Rule 43 pertain to errors of fact, law or mixed questions of
fact and law.21 While a petition for certiorari under Rule 65
should only limit itself to errors of jurisdiction, that is, grave
abuse of discretion amounting to a lack or excess of
jurisdiction.22 Moreover, it cannot be availed of where appeal
is the proper remedy or as a substitute for a lapsed appeal. 23
In the case at bar, the questions raised by petitioner in its
alternative petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN RULING THAT THE
BROADCAST OF "WINS WEEKLY" WAS DULY
AUTHORIZED BY ABS-CBN.
B. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN RULING THAT THE
UNAUTHORIZED BROADCAST DID NOT
CONSTITUTE MATERIAL BREACH OF THE
AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN RULING THAT WINS
SEASONABLY CURED THE BREACH.
D. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN RULING THAT
TEMPERATE DAMAGES IN THE AMOUNT OF
P1,166,955.00 MAY BE AWARDED TO WINS.
E. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED
HIS DISCRETION IN AWARDING ATTORNEY'S
FEES IN THE UNREASONABLE AMOUNT AND
UNCONSCIONABLE AMOUNT OF P850,000.00.
F. THE ERROR COMMITTED BY THE SOLE
ARBITRATOR IS NOT A SIMPLE ERROR OF
JUDGMENT OR ABUSE OF DISCRETION. IT IS
GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION.
A careful reading of the assigned errors reveals that the real
issues calling for the CA's resolution were less the alleged
grave abuse of discretion exercised by the arbitrator and more
about the arbitrators appreciation of the issues and evidence
presented by the parties. Therefore, the issues clearly fall
under the classification of errors of fact and law questions
which may be passed upon by the CA via a petition for review
under Rule 43. Petitioner cleverly crafted its assignment of
errors in such a way as to straddle both judicial remedies, that
is, by alleging serious errors of fact and law (in which case a
petition for review under Rule 43 would be proper) and grave

abuse of discretion (because of which a petition for certiorari

under Rule 65 would be permissible).

conciliation and such other means enumerated under Clause

20.3 of the Turnkey Contract.6

It must be emphasized that every lawyer should be familiar

with the distinctions between the two remedies for it is not the
duty of the courts to determine under which rule the petition
should fall.24 Petitioner's ploy was fatal to its cause. An appeal
taken either to this Court or the CA by the wrong or
inappropriate mode shall be dismissed.25 Thus, the alternative
petition filed in the CA, being an inappropriate mode of
appeal, should have been dismissed outright by the CA.

To secure performance of petitioner's obligation on or before

the target completion date, or such time for completion as may
be determined by the parties' agreement, petitioner opened in
favor of LHC two (2) standby letters of credit both dated 20
March 2000 (hereinafter referred to as "the Securities"), to wit:
Standby Letter of Credit No. E001126/8400 with the local
branch of respondent Australia and New Zealand Banking
Group Limited (ANZ Bank)7 and Standby Letter of Credit No.
IBDIDSB-00/4 with respondent Security Bank Corporation
(SBC)8 each in the amount of US$8,988,907.00.9

WHEREFORE, the petition is hereby DENIED. The

February 16, 2005 decision and August 16, 2005 resolution of
the Court of Appeals in CA-G.R. SP No. 81940 directing the
Regional Trial Court of Quezon City, Branch 93 to proceed
with the trial of the petition for confirmation of arbitral award
is AFFIRMED.
Costs against petitioner.
SO ORDERED.
______________________________________________
G.R. No. 146717

November 22, 2004

TRANSFIELD PHILIPPINES, INC., petitioner,

vs.
LUZON HYDRO CORPORATION, AUSTRALIA and
NEW ZEALAND BANKING GROUP LIMITED and
SECURITY BANK CORPORATION, respondents.

DECISION

TINGA, J.:
Subject of this case is the letter of credit which has evolved as
the ubiquitous and most important device in international
trade. A creation of commerce and businessmen, the letter of
credit is also unique in the number of parties involved and its
supranational character.
Petitioner has appealed from the Decision1 of the Court of
Appeals in CA-G.R. SP No. 61901 entitled "Transfield
Philippines, Inc. v. Hon. Oscar Pimentel, et al.," promulgated
on 31 January 2001.2
On 26 March 1997, petitioner and respondent Luzon Hydro
Corporation (hereinafter, LHC) entered into a Turnkey
Contract3 whereby petitioner, as Turnkey Contractor,
undertook to construct, on a turnkey basis, a seventy (70)Megawatt hydro-electric power station at the Bakun River in
the provinces of Benguet and Ilocos Sur (hereinafter, the
Project). Petitioner was given the sole responsibility for the
design, construction, commissioning, testing and completion
of the Project.4
The Turnkey Contract provides that: (1) the target completion
date of the Project shall be on 1 June 2000, or such later date
as may be agreed upon between petitioner and respondent
LHC or otherwise determined in accordance with the Turnkey
Contract; and (2) petitioner is entitled to claim extensions of
time (EOT) for reasons enumerated in the Turnkey Contract,
among which are variations, force majeure, and delays caused
by LHC itself.5 Further, in case of dispute, the parties are
bound to settle their differences through mediation,

In the course of the construction of the project, petitioner

sought various EOT to complete the Project. The extensions
were requested allegedly due to several factors which
prevented the completion of the Project on target date, such as
force majeure occasioned by typhoon Zeb, barricades and
demonstrations. LHC denied the requests, however. This gave
rise to a series of legal actions between the parties which
culminated in the instant petition.
The first of the actions was a Request for Arbitration which
LHC filed before the Construction Industry Arbitration
Commission (CIAC) on 1 June 1999.10 This was followed by
another Request for Arbitration, this time filed by petitioner
before the International Chamber of Commerce (ICC) 11 on 3
November 2000. In both arbitration proceedings, the common
issues presented were: [1) whether typhoon Zeb and any of its
associated events constituted force majeure to justify the
extension of time sought by petitioner; and [2) whether LHC
had the right to terminate the Turnkey Contract for failure of
petitioner to complete the Project on target date.
Meanwhile, foreseeing that LHC would call on the Securities
pursuant to the pertinent provisions of the Turnkey Contract,12
petitionerin two separate letters13 both dated 10 August
2000advised respondent banks of the arbitration
proceedings already pending before the CIAC and ICC in
connection with its alleged default in the performance of its
obligations. Asserting that LHC had no right to call on the
Securities until the resolution of disputes before the arbitral
tribunals, petitioner warned respondent banks that any
transfer, release, or disposition of the Securities in favor of
LHC or any person claiming under LHC would constrain it to
hold respondent banks liable for liquidated damages.
As petitioner had anticipated, on 27 June 2000, LHC sent
notice to petitioner that pursuant to Clause 8.214 of the
Turnkey Contract, it failed to comply with its obligation to
complete the Project. Despite the letters of petitioner,
however, both banks informed petitioner that they would pay
on the Securities if and when LHC calls on them.15
LHC asserted that additional extension of time would not be
warranted; accordingly it declared petitioner in default/delay
in the performance of its obligations under the Turnkey
Contract and demanded from petitioner the payment of
US$75,000.00 for each day of delay beginning 28 June 2000
until actual completion of the Project pursuant to Clause 8.7.1
of the Turnkey Contract. At the same time, LHC served notice
that it would call on the securities for the payment of
liquidated damages for the delay.16
On 5 November 2000, petitioner as plaintiff filed a Complaint
for Injunction, with prayer for temporary restraining order and
writ of preliminary injunction, against herein respondents as
defendants before the Regional Trial Court (RTC) of Makati. 17
Petitioner sought to restrain respondent LHC from calling on
the Securities and respondent banks from transferring, paying
on, or in any manner disposing of the Securities or any
renewals or substitutes thereof. The RTC issued a seventy-two

(72)-hour temporary restraining order on the same day. The

case was docketed as Civil Case No. 00-1312 and raffled to
Branch 148 of the RTC of Makati.
After appropriate proceedings, the trial court issued an Order
on 9 November 2000, extending the temporary restraining
order for a period of seventeen (17) days or until 26 November
2000.18
The RTC, in its Order19 dated 24 November 2000, denied
petitioner's application for a writ of preliminary injunction. It
ruled that petitioner had no legal right and suffered no
irreparable injury to justify the issuance of the writ.
Employing the principle of "independent contract" in letters of
credit, the trial court ruled that LHC should be allowed to
draw on the Securities for liquidated damages. It debunked
petitioner's contention that the principle of "independent
contract" could be invoked only by respondent banks since
according to it respondent LHC is the ultimate beneficiary of
the Securities. The trial court further ruled that the banks were
mere custodians of the funds and as such they were obligated
to transfer the same to the beneficiary for as long as the latter
could submit the required certification of its claims.
Dissatisfied with the trial court's denial of its application for a
writ of preliminary injunction, petitioner elevated the case to
the Court of Appeals via a Petition for Certiorari under Rule
65, with prayer for the issuance of a temporary restraining
order and writ of preliminary injunction.20 Petitioner submitted
to the appellate court that LHC's call on the Securities was
premature considering that the issue of its default had not yet
been resolved with finality by the CIAC and/or the ICC. It
asserted that until the fact of delay could be established, LHC
had no right to draw on the Securities for liquidated damages.
Refuting petitioner's contentions, LHC claimed that petitioner
had no right to restrain its call on and use of the Securities as
payment for liquidated damages. It averred that the Securities
are independent of the main contract between them as shown
on the face of the two Standby Letters of Credit which both
provide that the banks have no responsibility to investigate the
authenticity or accuracy of the certificates or the declarant's
capacity or entitlement to so certify.
In its Resolution dated 28 November 2000, the Court of
Appeals issued a temporary restraining order, enjoining LHC
from calling on the Securities or any renewals or substitutes
thereof and ordering respondent banks to cease and desist
from transferring, paying or in any manner disposing of the
Securities.
However, the appellate court failed to act on the application
for preliminary injunction until the temporary restraining order
expired on 27 January 2001. Immediately thereafter,
representatives of LHC trooped to ANZ Bank and withdrew
the total amount of US$4,950,000.00, thereby reducing the
balance in ANZ Bank to US$1,852,814.00.
On 2 February 2001, the appellate court dismissed the petition
for certiorari. The appellate court expressed conformity with
the trial court's decision that LHC could call on the Securities
pursuant to the first principle in credit law that the credit itself
is independent of the underlying transaction and that as long
as the beneficiary complied with the credit, it was of no
moment that he had not complied with the underlying
contract. Further, the appellate court held that even assuming
that the trial court's denial of petitioner's application for a writ
of preliminary injunction was erroneous, it constituted only an
error of judgment which is not correctible by certiorari, unlike
error of jurisdiction.
Undaunted, petitioner filed the instant Petition for Review
raising the following issues for resolution:

WHETHER THE "INDEPENDENCE PRINCIPLE"

ON LETTERS OF CREDIT MAY BE INVOKED
BY A BENEFICIARY THEREOF WHERE THE
BENEFICIARY'S CALL THEREON IS
WRONGFUL OR FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL
AND DRAW ON THE SECURITIES BEFORE THE
RESOLUTION OF PETITIONER'S AND LHC'S
DISPUTES BY THE APPROPRIATE TRIBUNAL.
WHETHER ANZ BANK AND SECURITY BANK
ARE JUSTIFIED IN RELEASING THE AMOUNTS
DUE UNDER THE SECURITIES DESPITE BEING
NOTIFIED THAT LHC'S CALL THEREON IS
WRONGFUL.
WHETHER OR NOT PETITIONER WILL SUFFER
GRAVE AND IRREPARABLE DAMAGE IN THE
EVENT THAT:
A. LHC IS ALLOWED TO CALL AND
DRAW ON, AND ANZ BANK AND
SECURITY BANK ARE ALLOWED TO
RELEASE, THE REMAINING BALANCE
OF THE SECURITIES PRIOR TO THE
RESOLUTION OF THE DISPUTES
BETWEEN PETITIONER AND LHC.
B. LHC DOES NOT RETURN THE
AMOUNTS IT HAD WRONGFULLY
DRAWN FROM THE SECURITIES.21
Petitioner contends that the courts below improperly relied on
the "independence principle" on letters of credit when this
case falls squarely within the "fraud exception rule."
Respondent LHC deliberately misrepresented the supposed
existence of delay despite its knowledge that the issue was still
pending arbitration, petitioner continues.
Petitioner asserts that LHC should be ordered to return the
proceeds of the Securities pursuant to the principle against
unjust enrichment and that, under the premises, injunction was
the appropriate remedy obtainable from the competent local
courts.
On 25 August 2003, petitioner filed a Supplement to the
Petition22 and Supplemental Memorandum,23 alleging that in
the course of the proceedings in the ICC Arbitration, a number
of documentary and testimonial evidence came out through
the use of different modes of discovery available in the ICC
Arbitration. It contends that after the filing of the petition facts
and admissions were discovered which demonstrate that LHC
knowingly misrepresented that petitioner had incurred
delays notwithstanding its knowledge and admission that
delays were excused under the Turnkey Contractto be able
to draw against the Securities. Reiterating that fraud
constitutes an exception to the independence principle,
petitioner urges that this warrants a ruling from this Court that
the call on the Securities was wrongful, as well as contrary to
law and basic principles of equity. It avers that it would suffer
grave irreparable damage if LHC would be allowed to use the
proceeds of the Securities and not ordered to return the
amounts it had wrongfully drawn thereon.
In its Manifestation dated 8 September 2003,24 LHC contends
that the supplemental pleadings filed by petitioner present
erroneous and misleading information which would change
petitioner's theory on appeal.
In yet another Manifestation dated 12 April 2004,25 petitioner
alleges that on 18 February 2004, the ICC handed down its

Third Partial Award, declaring that LHC wrongfully drew

upon the Securities and that petitioner was entitled to the
return of the sums wrongfully taken by LHC for liquidated
damages.

default. Finally, it is not in itself a negotiable instrument,

because it is not payable to order or bearer and is generally
conditional, yet the draft presented under it is often
negotiable.29

LHC filed a Counter-Manifestation dated 29 June 2004,26

stating that petitioner's Manifestation dated 12 April 2004
enlarges the scope of its Petition for Review of the 31 January
2001 Decision of the Court of Appeals. LHC notes that the
Petition for Review essentially dealt only with the issue of
whether injunction could issue to restrain the beneficiary of an
irrevocable letter of credit from drawing thereon. It adds that
petitioner has filed two other proceedings, to wit: (1) ICC
Case No. 11264/TE/MW, entitled "Transfield Philippines Inc.
v. Luzon Hydro Corporation," in which the parties made
claims and counterclaims arising from petitioner's
performance/misperformance of its obligations as contractor
for LHC; and (2) Civil Case No. 04-332, entitled "Transfield
Philippines, Inc. v. Luzon Hydro Corporation" before Branch
56 of the RTC of Makati, which is an action to enforce and
obtain execution of the ICC's partial award mentioned in
petitioner's Manifestation of 12 April 2004.

In commercial transactions, a letter of credit is a financial

device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the
seemingly irreconcilable interests of a seller, who refuses to
part with his goods before he is paid, and a buyer, who wants
to have control of the goods before paying.30 The use of
credits in commercial transactions serves to reduce the risk of
nonpayment of the purchase price under the contract for the
sale of goods. However, credits are also used in non-sale
settings where they serve to reduce the risk of
nonperformance. Generally, credits in the non-sale settings
have come to be known as standby credits.31

In its Comment to petitioner's Motion for Leave to File

Addendum to Petitioner's Memorandum, LHC stresses that the
question of whether the funds it drew on the subject letters of
credit should be returned is outside the issue in this appeal. At
any rate, LHC adds that the action to enforce the ICC's partial
award is now fully within the Makati RTC's jurisdiction in
Civil Case No. 04-332. LHC asserts that petitioner is engaged
in forum-shopping by keeping this appeal and at the same time
seeking the suit for enforcement of the arbitral award before
the Makati court.
Respondent SBC in its Memorandum, dated 10 March 2003 27
contends that the Court of Appeals correctly dismissed the
petition for certiorari. Invoking the independence principle,
SBC argues that it was under no obligation to look into the
validity or accuracy of the certification submitted by
respondent LHC or into the latter's capacity or entitlement to
so certify. It adds that the act sought to be enjoined by
petitioner was already fait accompli and the present petition
would no longer serve any remedial purpose.
In a similar fashion, respondent ANZ Bank in its
Memorandum dated 13 March 200328 posits that its actions
could not be regarded as unjustified in view of the prevailing
independence principle under which it had no obligation to
ascertain the truth of LHC's allegations that petitioner
defaulted in its obligations. Moreover, it points out that since
the Standby Letter of Credit No. E001126/8400 had been fully
drawn, petitioner's prayer for preliminary injunction had been
rendered moot and academic.
At the core of the present controversy is the applicability of
the "independence principle" and "fraud exception rule" in
letters of credit. Thus, a discussion of the nature and use of
letters of credit, also referred to simply as "credits," would
provide a better perspective of the case.
The letter of credit evolved as a mercantile specialty, and the
only way to understand all its facets is to recognize that it is an
entity unto itself. The relationship between the beneficiary and
the issuer of a letter of credit is not strictly contractual,
because both privity and a meeting of the minds are lacking,
yet strict compliance with its terms is an enforceable right.
Nor is it a third-party beneficiary contract, because the issuer
must honor drafts drawn against a letter regardless of
problems subsequently arising in the underlying contract.
Since the bank's customer cannot draw on the letter, it does
not function as an assignment by the customer to the
beneficiary. Nor, if properly used, is it a contract of suretyship
or guarantee, because it entails a primary liability following a

There are three significant differences between commercial

and standby credits. First, commercial credits involve the
payment of money under a contract of sale. Such credits
become payable upon the presentation by the sellerbeneficiary of documents that show he has taken affirmative
steps to comply with the sales agreement. In the standby type,
the credit is payable upon certification of a party's
nonperformance of the agreement. The documents that
accompany the beneficiary's draft tend to show that the
applicant has not performed. The beneficiary of a commercial
credit must demonstrate by documents that he has performed
his contract. The beneficiary of the standby credit must certify
that his obligor has not performed the contract.32
By definition, a letter of credit is a written instrument whereby
the writer requests or authorizes the addressee to pay money
or deliver goods to a third person and assumes responsibility
for payment of debt therefor to the addressee.33 A letter of
credit, however, changes its nature as different transactions
occur and if carried through to completion ends up as a
binding contract between the issuing and honoring banks
without any regard or relation to the underlying contract or
disputes between the parties thereto.34
Since letters of credit have gained general acceptability in
international trade transactions, the ICC has published from
time to time updates on the Uniform Customs and Practice
(UCP) for Documentary Credits to standardize practices in the
letter of credit area. The vast majority of letters of credit
incorporate the UCP.35 First published in 1933, the UCP for
Documentary Credits has undergone several revisions, the
latest of which was in 1993.36
In Bank of the Philippine Islands v. De Reny Fabric
Industries, Inc.,37 this Court ruled that the observance of the
UCP is justified by Article 2 of the Code of Commerce which
provides that in the absence of any particular provision in the
Code of Commerce, commercial transactions shall be
governed by usages and customs generally observed. More
recently, in Bank of America, NT & SA v. Court of Appeals, 38
this Court ruled that there being no specific provisions which
govern the legal complexities arising from transactions
involving letters of credit, not only between or among banks
themselves but also between banks and the seller or the buyer,
as the case may be, the applicability of the UCP is undeniable.
Article 3 of the UCP provides that credits, by their nature, are
separate transactions from the sales or other contract(s) on
which they may be based and banks are in no way concerned
with or bound by such contract(s), even if any reference
whatsoever to such contract(s) is included in the credit.
Consequently, the undertaking of a bank to pay, accept and
pay draft(s) or negotiate and/or fulfill any other obligation
under the credit is not subject to claims or defenses by the
applicant resulting from his relationships with the issuing bank

or the beneficiary. A beneficiary can in no case avail himself

of the contractual relationships existing between the banks or
between the applicant and the issuing bank.
Thus, the engagement of the issuing bank is to pay the seller
or beneficiary of the credit once the draft and the required
documents are presented to it. The so-called "independence
principle" assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main
contract is actually accomplished or not. Under this principle,
banks assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or legal effect
of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed
thereon, nor do they assume any liability or responsibility for
the description, quantity, weight, quality, condition, packing,
delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions,
solvency, performance or standing of the consignor, the
carriers, or the insurers of the goods, or any other person
whomsoever.39
The independent nature of the letter of credit may be: (a)
independence in toto where the credit is independent from the
justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect
like in a commercial letter of credit or repayment standby,
which is identical with the same obligations under the
underlying agreement. In both cases the payment may be
enjoined if in the light of the purpose of the credit the payment
of the credit would constitute fraudulent abuse of the credit. 40
Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not
apply to the instant case and assuming it is so, it is a defense
available only to respondent banks. LHC, on the other hand,
contends that it would be contrary to common sense to deny
the benefit of an independent contract to the very party for
whom the benefit is intended. As beneficiary of the letter of
credit, LHC asserts it is entitled to invoke the principle.
As discussed above, in a letter of credit transaction, such as in
this case, where the credit is stipulated as irrevocable, there is
a definite undertaking by the issuing bank to pay the
beneficiary provided that the stipulated documents are
presented and the conditions of the credit are complied with. 41
Precisely, the independence principle liberates the issuing
bank from the duty of ascertaining compliance by the parties
in the main contract. As the principle's nomenclature clearly
suggests, the obligation under the letter of credit is
independent of the related and originating contract. In brief,
the letter of credit is separate and distinct from the underlying
transaction.
Given the nature of letters of credit, petitioner's argument
that it is only the issuing bank that may invoke the
independence principle on letters of creditdoes not impress
this Court. To say that the independence principle may only be
invoked by the issuing banks would render nugatory the
purpose for which the letters of credit are used in commercial
transactions. As it is, the independence doctrine works to the
benefit of both the issuing bank and the beneficiary.
Letters of credit are employed by the parties desiring to enter
into commercial transactions, not for the benefit of the issuing
bank but mainly for the benefit of the parties to the original
transactions. With the letter of credit from the issuing bank,
the party who applied for and obtained it may confidently
present the letter of credit to the beneficiary as a security to
convince the beneficiary to enter into the business transaction.

On the other hand, the other party to the business transaction,

i.e., the beneficiary of the letter of credit, can be rest assured
of being empowered to call on the letter of credit as a security
in case the commercial transaction does not push through, or
the applicant fails to perform his part of the transaction. It is
for this reason that the party who is entitled to the proceeds of
the letter of credit is appropriately called "beneficiary."
Petitioner's argument that any dispute must first be resolved by
the parties, whether through negotiations or arbitration, before
the beneficiary is entitled to call on the letter of credit in
essence would convert the letter of credit into a mere
guarantee. Jurisprudence has laid down a clear distinction
between a letter of credit and a guarantee in that the settlement
of a dispute between the parties is not a pre-requisite for the
release of funds under a letter of credit. In other words, the
argument is incompatible with the very nature of the letter of
credit. If a letter of credit is drawable only after settlement of
the dispute on the contract entered into by the applicant and
the beneficiary, there would be no practical and beneficial use
for letters of credit in commercial transactions.
Professor John F. Dolan, the noted authority on letters of
credit, sheds more light on the issue:
The standby credit is an attractive commercial device
for many of the same reasons that commercial credits
are attractive. Essentially, these credits are
inexpensive and efficient. Often they replace surety
contracts, which tend to generate higher costs than
credits do and are usually triggered by a factual
determination rather than by the examination of
documents.
Because parties and courts should not confuse the
different functions of the surety contract on the one
hand and the standby credit on the other, the
distinction between surety contracts and credits
merits some reflection. The two commercial devices
share a common purpose. Both ensure against the
obligor's nonperformance. They function, however,
in distinctly different ways.
Traditionally, upon the obligor's default, the surety
undertakes to complete the obligor's performance,
usually by hiring someone to complete that
performance. Surety contracts, then, often involve
costs of determining whether the obligor defaulted (a
matter over which the surety and the beneficiary
often litigate) plus the cost of performance. The
benefit of the surety contract to the beneficiary is
obvious. He knows that the surety, often an insurance
company, is a strong financial institution that will
perform if the obligor does not. The beneficiary also
should understand that such performance must await
the sometimes lengthy and costly determination that
the obligor has defaulted. In addition, the surety's
performance takes time.
The standby credit has different expectations. He
reasonably expects that he will receive cash in the
event of nonperformance, that he will receive it
promptly, and that he will receive it before any
litigation with the obligor (the applicant) over the
nature of the applicant's performance takes place. The
standby credit has this opposite effect of the surety
contract: it reverses the financial burden of parties
during litigation.
In the surety contract setting, there is no duty to
indemnify the beneficiary until the beneficiary
establishes the fact of the obligor's performance. The
beneficiary may have to establish that fact in

litigation. During the litigation, the surety holds the

money and the beneficiary bears most of the cost of
delay in performance.
In the standby credit case, however, the beneficiary
avoids that litigation burden and receives his money
promptly upon presentation of the required
documents. It may be that the applicant has, in fact,
performed and that the beneficiary's presentation of
those documents is not rightful. In that case, the
applicant may sue the beneficiary in tort, in contract,
or in breach of warranty; but, during the litigation to
determine whether the applicant has in fact breached
the obligation to perform, the beneficiary, not the
applicant, holds the money. Parties that use a standby
credit and courts construing such a credit should
understand this allocation of burdens. There is a
tendency in some quarters to overlook this distinction
between surety contracts and standby credits and to
reallocate burdens by permitting the obligor or the
issuer to litigate the performance question before
payment to the beneficiary.42
While it is the bank which is bound to honor the credit, it is
the beneficiary who has the right to ask the bank to honor the
credit by allowing him to draw thereon. The situation itself
emasculates petitioner's posture that LHC cannot invoke the
independence principle and highlights its puerility, more so in
this case where the banks concerned were impleaded as parties
by petitioner itself.
Respondent banks had squarely raised the independence
principle to justify their releases of the amounts due under the
Securities. Owing to the nature and purpose of the standby
letters of credit, this Court rules that the respondent banks
were left with little or no alternative but to honor the credit
and both of them in fact submitted that it was "ministerial" for
them to honor the call for payment.43
Furthermore, LHC has a right rooted in the Contract to call on
the Securities. The relevant provisions of the Contract read,
thus:
4.2.1. In order to secure the performance of its
obligations under this Contract, the Contractor at its
cost shall on the Commencement Date provide
security to the Employer in the form of two
irrevocable and confirmed standby letters of credit
(the "Securities"), each in the amount of
US$8,988,907, issued and confirmed by banks or
financial institutions acceptable to the Employer.
Each of the Securities must be in form and substance
acceptable to the Employer and may be provided on
an annually renewable basis.44
8.7.1 If the Contractor fails to comply with Clause
8.2, the Contractor shall pay to the Employer by way
of liquidated damages ("Liquidated Damages for
Delay") the amount of US$75,000 for each and every
day or part of a day that shall elapse between the
Target Completion Date and the Completion Date,
provided that Liquidated Damages for Delay payable
by the Contractor shall in the aggregate not exceed
20% of the Contract Price. The Contractor shall pay
Liquidated Damages for Delay for each day of the
delay on the following day without need of demand
from the Employer.
8.7.2 The Employer may, without prejudice to any
other method of recovery, deduct the amount of such
damages from any monies due, or to become due to
the Contractor and/or by drawing on the Security." 45

A contract once perfected, binds the parties not only to the

fulfillment of what has been expressly stipulated but also to all
the consequences which according to their nature, may be in
keeping with good faith, usage, and law.46 A careful perusal of
the Turnkey Contract reveals the intention of the parties to
make the Securities answerable for the liquidated damages
occasioned by any delay on the part of petitioner. The call
upon the Securities, while not an exclusive remedy on the part
of LHC, is certainly an alternative recourse available to it
upon the happening of the contingency for which the
Securities have been proffered. Thus, even without the use of
the "independence principle," the Turnkey Contract itself
bestows upon LHC the right to call on the Securities in the
event of default.
Next, petitioner invokes the "fraud exception" principle. It
avers that LHC's call on the Securities is wrongful because it
fraudulently misrepresented to ANZ Bank and SBC that there
is already a breach in the Turnkey Contract knowing fully well
that this is yet to be determined by the arbitral tribunals. It
asserts that the "fraud exception" exists when the beneficiary,
for the purpose of drawing on the credit, fraudulently presents
to the confirming bank, documents that contain, expressly or
by implication, material representations of fact that to his
knowledge are untrue. In such a situation, petitioner insists,
injunction is recognized as a remedy available to it.
Citing Dolan's treatise on letters of credit, petitioner argues
that the independence principle is not without limits and it is
important to fashion those limits in light of the principle's
purpose, which is to serve the commercial function of the
credit. If it does not serve those functions, application of the
principle is not warranted, and the commonlaw principles of
contract should apply.
It is worthy of note that the propriety of LHC's call on the
Securities is largely intertwined with the fact of default which
is the self-same issue pending resolution before the arbitral
tribunals. To be able to declare the call on the Securities
wrongful or fraudulent, it is imperative to resolve, among
others, whether petitioner was in fact guilty of delay in the
performance of its obligation. Unfortunately for petitioner, this
Court is not called upon to rule upon the issue of default
such issue having been submitted by the parties to the
jurisdiction of the arbitral tribunals pursuant to the terms
embodied in their agreement.47
Would injunction then be the proper remedy to restrain the
alleged wrongful draws on the Securities?
Most writers agree that fraud is an exception to the
independence principle. Professor Dolan opines that the
untruthfulness of a certificate accompanying a demand for
payment under a standby credit may qualify as fraud sufficient
to support an injunction against payment.48 The remedy for
fraudulent abuse is an injunction. However, injunction should
not be granted unless: (a) there is clear proof of fraud; (b) the
fraud constitutes fraudulent abuse of the independent purpose
of the letter of credit and not only fraud under the main
agreement; and (c) irreparable injury might follow if
injunction is not granted or the recovery of damages would be
seriously damaged.49
In its complaint for injunction before the trial court, petitioner
alleged that it is entitled to a total extension of two hundred
fifty-three (253) days which would move the target
completion date. It argued that if its claims for extension
would be found meritorious by the ICC, then LHC would not
be entitled to any liquidated damages.50
Generally, injunction is a preservative remedy for the
protection of one's substantive right or interest; it is not a
cause of action in itself but merely a provisional remedy, an

adjunct to a main suit. The issuance of the writ of preliminary

injunction as an ancillary or preventive remedy to secure the
rights of a party in a pending case is entirely within the
discretion of the court taking cognizance of the case, the only
limitation being that this discretion should be exercised based
upon the grounds and in the manner provided by law. 51

utterly failed to show that it had a clear and unmistakable right

to prevent LHC's call upon the Securities.

Before a writ of preliminary injunction may be issued, there

must be a clear showing by the complaint that there exists a
right to be protected and that the acts against which the writ is
to be directed are violative of the said right.52 It must be
shown that the invasion of the right sought to be protected is
material and substantial, that the right of complainant is clear
and unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage. 53 Moreover,
an injunctive remedy may only be resorted to when there is a
pressing necessity to avoid injurious consequences which
cannot be remedied under any standard compensation. 54

Of course, prudence should have impelled LHC to await

resolution of the pending issues before the arbitral tribunals
prior to taking action to enforce the Securities. But, as earlier
stated, the Turnkey Contract did not require LHC to do so and,
therefore, it was merely enforcing its rights in accordance with
the tenor thereof. Obligations arising from contracts have the
force of law between the contracting parties and should be
complied with in good faith.60 More importantly, pursuant to
the principle of autonomy of contracts embodied in Article
1306 of the Civil Code,61 petitioner could have incorporated in
its Contract with LHC, a proviso that only the final
determination by the arbitral tribunals that default had
occurred would justify the enforcement of the Securities.
However, the fact is petitioner did not do so; hence, it would
have to live with its inaction.

In the instant case, petitioner failed to show that it has a clear

and unmistakable right to restrain LHC's call on the Securities
which would justify the issuance of preliminary injunction. By
petitioner's own admission, the right of LHC to call on the
Securities was contractually rooted and subject to the express
stipulations in the Turnkey Contract.55 Indeed, the Turnkey
Contract is plain and unequivocal in that it conferred upon
LHC the right to draw upon the Securities in case of default,
as provided in Clause 4.2.5, in relation to Clause 8.7.2, thus:

With respect to the issue of whether the respondent banks

were justified in releasing the amounts due under the
Securities, this Court reiterates that pursuant to the
independence principle the banks were under no obligation to
determine the veracity of LHC's certification that default has
occurred. Neither were they bound by petitioner's declaration
that LHC's call thereon was wrongful. To repeat, respondent
banks' undertaking was simply to pay once the required
documents are presented by the beneficiary.

4.2.5 The Employer shall give the Contractor seven

days' notice of calling upon any of the Securities,
stating the nature of the default for which the claim
on any of the Securities is to be made, provided that
no notice will be required if the Employer calls upon
any of the Securities for the payment of Liquidated
Damages for Delay or for failure by the Contractor to
renew or extend the Securities within 14 days of their
expiration in accordance with Clause 4.2.2.56
8.7.2 The Employer may, without prejudice to any
other method of recovery, deduct the amount of such
damages from any monies due, or to become due, to
the Contractor and/or by drawing on the Security.57
The pendency of the arbitration proceedings would not per se
make LHC's draws on the Securities wrongful or fraudulent
for there was nothing in the Contract which would indicate
that the parties intended that all disputes regarding delay
should first be settled through arbitration before LHC would
be allowed to call upon the Securities. It is therefore premature
and absurd to conclude that the draws on the Securities were
outright fraudulent given the fact that the ICC and CIAC have
not ruled with finality on the existence of default.
Nowhere in its complaint before the trial court or in its
pleadings filed before the appellate court, did petitioner invoke
the fraud exception rule as a ground to justify the issuance of
an injunction.58 What petitioner did assert before the courts
below was the fact that LHC's draws on the Securities would
be premature and without basis in view of the pending
disputes between them. Petitioner should not be allowed in
this instance to bring into play the fraud exception rule to
sustain its claim for the issuance of an injunctive relief.
Matters, theories or arguments not brought out in the
proceedings below will ordinarily not be considered by a
reviewing court as they cannot be raised for the first time on
appeal.59 The lower courts could thus not be faulted for not
applying the fraud exception rule not only because the
existence of fraud was fundamentally interwoven with the
issue of default still pending before the arbitral tribunals, but
more so, because petitioner never raised it as an issue in its
pleadings filed in the courts below. At any rate, petitioner

At any rate, should petitioner finally prove in the pending

arbitration proceedings that LHC's draws upon the Securities
were wrongful due to the non-existence of the fact of default,
its right to seek indemnification for damages it suffered would
not normally be foreclosed pursuant to general principles of
law.
Moreover, in a Manifestation,62 dated 30 March 2001, LHC
informed this Court that the subject letters of credit had been
fully drawn. This fact alone would have been sufficient reason
to dismiss the instant petition.
Settled is the rule that injunction would not lie where the acts
sought to be enjoined have already become fait accompli or an
accomplished or consummated act.63 In Ticzon v. Video Post
Manila, Inc.64 this Court ruled that where the period within
which the former employees were prohibited from engaging in
or working for an enterprise that competed with their former
employerthe very purpose of the preliminary injunction
has expired, any declaration upholding the propriety of the
writ would be entirely useless as there would be no actual case
or controversy between the parties insofar as the preliminary
injunction is concerned.
In the instant case, the consummation of the act sought to be
restrained had rendered the instant petition mootfor any
declaration by this Court as to propriety or impropriety of the
non-issuance of injunctive relief could have no practical effect
on the existing controversy.65 The other issues raised by
petitioner particularly with respect to its right to recover the
amounts wrongfully drawn on the Securities, according to it,
could properly be threshed out in a separate proceeding.
One final point. LHC has charged petitioner of forumshopping. It raised the charge on two occasions. First, in its
Counter-Manifestation dated 29 June 200466 LHC alleges that
petitioner presented before this Court the same claim for
money which it has filed in two other proceedings, to wit: ICC
Case No. 11264/TE/MW and Civil Case No. 04-332 before
the RTC of Makati. LHC argues that petitioner's acts
constitutes forum-shopping which should be punished by the
dismissal of the claim in both forums. Second, in its Comment
to Petitioner's Motion for Leave to File Addendum to
Petitioner's Memorandum dated 8 October 2004, LHC alleges

that by maintaining the present appeal and at the same time

pursuing Civil Case No. 04-332wherein petitioner pressed
for judgment on the issue of whether the funds LHC drew on
the Securities should be returnedpetitioner resorted to
forum-shopping. In both instances, however, petitioner has
apparently opted not to respond to the charge.
Forum-shopping is a very serious charge. It exists when a
party repetitively avails 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.67 It may also consist in the act
of a party against whom an adverse judgment has been
rendered in one forum, of seeking another and possibly
favorable opinion in another forum other than by appeal or
special civil action of certiorari, or the institution of two or
more actions or proceedings grounded on the same cause on
the supposition that one or the other court might look with
favor upon the other party.68 To determine whether a party
violated the rule against forum-shopping, the test applied is
whether the elements of litis pendentia are present or whether
a final judgment in one case will amount to res judicata in
another.69 Forum-shopping constitutes improper conduct and
may be punished with summary dismissal of the multiple
petitions and direct contempt of court.70
Considering the seriousness of the charge of forum-shopping
and the severity of the sanctions for its violation, the Court
will refrain from making any definitive ruling on this issue
until after petitioner has been given ample opportunity to
respond to the charge.
WHEREFORE, the instant petition is DENIED, with costs
against petitioner.
Petitioner is hereby required to answer the charge of forumshopping within fifteen (15) days from notice.
SO ORDERED.
______________________________________________
G.R. No. 163101

February 13, 2008

BENGUET CORPORATION, petitioner,

vs.
DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES -MINES ADJUDICATION BOARD and
J.G. REALTY AND MINING CORPORATION,
respondents.

The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a
RAWOP, wherein J.G. Realty was acknowledged as the owner
of four mining claims respectively named as Bonito-I, BonitoII, Bonito-III, and Bonito-IV, with a total area of 288.8656
hectares, situated in Barangay Luklukam, Sitio Bagong Bayan,
Municipality of Jose Panganiban, Camarines Norte. The
parties also executed a Supplemental Agreement5 dated June
1, 1987. The mining claims were covered by MPSA
Application No. APSA-V-0009 jointly filed by J.G. Realty as
claimowner and Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the rights
to the mining claims and/or otherwise acquire the mining
rights to the mineral claims. Within 24 months from the
execution of the RAWOP, Benguet should also cause the
examination of the mining claims for the purpose of
determining whether or not they are worth developing with
reasonable probability of profitable production. Benguet
undertook also to furnish J.G. Realty with a report on the
examination, within a reasonable time after the completion of
the examination. Moreover, also within the examination
period, Benguet shall conduct all necessary exploration in
accordance with a prepared exploration program. If it chooses
to do so and before the expiration of the examination period,
Benguet may undertake to develop the mining claims upon
written notice to J.G. Realty. Benguet must then place the
mining claims into commercial productive stage within 24
months from the written notice.6 It is also provided in the
RAWOP that if the mining claims were placed in commercial
production by Benguet, J.G. Realty should be entitled to a
royalty of five percent (5%) of net realizable value, and to
royalty for any production done by Benguet whether during
the examination or development periods.
Thus, on August 9, 1989, the Executive Vice-President of
Benguet, Antonio N. Tachuling, issued a letter informing J.G.
Realty of its intention to develop the mining claims. However,
on February 9, 1999, J.G. Realty, through its President,
Johnny L. Tan, then sent a letter to the President of Benguet
informing the latter that it was terminating the RAWOP on the
following grounds:
a. The fact that your company has failed to perform
the obligations set forth in the RAWOP, i.e., to
undertake development works within 2 years from
the execution of the Agreement;
b. Violation of the Contract by allowing high graders
to operate on our claim.
c. No stipulation was provided with respect to the
term limit of the RAWOP.

DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks
the annulment of the December 2, 2002 Decision1 and March
17, 2004 Resolution2 of the Department of Environment and
Natural Resources-Mining Adjudication Board (DENR-MAB)
in MAB Case No. 0124-01 (Mines Administrative Case No.
R-M-2000-01) entitled Benguet Corporation (Benguet) v. J.G.
Realty and Mining Corporation (J.G. Realty). The December
2, 2002 Decision upheld the March 19, 2001 Decision3 of the
MAB Panel of Arbitrators (POA) which canceled the Royalty
Agreement with Option to Purchase (RAWOP) dated June 1,
19874 between Benguet and J.G. Realty, and excluded
Benguet from the joint Mineral Production Sharing Agreement
(MPSA) application over four mining claims. The March 17,
2004 Resolution denied Benguets Motion for
Reconsideration.

d. Non-payment of the royalties thereon as provided

in the RAWOP.7
In response, Benguets Manager for Legal Services, Reynaldo
P. Mendoza, wrote J.G. Realty a letter dated March 8, 1999, 8
therein alleging that Benguet complied with its obligations
under the RAWOP by investing PhP 42.4 million to
rehabilitate the mines, and that the commercial operation was
hampered by the non-issuance of a Mines Temporary Permit
by the Mines and Geosciences Bureau (MGB) which must be
considered as force majeure, entitling Benguet to an extension
of time to prosecute such permit. Benguet further claimed that
the high graders mentioned by J.G. Realty were already
operating prior to Benguets taking over of the premises, and
that J.G. Realty had the obligation of ejecting such small scale
miners. Benguet also alleged that the nature of the mining
business made it difficult to specify a time limit for the
RAWOP. Benguet then argued that the royalties due to J.G.

Realty were in fact in its office and ready to be picked up at

any time. It appeared that, previously, the practice by J.G.
Realty was to pick-up checks from Benguet representing such
royalties. However, starting August 1994, J.G. Realty
allegedly refused to collect such checks from Benguet. Thus,
Benguet posited that there was no valid ground for the
termination of the RAWOP. It also reminded J.G. Realty that
it should submit the disagreement to arbitration rather than
unilaterally terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of
Nullity/Cancellation of the RAWOP9 with the Legaspi City
POA, Region V, docketed as DENR Case No. 2000-01 and
entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision,10 dwelling
upon the issues of (1) whether the arbitrators had jurisdiction
over the case; and (2) whether Benguet violated the RAWOP
justifying the unilateral cancellation of the RAWOP by J.G.
Realty. The dispositive portion stated:
WHEREFORE, premises considered, the June 01,
1987 [RAWOP] and its Supplemental Agreement is
hereby declared cancelled and without effect.
BENGUET is hereby excluded from the joint MPSA
Application over the mineral claims denominated as
"BONITO-I", "BONITO-II", "BONITO-III" and
"BONITO-IV".
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal11 with the MAB
on April 23, 2001, docketed as Mines Administrative Case
No. R-M-2000-01. Thereafter, the MAB issued the assailed
December 2, 2002 Decision. Benguet then filed a Motion for
Reconsideration of the assailed Decision which was denied in
the March 17, 2004 Resolution of the MAB. Hence, Benguet
filed the instant petition.
The Issues
1. There was serious and palpable error when the
Honorable Board failed to rule that the contractual
obligation of the parties to arbitrate under the Royalty
Agreement is mandatory.
2. The Honorable Board exceeded its jurisdiction
when it sustained the cancellation of the Royalty
Agreement for alleged breach of contract despite the
absence of evidence.
3. The Questioned Decision of the Honorable Board
in cancelling the RAWOP prejudice[d] the substantial
rights of Benguet under the contract to the unjust
enrichment of JG Realty.12
Restated, the issues are: (1) Should the controversy have first
been submitted to arbitration before the POA took cognizance
of the case?; (2) Was the cancellation of the RAWOP
supported by evidence?; and (3) Did the cancellation of the
RAWOP amount to unjust enrichment of J.G. Realty at the
expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find that the
instant petition can be denied outright as Benguet resorted to
an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA)
7942 or the "Philippine Mining Act of 1995" states, "A
petition for review by certiorari and question of law may be

filed by the aggrieved party with the Supreme Court within

thirty (30) days from receipt of the order or decision of the
[MAB]."
However, this Court has already invalidated such provision in
Carpio v. Sulu Resources Development Corp.,13 ruling that a
decision of the MAB must first be appealed to the Court of
Appeals (CA) under Rule 43 of the Rules of Court, before
recourse to this Court may be had. We held, thus:
To summarize, there are sufficient legal footings
authorizing a review of the MAB Decision under
Rule 43 of the Rules of Court. First, Section 30 of
Article VI of the 1987 Constitution, mandates that
"[n]o law shall be passed increasing the appellate
jurisdiction of the Supreme Court as provided in this
Constitution without its advice and consent." On the
other hand, Section 79 of RA No. 7942 provides that
decisions of the MAB may be reviewed by this Court
on a "petition for review by certiorari." This
provision is obviously an expansion of the Courts
appellate jurisdiction, an expansion to which this
Court has not consented. Indiscriminate enactment of
legislation enlarging the appellate jurisdiction of this
Court would unnecessarily burden it.
Second, when the Supreme Court, in the exercise of
its rule-making power, transfers to the CA pending
cases involving a review of a quasi-judicial bodys
decisions, such transfer relates only to procedure;
hence, it does not impair the substantive and vested
rights of the parties. The aggrieved partys right to
appeal is preserved; what is changed is only the
procedure by which the appeal is to be made or
decided. The parties still have a remedy and a
competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included
Rule 43 to provide a uniform rule on appeals from
quasi-judicial agencies. Under the rule, appeals from
their judgments and final orders are now required to
be brought to the CA on a verified petition for
review. A quasi-judicial agency or body has been
defined as an organ of government, other than a court
or legislature, which affects the rights of private
parties through either adjudication or rule-making.
MAB falls under this definition; hence, it is no
different from the other quasi-judicial bodies
enumerated under Rule 43. Besides, the introductory
words in Section 1 of Circular No. 1-91"among
these agencies are"indicate that the enumeration is
not exclusive or conclusive and acknowledge the
existence of other quasi-judicial agencies which,
though not expressly listed, should be deemed
included therein.
Fourth, the Court realizes that under Batas Pambansa
(BP) Blg. 129 as amended by RA No. 7902, factual
controversies are usually involved in decisions of
quasi-judicial bodies; and the CA, which is likewise
tasked to resolve questions of fact, has more elbow
room to resolve them. By including questions of fact
among the issues that may be raised in an appeal
from quasi-judicial agencies to the CA, Section 3 of
Revised Administrative Circular No. 1-95 and
Section 3 of Rule 43 explicitly expanded the list of
such issues.
According to Section 3 of Rule 43, "[a]n appeal
under this Rule 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." Hence, appeals

from quasi-judicial agencies even only on questions

of law may be brought to the CA.
Fifth, the judicial policy of observing the hierarchy of
courts dictates that direct resort from administrative
agencies to this Court will not be entertained, unless
the redress desired cannot be obtained from the
appropriate lower tribunals, or unless exceptional and
compelling circumstances justify availment of a
remedy falling within and calling for the exercise of
our primary jurisdiction.14
The above principle was reiterated in Asaphil Construction
and Development Corporation v. Tuason, Jr. (Asaphil).15
However, the Carpio ruling was not applied to Asaphil as the
petition in the latter case was filed in 1999 or three years
before the promulgation of Carpio in 2002. Here, the petition
was filed on April 28, 2004 when the Carpio decision was
already applicable, thus Benguet should have filed the appeal
with the CA.
Petitioner having failed to properly appeal to the CA under
Rule 43, the decision of the MAB has become final and
executory. On this ground alone, the instant petition must be
denied.
Even if we entertain the petition although Benguet skirted the
appeal to the CA via Rule 43, still, the December 2, 2002
Decision and March 17, 2004 Resolution of the DENR-MAB
in MAB Case No. 0124-01 should be maintained.
First Issue: The case should have first been
brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently
provide:
11.01 Arbitration
Any disputes, differences or disagreements between
BENGUET and the OWNER with reference to
anything whatsoever pertaining to this Agreement
that cannot be amicably settled by them shall not be
cause of any action of any kind whatsoever in any
court or administrative agency but shall, upon notice
of one party to the other, be referred to a Board of
Arbitrators consisting of three (3) members, one to be
selected by BENGUET, another to be selected by the
OWNER and the third to be selected by the
aforementioned two arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to any matter
in dispute as hereinabove stated, except to enforce the
decision of the majority of the Arbitrators.16
Thus, Benguet argues that the POA should have first referred
the case to voluntary arbitration before taking cognizance of
the case, citing Sec. 2 of RA 876 on persons and matters
subject to arbitration.
On the other hand, in denying such argument, the POA ruled
that:
While the parties may establish such stipulations clauses,
terms and conditions as they may deem convenient, the same
must not be contrary to law and public policy. At a glance,
there is nothing wrong with the terms and conditions of the

agreement. But to state that an aggrieved party cannot initiate

an action without going to arbitration would be tying ones
hand even if there is a law which allows him to do so. 17
The MAB, meanwhile, denied Benguets contention on the
ground of estoppel, stating:
Besides, by its own act, Benguet is already estopped
in questioning the jurisdiction of the Panel of
Arbitrators to hear and decide the case. As pointed
out in the appealed Decision, Benguet initiated and
filed an Adverse Claim docketed as MAC-R-M2000-02 over the same mining claims without
undergoing contractual arbitration. In this particular
case (MAC-R-M-2000-02) now subject of the appeal,
Benguet is likewise in estoppel from questioning the
competence of the Panel of Arbitrators to hear and
decide in the summary proceedings J.G. Realtys
petition, when Benguet itself did not merely move for
the dismissal of the case but also filed an Answer
with counterclaim seeking affirmative reliefs from
the Panel of Arbitrators.18
Moreover, the MAB ruled that the contractual provision on
arbitration merely provides for an additional forum or venue
and does not divest the POA of the jurisdiction to hear the
case.19
In its July 20, 2004 Comment, 20 J.G. Realty reiterated the
above rulings of the POA and MAB. It argued that RA 7942
or the "Philippine Mining Act of 1995" is a special law which
should prevail over the stipulations of the parties and over a
general law, such as RA 876. It also argued that the POA
cannot be considered as a "court" under the contemplation of
RA 876 and that jurisprudence saying that there must be prior
resort to arbitration before filing a case with the courts is
inapplicable to the instant case as the POA is itself already
engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 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[s]
arising out of valuations, appraisals or other
controversies which may be collateral, incidental,
precedent or subsequent to any issue between the
parties. (Emphasis supplied.)
In RA 9285 or the "Alternative Dispute Resolution Act of
2004," the Congress reiterated the efficacy of arbitration as an
alternative mode of dispute resolution by stating in Sec. 32
thereof that domestic arbitration shall still be governed by RA
876. Clearly, a contractual stipulation that requires prior resort
to voluntary arbitration before the parties can go directly to
court is not illegal and is in fact promoted by the State. Thus,
petitioner correctly cites several cases whereby arbitration
clauses have been upheld by this Court.21

Moreover, the contention that RA 7942 prevails over RA 876

presupposes a conflict between the two laws. Such is not the
case here. To reiterate, availment of voluntary arbitration
before resort is made to the courts or quasi-judicial agencies of
the government is a valid contractual stipulation that must be
adhered to by the parties. As stated in Secs. 6 and 7 of RA
876:
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.
xxxx
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.)
In other words, in the event a case that should properly be the
subject of voluntary arbitration is erroneously filed with the
courts or quasi-judicial agencies, on motion of the defendant,
the court or quasi-judicial agency shall determine whether
such contractual provision for arbitration is sufficient and
effective. If in affirmative, the court or quasi-judicial agency
shall then order the enforcement of said provision. Besides, in
BF Corporation v. Court of Appeals, we already ruled:
In this connection, it bears stressing that the lower
court has not lost its jurisdiction over the case.
Section 7 of Republic Act No. 876 provides that
proceedings therein have only been stayed. After the
special proceeding of arbitration has been pursued
and completed, then the lower court may confirm the
award made by the arbitrator.22
J.G. Realtys contention, that prior resort to arbitration is
unavailing in the instant case because the POAs mandate is to
arbitrate disputes involving mineral agreements, is misplaced.
A distinction must be made between voluntary and
compulsory arbitration. In Ludo and Luym Corporation v.
Saordino, the Court had the occasion to distinguish between
the two types of arbitrations:

Comparatively, in Reformist Union of R.B. Liner, Inc.

vs. NLRC, compulsory arbitration has been defined
both as "the process of settlement of labor disputes
by a government agency which has the authority
to investigate and to make an award which is
binding on all the parties, and as a mode of
arbitration where the parties are compelled to accept
the resolution of their dispute through arbitration by a
third party." While a voluntary arbitrator is not part
of the governmental unit or labor departments
personnel, said arbitrator renders arbitration services
provided for under labor laws.23 (Emphasis supplied.)
There is a clear distinction between compulsory and voluntary
arbitration. The arbitration provided by the POA is
compulsory, while the nature of the arbitration provision in the
RAWOP is voluntary, not involving any government agency.
Thus, J.G. Realtys argument on this matter must fail.
As to J.G. Realtys contention that the provisions of RA 876
cannot apply to the instant case which involves an
administrative agency, it must be pointed out that Section
11.01 of the RAWOP states that:
[Any controversy with regard to the contract] shall
not be cause of any action of any kind whatsoever in
any court or administrative agency but shall, upon
notice of one party to the other, be referred to a Board
of Arbitrators consisting of three (3) members, one to
be selected by BENGUET, another to be selected by
the OWNER and the third to be selected by the
aforementioned two arbiters so appointed.24
(Emphasis supplied.)
There can be no quibbling that POA is a quasi-judicial body
which forms part of the DENR, an administrative agency.
Hence, the provision on mandatory resort to arbitration, freely
entered into by the parties, must be held binding against
them.25
In sum, on the issue of whether POA should have referred the
case to voluntary arbitration, we find that, indeed, POA has no
jurisdiction over the dispute which is governed by RA 876, the
arbitration law.
However, we find that Benguet is already estopped from
questioning the POAs jurisdiction. As it were, when J.G.
Realty filed DENR Case No. 2000-01, Benguet filed its
answer and participated in the proceedings before the POA,
Region V. Secondly, when the adverse March 19, 2001 POA
Decision was rendered, it filed an appeal with the MAB in
Mines Administrative Case No. R-M-2000-01 and again
participated in the MAB proceedings. When the adverse
December 2, 2002 MAB Decision was promulgated, it filed a
motion for reconsideration with the MAB. When the adverse
March 17, 2004 MAB Resolution was issued, Benguet filed a
petition with this Court pursuant to Sec. 79 of RA 7942
impliedly recognizing MABs jurisdiction. In this factual
milieu, the Court rules that the jurisdiction of POA and that of
MAB can no longer be questioned by Benguet at this late
hour. What Benguet should have done was to immediately
challenge the POAs jurisdiction by a special civil action for
certiorari when POA ruled that it has jurisdiction over the
dispute. To redo the proceedings fully participated in by the
parties after the lapse of seven years from date of institution of
the original action with the POA would be anathema to the
speedy and efficient administration of justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on
two grounds: (1) Benguets failure to pay J.G. Realtys

royalties for the mining claims; and (2) Benguets failure to

seriously pursue MPSA Application No. APSA-V-0009 over
the mining claims.
As to the royalties, Benguet claims that the checks
representing payments for the royalties of J.G. Realty were
available for pick-up in its office and it is the latter which
refused to claim them. Benguet then thus concludes that it did
not violate the RAWOP for nonpayment of royalties. Further,
Benguet reasons that J.G. Realty has the burden of proving
that the former did not pay such royalties following the
principle that the complainants must prove their affirmative
allegations.
With regard to the failure to pursue the MPSA application,
Benguet claims that the lengthy time of approval of the
application is due to the failure of the MGB to approve it. In
other words, Benguet argues that the approval of the
application is solely in the hands of the MGB.
Benguets arguments are bereft of merit.

certainty that the obligation has been discharged

by payment.27 (Emphasis supplied.)
In the instant case, the obligation of Benguet to pay royalties
to J.G. Realty has been admitted and supported by the
provisions of the RAWOP. Thus, the burden to prove such
obligation rests on Benguet.
It should also be borne in mind that MPSA Application No.
APSA-V-0009 has been pending with the MGB for a
considerable length of time. Benguet, in the RAWOP,
obligated itself to perfect the rights to the mining claims
and/or otherwise acquire the mining rights to the mineral
claims but failed to present any evidence showing that it
exerted efforts to speed up and have the application approved.
In fact, Benguet never even alleged that it continuously
followed-up the application with the MGB and that it was in
constant communication with the government agency for the
expeditious resolution of the application. Such allegations
would show that, indeed, Benguet was remiss in prosecuting
the MPSA application and clearly failed to comply with its
obligation in the RAWOP.

Sec. 14.05 of the RAWOP provides:

14.05 Bank Account
OWNER shall maintain a bank account at
___________ or any other bank from time to time
selected by OWNER with notice in writing to
BENGUET where BENGUET shall deposit to the
OWNERs credit any and all advances and payments
which may become due the OWNER under this
Agreement as well as the purchase price herein
agreed upon in the event that BENGUET shall
exercise the option to purchase provided for in the
Agreement. Any and all deposits so made by
BENGUET shall be a full and complete
acquittance and release to [sic] BENGUET from
any further liability to the OWNER of the
amounts represented by such deposits. (Emphasis
supplied.)
Evidently, the RAWOP itself provides for the mode of royalty
payment by Benguet. The fact that there was the previous
practice whereby J.G. Realty picked-up the checks from
Benguet is unavailing. The mode of payment is embodied in a
contract between the parties. As such, the contract must be
considered as the law between the parties and binding on
both.26 Thus, after J.G. Realty informed Benguet of the bank
account where deposits of its royalties may be made, Benguet
had the obligation to deposit the checks. J.G. Realty had no
obligation to furnish Benguet with a Board Resolution
considering that the RAWOP itself provided for such payment
scheme.
Notably, Benguets claim that J.G. Realty must prove
nonpayment of its royalties is both illogical and unsupported
by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as
claimed by Benguet. Rather, such is a negative allegation that
does not require proof and in fact transfers the burden of proof
to Benguet. Thus, this Court ruled in Jimenez v. National
Labor Relations Commission:
As a general rule, one who pleads payment has the
burden of proving it. Even where the plaintiff must
allege non-payment, the general rule is that the
burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment.
The debtor has the burden of showing with legal

Third Issue: There is no unjust enrichment in the instant

case
Based on the foregoing discussion, the cancellation of the
RAWOP was based on valid grounds and is, therefore,
justified. The necessary implication of the cancellation is the
cessation of Benguets right to prosecute MPSA Application
No. APSA-V-0009 and to further develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and
Development Corporation, we defined unjust enrichment, as
follows:
We have held that "[t]here is unjust enrichment when
a person unjustly retains a benefit to the loss of
another, or when a person retains money or property
of another against the fundamental principles of
justice, equity and good conscience." Article 22 of
the Civil Code provides that "[e]very person who
through an act of performance by another, or any
other means, acquires or comes into possession of
something at the expense of the latter without just or
legal ground, shall return the same to him." The
principle of unjust enrichment under Article 22
requires two conditions: (1) that a person is benefited
without a valid basis or justification, and (2) that such
benefit is derived at anothers expense or damage.
There is no unjust enrichment when the person
who will benefit has a valid claim to such benefit.28
(Emphasis supplied.)
Clearly, there is no unjust enrichment in the instant case as the
cancellation of the RAWOP, which left Benguet without any
legal right to participate in further developing the mining
claims, was brought about by its violation of the RAWOP.
Hence, Benguet has no one to blame but itself for its
predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the
December 2, 2002 Decision and March 17, 2004 Resolution of
the DENR-MAB in MAB Case No. 0124-01 upholding the
cancellation of the June 1, 1987 RAWOP. No costs.
SO ORDERED.
______________________________________________
G.R. No. 198075

September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.),

Petitioner,
vs.
MAKATI ROTARY CLUB FOUNDATION, INC.,
Respondent.

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.

DECISION
2000 Lease Contract
PEREZ, J.:
This case is an appeal1 from the Decision2 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 airconditioning products, was the registered owner of a parcel of
land located at Km. 16, South Superhighway, Paraaque City
(subject land).3 Within the subject land are buildings and other
improvements dedicated to the business of FKI.4
In 1975, FKI5 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 May1975, FKI and the respondent
executed a Deed of Donation8 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 respondents 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 Donation14 that reiterated the provisions of

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 Lease Contract shall be submitted to a
board of three (3) arbitrators constituted in accordance with
the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon FKI and
respondent.17 (Emphasis supplied)
2005 Lease Contract
After the 2000 Lease Contract expired, FKI and respondent
agreed to renew their lease for another five (5) years. This new
lease (2005 Lease Contract )18 required FKI to pay a fixed
annual rent of P4,200,000.19 In addition to paying the fixed
rent, however, the 2005 Lease Contract also obligated FKI to
make a yearly " donation " of money to the respondent. 20 Such
donations ranged from P3,000,000 for the first year up to
P3,900,000for 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 Petitioners 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 Donation25
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.
Petitioners refusal to pay such rent and "donation " emanated
from its belief that the rental stipulations of the 2005 Lease
Contract, and even of the 2000 Lease Contract, cannot be
given effect because they violated one of the" material
conditions " of the donation of the subject land, as stated in the
Deed of Donation and Amended Deed of Donation. 26
According to petitioner, the Deed of Donation and Amended
Deed of Donation actually established not only one but two
(2) lease agreements between FKI and respondent, i.e. , one
lease for the first twenty-five (25)years or from 1975 to 2000,
and another lease for the next twenty-five (25)years thereafter
or from 2000 to 2025. 27 Both leases are material conditions
of the donation of the subject land.
Petitioner points out that while a definite amount of rent for
the second twenty-five (25) year lease was not fixed in the
Deed of Donation and Amended Deed of Donation , both
deeds nevertheless prescribed rules and limitations by which
the same may be determined. Such rules and limitations ought
to be observed in any succeeding lease agreements between
petitioner and respondent for they are, in themselves, material
conditions of the donation of the subject land.28
In this connection, petitioner cites item 2(g) of the Deed of
Donation and Amended Deed of Donation that supposedly
limits the amount of rent for the lease over the second twentyfive (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
canceling the 2005 Lease Contract should petitioner fail to
settle the said obligations.32 Petitioner received the First
Demand Letter on2 June 2009.33
On 22 September 2009, petitioner sent a reply34 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 26September 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 Paraaque City a
complaint42 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
case43 against the petitioner before the Metropolitan Trial
Court (MeTC) of Paraaque 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 respondents demand. 46
The First Demand Letter did not contain an actual
demand to vacate the premises and, therefore, the
refusal to comply there with does not give rise to an
action for unlawful detainer.47
2. Assuming that the MeTC was able to acquire
jurisdiction, it may not exercise the same until the
disagreement between the parties is first referred to
arbitration pursuant to the arbitration clause of the
2005 Lease Contract.48
3. Assuming further that the MeTC has jurisdiction
that it can exercise, ejectment still would not lie as
the 2005 Lease Contract is void abinitio.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 respondentanon-stock
and non-profit corporationcould 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 judgment53 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 respondents 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
Paraaque City and was docketed as Civil Case No. 10-0255.

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 Paraaque City,
Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

On 29 October 2010, the RTC reversed56 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,
Paraaque City, is hereby reversed, judgment is thus rendered
in favor of the plaintiff-appellant and against the defendantappellee, 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 attorneys 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 defendantappellee, as these were built in good faith, the provisions of
Art. 1678of 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
Section12 of the 2005 Lease Contract." 59 Moreover,
the issue of sufficiency of the respondents 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 contracts 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.

xxxx
SO ORDERED.67
Hence, this appeal.
On 5 September 2011, this Court granted petitioners 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 enforce ability and validity of such
stipulations, whereas, petitioner, in substance, repudiates
them. It is from petitioners 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 nonapplication 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 contracts 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 contracts 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, claim holders 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 PAMGB 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.

A part 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
Contract96 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 under went 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 partys 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.

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.

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.

Civil Case No. CV 09-0346

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, in operative or
incapable of being performed. [Emphasis supplied]

This Court notes that, on 30 September 2009, petitioner filed

with the RTC of Paraaque City, a complaint107 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 257of the RTC of
Paraaque 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
Paraaque City in relation to Civil Case No. 2009307 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,

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 lawwhich
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 regulations104 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

b. Decision dated 29 October 2010 of the

Regional Trial Court, Branch 274, of
Paraaque City in Civil Case No. 10-0255,
c. Decision dated 27 April 2010 of the
Metropolitan Trial Court, Branch 77, of
Paraaque 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 Paraaque for its consideration and, possible,
application to Civil Case No. CV 09-0346.
No costs.
SO ORDERED.
______________________________________________
G.R. No. 196171

January 15, 2014

RCBC CAPITAL CORPORATION, Petitioner,

vs.
BANCO DE ORO UNIBANK, INC. (now BDO
UNIBANK, INC.), Respondent.
x-----------------------x
G.R. No. 199238
BANCO DE ORO UNIBANK, INC., Petitioner,
vs.
COURT OF APPEALS and RCBC CAPITAL
CORPORATION, Respondents.
x-----------------------x
G.R. No. 200213
BANCO DE ORO UNIBANK, INC., Petitioner,
vs.
RCBC CAPITAL CORPORATION and THE ARBITRAL
TRIBUNAL IN ICC ARBITRATION REF. NO.
13290/MS/JEM AND/OR RICHARD IAN BARKER,
NEIL KAPLAN AND SANTIAGO KAPUNAN, in their
official capacity as Members of THE ARBITRATION
TRIBUNAL, Respondents.
RESOLUTION
VILLARAMA, JR., J.:
Before the Court are: (1) the Joint Motion and Manifestation
dated October 1, 2013 filed in G.R. Nos. 196171 & 199238 by
RCBC Capital Corporation ("RCBC Capital"), BDO Unibank,
Inc. ("BDO"), and George L. Go, in his personal capacity and
as attorney-in-fact of the individual stockholders as listed in
the Share Purchase Agreement dated May 27, 2000
("Go/Shareholders"), thru their respective counsels; and (2)
the Joint Motion and Manifestation dated October 1, 2013
filed in G.R. No. 200213 by BDO and RCBC Capital thru
their respective counsel.
All three petitions emanated from arbitration proceedings
commenced by RCBC Capital pursuant to the arbitration
clause under its Share Purchase Agreement (SPA) with EPCIB
involving the latters shares in Bankard, Inc. In the course of
arbitration conducted by the Tribunal constituted and
administered by the International Chamber of CommerceInternational Commercial Arbitration (ICC-ICA), EPCIB was
merged with BDO which assumed all its liabilities and
obligations.
G.R. No. 196171 is a petition for review under Rule 45
seeking to reverse the Court of Appeals (CA) Decision dated
December 23, 2010 in CA-G.R. SP No. 113525 which
reversed and set aside the June 24, 2009 Order of the Regional
Trial Court (RTC) of Makati City, Branch 148 in SP Proc.
Case No. M-6046. The RTC confirmed the Second Partial
Award issued by the Arbitration Tribunal ordering BDO to
pay RCBC Capital proportionate share in the advance costs
and dismissing BDOs counterclaims.
G.R. No. 199238 is a petition for certiorari under Rule 65
assailing the September 13, 2011 Resolution in CA-G.R. SP
No. 120888 which denied BDOs application for the issuance
of a stay order and/or temporary restraining order
(TRO)/preliminary injunction against the RTC of Makati City,
Branch 148 in Sp. Proc. Case No. M-6046. Acting upon
RCBC Capitals urgent motion, the RTC issued on August 22,
2011 a writ of execution for the implementation of the courts
order confirming the Final Award rendered by the Arbitration
Tribunal on June 16, 2010.

On the other hand, G.R. No. 200213, filed on February 6,

2012, is a petition for review under Rule 45 praying for the
reversal of the CAs Decision dated February 24, 2011 and
Resolution dated January 13, 2012 in CA-G.R. SP No.
113402. The CA denied BDOs petition for certiorari and
prohibition with application for issuance of a TRO and/or writ
of preliminary injunction against the RTC of Makati City,
Branch 148 in Sp. Proc. Case No. M-6046. By Order dated
June 24, 2009, the RTC denied BDOs motion for access of
the computerized accounting system of Bankard, Inc. after
Chairman Richard Ian Barker had denied BDOs request that
it be given access to the said source of facts or data used in
preparing the accounting summaries submitted in evidence
before the Arbitration Tribunal.
G.R. Nos. 196171 & 199238 were consolidated and a
Decision was rendered by this Court on December 10, 2012,
the dispositive portion of which states:
WHEREFORE, premises considered, the petition in G.R. No.
199238 is DENIED. The Resolution dated September 13,
2011 of the Court of Appeals in CA-G.R. SP No. 120888 is
AFFIRMED.
The petition in G.R. No. 196171 is DENIED. The Decision
dated December 23, 2010 of the Court of Appeals in CA-G.R.
SP No. 113525 is hereby AFFIRMED.
SO ORDERED.1
Both RCBC Capital and BDO filed motions for partial
reconsideration of the above decision.
Meanwhile, in G.R. No. 200213, RCBC Capital filed its
Comment, to which a Reply was filed by BDO. By Resolution
dated July 22, 2013, both parties were directed to submit their
respective memoranda within 30 days from notice.
In their Joint Motion and Manifestation filed in G.R. Nos.
196171 & 199238, the parties submit and pray that
5. After negotiations, the Parties have mutually
agreed that it is in their best interest and general
benefit to settle their differences with respect to their
respective causes of action, claims or counterclaims
in the RCBC Capital Petition and the BDO Petition,
with a view to a renewal of their business relations.
6. Thus, the parties have reached a complete, absolute
and final settlement of their claims, demands,
counterclaims and causes of action arising, directly or
indirectly, from the facts and circumstances giving
rise to, surrounding or arising from both Petitions,
and have agreed to jointly terminate and dismiss the
same in accordance with their agreement.
7. In view of the foregoing compromise between the
Parties, BDO, RCBC Capital and Go/Shareholders,
with the assistance of their respective counsels, have
decided to jointly move for the termination and
dismissal of the above-captioned cases with
prejudice.
PRAYER
WHEREFORE, RCBC CAPITAL CORPORATION, BDO
UNIBANK, INC. and GEORGE L. GO, IN HIS PERSONAL
CAPACITY AND AS ATTORNEY-IN-FACT OF THE
INDIVIDUAL STOCKHOLDERS AS LISTED IN THE
SHARE PURCHASE AGREEMENT DATED 27 MAY 2000
respectfully pray that this Honorable Court order the
termination and dismissal of the above-captioned cases, with

prejudice. RCBC Capital BDO and Go/Shareholders

respectfully pray for such other relief as may be deemed just
or equitable under the premises.2
BDO and RCBC Capital likewise submit and pray in their
Joint Motion and Manifestation in G.R. No. 200213 that
3. After negotiations, the Parties have mutually
agreed that it is in their best interest and general
benefit to settle their differences with respect to their
respective causes of action, claims or counterclaims
in the above-captioned case, with a view to a renewal
of their business relations.
4. Thus, the Parties have reached a complete,
absolute and final settlement of their claims,
demands, counterclaims and causes of action arising,
directly or indirectly, from the facts and
circumstances giving rise to, surrounding or arising
from the present Petition, and have agreed to jointly
terminate and dismiss the present Petition in
accordance with their agreement.
5. In view of the foregoing compromise between the
Parties, BDO and RCBC Capital, with the assistance
of their respective counsels, have decided to jointly
move for the termination and dismissal of the abovecaptioned case with prejudice.1wphi1
PRAYER
WHEREFORE, BDO UNIBANK, INC. and RCBC CAPITAL
CORPORATION respectfully pray that this Honorable Court
order the termination and dismissal of the above-captioned
case, with prejudice.
BDO and RCBC Capital respectfully pray for such other relief
as may be deemed just or equitable under the premises.3
Under this Court s Resolution dated November 27, 2013, G.R.
No. 200213 is ordered consolidated with G.R. Nos. 196171
199238.
IN VIEW OF THE FOREGOING and as prayed for, G.R.
Nos. 196171, 199238 and 200213 are hereby ordered
DISMISSED with prejudice and are deemed CLOSED and
TERMINATED.
SO ORDERED.