Heirs of Augusto L. Salas Jr. vs Laperal Realty arbitration case

G.R. No. 135362. December 13, 1999.
*
HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for
herself and as legal guardian of the minor FABRICE CYRILL D.
SALAS, MA. CRISTINA S. LESACA, and KARINA TERESA D. SALAS,
petitioners, vs. LAPERAL REALTY CORPORATION, ROCKWAY REAL
ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC., MAHARAMI
DEVELOPMENT CORPORATION, Spouses THELMA D
. ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses
VIRGINIA D. LAVA and RODEL LAVA, EDUARDO A. VACUNA,
FLORANTE DE LA CRUZ, JESUS VICENTE B. CAPELLAN, and the
REGISTER OF DEEDS FOR LIPA CITY, respondents.
Remedial Law; Arbitration; Court has recognized arbitration agreements
as valid, binding, enforceable and not contrary to public policy.In a
catena of cases inspired by Justice Malcolms provoca________________
*
SECOND DIVISION.
proceedings and order the parties to proceed to arbitration in accordance

with the terms of their agreement. Arbitration is the wave of the future
in dispute resolution. To brush aside a contractual agreement calling for
arbitration in case of disagreement between parties would be a step
backward.
Same; Same; As a contract, the Agreement containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs.
A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as well
as their assigns and heirs. But only they. Petitioners, as heirs of Salas, Jr.,
and respondent Laperal Realty are certainly bound by the Agreement. If
respondent Laperal Realty had assigned its rights under the Agreement to
a third party, making the former, the assignor, and the latter, the
assignee, such assignee would also be bound by the arbitration provision
since assignment involves such transfer of rights as to vest in the
assignee the power to enforce them to the same extent as the assignor
could have enforced them against the debtor or in this case, against the
heirs of the original party to the Agreement.
PETITION for review on certiorari of a decision of the Court of Appeals.
611
The facts are stated in the opinion of the Court.

Corpus & Associates for petitioners.
VOL. 320, DECEMBER 13, 1999
611
Heirs of Augusto L. Salas, Jr. vs. Laperal Realty Corporation

tive dissent in Vega v. San Carlos Milling Co., this Court has recognized
arbitration agreements as valid, binding, enforceable and not contrary to
public policy so much so that when there obtains a written provision for
arbitration which is not complied with, the trial court should suspend the
Luis A. Ilagan, Jr. for Rockway Real Estate Corp. and South Ridge
Village, Inc.
Jesus Vicente B. Capellan for private respondents.
Horacio M. Pascual & Vicente P. Acsay for Marahami and de la Cruz.
Santiago, Cruz & Sarte Law Offices for Laperal Realty Corp.
1
Jone P. Liu Chiang for Abrajano, Lava and Dacillo.
of her husband, Salas, Jr., who had then been missing for more than seven
(7) years. It was granted on December 12, 1996.5
612
612
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and
sold subdivided portions thereof to respondents Rockway Real Estate
Corporation and South Ridge Village, Inc. on February 22, 1990; to
respondent spouses
SUPREME COURT REPORTS ANNOTATED
________________

DE LEON, JR., J.:
Annex A of the Petition, Rollo, pp. 19-20.
Presided by Hon. Judge Avelino G. Demetria.
Rollo, p. 32.
Annex B of the Petition, Rollo, p. 22.
Before us is a petition for review on certiorari of the Order of Branch 85 of

the Regional Trial Court of Lipa City2 dismissing petitioners complaint3 for
rescission of several sale transactions involving land owned by Augusto L.
Salas, Jr., their predecessor-in-interest, on the ground that they failed to
first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in Lipa City,
Batangas spanning 1,484,354 square meters.
Decision of Branch 59 of the Regional Trial Court of Makati City in SP

PROC. No. M-4394 marked as Annex C of the Petition, Rollo, pp. 29-31.
613
On May 15, 1987, he entered into an Owner-Contractor Agreement

(hereinafter referred to as the Agreement) with respondent Laperal Realty
Corporation (hereinafter referred to as Laperal Realty) to render and
provide complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in
favor of respondent Laperal Realty to exercise general control, supervision
and management of the sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip
to Nueva Ecija. He never returned.
613

Abrajano and Lava and Oscar Dacillo on June 27, 1991; and to
respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capalan on June 4, 1996 (all of whom are hereinafter referred to as
respondent lot buyers).
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court
of Makati City a verified petition for the declaration of presumptive death
2
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional

Trial Court of Lipa City a Complaint6 for declaration of nullity of sale,
reconveyance, cancellation of contract, accounting and damages against
herein respondents which was docketed as Civil Case No. 98-0047.
_________________
6
Annex D of the Petition, Rollo, pp. 32-49.
Annex E of the Petition, Rollo, pp. 50-56.
Owner-Contractor Agreement, p. 6, Rollo, p. 27.
Annex F of the Petition, Rollo, pp. 58-73.
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss on

the ground that petitioners failed to submit their grievance to arbitration
as required under Article VI of the Agreement which provides:
ARTICLE VI. ARBITRATION.
614
All cases of dispute between CONTRACTOR and OWNERS representative
shall be referred to the committee represented by:
1. a. One representative of the OWNER;
2. b. One representative of the CONTRACTOR;
3. c. One representative acceptable to both OWNER and
CONTRACTOR.8
On May 5, 1998, respondent spouses Abrajano and Lava and respondent
Dacillo filed a Joint Answer with Counter-claim and Crossclaim9 praying for
dismissal of petitioners Complaint for the same reason.
On August 9, 1998, the trial court issued the herein assailed Order
dismissing petitioners Complaint for noncompliance with the foregoing
arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners causes of action did not emanate from the OwnerContractor Agreement.
614

The petitioners causes of action for cancellation of contract and

accounting are covered by the exception under the Arbitration Law.
Failure to arbitrate is not a ground for dismissal.10
In a catena of cases11 inspired by Justice Malcolms provocative dissent in
Vega v. San Carlos Milling Co.,12 this Court has recognized arbitration
agreements as valid, binding, enforceable and not contrary to public
policy so much so that when there obtains a written provision for
arbitration which is not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in accordance
with the terms of their agreement.13 Arbitration is the wave of the future
in dispute resolution.14 To brush aside a contractual agreement calling for
arbitration in case of disagreement between parties would be a step
backward.15
Nonetheless, we grant the petition.
3
A submission to arbitration is a contract.16 As such, the Agreement,

containing the stipulation on arbitration, binds the parties thereto, as well
as their assigns and heirs.17 But only they. Petitioners, as heirs of Salas, Jr.,
and respondent Laperal Realty are certainly bound by the Agreement. If
respondent Laperal Realty had assigned its rights under the Agreement to
a third party, making the former, the assignor,
_________________
10
Petition, pp. 7, 9-10, Rollo, pp. 9, 11-12.
11
Mindanao Portland Cement Corporation v. McDonough Construction

Company of Florida, 19 SCRA 808, 815 (1967); Bengson v. Chan, 78 SCRA
113, 119 (1977); Chung Fu Industries (Phils.), Inc. v. Court of Appeals, 206
SCRA 545, 549-552 (1992); Puromines, Inc. v. Court of Appeals, 220 SCRA
281, 289-290 (1993); National Power Corporation v. Court of Appeals, 254
SCRA 116, 125 (1996).
12
51 Phil. 908, 916-920 (1924).
13
Bengson v. Chan, supra.
14
B.F. Corporation v. Court of Appeals, et al., 288 SCRA 267, 286 (1998).
15
Ibid.
16
Manila Electric Company v. Pasay Transportation Co., 57 Phil. 600, 603

(1932).
17
Art. 1311, Civil Code.
615

and the latter, the assignee, such assignee would also be bound by the
arbitration provision since assignment involves such transfer of rights as
to vest in the assignee the power to enforce them to the same extent as
the assignor could have enforced them against the debtor18 or in this
case, against the heirs of the original party to the Agreement. However,
respondents Rockway Real Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses Abrajano, spouses Lava,
Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capellan are not assignees of the rights of respondent Laperal Realty
under the Agreement to develop Salas, Jr.s land and sell the same. They
are, rather, buyers of the land that respondent Laperal Realty was given
the authority to develop and sell under the Agreement. As such, they are
not assigns contemplated in Art. 1311 of the New Civil Code which
provides that contracts take effect only between the parties, their
assigns and heirs.
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of
the value of Salas, Jr.s land when respondent Laperal Realty subdivided it
and sold portions thereof to respondent lot buyers. Thus, they instituted
action19 against both respondent Laperal Realty and respondent lot buyers
for rescission of the sale transactions and reconveyance to them of the
subdivided lots. They argue that rescission, being their cause of action,
falls under the exception clause in Sec. 2 of Republic Act No. 876 which
provides that such submission [to] or contract [of arbitration] shall be
valid, enforceable and irrevocable, save upon such grounds as exist at
law for the revocation of any contract.
The petitioners contention is without merit. For while rescission, as a
general rule, is an arbitrable issue,20 they im-
615
________________
4
18
Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code

of the Philippines, Vol. 5 (1992), p. 188.
hereby NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed
with the hearing of Civil Case No. 98-0047.
19
Costs against private respondents.
Complaint dated February 2, 1998 marked as Annex D of the Petition,

Rollo, pp. 32-48.
20
SO ORDERED.
Santiago v. Gonzalez, 79 SCRA 494, 500 (1977).
Bellosillo (Chairman), Mendoza, Quisumbing and Buena, JJ., concur.
616
Petition granted, Order nullified and set aside.
616

Note.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. (BF Corporation vs.
Court of Appeals, 288 SCRA 267 [1998])
o0o
pleaded in the suit for rescission the respondent lot buyers who are
neither parties to the Agreement nor the latters assigns or heirs.
Consequently, the right to arbitrate as provided in Article VI of the
Agreement was never vested in respondent lot buyers.
Respondent Laperal Realty, as a contracting party to the Agreement, has
the right to compel petitioners to first arbitrate before seeking judicial
relief. However, to split the proceedings into arbitration for respondent
Laperal Realty and trial for the respondent lot buyers, or to hold trial in
abeyance pending arbitration between petitioners and respondent Laperal
Realty, would in effect result in multiplicity of suits, duplicitous procedure
and unnecessary delay. On the other hand, it would be in the interest of
justice if the trial court hears the complaint against all herein respondents
and adjudicates petitioners rights as against theirs in a single and
complete proceeding.
WHEREFORE, the instant petition is hereby GRANTED. The Order dated
August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City is
5
Same; Same; Same; If a lower court prematurely assumes jurisdiction over a case, then it
becomes an error of jurisdiction which is a proper subject of a petition for certiorari.This
is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction
of the lower court over the controversy, the issue posed basi_______________
*
THIRD DIVISION.
G.R. No. 120105. March 27, 1998.*
268
BF CORPORATION, petitioner, vs. COURT OF APPEALS, SHANGRI-LA

PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G.
LICAUCO III and BENJAMIN C. RAMOS, respondents.
268
Actions; Pleadings and Practice; Certiorari; The special civil action of certiorari may not be
invoked as a substitute for the remedy of appeal.The rule that the special civil action of
certiorari may not be invoked as a substitute for the remedy of appeal is succinctly reiterated
in Ongsitco v. Court of Appeals as follows: x x x. Countless times in the past, this Court has
held that where appeal is the proper remedy, certiorari will not lie. The writs of certiorari
and prohibition are remedies to correct lack or excess of jurisdiction or grave abuse of
discretion equivalent to lack of jurisdiction committed by a lower court. Where the proper
remedy is appeal, the action for certiorari will not be entertained. x x x. Certiorari is not a
remedy for errors of judgment. Errors of judgment are correctible by appeal, errors of
jurisdiction are reviewable by certiorari. Rule 65 is very clear. The extraordinary remedies of
certiorari, prohibition and mandamus are available only when there is no appeal or any
plain, speedy and adequate remedy in the ordinary course of law x x x. That is why they are
referred to as extraordinary. x x x.
Same; Same; Same; Certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact.The Court has likewise ruled that certiorari will not
be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As
long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment which are reviewable by
timely appeal and not by a special civil action of certiorari.
BF Corporation vs. Court of Appeals

cally is whether the lower court prematurely assumed jurisdiction over it. If the lower court
indeed prematurely assumed jurisdiction over the case, then it becomes an error of
jurisdiction which is a proper subject of a petition for certiorari before the Court of Appeals.
And if the lower court does not have jurisdiction over the controversy, then any decision or
order it may render may be annulled and set aside by the appellate court.
Same; Same; Same; Where the issue posed is a question of law, the special civil action of
certiorari may be rightfully invoked.The Court of Appeals found that an Arbitration Clause
does in fact exist. In resolving said question of fact, the Court of Appeals interpreted the
construction of the subject contract documents containing the Arbitration Clause in
accordance with Republic Act No. 876 (Arbitration Law) and existing jurisprudence which
will be extensively discussed hereunder. In effect, the issue posed before the Court of
Appeals was likewise a question of law. Being a question of law, the private respondents
rightfully invoked the special civil action of certiorari.
Same; Same; Same; Where a rigid application of the rule that certiorari cannot be a
substitute for appeal will result in a manifest failure or miscarriage of justice, the provisions
of the Rules of Court which are technical rules may be relaxed.Moreover, where a rigid
6
application of the rule that certiorari cannot be a substitute for appeal will result in a manifest
failure or miscarriage of justice, the provisions of the Rules of Court which are technical
rules may be relaxed. As we shall show hereunder, had the Court of Appeals dismissed the
petition for certiorari, the issue of whether or not an arbitration clause exists in the contract
would not have been resolved in accordance with evidence extant in the record of the case.
Consequently, this would have resulted in a judicial rejection of a contractual provision
agreed by the parties to the contract.
Contracts; Arbitration; Words and Phrases; Formal Requirements of an Agreement to
Arbitrate; To subscribe means to write underneath, as ones name; to sign at the end of a
document.The formal requirements of an agreement to arbitrate are therefore the
following: (a) it must be in writing and (b) it must be subscribed by the parties or their
representatives. There is no denying that the parties entered into a written contract that was
submitted in evidence before the lower court. To subscribe means to write under269
VOL. 288, MARCH 27, 1998
269

neath, 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.
Same; Same; The failure of a party to initial the Conditions of Contract does not affect
compliance with the formal requirements for arbitration agreements where that particular
portion of the covenants between the parties is included by reference in the Articles of
Agreement.The Court finds that, upon a scrutiny of the records of this case, these requisites
were complied with in the contract in question. The Articles of Agreement, which
incorporates all the other contracts and agreements between the parties, was signed by
representatives of both parties and duly notarized. The failure of the private respondents
representative to initial the Conditions of Contract would therefor not affect compliance
with the formal requirements for arbitration agreements because that particular portion of the
covenants between the parties was included by reference in the Articles of Agreement.
Same; Same; A contract may be encompassed in several instruments even though every
instrument is not signed by the parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed instrument or instruments.
Petitioners contention that there was no arbitration clause because the contract incorporating
said provision is part of a hodgepodge document, is therefore untenable. A contract need
not be contained in a single writing. It may be collected from several different writings which
do not conflict with each other and which, when connected, show the parties, subject matter,
terms and consideration, as in contracts entered into by correspondence. A contract may be
encompassed in several instruments even though every instrument is not signed by the
parties, since it is sufficient if the unsigned instruments are clearly identified or referred to
and made part of the signed instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties, is binding on both to the same
extent as though there had been only one copy of the agreement and both had signed it.
Same; Same; The subscription of the principal agreement effectively covers the other
documents incorporated by reference therein.The flaw in petitioners contentions therefore
lies in its having segmented the various components of the whole contract between the
parties into several parts. This notwithstanding, petitioner ironi270
270

cally admits the execution of the Articles of Agreement. Notably, too, the lower court found
that the said Articles of Agreement also provides that the Contract Documents therein
listed shall be deemed an integral part of this Agreement, and one of the said documents is
the Conditions of Contract which contains the Arbitration Clause. It is this Articles of
Agreement that was duly signed by Rufo B. Colayco, president of private respondent SPI,
7
and Bayani F. Fernando, president of petitioner corporation. The same agreement was duly
subscribed before notary public Nilberto R. Briones. In other words, the subscription of the
principal agreement effectively covered the other documents incorporated by reference
therein.
in case of disagreement between the parties would therefore be a step backward.

Same; Same; Words and Phrases; Reasonableness is a relative term and the question of
whether the time within which an act has to be done is reasonable depends on attendant
circumstances.The arbitration clause provides for a reasonable time within which the
parties may avail of the relief under that clause. Reasonableness is a relative term and the
question of whether the time within which an act has to be done is reasonable depends on
attendant circumstances. This Court finds that under the circumstances obtaining in this case,
a one-month period from the time the parties held a conference on July 12, 1993 until private
respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it
under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.
Same; Republic Act 876; The potentials of arbitration as one of the alternative dispute
resolution methods that are now rightfully vaunted as the wave of the future in
international relations, is recognized worldwide.It should be noted that in this jurisdiction,
arbitration has been held valid and constitutional. Even before the approval on June 19, 1953
of Republic Act No. 876, this Court has countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to supplement the New Civil Codes
provisions on arbitration. Its potentials as one of the alternative dispute resolution methods
that are now rightfully vaunted as the wave of the future in international relations, is
recognized worldwide. To brush aside a contractual agreement calling for arbitration
271
VOL. 288, MARCH 27, 1998
271
Ponce Enrile, Reyes & Manalastas for petitioner.

Sunico, Malabanan & Associates Law Offices for private respondents A. Ramos, M.
Licauco III and B. Ramos.
Quisumbing, Torres & Evangelista for private respondents.
ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the contract for the
construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangrila Properties, Inc. embodies an arbitration clause in case of disagreement between the parties
in the implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement
whereby the latter engaged the former to construct the main structure of the EDSA Plaza
Project, a shopping mall complex in the City of Mandaluyong. The construction work was
in progress when SPI decided to expand the project by engaging the services of petitioner
again. Thus, the parties entered into an agreement for the main contract works after which
construction work began.
However, petitioner incurred delay in the construction work that SPI considered as serious
and substantial.1 On the other hand, according to petitioner, the construction works
progressed in faithful compliance with the First Agreement until a fire broke out on
November 30, 1990 damaging Phase
_______________
Rollo, p. 75.
272
8
_______________
272
Ibid., p. 9.
Ibid., p. 76.
Ibid.
I of the Project. Hence, SPI proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement
denominated as Agreement for the Execution of Builders Work for the EDSA Plaza
Project. Said agreement would cover the construction work on said project as of May 1,
1991 until its eventual completion.
According to SPI, petitioner failed to complete the construction works and abandoned the
project.3 This resulted in disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPIs initiative, the parties respective
representatives met in conference but they failed to come to an agreement.4
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of
Pasig a complaint for collection of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of directors namely, Alfredo C.
Ramos, Rufo B. Colayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III
and Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead
of filing an answer. The motion was anchored on defendants allegation that the formal trade
contract for the construction of the project provided for a clause requiring prior resort to
arbitration before judicial intervention could be invoked in any dispute arising from the
contract. The following day, SPI submitted a copy of the conditions of the contract
containing the arbitration clause that it failed to append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no formal contract between the
parties although they entered into an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement
273
VOL. 288, MARCH 27, 1998
273

did not provide for arbitration and therefore the court could not be deprived of jurisdiction
conferred by law by the mere allegation of the existence of an arbitration clause in the
agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause in the
existing contract between petitioner and SPI. It alleged that suspension of proceedings would
not necessarily deprive the court of its jurisdiction over the case and that arbitration would
expedite rather than delay the settlement of the parties respective claims against each other.
In a rejoinder to SPIs reply, petitioner reiterated that there was no arbitration clause in the
contract between the parties. It averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer proper. It added that defendants
should be declared in default for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of peti-tioners admission of the due
execution of the Articles of Agreement. Thus, on page D/6 thereof, the signatures of Rufo
B. Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page
D/7 shows that the agreement is a public document duly notarized on November 15, 1991 by
9
Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of
1991 of his notarial register.5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court6 denied the
motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex
C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms
and conditions of the Builders Work for the EDSA Plaza Project (Phases
Nilberto R. Briones of Makati, Metro Manila on November 15, 1991. The said Articles of
Agreement also provides that the Contract Documents therein listed shall be deemed an
integral part of this Agreement, and one of the said documents is the Conditions of
Contract which contains the Arbitration Clause relied upon by the defendants in their
Motion to Suspend Proceedings.
This Court notes, however, that the Conditions of Contract referred to, contains the
following provisions:
3. Contract Document.
_______________
5
Annexes G-1 and G-2 of Reply to Opposition to Motion to Suspend Proceedings; Rollo in
CA-G.R. SP No. 33412, pp. 190-191.
6
Presided by Judge Domingo R. Garcia.
274
274

I, II and Carpark), subject to the execution by the parties of a formal trade contract.
Defendants have submitted a copy of the alleged trade contract, which is entitled Contract
Documents For Builders Work Trade Contractor dated 01 May 1991, page 2 of which is
entitled Contents of Contract Documents with a list of the documents therein contained, and
Section A thereof consists of the abovementioned Letter-Agreement dated May 30, 1991.
Section C of the said Contract Documents is entitled Articles of Agreement and Conditions
of Contract which, per its Index, consists of Part A (Articles of Agreement) and B
(Conditions of Contract). The said Articles of Agreement appears to have been duly signed
by President Rufo B. Colayco of Shangri-La Properties, Inc. and President Bayani F.
Fernando of BF and their witnesses, and was thereafter acknowledged before Notary Public
Three copies of the Contract Documents referred to in the Articles of Agreement shall be
signed by the parties to the contract and distributed to the Owner and the Contractor for their
safe keeping. (Italics supplied)
And it is significant to note further that the said Conditions of Contract is not duly signed
by the parties on any page thereofalthough it bears the initials of BFs representatives
(Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials thereon of any
representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was not duly
executed or signed by the parties, and the failure of the defendants to submit any signed copy
of the said document, this Court entertains serious doubt whether or not the arbitration clause
found in the said Conditions of Contract is binding upon the parties to the Articles of
Agreement.
275
VOL. 288, MARCH 27, 1998
275
10
The lower court then ruled that, assuming that the arbitration clause was valid and binding,
still, it was too late in the day for defendants to invoke arbitration. It quoted the following
provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other
party to the contract and a copy filed with the Project Manager. The demand for arbitration
shall be made within a reasonable time after the dispute has arisen and attempts to settle
amicably have failed; in no case, however, shall the demand he made be later than the time of
final payment except as otherwise expressly stipulated in the contract.
since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason
that defendants have failed to file any written notice of any demand for arbitration during the
said long period of one year and eight months, this Court finds that it cannot stay the
proceedings in this case as required by Sec. 7 of Republic Act No. 876, because defendants
are in default in proceeding with such arbitration.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the
project was to be completed by October 31, 1991. Thereafter, the contractor would pay
P80,000 for each day of delay counted from November 1, 1991 with liquified (sic) damages
up to a maximum of 5% of the total contract price.
The lower court denied SPIs motion for reconsideration for lack of merit and directed it and
the other defendants to file their responsive pleading or answer within fifteen (15) days from
notice.
The lower court also found that after the project was completed in accordance with the
agreement that contained a provision on progress payment billing, SPI took possession
and started operations thereof by opening the same to the public in November, 1991. SPI,
having failed to pay for the works, petitioner billed SPI in the total amount of
P110,883,101.52, contained in a demand letter sent by it to SPI on February 17, 1993. Instead
of paying the amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled
a conference on that claim for July 12, 1993. The conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is
required that Notice of the demand for arbitration of a dispute shall be filed in writing with
the other party x x x x in no case x x x x later than the time of final payment x x x x which
apparently, had elapsed, not only because defendants had taken possession of the finished
works and the plaintiffs billings for the payment thereof had remained pending
276
276
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65
of the Rules of Court before the Court of Appeals. Said appellate court granted the petition,
annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling,
the Court of Appeals held:
The reasons given by the respondent Court in denying petitioners motion to suspend
proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners reply
dated August 26, 1993, has been submitted by them to the respondent Court (Annex G,
petition). It bears the signature of petitioner Rufo B. Colayco, president of petitioner ShangriLa Properties, Inc., and of Bayani Fernando, president of respondent Corporation (Annex G1, petition). At page D/4 of said articles of agreement it is expressly provided that the
conditions of contract are deemed an integral part thereof (page 188, rollo). And it is at
pages D/42 to D/44 of the conditions of contract that the provisions for arbitration are found
(Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically
provides:
Provided always that in case any dispute or difference shall arise between the Owner or the
Project Manager on his behalf and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction of this Contract or as to any
matter or thing of whatsoever nature arising thereunder or in connection therewith (including
11
any matter or being left by this Contract to the discretion of the Project Manager or the
withholding by the Pro-
that defendants have failed to file any written notice of any demand for arbitration during the
said period of one year and eight months, x x x.
277
Respondent Court has overlooked the fact that under the arbitration clause
VOL. 288, MARCH 27, 1998
277

ject Manager of any certificate to which the Contractor may claim to be entitled or the
measurement and valuation mentioned in clause 30 (5) (a) of these Conditions or the rights
and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the Owner
and the Contractor hereby agree to exert all efforts to settle their differences or dispute
amicably. Failing these efforts then such dispute or difference shall be referred to Arbitration
in accordance with the rules and procedures of the Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear only the initials
of respondent Corporations representatives, Bayani Fernando and Reynaldo de la Cruz,
without that of the representative of petitioner Shangri-La Properties, Inc. does not militate
against its effectivity. Said petitioner having categorically admitted that the document, Annex
A to its reply dated August 26, 1993 (Annex G, petition), is the agreement between the
parties, the initial or signature of said petitioners representative to signify conformity to
arbitration is no longer necessary. The parties, therefore, should be allowed to submit their
dispute to arbitration in accordance with their agreement.
2. The respondent Court held that petitioners are in default in proceeding with such
arbitration. It took note of the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that Notice of the demand for arbitration of a dispute shall be filed
in writing with the other party x x x in no case x x x later than the time of final payment,
which apparently, had elapsed, not only because defendants had taken possession of the
finished works and the plaintiffs billings for the payment thereof had remained pending
since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason
Notice of the demand for arbitration dispute shall be filed in writing with the other party to
the contract and a copy filed with the Project Manager. The demand for arbitration shall be
made within a reasonable time after the dispute has arisen and attempts to settle amicably
had failed; in no case, however, shall the demand be made later than the time of final
278
278

payment except as otherwise expressly stipulated in the contract (italics supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the final
demand to pay the amount of P110,883,101.52, instead of paying, petitioners set up its own
claim against respondent Corporation in the amount of P220,000,000.00 and set a conference
thereon on July 12, 1993. Said conference proved futile. The next day, July 14, 1993,
respondent Corporation filed its complaint against petitioners. On August 13, 1993,
petitioners wrote to respondent Corporation requesting arbitration. Under the circumstances,
it cannot be said that petitioners resort to arbitration was made beyond reasonable time.
Neither can they be considered in default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:
A.
12
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT OF

CERTIORARI ALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO
RESPONDENTS.
The above contention is without merit.

The rule that the special civil action of certiorari may not be invoked as a substitute for the
remedy of appeal is succinctly reiterated in Ongsitco v. Court of Appeals8 as follows:
B.
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN
THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:
1. (i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE.
2. (ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO
ARBITRATE, RESPONDENTS ARE ALREADY IN DEFAULT IN INVOKING
THE AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower court denying the
motion to suspend proceedings is a resolution of an incident on the merits. As such, upon
the continuation of the proceedings, the lower court would appreciate the evidence adduced
in their totality
279
x x x. Countless times in the past, this Court has held that where appeal is the proper
remedy, certiorari will not lie. The writs of certiorari and prohibition are remedies to correct
lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of jurisdiction
committed by a lower court. Where the proper remedy is appeal, the action for certiorari will
not be entertained. x x x. Certiorari is not a remedy for errors of judgment. Errors of
judgment are correctible by appeal, errors of jurisdiction are reviewable by certiorari.
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are
available only when there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law x x x. That is why they are referred to as extraordinary. x x x.
The Court has likewise ruled that certiorari will not be issued to cure errors in proceedings
or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction,
any alleged errors committed in the exercise of its jurisdiction will amount to nothing more
than errors of judgment which are reviewable by timely appeal and not by a special civil
action of certiorari.9
_______________
VOL. 288, MARCH 27, 1998
279

and thereafter render a decision on the merits that may or may not sustain the existence of an
arbitration clause. A decision containing a finding that the contract has no arbitration clause
can then be elevated to a higher court in an ordinary appeal where an adequate remedy
could be obtained. Hence, to petitioner, the Court of Appeals should have dismissed the
petition for certiorari because the remedy of appeal would still be available to private
respondents at the proper time.7
Rollo, pp. 16-17.
325 Phil. 1069, 1076 (1996).
Commissioner of Internal Revenue v. Court of Appeals, 327 Phil. 1, 41-42 (1996).
280
280
13

This is not exactly so in the instant case. While this Court does not deny the eventual
jurisdiction of the lower court over the controversy, the issue posed basically is whether the
lower court prematurely assumed jurisdiction over it. If the lower court indeed prematurely
assumed jurisdiction over the case, then it becomes an error of jurisdiction which is a proper
subject of a petition for certiorari before the Court of Appeals. And if the lower court does
not have jurisdiction over the controversy, then any decision or order it may render may be
annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question of law depends on the
determination of the existence of the arbitration clause, which is a question of fact. In the
instant case, the lower court found that there exists an arbitration clause. However, it ruled
that in contemplation of law, said arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether
the Arbitration Clause does not in fact exist. On its face, the question is one of fact which is
not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said
question of fact, the Court of Appeals interpreted the construction of the subject contract
documents containing the Arbitration Clause in accordance with Republic Act No. 876
(Arbitration Law) and existing jurisprudence which will be extensively discussed hereunder.
In effect, the issue posed before the Court of Appeals was likewise a question of law. Being a
question of law, the private respondents rightfully invoked the special civil action of
certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is
being questioned by the petitioners before this Court. But at the heart of said issue is the
question of whether there exists an Arbitration Clause because if an Arbitration Clause does
not exist, then private respondents took the wrong mode of appeal before the Court of
Appeals.
281
VOL. 288, MARCH 27, 1998
281

For this Court to be able to resolve the question of whether private respondents took the
proper mode of appeal, which, incidentally, is a question of law, then it has to answer the core
issue of whether there exists an Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for
appeal will result in a manifest failure or miscarriage of justice, the provisions of the Rules of
Court which are technical rules may be relaxed.10As we shall show hereunder, had the Court
of Appeals dismissed the petition for certiorari, the issue of whether or not an arbitration
clause exists in the contract would not have been resolved in accordance with evidence extant
in the record of the case. Consequently, this would have resulted in a judicial rejection of a
contractual provision agreed by the parties to the contract.
In the same vein, this Court holds that the question of the existence of the arbitration clause
in the contract between petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.
Petitioner, while not denying that there exists an arbitration clause in the contract in question,
asserts that in contemplation of law there could not have been one considering the following
points. First, the trial court found that the conditions of contract embodying the arbitration
clause is not duly signed by the parties. Second, private respondents misrepresented before
the Court of Appeals that they produced in the trial court a notarized duplicate original copy
of the construction agreement because what were submitted were mere photocopies thereof.
The contract(s) introduced in court by private respondents were therefore of dubious
authenticity because: (a) the Agreement for the Execution of Builders Work for the EDSA
Plaza Project does not contain an arbitration clause, (b) private respondents surreptitiously
attached as Annexes G-3 to G-5 to their petition before the Court of
_______________
14
10
Sps. Mejares v. Hon. Reyes, 324 Phil. 710, 718 (1996).
282
282

Appeals but these documents are not parts of the Agreement of the parties as there was no
formal trade contract executed, (c) if the entire compilation of documents is indeed a
formal trade contract, then it should have been duly notarized, (d) the certification from the
Records Management and Archives Office dated August 26, 1993 merely states that the
notarial record of Nilberto Briones x x x is available in the files of (said) office as Notarial
Registry Entry only, (e) the same certification attests that the document entered in the
notarial registry pertains to the Articles of Agreement only without any other accompanying
documents, and therefore, it is not a formal trade contract, and (f) the compilation submitted
by respondents are a mere hodge-podge of documents and do not constitute a single
intelligible agreement.
In other words, petitioner denies the existence of the arbitration clause primarily on the
ground that the representatives of the contracting corporations did not sign the Conditions of
Contract that contained the said clause. Its other contentions, specifically that insinuating
fraud as regards the alleged insertion of the arbitration clause, are questions of fact that
should have been threshed out below.
This Court may as well proceed to determine whether the arbitration clause does exist in the
parties contract. Republic Act No. 876 provides for the formal requisites of an arbitration
agreement as follows:
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 of the
province or city where any of the parties resides, to enforce such contract of submission.
(Italics supplied.)
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must
be in writing and (b) it
283
VOL. 288, MARCH 27, 1998
283

must be subscribed by the parties or their representatives. There is no denying that the parties
entered into a written contract that was submitted in evidence before the lower court. To
subscribe means to write underneath, as ones name; to sign at the end of a document.11
That word may sometimes be construed to mean to give consent to or to attest.12
The Court finds that, upon a scrutiny of the records of this case, these requisites were
complied with in the contract in question. The Articles of Agreement, which incorporates all
the other contracts and agreements between the parties, was signed by representatives of both
parties and duly notarized. The failure of the private respondents representative to initial the
Conditions of Contract would therefor not affect compliance with the formal requirements
for arbitration agreements because that particular portion of the covenants between the
parties was included by reference in the Articles of Agreement.
Petitioners contention that there was no arbitration clause because the contract incorporating
said provision is part of a hodge-podge document, is therefore untenable. A contract need
not be contained in a single writing. It may be collected from several different writings which
do not conflict with each other and which, when connected, show the parties, subject matter,
terms and consideration, as in contracts entered into by correspondence.13 A contract may be
encompassed in several instruments even though every instrument is not signed by the
15
parties, since it is sufficient if the unsigned instruments are clearly identified or referred to
and made part of the signed instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties, is binding on both to the same
extent as though
_______________
11
Gamido v. New Bilibid Prisons Officials, 312 Phil. 100, 104.
12
2 BOUVIERS LAW DICTIONARY, 3rd revision, p. 3171.
13
17 C.J.S. 727-728.
This Court likewise does not find that the Court of Appeals erred in rul ing that private
respondents were not in default in invoking the provisions of the arbitration clause which
states that (t)he demand for arbitration shall be made within a reasonable time after the
dispute has arisen and attempts to settle amicably had failed. Under the factual milieu,
private respondent SPI should have paid its liabilities under the contract in accordance with
its terms. However, misunderstandings appeared to have cropped up between the parties
ostensibly brought about by either delay in the completion of the construction work or by
force majeure or the fire that partially gutted the project. The almost two-year delay in paying
its liabilities may not therefore be wholly ascribed to private respondent SPI.
Besides, private respondent SPIs initiative in calling for a conference between the parties
was a step towards the agreed resort to arbitration. However, petitioner posthaste filed the
_______________
284
14
284

there had been only one copy of the agreement and both had signed it.14
The flaw in petitioners contentions therefore lies in its having segmented the various
components of the whole contract between the parties into several parts. This
notwithstanding, petitioner ironically admits the execution of the Articles of Agreement.
Notably, too, the lower court found that the said Articles of Agreement also provides that the
Contract Documents therein listed shall be deemed an integral part of this Agreement, and
one of the said documents is the Conditions of Contract which contains the Arbitration
Clause. It is this Articles of Agreement that was duly signed by Rufo B. Colayco, president
of private respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The
same agreement was duly subscribed before notary public Nilberto R. Briones. In other
words, the subscription of the principal agreement effectively covered the other documents
incorporated by reference therein.
Ibid., pp. 728 & 729.
285
VOL. 288, MARCH 27, 1998
285

complaint before the lower court. Thus, while private respondent SPIs request for arbitration
on August 13, 1993 might appear an afterthought as it was made after it had filed the motion
to suspend proceedings, it was because petitioner also appeared to act hastily in order to
resolve the controversy through the courts.
The arbitration clause provides for a reasonable time within which the parties may avail of
the relief under that clause. Reasonableness is a relative term and the question of whether
the time within which an act has to be done is reasonable depends on attendant
circumstances.15 This Court finds that under the circumstances obtaining in this case, a onemonth period from the time the parties held a conference on July 12, 1993 until private
16
respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it
under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.
adopted to supplement the New Civil Codes provisions on arbitration.19 Its potentials as one
of the alternative dispute resolution methods that are now rightfully vaunted as the wave of
the future in international relations, is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties would therefore
be a step backward.
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 arbitration16 has been pursued and completed, then the
lower court may confirm the award17 made by the arbitrator.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and
the petition for certiorari DENIED. This Decision is immediately executory. Costs against
petitioner.
_______________
SO ORDERED.
15
MORENO, PHILIPPINE LAW DICTIONARY, 3rd ed., p. 790.
16
Sec. 22, Rep. Act No. 876.
17
Narvasa (C.J., Chairman), Kapunan and Purisima, JJ., concur.

Questioned decision affirmed; Petition denied.
Sec. 23 of Rep. Act No. 876 provides: Confirmation of award.At any time within one
month after the award is made, any party to the controversy which was arbitrated may apply
to the court having jurisdiction, as provided in section twenty-eight, for an order confirming
the award; and thereupon the court must grant such order unless the award is vacated,
modified or corrected, as prescribed herein. Notice of such motion shall be served upon the
adverse party or his attorney as prescribed by law for the service of such notice upon an
attorney in action in the same court.
Notes.In a petition for review of an arbitration award, the Arbitral Tribunal should be
impleaded. (Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc., 228 SCRA 397
[1993])
286
o0o
Under the Arbitration Law, the award or decision of the voluntary arbitrator is equated with
that of the Regional Trial Courts. (Luzon Development Bank vs. Association of Luzon
Development Bank Employees, 249 SCRA 162 [1995])
_______________
286
18
Puromines, Inc. v. Court of Appeals, G.R. No. 91228, March 22, 1993, 220 SCRA 281,
289-290.
19
Chung Fu Industries (Phils.), Inc. v. Court of Appeals, G.R. No. 96283, February 25, 1992,
206 SCRA 545, 551.
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional.
Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration.18 Republic Act No. 876 was
17
questions of fact cannot be raised in proceedings before the Supreme Courtwhich is not a
trier of factsin respect of an arbitral award rendered under the aegis of the CIAC.
Consideration of the animating purpose of voluntary arbitration in general, and arbitration
under the aegis of the CIAC in particular, requires us to apply rigorously the above principle
embodied in Section 19 that the Arbitral Tribunals findings of fact shall be final and
inappealable.
Same; Same; Concept of voluntary arbitration; Voluntary arbitration in the construction
industry.Voluntary arbitration involves the reference of a dispute to an impartial body, the
members of which are chosen by the parties themselves, which parties freely consent in
advance to abide by the arbitral award issued after proceedings where both parties had the
opportunity to be heard. The basic objective is to provide a speedy and inexpensive method
of settling disputes by allowing the parties to avoid the formalities, delay, expense and
aggravation which commonly accompany ordinary litigation, especially litiG.R. No. 110434. December 13, 1993.*
HI-PRECISION STEEL CENTER, INC., petitioner, vs. LIM KIM STEEL
BUILDERS, INC., and CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION, respondents.
Actions; Parties; In a petition for review of an arbitration award, the Arbitral Tribunal
should be impleaded.A preliminary point needs to be made. We note that the Arbitral
Tribunal has not been impleaded as a respondent in the Petition at bar. The CIAC has indeed
been impleaded; however, the Arbitral Award was not rendered by the CIAC, but rather by
the Arbitral Tribunal. Moreover, under Section 20 of Executive Order No. 1008, dated 4
February 1985, as amended, it is the Arbitral Tribunal, or the single Arbitrator, with the
concurrence of the CIAC, which issues the writ of execution requiring any sheriff or other
proper officer to execute the award. We consider that the Arbitral Tribunal which rendered
the Award sought to be reviewed and set aside, should be impleaded even though the defense
of its Award would presumably have to be carried by the prevailing party.
Actions; Voluntary Arbitration; Review by the Supreme Court; Questions of fact cannot be
raised in proceedings before the Supreme Court.Section 19 makes it crystal clear that
_____________
*
THIRD DIVISION.
398
398

Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
gation which goes through the entire hierarchy of courts. 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.
Same; Same; Same; Same; Supreme Court will review issues of facts previously presented
before the Arbitral Tribunal only where there is a very clear showing that, in reaching its
18
factual conclusions, the Tribunal committed an error so egregious as to constitute a grave

abuse of discretion.Aware of the objective of voluntary arbitration in the labor field, in the
construction industry, and in any other area for that matter, the Court will not assist one or the
other or even both parties in any effort to subvert or defeat that objective for their private
purposes. The Court will not review the factual findings of an arbitral tribunal upon the artful
allegation that such body had misapprehended the facts and will not pass upon issues
which are, at bottom, issues of fact, no matter how cleverly disguised they might be as legal
questions. The parties here had recourse to arbitration and chose the arbitrators themselves;
they must have had confidence in such arbitrators. The Court will not, therefore, permit the
parties to relitigate before it the issues of facts previously presented and argued before the
Arbitral Tribunal, save only where a very clear showing is made that, in reaching its factual
conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as
to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction.
PETITION for review of an arbitration award of the Arbitral Tribunal.
Review1 was filed before the Court, petitioner Hi-Precision Steel Center, Inc. (HiPrecision) stating that it intended to file a Petition for Review on Certiorari in respect of the
13 November 1992 Award2 and 13 May 1993 Order3 of public respondent Construction
Industry Arbitration Commission (CIAC) in Arbitration Case No. 13-90. The Petition
(really a Motion) prayed for an extension of thirty (30) days or until 21 July 1993 within
which to file a Petition for Review.
An Opposition4 to the Motion was filed by private respondent Lim Kim Steel Builders, Inc.
(Steel Builders) on 5 July 1993. On the same day, however, the Court issued a Resolution5
granting the Motion with a warning that no further extension would be given.
The Opposition, the subsequent Reply6 of petitioner filed on 20 July 1993 and the Petition for
Review7 dated 21 July 1993, were noted by the Court in its Resolution8 of 28 July 1993. The
Court also required private respondent Steel Builders to file a Comment on the Petition for
Review and Steel Builders complied.
The Petition prays for issuance of a temporary restraining order9 to stay the execution of the
assailed Order and Award in favor of Steel Builders, which application the Court merely
noted, as it did subsequent Urgent Motions for a temporary restraining order.10
The facts are stated in the resolution of the Court.

Felix Q. Vinluan and Siguion Reyna, Montecillo & Ongsiako for petitioner.
De Castro & Cagampang Law Offices for Lim Kim Steel Builders, Inc
Petitioner Hi-Precision entered into a contract with private respondent Steel Builders under
which the latter as Contractor was to complete a P21 Million construction project owned by
the former within a period of 153 days, i.e. from 8 May 1990 to 8
RESOLUTION
FELICIANO, J.:
______________
On 18 June 1993, a Petition for Extension to File Petition for
1
Rollo, pp. 2-9.
Id., pp. 137-181.
Id., pp. 11-23.
Id., pp. 24-26.
399
399
19
Id., p. 23-a.
Id., pp. 29-32.
Id., pp. 42-136.
Id., p. 181-a.
Id., p. 89; Rollo, p. 131.
The CIAC formed an Arbitral Tribunal with three (3) members, two (2) being appointed upon
nomination of Hi-Precision and Steel Builders, respectively; the third member (the
Chairman) was appointed by the CIAC as a common nominee of the two (2) parties. Only the
Chairman was a lawyer. After the arbitration proceeding, the Arbitral Tribunal rendered a
unanimous Award dated 13 November 1992, the dispositive portion of which reads as
follows:
10
Urgent Motions for the Issuance of a Temporary Restraining Order dated 5 August 1993;
25 August 1993; 20 September 1993; 21 October 1993.
The Parties are enjoined to abide by the award.11
400
400
WHEREFORE, premises considered, the Owner [petitioner Hi-Precision] is ordered to pay

the Contractor [private respondent Steel Builders] the amount of P6,400,717.83 and all other
claims of the parties against each other are deemed compensated and offset. No
pronouncement as to costs.

October 1990. The project completion date was first moved to 4 November 1990. On that
date, however, only 75.8674% of the project was actually completed. Petitioner attributed
this non-completion to Steel Builders which allegedly had frequently incurred delays during
the original contract period and the extension period. Upon the other hand, Steel Builders
insisted that the delays in the project were either excusable or due to Hi-Precisions own fault
and issuance of change orders. The project was taken over on 7 November 1990, and
eventually completed on February 1991, by Hi-Precision.
Steel Builders filed a Request for Adjudication with public respondent CIAC. In its
Complaint filed with the CIAC, Steel Builders sought payment of its unpaid progress
buildings, alleged unearned profits and other receivables. Hi-Precision, upon the other hand,
in its Answer and Amended Answer, claimed actual and liquidated damages, reimbursement
of alleged additional costs it had incurred in order to complete the project and attorneys fees.
Upon motions for reconsideration filed, respectively, by Hi-Precision and Steel Builders, the
Arbitral Tribunal issued an Order dated 13 May 1993 which reduced the net amount due to
contrac_____________
11
Rollo, pp. 180-181.
401
401
tor Steel Builders to P6,115,285.83.12
In its Award, the Arbitral Tribunal stated that it was guided by Articles 1169, 1192 and 2215
of the Civil Code. With such guidance, the arbitrators concluded that (a) both parties were at
fault, though the Tribunal could not point out which of the parties was the first infractor; and
20
(b) the breaches by one party affected the discharge of the reciprocal obligations of the other
party. With mutual fault as a principal premise, the Arbitral Tribunal denied (a) petitioners
claims for the additional costs allegedly incurred to complete the project; and (b) private
respondents claim for profit it had failed to earn because of petitioners take over of the
project.
18
The Tribunal then proceeded to resolve the remaining specific claims of the parties. In
disposing of these multiple, detailed claims, the Arbitral Tribunal, in respect of one or more
of the respective claims of the parties: (a) averaged out the conflicting amounts and
percentages claimed by the parties;13 (b) found neither basis nor justification for a particular
claim;14 (c) found the evidence submitted in support of particular claims either weak or nonexistent;15 (d) took account of the admissions of liability in respect of particular claims;16 (e)
relied on its own expertise in resolving particular claims;17 and (f) applied a principle of
equity in requiring each party to bear its own loss resulting or arising from mutual fault or
delay (compensatio morae).18
402
_____________
12
Id., p. 23.
13
Claims concerning Contractors Claim No. 1; Owners Claim No. 1; Unpaid Progressive
Billing; Change Order No. 6; Change Order No. 8.
14
Claims concerning Change Order No. 1.
15
Claims concerning Change Order No. 2; Change Order No. 3; Change Order No. 4;
Change Order No. 5; Change Order No. 11; Change Order No. 16.
16
17
Claims concerning Change Order No. 9; Change Order No. 10; Change Order No. 17.
Claims concerning Change Order No. 7; Change Order No. 12; Change Order No. 13;
Change Order No. 14.
Claims concerning Contractors Claim No. 19; Contractors Claim No. 20; Contractors
Claim No. 21; Contractors Claim No. 22; Contractors Claim No. 23; Contractors Claim
No. 24; Contractors
402
Petitioner Hi-Precision now asks this Court to set aside the Award, contending basically that
it was the contractor Steel Builders who had defaulted on its contractual undertakings and so
could not be the injured party and should not be allowed to recover any losses it may have
incurred in the project. Petitioner Hi-Precision insists it is entitled to damages, and claims
that the Arbitral Tribunal committed grave abuse of discretion when it allowed certain claims
by Steel Builders and offset them against claims of Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral Tribunal has not been
impleaded as a respondent in the Petition at bar. The CIAC has indeed been impleaded;
however, the Arbitral Award was not rendered by the CIAC, but rather by the Arbitral
Tribunal. Moreover, under Section 20 of Executive Order No. 1008, dated 4 February 1985,
as amended, it is the Arbitral Tribunal, or the single Arbitrator, with the concurrence of the
CIAC, which issues the writ of execution requiring any sheriff or other proper officer to
execute the award. We consider that the Arbitral Tribunal which rendered the Award sought
to be reviewed and set aside, should be impleaded even though the defense of its Award
would presumably have to be carried by the prevailing party.
Petitioner Hi-Precision apparently seeks review both under Rule 45 and Rule 65 of the Rules
of Court.19 We do not find it necessary to rule which of the two: a petition for review under
Rule 45 or a petition for certiorari under Rule 65is necessary under Executive Order No.
1008, as amended; this issue was, in any case, not squarely raised by either party and has not
been
21
______________
Claim No. 25; Contractors Claim No. 27; Contractors Claim No. 28; Contractors Claim
No. 29; Contractors Claim No. 30; Owners Claim No. 3.
19
The Petition said, inter alia: [t]he prevalence of grave abuse of discretion in the May 13,
1993 Order on appeal in this Petition under Rule 45 is made more manifest in the November
13, 1992 Arbitral Award, the principal resolution subject of the motion for reconsideration
denied by the May 13, 1993 Order, and thus, it becomes procedurally appropriate and
necessary, in the interest of truth and justice, to respectfully pray the Honorable Court to
likewise review on certiorari under Rule 65, the November 13, 1992 award. (Italics
supplied)
The public respondent committed serious error in law, if not grave abuse of discretion,
when it failed to rule in favor of the owner, now petitioner herein, all the awards it claimed
on arbitration, and when it nonetheless persisted in its awards of damages in favor of the
respondent. x x x;
(3)
The public respondent committed serious error in law, if not grave abuse of discretion, for
its abject failure to apply the doctrine of waiver, or estoppel against the contractor, the private
respondent herein, when it agreed on November 16, 1990 to award termination of the
contract and the owners takeover of the project x x x;
(4)
403
403
properly and adequately litigated.
when it did not enforce the law between the parties, the technical specification[s] which is
one of the contract documents, particularly to par. (a), sub-part 3.01, part 3, Sec. 2b, which
expressly requires that major site work activities like stripping, removal and stockpiling of
top soil shall be done prior to the start of regular excavation or backfilling work, the
principal issue in arbitration being non-compliance with the contract documents;
In its Petition, Hi-Precision purports to raise legal issues, and in presenting these issues,
prefaced each with a creative formula:
(5)
(1)
when it found, in the May 13, 1993 Order, the petitioner guilty of estoppel although it is
claimed that the legal
The public respondent [should be the Arbitral Tribunal] committed serious error in law, if
not grave abuse of discretion, when it failed to strictly apply Article 1191, New Civil Code,
against the contractor x x x;
(2)
404
404

22
doctrine of estoppel does not apply with respect to the required written formalities in the
issuance of a change order x x x;
Section 19 makes it crystal clear that questions of fact cannot be

______________
(6)
20
The exceptional circumstances in Remalante vs. Tibe, 158 SCRA 138, where the Honorable
Supreme Court may review findings of facts, are present in the instant case, namely: (a) when
the inference made is manifestly absurd, mistaken or impossible (Luna vs. Linatoc, 74 Phil.
15); (2) when there is grave abuse of discretion in the appreciation of facts (Buyco v. People,
95 Phil. 253); (3) when the judgment is premised on a misapprehension of facts (De la Cruz
v. Sosing, 94 Phil. 26, and Castillo vs. CA, 124 SCRA 808); (4) when the findings of fact are
conflicting (Casica v. Villoseca, 101 Phil. 1205); (5) when the findings are contrary to the
admissions of the parties (Evangelista v. Alto Surety, 103 Phil. 401), and therefore, the
findings of facts of the public respondent in the instant case may be reviewed by the
Honorable Supreme Court.20 (Italics partly supplied and partly in the original)
From the foregoing, petitioner Hi-Precision may be seen to be making two (2) basic
arguments:
1. (a) Petitioner asks this Court to correct legal errors committed by the
Arbitral Tribunal, which at the same time constitute grave abuse of
discretion amounting to lack of jurisdiction on the part of the Arbitral
Tribunal; and
2. (b) Should the supposed errors petitioner asks us to correct be
characterized as errors of fact, such factual errors should nonetheless be
reviewed because there was grave abuse of discretion in the
appreciation of facts and because there was misapprehension of facts on
the part of the Arbitral Tribunal.
Executive Order No. 1008, as amended, provides, in its Section 19, as follows:
Sec. 19. Finality of Awards.The arbitral award shall be binding upon the parties. It shall
be final and unappealable except on questions of law which shall be appealable to the
Supreme Court.
Rollo, pp. 74-76.
405
405
raised in proceedings before the Supreme Courtwhich is not a trier of factsin respect of
an arbitral award rendered under the aegis of the CIAC. Consideration of the animating
purpose of voluntary arbitration in general, and arbitration under the aegis of the CIAC in
particular, requires us to apply rigorously the above principle embodied in Section 19 that the
Arbitral Tribunals findings of fact shall be final and inappealable.
Voluntary arbitration involves the reference of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which parties freely consent in advance to abide
by the arbitral award issued after proceedings where both parties had the opportunity to be
heard. The basic objective is to provide a speedy and inexpensive method of settling disputes
by allowing the parties to avoid the formalities, delay, expense and aggravation which
commonly accompany ordinary litigation, especially litigation which goes through the entire
hierarchy of courts. 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.21
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
23
will not review the factual findings of an arbitral tribunal upon the artful allegation that such
body had misapprehended the facts and will not pass upon issues which are, at bottom,
issues of fact, no matter how cleverly disguised they might be as legal questions. The
parties here had recourse to arbitration and chose the arbitrators themselves; they must have
had confidence in such arbitrators. The Court will not, therefore, permit the parties to
relitigate before it the issues of facts previously presented and argued before the Arbitral
Tribunal, save only where a very clear showing is made that, in
Arbitration Commission, et al., G.R. No. 101444, February 10, 1992 (unsigned resolution);
and Sime Darby Pilipinas, Inc. v. Magsalin, 180 SCRA 177 (1989).
______________
Sec. 24. Grounds for vacating award.In any one of the following cases, the court must
make an order vacating award upon the petition of any party to the controversy when such
party proved affirmatively that in the arbitration proceedings:
21
See first three (3) Whereas clauses and Section 2 of Executive Order No. 1008, as
amended.
23
It is a noteworthy that Section 24 of R.A. No. 876 known as An Act to Authorize the
Making of Arbitration and Submission Agreements, to Provide for the Appointment of
Arbitrators and the Procedure for Arbitration in Civil Controversies, and for Other Purposes
(approved on 29 June 1953) sets out the following grounds for vacating an arbitral award:
1. (a) The award was procured by corruption, fraud or other undue means; or
406
406
2. (b) That there was evident partiality or corruption in the arbitrators or any
of them; or
3. (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
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.22 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.23 Any other, more relaxed, rule would result in set______________
4. (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.
xxx
xxx
x x x
22
See: Asian Construction and Development Corporation v. Construction Industry

Arbitration Commission, et al, 218 SCRA 529 (1993); Chung Fu v. Court of Appeals, 206
SCRA 545 (1992); Primary Structures Corp. v. Victor P. Lazatin, etc., et al., G.R. No.
101258, July 13, 1992 (unsigned resolution); A.C. Enterprises, Inc. v. Construction Industry
407
407
24
ting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a
largely inutile institution.
Examination of the Petition at bar reveals that it is essentially an attempt to re-assert and relitigate before this Court the detailed or itemized factual claims made before the Arbitral
Tribunal under a general averment that the Arbitral Tribunal had misapprehended the facts
submitted to it. In the present Petition, too, Hi-Precision claims that the Arbitral Tribunal had
committed grave abuse of discretion amounting to lack of jurisdiction in reaching its factual
and legal conclusions.
in accordance with Article 1191, and is entitled to damages in either case. Thus, Hi-Precision
continues, when the contractor Steel Builders defaulted on the 153rd day of the original
contract period, Hi-Precision opted for specific performance and gave Steel Builders a 30day extension period with which to complete the project.
_____________
24
Petition, Rollo, pp. 93-97.
408
408
The first legal issue submitted by the Petition is the claimed misapplication by the Arbitral
Tribunal of the first and second paragraphs of Article 1191 of the Civil Code.24 Article 1191
reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
Hi-Precision contends energetically that it is the injured party and that Steel Builders was the
obligor who did not comply with what was incumbent upon it, such that Steel Builders was
the party in default and the entity guilty of negligence and delay. As the injured party, HiPrecision maintains that it may choose between the fulfillment or rescission of the obligation

What petitioner Hi-Precision, in its above argument, disregards is that the determination of
whether Hi-Precision or Steel Builders was the injured part is not to be resolved by an
application of Article 1191. That determination is eminently a question of fact, for it requires
ascertainment and identification of which of the two (2) contending parties had first failed to
comply with what was incumbent upon it. In other words, the supposed misapplication of
Article 1191, while ostensibly a legal issue, is ultimately a question of fact, i.e., the
determination of the existence or non-existence of a fact or set of facts in respect of which
Article 1191 may be properly applied. Thus, to ask this Court to correct a claimed
misapplication or non-application of Article 1191 is to compel this Court to determine which
of the two (2) contending parties was the injured party or the first infractor. As noted
earlier, the Arbitral Tribunal after the prolonged arbitration proceeding, was unable to make
that factual determination and instead concluded that both parties had committed breaches of
their respective obligations. We will not review, and much less reverse, that basic factual
finding of the Arbitral Tribunal.
A second legal issue sought to be raised by petitioner Hi-Precision relates to the supposed
failure of the Arbitral Tribunal to apply the doctrines of estoppel and waiver as against Steel
Builders.25 The Arbitral Tribunal, after declaring that the parties were mutually at fault,
25
proceeded to enumerate the faults of each of the parties. One of the faults attributed to
petitioner Hi-Precision is that it had failed to give the contractor Steel Builders the required
15-day notice for termination of the contract.26 This was clearly a finding of fact on the part
of the Tribunal, supported by the circumstance that per the record, petitioner had offered no
proof that it had complied with such 15-day notice required under Article 28.01 of the
General Conditions of Contract forming part of the Contract Documents. Petitioner HiPrecisions argument is that a written Agreement dated 16 November 1990 with Steel
Builders concerning the take over of the project by Hi-Precision, constituted waiver on the
part of the
that the Arbitral Tribunal did not uphold the law between the parties, but instead
substituted the same with its [own] absurd inference and opinion on mud. Here again,
petitioner is merely disguising a factual question as a legal issue, since petitioner is in
reality asking this Court to review the physical operations relating, e.g., to site preparation
carried out by the contractor Steel Builders and to determine whether such operations were in
accordance with the Technical Specifications of the project. The Arbitral Tribunal resolved
Hi-Precisions claim by finding that Steel Builders had complied substantially with the
Technical Specifications. This Court will not pretend that it has the technical and engineering
capability to review the resolution of that factual issue by the Arbitral Tribunal.
_____________
Finally, the Petition asks this Court to review serious errors in the findings of fact of the
[Arbitral Tribunal].28 In this section of its Petition, Hi-Precision asks us to examine each
item of its own claims which the Arbitral Tribunal had rejected in its Award, and each claim
of the contractor Steel Builders which the Tribunal had granted. In respect of each item of the
owners claims and each item of the contractors claims, Hi-Precision sets out its arguments,
to all appearances the same arguments it had
25
Id., Rollo, pp. 77-80.
26
Arbitral Award, Rollo, p. 153.
409
409
______________
27
Petition, Rollo, pp. 80-90.
28
Id., Rollo, p. 97 et seq.
latter of its right to a 15-day notice of contract termination. Whether or not that Agreement
dated 16 November 1990 (a document not submitted to this Court) is properly characterized
as constituting waiver on the part of Steel Builders, may be conceded to be prima facie a
question of law; but, if it is, and assuming arguendo that the Arbitral Tribunal had erred in
resolving it, that error clearly did not constitute a grave abuse of discretion resulting in lack
or loss of jurisdiction on the part of the Tribunal.
A third legal issue posed by Hi-Precision relates to the supposed failure on the part of the
Arbitral Tribunal to uphold the supremacy of the law between the parties and enforce it
against private respondent [Steel Builders].27 The law between the parties here involved is
the Technical Specifications forming part of the Contract Documents. Hi-Precision asserts
410
410

raised before the Tribunal. As summarized in the Arbitral Award, Contractors Claims were
as follows:
12.1.
Unpaid Progress - Billing
1,812,706.95
26
12.2.
Change Order
0.00
12.19.
20,240.00
12.3.
-do-
10,014.00
12.20.
63,518.00
12.4.
-do-
320,000.00
12.21.
0.00
12.5.
-do-
112,300.70
12.22.
0.00
12.6.
-do-
398,398.00
12.23.
0.00
12.7.
-do-
353,050.38
12.24.
0.00
12.8.
-do-
503,836.53
12.25.
0.00
12.9.
-do-
216,138.75
12.26.
730,201.57
12.10.
-do-
101,621.40
12.27.
1,130,722.70
12.11.
-do-
10
7,200.00
12.28.
0.00
12.12.
-do-
11
0.00
12.29.
273,991.00
12.13.
-do-
12
7,800.00
12.30.
0.00
12.14.
-do-
13
49,250.00
12.31.
7,318,499.2829
12.15.
-do-
14
167,952.00
12.16.
-do-
15
445,600.00
12.17.
-do-
16
92,457.30
12.18.
-do-
17
1,500.00
Upon the other hand, the petitioners claims we are asked to review and grant are
summarized as follows:
______________
27
29
Rollo, pp. 111-112.
b)
after the take-over
411
411
1. Actual Damages
Civil Works
1,158,513.88
Materials
4,213,318.72
Labor
2,155,774.79
Equipment Rental
1,448,208.90
P8,974,816.45
Advance Downpayment
[at] signing of Contract
Total Amount Paid for Construction
which is subject to 40%
Less: Contract Price

IA
deduction every progress

billing (40% of Contract Price)
IB
Progress Billings
5,582,585.55
2,650,163.29
Other items due from Lim

Kim Steel Builders
Advances made to Lim Kim
(21,000,000.00)
Excess of amount paid over

contract price
P8,406,000.00
23,650,183.00
Amount not yet deducted
from Downpayment due

a)
prior to take-over
392,781.45
to non-completion of Project
(P24,1326%)
28
2,027,138.40
b.
Due to Huey Commercial
used for HSCI Project
IC
I[E] Raw materials
51,110.40
Additional construction expenses
a.
Increase in prices since Oct.
b.
Cost of money of (a)
5,272,096.81
873,535.49
a.
Foreign exchange loss
b.
Cost of money of (a)
821,242.72
c.
Additional import levy of 5%
886,513.33
d.
Cost of money (c)
170,284.44
e.
Cost of money on marginal
deposit on Letter of Credit

IF Cost of money on holding to CRC
INTY.
4,155,982.18
561,195.25
3,319,609.63
ID Installation of machinery
a.
Foreign exchange loss
b.
Cost of money (a)
35,295,927.32
2.
Liquidated Damages
2,436,000.00
3.
Attorneys Fees
2,871,987.01
412
412
Total Actual Damages

11,565,048.37
SUPREME COURT REPORTS

ANNOTATED
500,000.00
P38,231,927.3230
We consider that in asking this Court to go over each individual claim submitted by it and
each individual countering ciaim submitted by Steel Builders to the Arbitral Tribunal,
29
petitioner Hi-Precision is asking this Court to pass upon claims which are either clearly and
directly factual in nature or require previous determination of factual issues. This upon the
one hand. Upon the other hand, the Court considers that petitioner Hi-Precision has failed to
show any serious errors 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.
WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED for lack of merit.
Costs against petitioner.
SO ORDERED.
Bidin, Romero, Melo and Vitug, JJ., concur.
Petition dismissed.
Notes.An appellate court, in reviewing a judgment on appeal, will dispose of a question
according to the law prevailing at
_________________
30
Id., pp. 131-133.
413
413
Ilasco, Jr. vs. Court of Appeals

the time of such disposition, and not according to the law prevailing at the time of rendition
of the appealed judgment (Partosa-Jo vs. Court of Appeals, 216 SCRA 692 [1992]).
A motion for reconsideration in arbitrated cases should point out why a certain part of the
decision is contrary to law or evidence (Santiago vs. Gonzales, 79 SCRA 494 [1977]).
o0o
G.R. No. 115412. November 19, 1999.*

HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner, vs. COURT OF
APPEALS and FAR EAST BANK & TRUST CO., INC., respondents.
Actions; Arbitration Law (R.A. 876); Section 14 of Republic Act 876, otherwise known as the
Arbitration Law, allows any party to the arbitration proceeding to petition the court to take
measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration.We find no merit in the petition. Section 14 of Republic Act 876, otherwise
known as the Arbitration Law, allows any party to the arbitration proceeding to petition the
court to take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration, thus: Section 14. Subpoena and subpoena duces tecum.Arbitrators
shall have the power to require any person to attend a hearing as a witness. They shall have
the power to subpoena witnesses and documents when the relevancy of the testimony and the
materiality thereof has been demonstrated to the arbitrators. Arbitrators may also require the
retirement of any witness during the testimony of any other witness. All of the arbitrators
appointed in any controversy must attend all the hearings in that matter and hear all the
allegations and proofs of the parties; but an award by the majority of them is valid unless the
concurrence of all of them is expressly required in the submission or contract to arbitrate.
The arbitrator or arbitrators shall have the power at any time, before rendering the award,
without prejudice to 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.
Same; Same; Banks and Banking; Philippine Clearing House Corporation; Participants in
the regional clearing operations of the Philippine Clearing House Corporation cannot
bypass the arbitration process laid out by the body and seek relief directly from the courts.
Simply put, participants in the regional clearing operations of the Philippine Clearing House
Corporation cannot bypass the arbitration process laid out by the body and seek relief
directly from the courts. In the case at bar, undeniably, private respondent has initiated
arbitration proceedings as required by the PCHC rules and regulations, and pending
arbitration has sought relief from the trial court
30
_________________
*
dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by
the Regional Trial Court of Makati3 in Civil Case No. 92-145, the first, dated April 30, 1992,
denying petitioners motion to dismiss and the second, dated October 1, 1992 denying
petitioners motion for reconsideration thereof.
SECOND DIVISION.
559
_______________
VOL. 318, NOVEMBER 19, 1999
559
Home Bankers Savings and Trust Company vs. Court of Appeals
Penned by Justice Cezar D. Francisco and concurred in by Justices Manuel C. Herrera and
Cancio C. Garcia.
2
Special Fifth Division.
for measures to safeguard and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to
the PCHC rules and regulations.
Same; Same; Arbitration, as an alternative method of dispute resolution, is encouraged.At
this point, we emphasize that arbitration, as an alternative method of dispute resolution, is
encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes. The Court looks with favor upon such amicable
arrangement and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
Sycip, Salazar, Hernandez & Gatmaitan for private respondent.
BUENA, J.:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the
decision1 of the Court of Appeals2 dated January 21, 1994 in CA-G.R. SP No. 29725,
Branch 133. Presided by Judge Buenaventura J. Guerrero, now Associate Justice of the
Court of Appeals.
560
560

The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in
Civil Case No. 92-145, issued Home Bankers Savings and Trust Company (HBSTC) check
No. 193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust
Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00,
P8,500,000.00 and P8,100,000.00, respectively, the three checks amounting to
P25,200,000.00. Tancuan and Arriesgado exchanged each others checks and deposited them
with their respective banks for collection. When FEBTC presented Tancuans HBSTC check
for clearing, HBSTC dishonored it for being Drawn Against Insufficient Funds. On
October 15, 1991, HBSTC sent Arriesgados three (3) FEBTC checks through the Philippine
Clearing House Corporation (PCHC) to FEBTC but was returned on October 18, 1991 as
Drawn Against Insufficient Funds. HBSTC received the notice of dishonor on October 21,
1991 but refused to accept the checks and on October 22, 1991, returned them to FEBTC
31
through the PCHC for the reason Beyond Reglementary Period, implying that HBSTC
already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be
withdrawn.4 FEBTC demanded reimbursement for the returned checks and inquired from
HBSTC whether it had permitted any withdrawal of funds against the unfunded checks and if
so, on what date. HBSTC, however, refused to make any reimbursement and to provide
FEBTC with the needed information.
exist.8 The trial court issued an omnibus order dated April 30, 1992 denying the motion to
dismiss and an order dated October 1, 1992 denying the motion for reconsideration.
Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC
Arbitration Committee,5 under the PCHCs Supplementary Rules on Regional Clearing to
which FEBTC and HBSTC are bound as participants in the regional clearing operations
administered by the PCHC.6
In a Decision9 dated January 21, 1994, the respondent court dismissed the petition for lack of
merit and held that FEBTC can reiterate its cause of action before the courts which it had
already raised in the arbitration case10 after finding that the complaint filed by FEBTC . . .
seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an
arbitral award.11 The respondent court observed that [i]n the Complaint, FEBTC applied for
the issuance of a writ of preliminary attachment over HBTs [HBSTC] property12 and citing
section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that
[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT
[HBSTC],13 and that [t]his prayer for conservatory relief [writ of preliminary attachment]
satisfies the re-
On January 17, 1992, while the arbitration proceeding was still pending, FEBTC filed an
action for sum of money and
_______________
4
Rollo, p. 128.
Docketed as PCHC Arbitration Case No. 91-069.
On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of
Appeals contending that the trial court acted with grave abuse of discretion amounting to lack
of jurisdiction in denying the motion to dismiss filed by HBSTC.
_______________
6
Docketed as Civil Case No. 92-145.
Rollo, p. 131.
Ibid., at p. 127.
Ibid., at p. 129.
561
561

damages with preliminary attachment7 against HBSTC, Robert Young, Victor Tancuan and
Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A motion to dismiss
was filed by HBSTC claiming that the complaint stated no cause of action and accordingly .
. . should be dismissed because it seeks to enforce an arbitral award which as yet does not
10
Ibid., at p. 135.
11
Ibid., at p. 131.
12
Ibid., at p. 136.
13
Ibid.
562
32
562

quirement of a cause of action which FEBTC may pursue in the courts.
In the instant petition,21 petitioner contends that first, no party litigant can file a non-existent
complaint,22 arguing that . . . one cannot file a complaint in court over a subject that is
undergoing arbitration.23 Second, petitioner submits
14
Ibid., at p. 138.
15
184 SCRA 682 (1990).
16
78 SCRA 113 (1977).
Rollo, p. 139.
18
Ibid., at p. 140.
19
220 SCRA 281 (1993).
20
Rollo, p. 141.
21
Petitioners memorandum was filed on February 17, 1995.
22
Rollo, p. 314.
23
Ibid., at p. 315.
14
Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and
the cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc.,15 and Bengson vs. Chan,16 . . . when there is a condition requiring prior
submission to arbitration before the institution of a court action, the complaint is not to be
dismissed but should be suspended for arbitration.17 Finding no merit in HBSTCs
contention that section 7 of the Arbitration Law . . . contemplates a situation in which a
party to an arbitration agreement has filed a court action without first resorting to arbitration,
while in the case at bar, FEBTC has initiated arbitration proceedings before filing a court
action, the respondent court held that . . . if the absence of a prior arbitration may stay court
action, so too and with more reason, should an arbitration already pending as obtains in this
case stay the court action. A party to a pending arbitral proceeding may go to court to obtain
conservatory reliefs in connection with his cause of action although the disposal of that
action on the merits cannot as yet be obtained.18 The respondent court discarded Puromines,
Inc. vs. Court of Appeals,19 stating that . . . perhaps Puromines may have been decided on a
different factual basis.20
_______________
17
563
563

that [s]ince arbitration is a special proceeding by a clear provision of law,24 the civil suit
filed below is, without a shadow of doubt, barred by litis pendentia and should be dismissed
de plano insofar as HBSTC is concerned.25 Third, petitioner insists that [w]hen arbitration
is agreed upon and suit is filed without arbitration having been held and terminated, the case
that is filed should be dismissed,26 citing Associated Bank vs. Court of Appeals,27
Puromines, Inc. vs. Court of Appeals,28 and Ledesma vs. Court of Appeals.29 Petitioner
demurs that the Puromines ruling was deliberately not followed by the respondent court
which claimed that:
x x x
x x x.
33
It would really be much easier for Us to rule to dismiss the complainant as the petitioner here
seeks to do, following Puromines. But with utmost deference to the Honorable Supreme
Court, perhaps Puromines may have been decided on a different factual basis.
xxx
x x x.30
564
564
Petitioner takes exception to FEBTCs contention that Puromines cannot modify or reverse
the rulings in National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen
Philippines, Inc.,31 and Bengson vs. Chan,32 where this Court sus
pended the action filed pending arbitration, and argues that [s]ound policy requires that the
conclusion of whether [a] Supreme Court decision has or has not reversed or modified [a]
previous doctrine, should be left to the Supreme Court itself; until then, the latest
pronouncement should prevail.33
_______________

Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court is
void considering that the case filed before it is a separate action which cannot exist,34 and
. . . there is even no need for the attachment as far as HBSTC is concerned because such
automatic debit/credit procedure35 may be regarded as a security for the transactions involved
and, as jurisprudence confirms, one requirement in the issuance of an attachment [writ of
preliminary attachment] is that the debtor has no sufficient security.36 Petitioner asserts
further that a writ of preliminary attachment is unwarranted because no ground exists for its
issuance. According to petitioner, . . . the only allegations against it [HBSTC] are that it
refused to refund the amounts of the checks of FEBTC and that it knew about the fraud
perpetrated by the other defendants,37 which, at best, constitute only incidental fraud and
not causal fraud which justifies the issuance of the writ of preliminary attachment.
24
Petitioner referring to section 22 of Republic Act No. 876.
25
Rollo, p. 318.
26
Ibid.
27
233 SCRA 137 (1994).
28
220 SCRA 281 (1993).
29
211 SCRA 753 (1992).
Private respondent FEBTC, on the other hand, contends that . . . the cause of action for
collection [of a sum of money] can coexist in the civil suit and the arbitration [proceeding]38
citing section 7 of the Arbitration Law which provides for the stay of the civil action until an
arbitration has been had in accordance with the terms of the agreement providing for
arbitration. Private respondent further asserts that following section 4(3), article VIII39 of the
1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the
earlier cases of National Union Fire Insurance Company of
30
Rollo, p. 141.
_______________
31
184 SCRA 682 (1990).
34
32
78 SCRA 113 (1977).
35
33
Rollo, p. 320.
Ibid., at p. 323.
Under the arbitration system of the PCHC, an award results in a mere automatic
debit/credit procedure.
34
36
Rollo, p. 324. Citation omitted.
37
Ibid.
38
Ibid., p. 278.
39
Article VIII, section 4(3) provides:
We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the
Arbitration Law, allows any party to the arbitration proceeding to petition the court to take
measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration, thus:
x x x
x x x; Provided, that no doctrine or principle of law laid down by the court in a
decision rendered en banc or in division may be modified or reversed except by the court
sitting en banc.
565
565

40
Section 14. Subpoena and subpoena duces tecum.Arbitrators shall have the power to
require any person to attend a hearing as a witness. They shall have the power to subpoena
witnesses and documents when the relevancy of the testimony and the materiality thereof has
been demonstrated to the arbitrators. Arbitrators may also require the retirement of any
witness during the testimony of any other witness. All of the arbitrators appointed in any
controversy must attend all the hearings in that matter and hear all the allegations and proofs
of the parties; but an award by the majority of them is valid unless the concurrence of all of
them is expressly required in the submission or contract to arbitrate. The arbitrator or
arbitrators shall have the power at any time, before rendering the award, without prejudice
to the rights of any party to petition the
_______________
40
184 SCRA 682 (1990).
41
78 SCRA 113 (1977).
42
Rollo, pp. 310-311.
41
Pittsburg vs. Stolt-Nielsen Philippines, Inc., and Bengson vs. Chan, hence, private
respondent concludes that the prevailing doctrine is that the civil action must be stayed rather
than dismissed pending arbitration.
566
In this petition, the lone issue presented for the consideration of this Court is:
WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN
ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE
CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF
ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO
OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK,
THE ADVERSE PARTY IN THE ARBITRATION PROCEEDINGS.42
566

court to take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration. (emphasis supplied)
35
Petitioners exposition of the foregoing provision deserves scant consideration. Section 14

simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any
time before rendering the award. The exercise of such power is without prejudice to the right
of a party to file a petition in court to safeguard any matter which is the subject of the dispute
in arbitration. In the case at bar, private respondent filed an action for a sum of money with
prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same
subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which was allegedly
deprived from private respondent in what is known in banking as a kiting scheme.
However, the civil action was not a simple case of a money claim since private respondent
has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14
of the Arbitration Law.
Petitioner cites the cases of Associated Bank vs. Court of Appeals,43 Puromines, Inc. vs.
Court of Appeals,44 and Ledesma vs. Court of Appeals45 in contending that [w]hen
arbitration is agreed upon and suit is filed without arbitration having been held and
terminated, the case that is filed should be dismissed.46 However, the said cases are not in
point. In Associated Bank, we affirmed the dismissal of the third-party complaint filed by
Associated Bank against Philippine Commercial International Bank, Far East Bank & Trust
Company, Security Bank and Trust Company and Citytrust Banking Corporation for lack of
jurisdiction, it being shown that the said parties were bound by the Clearing House Rules and
_______________
43
233 SCRA 137 (1994).
44
220 SCRA 281 (1993).
Regulations on Arbitration of the Philippine Clearing House Corporation. In Associated

Bank, we declared that:
x x x
x x x. Under the rules and regulations of the Philippine Clearing House Corporation
(PCHC), the mere act of participation of the parties concerned in its operations in effect
amounts to a manifestation of agreement by the parties to abide by its rules and regulations.
As a consequence of such participation, a party cannot invoke the jurisdiction of the courts
over disputes and controversies which fall under the PCHC Rules and Regulations without
first going through the arbitration processes laid out by the body.47 (emphasis supplied)
And thus we concluded:
Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent
to the arbitration rules cannot go directly to the Regional Trial Court when it finds it
convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear,
undeniable and is particularly applicable to all the parties in the third party complaint under
their obligation to first seek redress of their disputes and grievances with the PCHC before
going to the trial court.48 (emphasis supplied)
Simply put, participants in the regional clearing operations of the Philippine Clearing House
Corporation cannot bypass the arbitration process laid out by the body and seek relief
directly from the courts. In the case at bar, undeniably, private respondent has initiated
arbitration proceedings as required by the PCHC rules and regulations, and pending
arbitration has sought relief from the trial court for measures to safeguard and/or conserve the
subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law,
and otherwise not shown to be contrary to the PCHC rules and regulations.
45
211 SCRA 753 (1992). This case involves the application of the Katarungang
Pambarangay Law (P.D. 1508).
46
Rollo, p. 318.
_______________
567
567
47
Associated Bank vs. Court of Appeals, 233 SCRA 137, 142-143 (1994).
48
Ibid., at p. 145.
36
568
568
49
220 SCRA 281 (1993).
50
Allied Banking Corporation vs. Court of Appeals, 294 SCRA 803, 812 (1998).
51
Puromines, Inc. vs. Court of Appeals, 220 SCRA 281, 290 (1993).
569
Likewise, in the case of Puromines, Inc. vs. Court of Appeals,49 we have ruled that:
In any case, whether the liability of respondent should be based on the sales contract or that
of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions
on the sales contract and/or bill of lading. Petitioner being a signatory and party to the sales
contract cannot escape from his obligation under the arbitration clause as stated therein.
569
People vs. Galladan

Petition dismissed; Reviewed decision affirmed.
In Puromines, we found the arbitration clause stated in the sales contract to be valid and
applicable, thus, we ruled that the parties, being signatories to the sales contract, are
obligated to respect the arbitration provisions on the contract and cannot escape from such
obligation by filing an action for breach of contract in court without resorting first to
arbitration, as agreed upon by the parties.
At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is
encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes.50 The Court looks with favor upon such amicable
arrangement and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator.51
Note.A third-party complaint of one bank against another involving a check cleared
through the PCHC is unavailing, unless the third-party claimant has first exhausted the
arbitral authority of the PCHC Arbitration Committee and obtained a decision from said body
adverse to its claim. (Allied Banking Corporation vs. Court of Appeals, 294 SCRA 803
[1998])
o0o
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of
the court aquo is AFFIRMED.
SO ORDERED.
Bellosillo (Chairman), Mendoza, Quisumbing and De Leon, Jr., JJ., concur.
_______________
37
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.
G.R. No. 141833. March 26, 2003.*

LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL
INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
Alternative Dispute Resolution; Arbitration; Courts; Jurisdiction; The inclusion of an
arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to pass
upon the findings of arbitral bodies, because the awards are still judicially reviewable under
certain conditions.We side with respondent. Essentially, the dispute arose from the parties
incongruent positions on whether certain provisions of their Agreement could be applied to
the facts. The instant case involves technical discrepancies that are better left to an arbitral
body that has expertise in those areas. In any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of
arbitral bodies, because the awards are still judicially reviewable under certain conditions.
Same; Same; Same; Being an inexpensive, speedy and amicable method of settling disputes,
arbitrationalong with mediation, conciliation and negotiationis encouraged by the
Supreme Court; Arbitration is regarded as the wave of the future in international civil and
commercial disputes; Consistent with the policy of encouraging alternative dispute
resolution methods, courts should liberally construe arbitration clauses.Being an
Same; Same; Same; Construction Industry Arbitration Commission (CIAC); Recourse to the
CIAC may now be availed of whenever a contract contains a clause for the submission of a
future controversy to arbitration.On the other hand, Section 1 of Article III of the new
Rules of Pro_______________
*
THIRD DIVISION.
563
VOL. 399, MARCH 26, 2003
563
LM Power Engineering Corporation vs. Capitol Industrial Construction Groups, Inc.

cedure Governing Construction Arbitration has dispensed with this requirement and recourse
to the CIAC may now be availed of whenever a contract contains a clause for the
submission of a future controversy to arbitration, in this wise: SECTION 1. Submission to
CIAC Jurisdiction.An arbitration clause in a construction contract or a submission to
arbitration of a construction dispute shall be deemed an agreement to submit an existing or
future controversy to CIAC jurisdiction, notwithstanding the reference to a different
arbitration institution or arbitral body in such contract or submission. When a contract
38
contains a clause for the submission of a future controversy to arbitration, it is not necessary
for the parties to enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC. The foregoing amendments in the Rules were formalized by CIAC
Resolution Nos. 2-91 and 3-93.
E.G. Ferry Law Offices for petitioner.
Catindig, Tiongco & Nibungco for private respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRslike arbitration, mediation, negotiation and
conciliationare encouraged by the Supreme Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationships.1
The Case
Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, seeking
to set aside the January 28, 2000 Decision of the Court of Appeals3 (CA) in CA-GR CV No.
54232. The dispositive portion of the Decision reads as follows:
_______________
1
See Panganiban, A Centenary of Justice, 2001 ed., p. 83.
Rollo, pp. 7-17.
Seventh Division. Written by Justice Portia Alio-Hormachuelos and concurred in by

Justices Corona Ibay-Somera (Division chairman) and Wenceslao I. Agnir, Jr. (member).
564
564

WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties
are ORDERED to present their dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is [d]ischarged.4
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent
Capitol Industrial Construction Groups, Inc. entered into a Subcontract Agreement
involving electrical work at the Third Port of Zamboanga.5
On April 25, 1985, respondent took over some of the work contracted to petitioner.6
Allegedly, the latter had failed to finish it because of its inability to procure materials.7
Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90.8 Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took refuge
in the termination clause of the Agreement.9 That clause allowed it to set off the cost of the
work that petitioner had failed to undertakedue to termination or take-overagainst the
amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati
(Branch 141) a Complaint10 for the collection of the amount representing the alleged balance
due it under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to
Dismiss,11 alleging that the Complaint was premature, because there was no prior recourse to
arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the
dispute did not involve the interpre39
Ruling of the Court of Appeals
_______________
4
Assailed CA Decision, pp. 21-22; Rollo, pp. 40-41.
See Pay Item Nos. 7.01 to 7.26 of the Bill of Quantities; Records, pp. 16-25.
See Letters dated March 15, 1985 and April 25, 1985, pp. 63-64.
See Letter dated March 7, 1985, p. 62.
See Letter dated September 30, 1986, p. 65.
Records, pp. 68-69.
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The
appellate court held as arbitrable the issue of whether respondents take-over of some work
items had been intended to be a termination of the original contract under Letter K of the
Subcontract. It ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse respondent for the work
the latter had taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
10
Id., pp. 1-3.
11
Id., pp. 32-34.
12
Presided by Judge Phinney C. Araquil.
Whether or not there exist[s] a controversy/dispute between petitioner and respondent

regarding the interpretation and implementation of the SubContract Agreement dated
February 22, 1983 that requires prior recourse to voluntary arbitration;
_______________
565
VOL. 399, MARCH 26, 2003
565

tation or the implementation of the Agreement and was, therefore, not covered by the arbitral
clause.13
14
After trial on the merits, the RTC ruled that the take-over of some work items by respondent
was not equivalent to a termination, but a mere modification, of the Subcontract. The latter
was ordered to give full payment for the work completed by petitioner.
13
Records, p. 41.
14
Transferred to Makati, Branch 64. Presided by Judge Delia H. Panganiban.
15
Assailed CA Decision, pp. 20-21; Rollo, pp. 39-40.
16
This case was deemed submitted for decision on October 25, 2001, upon this Courts
receipt of respondents Memorandum signed by Atty. Henry S. Rojas. Petitioners
Memorandum, filed on October 10, 2001, was signed by Atty. Eleazar G. Ferry.
566
40
566
6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be

B
In the affirmative, whether or not the requirements provided in Article III [1] of CIAC
Arbitration Rules regarding request for arbitration ha[ve] been complied with[.]17
The Courts Ruling
_______________
17
Petitioners Memorandum, p. 5; Rollo, p. 223. Original in upper case.
18
Bengson v. Chan, 78 SCRA 113, July 29, 1977.
567
The Petition is unmeritorious.

VOL. 399, MARCH 26, 2003
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation
of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect
the value of the services it rendered through an ordinary action for the collection of a sum of
money from respondent. On the other hand, the latter contends that there is a need for prior
arbitration as provided in the Agreement. This is because there are some disparities between
the parties positions regarding the extent of the work done, the amount of advances and
billable accomplishments, and the set off of expenses incurred by respondent in its take-over
of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties incongruent
positions on whether certain provisions of their Agreement could be applied to the facts. The
instant case involves technical discrepancies that are better left to an arbitral body that has
expertise in those areas. In any event, the inclusion of an arbitration clause in a contract does
not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies,
because the awards are still judicially reviewable under certain conditions.18
In the case before us, the Subcontract has the following arbitral clause:
567

settled between [respondent] and [petitioner] amicably shall be settled by means of
arbitration x x x.19
Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are discrepancies as
to the amount of advances and billable accomplishments, the application of the provision on
termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the following
questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by
respondent in the take-over be set off against the amounts it owed petitioner? (3) How much
were the advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the provision in the Agreement as to
time schedule:
41
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be granted by
[respondent] to [petitioner] unless a corresponding time extension is granted by [the Ministry
of Public Works and Highways] to the CONSORTIUM.20
Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for any of the
following causes:
xxx
xxx
xxx
6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in
accordance with this Agreement, or
Supposedly, as a result of the take-over, respondent incurred expenses in excess of the

contracted price. It sought to set off those expenses against the amount claimed by petitioner
for the work the latter accomplished, pursuant to the following provision:
If the total direct and indirect cost of completing the remaining part of the WORK exceed
the sum which would have been payable to [petitioner] had it completed the WORK, the
amount of such excess [may be] claimed by [respondent] from either of the following:
1. 1. Any amount due [petitioner] from [respondent] at the time of the
termination of this Agreement. 22
The issue as to the correct amount of petitioners advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent to
which they did it, and the expenses each of them incurred in connection therewith.
Arbitrators also need to look into the computation of foreign and local costs of materials,
foreign and local advances, retention fees and letters of credit, and taxes and duties as set
forth in the Agreement. These data can be gathered from a review of the Agreement, pertinent
portions of which are reproduced hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
_______________
xxx
19
20
xxx
xxx
Subcontract Agreement, p. 10; Rollo, p. 52. Italics supplied.

Subcontract Agreement, p. 6; Rollo, p. 47.
568
568

persistently or flagrantly neglects to carry out [its] obligations under this Agreement. 21
All progress payments to be made by [respondent] to [petitioner] shall be subject to a

retention sum of ten percent (10%) of the value of the approved quantities. Any claims by
[respondent] on [petitioner] may be deducted by [respondent] from the progress payments
and/or retained amount. Any excess from the retained amount after deducting [respondents]
claims shall be released by [respondent] to [petitioner] after the issuance of [the Ministry of
Public Works and Highways] of the Certificate of Completion and final acceptance of the
WORK by [the Ministry of Public Works and Highways].
xxx
xxx
xxx
42
Being an inexpensive, speedy and amicable method of settling disputes,24 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.25 It is thus regarded as the wave of the future in
international civil and commercial disputes.26 Brushing aside a contractual agreement calling
for arbitration between the parties would be a step backward.27
_______________
21
Id., pp. 7-8 & 48-49. Italics supplied.
22
Id., pp. 8 & 49.
569
VOL. 399, MARCH 26, 2003
569

D. IMPORTED MATERIALS AND EQUIPMENT
[Respondent shall open the letters of credit for the importation of equipment and materials
listed in Annex E hereof after the drawings, brochures, and other technical data of each items
in the list have been formally approved by [the Ministry of Public Works and Highways].
However, petitioner will still be fully responsible for all imported materials and equipment.
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
_______________
23
Id., pp. 3-10 & 44-51.
24
Del Monte Corporation-USA v. Court of Appeals, 351 SCRA 373, February 7, 2001;
Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1, September 10, 1957.
25
All expenses incurred by [respondent], both in foreign and local currencies in connection
with the opening of the letters of credit shall be deducted from the Contract Prices.
Home Bankers Savings and Trust Company v. Court of Appeals, 318 SCRA 558, November
19, 1999.
26
xxx
xxx
xxx
N. OTHER CONDITIONS
xxx
xxx
xxx
1. 2. All customs duties, import duties, contractors taxes, income taxes,

and other taxes that may be required by any government agencies in
connection with this Agreement shall be for the sole account of
[petitioner].23
Heirs of Augusta L. Salas, Jr. v. Laperal Realty Corporation, 320 SCRA 610, December
13, 1999; BF Corporation v. Court of Appeals, 288 SCRA 267, March 27,1998.
27
Ibid.
570
570
43
interpretation that covers the asserted dispute, an order to arbitrate should be granted.28 Any
doubt should be resolved in favor of arbitration.29
28
Second Issue:
Prior Request for Arbitration
29
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a
formal request for arbitration with the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the question. To bolster its position,
petitioner even cites our ruling in Tesco Services Incorporated v. Vera.30 We are not
persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration
indeed required the submission of a request for arbitration, as follows:
Seaboard Coastline Railroad Co. v. National Rail Passenger Corporation, 554 F2d 657
(US Court of Appeals, 5th Circuit), June 22, 1977.
Moses H. Cone Hospital v. Mercury Construction Co., 460 US 1, February 23, 1983; Metro
Industrial Painting Corp. v. Terminal Construction Co., 287 F2d 382 (US Court of Appeals,
2nd Circuit), February 16, 1961.
30
209 SCRA 440, May 29, 1992.
571
VOL. 399, MARCH 26, 2003
571
SECTION 1. Submission to Arbitration.Any party to a construction contract wishing to

have recourse to arbitration by the Construction Industry Arbitration Commission (CIAC)
shall submit its Request for Arbitration in sufficient copies to the Secretariat of the CIAC;
PROVIDED, that in the case of government construction contracts, all administrative
remedies available to the parties must have been exhausted within 90 days from the time the
dispute arose.
struction dispute shall be deemed an agreement to submit an existing or future controversy to

CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or
arbitral body in such contract or submission. When a contract contains a clause for the
submission of a future controversy to arbitration, it is not necessary for the parties to enter
into a submission agreement before the claimant may invoke the jurisdiction of CIAC.
Tesco was promulgated by this Court, using the foregoing provision as reference.
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and
3-93.31
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC may
now be availed of whenever a contract contains a clause for the submission of a future
controversy to arbitration, in this wise:
SECTION 1. Submission to CIAC Jurisdiction.An arbitration clause in a construction
contract or a submission to arbitration of a con_______________
The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders, et al.32 (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,33 from
which we quote thus:
Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1, as applied in the Tesco case,
the law as it now stands does not provide that the parties should agree to submit disputes
44
arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction
over the same. Rather, it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, their agreement will fall
within the jurisdiction of the CIAC, such that, even if they specifically choose another forum,
the parties will not be precluded from electing to submit their dispute before the CIAC
because this right has been vested upon each party by law, i.e., E.O. No. 1008.34
Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the
stay or suspension of such action, as provided under RA 876 [the Arbitration Law].37
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
SO ORDERED.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because that clause is binding, they are expected to
abide
_______________
31
These were promulgated by the CIAC on June 21, 1991 and August 25, 1993, respectively.
32
G.R. No. 125706, September 30, 1996.
33
318 SCRA 255, November 17, 1999.
34
Id., p. 268, per Davide, Jr., CJ.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
Puno (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

Petition denied, judgment affirmed.
Notes.Under the Arbitration Law, the award or decision of the voluntary arbitrator is
equated with that of the Regional Trial Courts. (Luzon Development Bank vs. Association of
Luzon Development Bank Employees, 249 SCRA 162 [1995])
E.O. No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the completion of the contract, or after
the abandonment or breach thereof. (Metro Construction, Inc. vs. Chatham Properties, Inc.,
365 SCRA 697 [2001])
o0o
572
_______________
572

35

by it in good faith.35 And because it covers the dispute between the parties in the present case,
either of them may compel the other to arbitrate.36
Toyota Motor Philippines Corporation v. Court of Appeals, 216 SCRA 236, December 7,
1992.
36
See 6 of RA 876.
45
37
SEC. 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.
Actions; Dismissals of Cases; Refiling of Cases; Docket Fees; Plead-ings and Practice; The
procedure for dismissed cases where re-filed is the same as though it was initially lodged,
i.e., the filing of answer, reply, answer to counter-claim, including other foot-dragging
maneuvers, except for the rigmarole of raffling cases which is dispensed with since the refiled complaint is automatically assigned to the branch to which the original case pertained
a complaint that is re-filed leads to the re-enactment of past proceedings with the
concomitant full attention of the same trial court exercising an immaculate slew of
jurisdiction and control over the case that was previously dismissed.On the task at hand,
we see no reason why RTC-Br. 135 of Makati City should stop short of hearing the civil case
on the merits. There is no substantial policy worth pursuing by requiring petitioner to pay
again the docket fees when it has already discharged this obligation simultaneously with the
filing of the complaint for collection of a sum of money. The procedure for dismissed cases
when re-filed is the same as though it was initially lodged, i.e., the filing of answer, reply,
_______________
*
SECOND DIVISION.
593
VOL. 402, MAY 5, 2003
593
Rizal Commercial Banking Corporation vs. Magwin Marketing Corporation
G.R. No. 152878. May 5, 2003.*

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. MAGWIN
MARKETING CORPORATION, NELSON TIU, BENITO SY and ANDERSON UY,
respondents.
answer to counter-claim, including other foot-dragging maneuvers, except for the rigmarole
of raffling cases which is dispensed with since the re-filed complaint is automatically
assigned to the branch to which the original case pertained. A complaint that is re-filed leads
to the re-enactment of past proceedings with the concomitant full attention of the same trial
court exercising an immaculate slew of jurisdiction and control over the case that was
previously dismissed, which in the context of the instant case is a waste of judicial time,
capital and energy.
46
Same; Same; Same; Same; Once the dismissal attains the attribute of finality, the trial court
cannot impose legal fees anew because a final and executory dismissal although without
prejudice divests the trial court of jurisdiction over the civil case.The addition of the
second sentence in the second paragraph does not change the absolute nullification of the
dismissal without prejudice decreed in the first paragraph. The sentence [f]ailure on the part
of plaintiff to submit the said agreement shall cause the imposition of payment of the
required docket fees for re-filing of this case is not a directive to pay docket fees but only a
statement of the event that may result in its imposition. The reason for this is that the trial
court could not have possibly made such payment obligatory in the same civil case, i.e., Civil
Case No. 99-518, since docket fees are defrayed only after the dismissal becomes final and
executory and when the civil case is refiled. It must be emphasized however that once the
dismissal attains the attribute of finality, the trial court cannot impose legal fees anew
because a final and executory dismissal although without prejudice divests the trial court of
jurisdiction over the civil case as well as any residual power to order anything relative to the
dismissed case; it would have to wait until the complaint is docketed once again.On the other
hand, if we are to concede that the trial court retains jurisdiction over Civil Case No. 99-518
for it to issue the assailed Orders, a continuation of the hearing thereon would not trigger a
disbursement for docket fees on the part of petitioner as this would obviously imply the
setting aside of the order of dismissal and the reinstatement of the complaint.
Same; Same; Words and Phrases; A final order issued by a court has been defined as one
which disposes of the subject matter in its entirety or terminates a particular proceeding or
action, leaving nothing else to be done but to enforce by execution what has been determined
by the court, while an interlocutory order is one which does not dispose of a case
completely but leaves something more to be decided upon.The same is true with the Order
of 16 November 2000 denying due course to petitioners Notice of Appeal. There would have
been no basis for such exercise of discretion because the jurisdiction of the court a quo over
the civil case would have been discharged and terminated by the presumed dismissal thereof.
Moreover, we note the ground for denying due course to the appeal: the Orders dated 8
September 2000 and 6 November 2000 are in594
594
Rizal Commercial Banking Corporation vs Magwin Marketing Corporation

terlocutory orders and therefore, no appeal may be taken from x x x. This declaration
strongly suggests that something more was to be accomplished in the civil case, thus
negating the claim that the Order of dismissal without prejudice was resurrected upon the
parties failure to yield a compromise agreement. A final order issued by a court has been
defined as one which disposes of the subject matter in its entirety or terminates a particular
proceeding or action, leaving nothing else to be done but to enforce by execution what has
been determined by the court, while an interlocutory order is one which does not dispose
of a case completely but leaves something more to be decided upon.
Same; Same; Alternative Dispute Resolution; Compromise Agreements; The proper course of
action that should have been taken by the court a quo, upon manifestation of the parties of
their willingness to discuss a settlement, is to suspend the proceedings and allow them
reasonable time to come to terms; While the rules allow the trial court to suspend its
proceedings consistent with the policy to encourage the use of alternative mechanisms of
dispute resolution, the grant to the parties of only 15 days to conclude a deal is, to say the
least, a passive and paltry attempt of the court a quo in its task of persuading litigants to
agree upon a reasonable concession.As also explained therein, the proper course of action
that should have been taken by the court a quo, upon manifestation of the parties of their
willingness to discuss a settlement, was to suspend the proceedings and allow them
reasonable time to come to terms (a) If willingness to discuss a possible compromise is
expressed by one or both parties; or (b) If it appears that one of the parties, before the
commencement of the action or proceeding, offered to discuss a possible compromise but the
other party refused the offer, pursuant to Art. 2030 of the Civil Code. If despite efforts
exerted by the trial court and the parties the negotiations still fail, only then should the action
continue as if no suspension had taken place. Ostensibly, while the rules allow the trial court
to suspend its proceedings consistent with the policy to encourage the use of alternative
mechanisms of dispute resolution, in the instant case, the trial court only gave the parties
fifteen (15) days to conclude a deal. This was, to say the least, a passive and paltry attempt of
the court a quo in its task of persuading litigants to agree upon a reasonable concession.
Hence, if only to inspire confidence in the pursuit of a middle ground between petitioner and
respondents, we must not interpret the trial courts Orders as dismissing the action on its own
motion because the parties, specifically petitioner, were anxious to litigate their case as
exhibited in their several manifestations and motions.
47
Same; Same; A complaint may be dismissed due to plaintiffs fault: (a) if he fails to appear
during a scheduled trial, especially on the date for the presentation of his evidence in chief,
or when so required at the pretrial; (b) if he neglects to prosecute his action for an
unreasonable length of
official directive that courts must endeavor to convince parties in a civil case to consummate
a fair settlement,and to mitigate damages to be paid by the losing party who has shown a
sincere desire for such give-and-take. All things considered, we see no compelling
circumstances to uphold the dismissal of petitioners complaint regardless of its
characterization as being without prejudice.
595
VOL. 402, MAY 5, 2003
595

time; or (c) if he does not comply with the rules or any order of the court. We also find
nothing in the record to support respondent Uys conclusion that petitioner has been
mercilessly delaying the prosecution of Civil Case No. 99-518 to warrant its dismissal. A
complaint may be dismissed due to plaintiffs fault: (a) if he fails to appear during a
scheduled trial, especially on the date for the presentation of his evidence in chief, or when so
required at the pre-trial; (b) if he neglects to prosecute his action for an unreasonable length
of time; or (c) if he does not comply with the rules or any order of the court. None of these
was obtaining in the civil case.
Same; Same; To constitute a sufficient ground for dismissal, the inattention of plaintiff to
pursue his cause must not only be prolonged but also be unnecessary and dilatory resulting
in the trifling of judicial processes. Admittedly, delay took place in this case but it was not
an interruption that should have entailed the dismissal of the complaint even if such was
designated as without prejudice. To constitute a sufficient ground for dismissal, the
inattention of plaintiff to pursue his cause must not only be prolonged but also be
unnecessary and dilatory resulting in the trifling of judicial processes. In the instant case, the
adjournment was not only fleeting as it lasted less than six (6) months but was also done in
good faith to accommodate respondents incessant pleas to negotiate. Although the dismissal
of a case for failure to prosecute is a matter addressed to the sound discretion of the court,
that judgment however must not be abused. The availability of this recourse must be
determined according to the procedural history of each case, the situation at the time of the
dismissal, and the diligence of plaintiff to proceed therein. Stress must also be laid upon the
Same; Same; A court may dismiss a case on the ground of non prosequitur but the real test of
the judicious exercise of such power is whether under the circumstances plaintiff is
chargeable with want of fitting assiduousness in not acting on his complaint with reasonable
promptitude.In fine, petitioner cannot be said to have lost interest in fighting the civil case
to the end. A court may dismiss a case on the ground of non prosequitur but the real test of
the judicious exercise of such power is whether under the circumstances plaintiff is
chargeable with want of fitting assiduousness in not acting on his complaint with reasonable
promptitude. Unless a partys conduct is so indifferent, irresponsible, contumacious or
slothful as to provide substantial grounds for dismissal, i.e., equivalent to default or nonappearance in the case, the courts should consider lesser sanctions which would still amount
to achieving the desired end. In the absence of a
596
596

pattern or scheme to delay the disposition of the case or of a wanton failure to observe the
mandatory requirement of the rules on the part of the plaintiff, as in the case at bar, courts
should decide to dispense rather than wield their authority to dismiss.
Same; Same; Pre-Trial; By means of pre-trial, the trial court is fully empowered to sway the
litigants to agree upon some fair compromise. Clearly, another creative remedy was
available to the court a quo to attain a speedy disposition of Civil Case No. 99-518 without
sacrificing the course of justice. Since the failure of petitioner to submit a compromise
agreement was the refusal of just one of herein respondents, i.e., Benito Sy, to sign his name
48
on the conforme of the loan restructure documents, and the common concern of the courts a
quo was dispatch in the proceedings, the holding of a pre-trial conference was the best-suited
solution to the problem as this stage in a civil action is where issues are simplified and the
dispute quickly and genuinely reconciled. By means of pre-trial, the trial court is fully
empowered to sway the litigants to agree upon some fair compromise.
Same; Same; Dismissing the civil case and compelling the plaintiff to re-file its complaint is
a dangerous, costly and circuitous route that may end up aggravating, not resolving, the
disagreementinconsiderate dismissals, even if without prejudice, do not constitute a
panacea nor a solution to the congestion of court dockets.Dismissing the civil case and
compelling petitioner to re-file its complaint is a dangerous, costly and circuitous route that
may end up aggravating, not resolving, the disagreement. This case management strategy is
frighteningly deceptive because it does so at the expense of petitioner whose cause of action,
perhaps, may have already been admitted by its adverse parties as shown by three (3) of four
(4) defendants not willing to contest petitioners allegations, and more critically, since this
approach promotes the useless and thankless duplication of hard work already undertaken by
the trial court. As we have aptly observed, [i]nconsiderate dismissals, even if without
prejudice, do not constitute a panacea nor a solution to the congestion of court dockets. While
they lend a deceptive aura of efficiency to records of individual judges, they merely postpone
the ultimate reckoning between the parties. In the absence of clear lack of merit or intention
to delay, justice is better served by a brief continuance, trial on the merits, and final
disposition of the cases before the court.
Siguion Reyna, Montecillo and Ongsiako for petitioner.
597
Sycip, Salazar, Hernandez and Gatmaitan for respondent A. Uy.

Ernest S. Ang, Jr. for private respondents.
BELLOSILLO, J.:
WE ARE PERTURBED that this case should drag this Court in the banal attempts to
decipher the hazy and confused intent of the trial court in proceeding with what would have
been a simple, straightforward and hardly arguable collection case. Whether the dismissal
without prejudice for failure to prosecute was unconditionally reconsidered, reversed and set
aside to reinstate the civil case and have it ready for pre-trial are matters which should have
been clarified and resolved in the first instance by the court a quo. Unfortunately, this
feckless imprecision of the trial court became the soup stock of the parties and their lawyers
to further delay the case below when they could have otherwise put things in proper order
efficiently and effectively.
On 4 March 1999 petitioner Rizal Commercial Banking Corporation (RCBC) filed a
complaint for recovery of a sum of money with prayer for a writ of preliminary attachment
against respondents Magwin Marketing Corporation, Nelson Tiu, Benito Sy and Anderson
Uy.1 On 26 April 1999, the trial court issued a writ of attachment.2 On 4 June 1999 the writ
was returned partially satisfied since only a parcel of land purportedly owned by defendant
Benito Sy was attached.3 In the meantime, summons was served on each of the defendants,
respondents herein, who filed their respective answers, except for defendant Gabriel Cheng
who was dropped without prejudice as party-defendant as his whereabouts could not be
located.4 On 21 September 1999 petitioner moved for an alias writ of attachment which on 18
January 2000 the court a quo de-nied.5
_______________
VOL. 402, MAY 5, 2003
597
1
Docketed as Civil Case No. 99-518, Rizal Commercial Banking Corporation v. Magwin
Marketing Corporation, et al., which was raffled to RTC-Br. 135, Makati City; Rollo, p. 4.
CA Record, p. 234.
49
Id., at p. 237.
Id., at p. 7.
Id., at p. 237.
Acting on plaintiffs Motion for Reconsideration of the Order dated 20 July 2000
dismissing this case for failure to prosecute, it appearing that there was already conformity to
the restructuring of defendants indebtedness with plaintiff by defendant Nelson Tiu,
President of defendant corporation per Manifestation and Motion filed by plaintiff on 22
August 2000, there being probability of settlement among the parties, as prayed for, the
Order dated 20 July 2000 is hereby set aside.
598
_______________
598

Petitioner did not cause the case to be set for pre-trial.6 For about six (6) months thereafter,
discussions between petitioner and respondents Magwin Marketing Corporation, Nelson Tiu,
Benito Sy and Anderson Uy, as parties in Civil Case No. 99-518, were undertaken to
restructure the indebtedness of respondent Magwin Marketing Corporation.7 On 9 May 2000
petitioner approved a debt payment scheme for the corporation which on 15 May 2000 was
communicated to the latter by means of a letter dated 10 May 2000 for the conformity of its
officers, i.e., respondent Nelson Tiu as President/General Manager of Magwin Marketing
Corporation and respondent Benito Sy as Director thereof.8 Only respondent Nelson Tiu
affixed his signature on the letter to signify his agreement to the terms and conditions of the
restructuring.9
On 20 July 2000 the RTC of Makati City, on its own initiative, issued an Order dismissing
without prejudice Civil Case No. 99-518 for failure of petitioner as plaintiff therein to
prosecute its action for an unreasonable length of time x x x.10 On 31 July 2000 petitioner
moved for reconsideration of the Order by informing the trial court of respondents
unremitting desire to settle the case amicably through a loan restructuring program.11 On 22
August 2000 petitioner notified the trial court of the acquiescence thereto of respondent
Nelson Tiu as an officer of Magwin Marketing Corporation and defendant in the civil case.12
On 8 September 2000 the court a quo issued an Order reconsidering the dismissal without
prejudice of Civil Case No. 99-518
Id., at p. 234.
Rollo, p. 6; CA Record, p. 136.
Id., at p. 6; id., at pp. 42-43.
Rollo, p. 7.
10
Ibid.
11
CA Record, p. 242.
12
Rollo, p. 7.
599
VOL. 402, MAY 5, 2003
599

Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof.
Failure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case.13
50
On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and Motion to Set
Case for Pre-Trial Conference alleging that [t]o date, only defendant Nelson Tiu had affixed
his signature on the May 10, 2000 letter which informed the defendants that plaintiff [herein
petitioner] already approved defendant Magwin Marketing Corporations request for
restructuring of its loan obligations to plaintiff but subject to the terms and conditions
specified in said letter.14 This motion was followed on 5 October 2000 by petitioners
Supplemental Motion to Plaintiffs Manifestation and Motion to Set Case for Pre-Trial
Conference affirming that petitioner could not submit a compromise agreement because
only defendant Nelson Tiu had affixed his signature on the May 10, 2000 letter x x x.15
Respondent Anderson Uy opposed the foregoing submissions of petitioner while respondents
Magwin Marketing Corporation, Nelson Tiu and Benito Sy neither contested nor supported
them.16
The trial court, in an undated Order (although a date was later inserted in the Order), denied
petitioners motion to calendar Civil Case No. 99-518 for pre-trial stating that
600
600

trial court issued two (2) Orders, one of which inserted the date 6 November 2000 in the
undated Order rejecting petitioners motion for pre-trial in the civil case, and the other
denying due course to the Notice of Appeal on the ground that the Orders dated 8 September
2000 and 6 November 2000 are interlocutory orders and therefore, no appeal may be taken x
x x.18
Acting on plaintiffs [herein petitioner] Manifestation and Motion to Set Case for Pre-Trial
Conference, the Opposition filed by defendant Uy and the subsequent Supplemental
Motion filed by plaintiff; defendant Uys Opposition, and plaintiffs Reply; for failure
of the plaintiff to submit a compromise agreement pursuant to the Order dated 8 September
2000 plaintiffs motion to set case for pre-trial conference is hereby denied.17
On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6 November
2000 and 16 November 2000 of the trial court to the Court of Appeals in a petition for
certiorari under Rule 65 of the Rules of Civil Procedure.19 In the main, petitioner argued that
the court a quo had no authority to compel the parties in Civil Case No. 99-518 to enter into
an amicable settlement nor to deny the holding of a pre-trial conference on the ground that no
compromise agreement was turned over to the court a quo.20
On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September 2000 Order
of the trial court as well as its undated Order in Civil Case No. 99-518. On 16 November
2000 the
On 28 September 2001 the appellate court promulgated its Decision dismissing the petition
for lack of merit and affirming the assailed Orders of the trial court21 holding that
_______________
13
Order issued by Judge Francisco B. Ibay; CA Record, p. 24.
14
Rollo, p. 8.
15
Ibid.
16
Id., at p. 9.
17
Order issued by Judge Francisco B. Ibay; CA Record, p. 25.
x x x although the language of the September 8, 2000 Order may not be clear, yet, a careful
reading of the same would clearly show that the setting aside of the Order dated July 20,
2000 which dismissed petitioners complaint x x x for failure to prosecute its action for an
unreasonable length of time is dependent on the following conditions, to wit: a) The
submission of the compromise agreement by petitioner within fifteen (15) days from notice;
and b) Failure of petitioner to submit the said compromise agreement shall cause the
imposition of the payment of the required docket fees for the refiling of the case; so much so
that the non-compliance by petitioner of condition no. 1 would make condition no. 2
effective, especially that petitioners manifestation and motion to set case for pre-trial
conference and supplemental motion x x x [were] denied by the respondent judge in his
51
Order dated November 6, 2000, which in effect means that the Order dated July 20, 2000 was
ultimately not set aside considering that a
ruling in Goldloop Properties, Inc. v. Court of Appeals23 where it was held that the trial court
cannot dismiss a complaint for failure of the parties to submit a compromise agreement.
_______________
On the other hand, respondent Anderson Uy filed his comment after several extensions
asserting that there are no special and important reasons for undertaking this review. He also
alleges that petitioners attack is limited to the Order dated 8 September 2000 as to whether it
is conditional as the Court of Appeals so found and the applicability to this case of the ruling
in Goldloop Properties, Inc. v. Court of Appeals. Respondent Uy claims that the Order
reconsidering the dismissal of Civil Case No. 99-518 without prejudice is on its face
contingent upon the submission of the compromise agreement which in the first place was
the principal reason of petitioner to justify the withdrawal of the Order declaring his failure
to prosecute the civil case. He further contends that the trial court did not force the parties in
the civil case to execute a compromise agreement, the truth being that it dismissed the
complaint therein for petitioners dereliction.
18
CA Record, pp. 32- 33.
19
Docketed as CA-G.R. SP No. 62102, Rizal Commercial Banking Corporation v. Hon.

Judge Francisco B. Ibay, et al.
20
Id., at pp. 11-13.
21
Decision penned by Associate Justice Mercedes Gozo-Dadole and concurred in by then

Presiding Justice (now Associate Justice of this Court) Ma. Alicia Austria-Martinez and
Associate Justice Jose L. Sabio, Jr.; Rollo, pp. 26-35.
601
VOL. 402, MAY 5, 2003
601

party need not pay docket fees for the refiling of a case if the original case has been revived
and reinstated.22
On 2 April 2002 reconsideration of the Decision was denied; hence, this petition.
In the instant case, petitioner maintains that the trial court cannot coerce the parties in Civil
Case No. 99-518 to execute a compromise agreement and penalize their failure to do so by
refusing to go forward with the pre-trial conference. To hold otherwise, so petitioner avers,
would violate Art. 2029 of the Civil Code which provides that [t]he court shall endeavor to
persuade the litigants in a civil case to agree upon some fair compromise, and this Courts
Finally, respondent Uy contests the relevance of Goldloop Properties, Inc. v. Court of

Appeals, and refers to its incongruence with the instant case, i.e., that the complaint of
petitioner was dismissed for failure to prosecute and not for its reckless disregard to present
an amicable settlement as was the situation in Goldloop Properties, Inc., and that the
dismissal was without prejudice, in contrast with the dismissal with prejudice ordered in the
cited
_______________
22
Id., at p. 34.
23
G.R. No. 99431, 11 August 1992, 212 SCRA 498.
602
602

52
case. For their part, respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy
waived their right to file a comment on the instant petition and submitted the same for
resolution of this Court.24
The petition of Rizal Commercial Banking Corporation is meritorious. It directs our attention
to questions of substance decided by the courts a quo plainly in a way not in accord with
applicable precedents as well as the accepted and usual course of judicial proceedings; it
offers special and important reasons that demand the exercise of our power of supervision
and review. Furthermore, petitioners objections to the proceedings below encompass not
only the Order of 8 September 2000 but include the cognate Orders of the trial court of 6 and
16 November 2000. This is evident from the prayer of the instant petition which seeks to
reverse and set aside the Decision of the appellate court and to direct the trial court to
proceed with the pre-trial conference in Civil Case No. 99-518. Evidently, the substantive
issue involved herein is whether the proceedings in the civil case should progress, a question
which at bottom embroils all the Orders affirmed by the Court of Appeals.
On the task at hand, we see no reason why RTC-Br. 135 of Makati City should stop short of
hearing the civil case on the merits. There is no substantial policy worth pursuing by
requiring petitioner to pay again the docket fees when it has already discharged this
obligation simultaneously with the filing of the complaint for collection of a sum of money.
The procedure for dismissed cases when re-filed is the same as though it was initially lodged,
i.e., the filing of answer, reply, answer to counter-claim, including other foot-dragging
maneuvers, except for the rigmarole of raffling cases which is dispensed with since the refiled complaint is automatically assigned to the branch to which the original case pertained.25
A complaint that is re-filed leads to the re-enactment of past proceedings with the
concomitant full attention of the same trial court exercising an immaculate slew of
jurisdiction and control over the case that was previously dismissed,26 which in the context of
the instant case is a waste of judicial time, capital and energy.
_______________
24
Resolution dated 18 September 2002; Rollo, p. 43.
25
The 2002 Revised Manual for Clerks of Courts, Vol. I, p. 223.
26
Baares II v. Balising, G.R. No. 132624, 13 March 2000, 328 SCRA 36.
603
VOL. 402, MAY 5, 2003
603

What judicial benefit do we derive from starting the civil case all over again, especially
where three (3) of the four (4) defendants, i.e., Magwin Marketing Corporation, Nelson Tiu
and Benito Sy, have not contested petitioners plea before this Court and the courts a quo to
advance to pre-trial conference? Indeed, to continue hereafter with the resolution of
petitioners complaint without the usual procedure for the re-filing thereof, we will save the
court a quo invaluable time and other resources far outweighing the docket fees that
petitioner would be forfeiting should we rule otherwise.
Going over the specifics of this petition and the arguments of respondent Anderson Uy, we
rule that the Order of 8 September 2000 did not reserve conditions on the reconsideration and
reversal of the Order dismissing without prejudice Civil Case No. 99-518. This is quite
evident from its text which does not use words to signal an intent to impose riders on the
dispositive portion
Acting on plaintiffs Motion for Reconsideration of the Order dated 20 July 2000
dismissing this case for failure to prosecute, it appearing that there was already conformity to
the restructuring of defendants indebtedness with plaintiff by defendant Nelson Tiu,
President of defendant corporation per Manifestation and Motion filed by plaintiff on 22
August 2000, there being probability of settlement among the parties, as prayed for, the
Order dated 20 July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof.
Failure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case.27
Contrary to respondent Uys asseverations, the impact of the second paragraph upon the first
is simply to illustrate what the trial court would do after setting aside the dismissal without
53
prejudice: submission of the compromise agreement for the consideration of the trial court.
Nothing in the second paragraph do we read that the reconsideration is subject to two (2)
qualifications. Certainly far from it, for in Goldloop Properties, Inc. v. Court of Appeals28 a
similar directive, i.e., [t]he parties are given a period of fifteen (15) days from today within
which to submit a Compromise Agreement, was held to mean that should the parties fail in
their
_______________
27
Issued by Judge Francisco B. Ibay; CA Record, p. 24.
28
See Note 22 at p. 506.
Indubitably, it is speculative to reckon the effectivity of the Order of dismissal without

prejudice to the presentation of the compromise agreement. If we are to admit that the
efficacy of the invalidation of the Order of dismissal is dependent upon this condition, then
we must inquire: from what date do we count the fifteen (15)-day reglementary period within
which the alleged revival of the order of dismissal began to run? Did it commence from the
lapse of the fifteen (15) days provided for in the Order of 8 Septem-
604
604
It must be emphasized however that once the dismissal attains the attribute of finality, the
trial court cannot impose legal fees anew because a final and executory dismissal although
without prejudice divests the trial court of jurisdiction over the civil case as well as any
residual power to order anything relative to the dismissed case; it would have to wait until the
complaint is docketed once again.29 On the other hand, if we are to concede that the trial
court retains jurisdiction over Civil Case No. 99-518 for it to issue the assailed Orders, a
continuation of the hearing thereon would not trigger a disbursement for docket fees on the
part of petitioner as this would obviously imply the setting aside of the order of dismissal and
the reinstatement of the complaint.

negotiations the proceedings would continue from where they left off. Goldloop Properties,
Inc. further said that its order, or a specie of it, did not constitute an agreement or even an
expectation of the parties that should they fail to settle their differences within the stipulated
number of days their case would be dismissed.
The addition of the second sentence in the second paragraph does not change the absolute
nullification of the dismissal without prejudice decreed in the first paragraph. The sentence
[f]ailure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case is not a directive to pay docket
fees but only a statement of the event that may result in its imposition. The reason for this is
that the trial court could not have possibly made such payment obligatory in the same civil
case, i.e., Civil Case No. 99-518, since docket fees are defrayed only after the dismissal
becomes final and executory and when the civil case is re-filed.
_______________
29
Ortigas & Company Limited Partnership v. Velasco, G.R. No. 109645, 25 July 1994, 234
SCRA 455; Aquizap v. Basilio, No. L-21293, 29 December 1967, 21 SCRA 1434.
605
VOL. 402, MAY 5, 2003
605

ber 2000? Or do we count it from the 6 November 2000 Order when the trial court denied the
holding of a pre-trial conference? Or must it be upon petitioners receipt of the 16 November
2000 Order denying due course to its Notice of Appeal? The court a quo could not have
instituted an Order that marked the proceedings before it with a shadow of instability and
chaos rather than a semblance of constancy and firmness.
54
The subsequent actions of the trial court also belie an intention to revive the Order of
dismissal without prejudice in the event that petitioner fails to submit a compromise
agreement. The Orders of 6 and 16 November 2000 plainly manifest that it was retaining
jurisdiction over the civil case, a fact which would not have been possible had the dismissal
without prejudice been resuscitated. Surely, the court a quo could not have denied on 6
November 2000 petitioners motion to calendar Civil Case No. 99-518 for pre-trial if the
dismissal had been restored to life in the meantime. By then the dismissal without prejudice
would have already become final and executory so as to effectively remove the civil case
from the docket of the trial court.
The same is true with the Order of 16 November 2000 denying due course to petitioners
Notice of Appeal. There would have been no basis for such exercise of discretion because the
jurisdiction of the court a quo over the civil case would have been discharged and terminated
by the presumed dismissal thereof. Moreover, we note the ground for denying due course to
the appeal: the Orders dated 8 September 2000 and 6 November 2000 are interlocutory
orders and therefore, no appeal may be taken from x x x.30 This declaration strongly
suggests that something more was to be accomplished in the civil case, thus negating the
claim that the Order of dismissal without prejudice was resurrected upon the parties failure
to yield a compromise agreement. A final order issued by a court has been defined as one
which disposes of the subject matter in its entirety or terminates a particular proceeding or
action, leaving nothing else to be done but to enforce by execution what has been determined
by the court, while an interlocutory order is one which does not dispose of a case
completely but leaves something more to be decided upon.31
_______________
30
CA Record, pp. 32-33.
31
See Note 26.
Besides the semantic and consequential improbabilities of respondent Uys argument, our
ruling in Goldloop Properties, Inc., is decisive of the instant case. In Goldloop Properties,
Inc., we reversed the action of the trial court in dismissing the complaint for failure of the
plaintiff to prosecute its case, which was in turn based on its inability to forge a compromise
with the other parties within fifteen (15) days from notice of the order to do so and held
Since there is nothing in the Rules that imposes the sanction of dismissal for failing to submit
a compromise agreement, then it is obvious that the dismissal of the complaint on the basis
thereof amounts no less to a gross procedural infirmity assailable by certiorari. For such
submission could at most be directory and could not result in throwing out the case for failure
to effect a compromise. While a compromise is encouraged, very strongly in fact, failure to
consummate one does not warrant any procedural sanction, much less an authority to jettison
a civil complaint worth P4,000,000.00 x x x Plainly, submission of a compromise agreement
is never mandatory, nor is it required by any rule.32
As also explained therein, the proper course of action that should have been taken by the
court a quo, upon manifestation of the parties of their willingness to discuss a settlement, was
to suspend the proceedings and allow them reasonable time to come to terms (a) If
willingness to discuss a possible compromise is expressed by one or both parties; or (b) If it
appears that one of the parties, before the commencement of the action or proceeding, offered
to discuss a possible compromise but the other party refused the offer, pursuant to Art. 2030
of the Civil Code. If despite efforts exerted by the trial court and the parties the negotiations
still fail, only then should the action continue as if no suspension had taken place.33
Ostensibly, while the rules allow the trial court to suspend its proceedings consistent with the
policy to encourage the use of alternative mechanisms of dispute resolution, in the instant
case, the trial court only gave the parties fifteen (15) days to conclude a deal. This was, to say
the least, a passive and paltry attempt of the court a quo in its task of persuading litigants to
agree upon a reasonable
606
606

_______________
32
See Note 22 at p. 506.

55
33
Ibid.
courts refusal to call the parties to a pre-trial conference, the reason or basis therefor was the
absence of a negotiated settlementa circumstance that takes the case at bar within the plain
ambit of Goldloop Properties, Inc. In any event, given that the instant case merely revolves
around the search for a reasonable interpretation
607
VOL. 402, MAY 5, 2003
607
_______________
34

concession.34 Hence, if only to inspire confidence in the pursuit of a middle ground between
petitioner and respondents, we must not interpret the trial courts Orders as dismissing the
action on its own motion because the parties, specifically petitioner, were anxious to litigate
their case as exhibited in their several manifestations and motions.
We reject respondent Uys contention that Goldloop Properties, Inc. v. Court of Appeals is
irrelevant to the case at bar on the dubious reasoning that the complaint of petitioner was
dismissed for failure to prosecute and not for the non-submission of a compromise agreement
which was the bone of contention in that case, and that the dismissal imposed in the instant
case was without prejudice, in contrast to the dismissal with prejudice decreed in the cited
case. To begin with, whether the dismissal is with or without prejudice if grievously
erroneous is detrimental to the cause of the affected party; Goldloop Properties, Inc. does not
tolerate a wrongful dismissal just because it was without prejudice. More importantly, the
facts in Goldloop Properties, Inc. involve, as in the instant case, a dismissal for failure to
prosecute on the ground of the parties inability to come up with a compromise agreement
within fifteen (15) days from notice of the courts order therein. All told, the parallelism
between them is unmistakable.
Even if we are to accept on face value respondents understanding of Goldloop Properties,
Inc. as solely about the failure to submit a compromise agreement, it is apparent that the
present case confronts a similar problem. Perhaps initially the issue was one of failure to
prosecute, as can be observed from the Order dated 20 July 2000, although later reversed and
set aside. But thereafter, in the Order of 6 November 2000, the trial court refused to proceed
to pre-trial owing to the failure of the plaintiff to submit a compromise agreement pursuant
to the Order dated 8 September 2000. When the civil case was stalled on account of the trial
Civil Code, art. 2029; see SC Adm. Order No. 21-01; see also A.M. No. 99-6-01-SC.
608
608

of the several Orders of the trial court, i.e., as to whether the dismissal without prejudice was
revived upon petitioners helplessness to perfect an out-of-court arrangement, with more
reason must we employ the ruling in Goldloop Properties, Inc. to resolve the parties
differences of opinion.
We also find nothing in the record to support respondent Uys conclusion that petitioner has
been mercilessly delaying the prosecution of Civil Case No. 99-518 to warrant its dismissal.
A complaint may be dismissed due to plaintiffs fault: (a) if he fails to appear during a
scheduled trial, especially on the date for the presentation of his evidence in chief, or when so
required at the pre-trial; (b) if he neglects to prosecute his action for an unreasonable length
of time; or (c) if he does not comply with the rules or any order of the court. None of these
was obtaining in the civil case.
While there was a lull of about six (6) months in the prosecution of Civil Case No. 99-518, it
must be remembered that respondents themselves contributed largely to this delay. They
repeatedly asked petitioner to consider re-structuring the debt of respondent Magwin
Marketing Corporation to which petitioner graciously acceded. Petitioner approved a new
debt payment scheme that was sought by respondents, which it then communicated to
56
respondent Corporation through a letter for the conformity of the latters officers, i.e.,
respondent Nelson Tiu as President/General Manager and respondent Benito Sy as Director
thereof. Regrettably, only respondent Nelson Tiu affixed his signature on the letter to signify
his concurrence with the terms and conditions of the arrangement. The momentary lag in the
civil case was aggravated when respondent Benito Sy for unknown and unexplained reasons
paid no heed to the adjustments in the indebtedness although curiously he has not opposed
before this Court or the courts a quo petitioners desire to go ahead with the pre-trial
conference.
Admittedly, delay took place in this case but it was not an interruption that should have
entailed the dismissal of the complaint even if such was designated as without prejudice. To
constitute a sufficient ground for dismissal, the inattention of plaintiff to pursue his cause
must not only be prolonged but also be unnecessary and dilatory resulting in the trifling of
judicial processes. In the instant case, the adjournment was not only fleeting as it lasted less
than six (6) months but was also done in good faith to accommo-
In fine, petitioner cannot be said to have lost interest in fighting the civil case to the end. A
court may dismiss a case on the ground of non prosequitur but the real test of the judicious
exercise of such power is whether under the circumstances plaintiff is chargeable with want
of fitting assiduousness in not acting on his complaint with reasonable promptitude. Unless a
partys conduct is so indifferent, irresponsible, contumacious or slothful as to provide
substantial grounds for dismissal, i.e., equivalent to default or nonappearance in the case, the
courts should consider lesser sanctions which would still amount to achieving the desired
end.38 In the absence of a pattern or scheme to delay the disposition of the case or of a
wanton failure to observe the mandatory requirement of the rules on the part of the plaintiff,
as in the case at bar, courts should decide to dispense rather than wield their authority to
dismiss.39
Clearly, another creative remedy was available to the court a quo to attain a speedy
disposition of Civil Case No. 99-518 without sacrificing the course of justice. Since the
failure of petitioner to submit a compromise agreement was the refusal of just one of herein
respondents, i.e., Benito Sy, to sign his name on the con-
609
_______________
VOL. 402, MAY 5, 2003
609

date respondents incessant pleas to negotiate. Although the dismissal of a case for failure to
prosecute is a matter addressed to the sound discretion of the court, that judgment however
must not be abused. The availability of this recourse must be determined according to the
procedural history of each case, the situation at the time of the dismissal, and the diligence of
plaintiff to proceed therein.35 Stress must also be laid upon the official directive that courts
must endeavor to convince parties in a civil case to consummate a fair settlement,36 and to
mitigate damages to be paid by the losing party who has shown a sincere desire for such
give-and-take.37 All things considered, we see no compelling circumstances to uphold the
dismissal of petitioners complaint regardless of its characterization as being without
prejudice.
35
Calalang v. Court of Appeals, G.R. No. 103185, 22 January 1993, 217 SCRA 462.
36
See Note 34.
37
Civil Code, art. 2031.
38
Bank of the Philippine Islands v. Court of Appeals, G.R. No. 117385, 11 February 1999,
303 SCRA 19.
39
Ibid.
610
610
57
40

forme of the loan restructure documents, and the common concern of the courts a quo was
dispatch in the proceedings, the holding of a pre-trial conference was the best-suited solution
to the problem as this stage in a civil action is where issues are simplified and the dispute
quickly and genuinely reconciled. By means of pre-trial, the trial court is fully empowered to
sway the litigants to agree upon some fair compromise.
Dismissing the civil case and compelling petitioner to re-file its complaint is a dangerous,
costly and circuitous route that may end up aggravating, not resolving, the disagreement.
This case management strategy is frighteningly deceptive because it does so at the expense of
petitioner whose cause of action, perhaps, may have already been admitted by its adverse
parties as shown by three (3) of four (4) defendants not willing to contest petitioners
allegations, and more critically, since this approach promotes the useless and thankless
duplication of hard work already undertaken by the trial court. As we have aptly observed,
[i]nconsiderate dismissals, even if without prejudice, do not constitute a panacea nor a
solution to the congestion of court dockets. While they lend a deceptive aura of efficiency to
records of individual judges, they merely postpone the ultimate reckoning between the
parties. In the absence of clear lack of merit or intention to delay, justice is better served by a
brief continuance, trial on the merits, and final disposition of the cases before the court.40
WHEREFORE, the Petition for Review is GRANTED. The Decision dated 28 September
2001 and Resolution dated 2 April 2002 of the Court of Appeals in CA-G.R. SP No. 62102
are REVERSED and SET ASIDE.
The Orders dated 8 September 2000, 6 November 2000 and 16 November 2000 of the
Regional Trial Court, Branch 135, of Makati City, docketed as Civil Case No. 99-518, are
also REVERSED and SET ASIDE insofar as these Orders are interpreted to impose upon and
collect anew from petitioner RIZAL COMMERCIAL BANKING CORPORATION docket
or legal fees for its complaint, or to dismiss without prejudice Civil Case No. 99-518, or to
preclude the trial court from calling the parties therein to pre-trial conference, or from
proceeding thereafter with dispatch to resolve the civil case.
Macasa v. Herrera, 101 Phil. 44, 48 (1957).
611
VOL. 402, MAY 5, 2003
611

Civil Case No. 99-518 is deemed REINSTATED in, as it was never taken out from, the
dockets of the Regional Trial Court, Branch 135, of Makati City. The trial court is
ORDERED to exercise its jurisdiction over Civil Case No. 99-518, to CONDUCT the pretrial conference therein with dispatch, and to UNDERTAKE thereafter such other
proceedings as may be relevant, without petitioner being charged anew docket or other legal
fees in connection with its reinstatement. Costs against respondents.
SO ORDERED.
Quisumbing, Austria-Martinez and Callejo, Sr., JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes.Dismissal of action on ground of lack of interest or failure to prosecute has the
effect of judgment on the merits and constitutes res judicata. (Ilasco, Jr. vs. Court of
Appeals, 228 SCRA 413 [1993])
The remedy against a final order is an appeal, not a petition for certiorari. (Province of
Bulacan vs. Court of Appeals, 299 SCRA 442 [1998])
o0o
G.R. No. 141897. September 24, 2001.*
_______________
58
METRO CONSTRUCTION, INC., petitioner, vs. CHATHAM PROPERTIES, INC.,

respondent.
Arbitration; Construction Industry Arbitration Commission (CIAC); Executive Order (EO)
No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the
the abandonment or breach thereof.E.O. No. 1008 vests upon the CIAC original and
exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines, whether the dispute arises before or after
the completion of the contract, or after the abandonment or breach thereof. By express
provision of Section 19 thereof, the arbitral award of the CIAC is final and
_______________
*
FIRST DIVISION.
698
698
Metro Construction, Inc. vs. Chatham Properties, Inc.

unappealable, except on questions of law, which are appealable to the Supreme Court.
Same; Same; Appeals; Administrative Law; Words and Phrases; Circular No. 1-91 covers
the CIAC; A quasi-judicial agency or body has been defined as an organ of government
other than a court and other than a legislature, which affects the rights of private parties
through either adjudication or rule-making.It is clear that Circular No. 1-91 covers the
CIAC. In the first place, it is a quasi-judicial agency. A quasi-judicial agency or body has
been defined as an organ of government other than a court and other than a legislature, which
affects the rights of private parties through either adjudication or rule-making. The very
definition of an administrative agency includes its being vested with quasi-judicial powers.
The ever increasing variety of powers and functions given to administrative agencies
recognizes the need for the active intervention of administrative agencies in matters calling
for technical knowledge and speed in countless controversies which cannot possibly be
handled by regular courts. The CIACs primary function is that of a quasi-judicial agency,
which is to adjudicate claims and/or determine rights in accordance with procedures set forth
in E.O. No. 1008.
Same; Same; Same; Same; The language of Section 1 of Circular No. 1-91 emphasizes the
obvious inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial
agencies.In the second place, the language of Section 1 of Circular No. 1-91 emphasizes
the obvious inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial
agencies. The introductory words [a]mong these agencies are preceding the enumeration of
specific quasi-judicial agencies only highlight the fact that the list is not exclusive or
conclusive. Further, the overture stresses and acknowledges the existence of other quasijudicial agencies not included in the enumeration but should be deemed included. In addition,
the CIAC is obviously excluded in the catalogue of cases not covered by the Circular and
mentioned in Section 2 thereof for the reason that at the time the Circular took effect, E.O.
No. 1008 allows appeals to the Supreme Court on questions of law.
Same; Same; Same; Same; Under Circular No. 1-91, appeals from the arbitral awards of the
CIAC may be brought to the Court of Appeals, and not to the Supreme Court alone, and the
grounds for appeal are likewise broadened to include appeals on questions of facts and
appeals involving mixed questions of fact and law.In sum, under Circular No. 1-91, appeals
from the arbitral awards of the CIAC may be brought to the Court of Appeals, and not to the
Supreme Court alone. The grounds for the appeal
699
VOL. 365, SEPTEMBER 24, 2001
699
59
are likewise broadened to include appeals on questions of facts and appeals involving mixed
questions of fact and law.
700
Same; Same; Same; Same; Any remaining doubt on the procedural mutation of the
provisions on appeal in E.O. No. 1008, vis--vis Circular No. 1-91 and R.A. No. 7902, was
completely removed with the issuance by the Supreme Court of Revised Administrative
Circular No. 1-95 and the 1997 Rules of Civil Procedureboth categorically include the
CIAC in the enumeration of quasi-judicial agencies comprehended therein.Any remaining
doubt on the procedural mutation of the provisions on appeal in E.O. No. 1008, vis--vis
Circular No. 1-91 and R.A. No. 7902, was completely removed with the issuance by the
Supreme Court of Revised Administrative Circular No. 1-95 and the 1997 Rules of Civil
Procedure. Both categorically include the CIAC in the enumeration of quasi-judicial agencies
comprehended therein. Section 3 of the former and Section 3, Rule 43 of the latter, explicitly
expand the issues that may be raised in an appeal from quasi-judicial agencies or
instrumentalities to the Court of Appeals within the period and in the manner therein
provided. Indisputably, the review of the CIAC award may involve either questions of fact,
of law, or of fact and law.
700
Same; Same; Same; While the right to appeal is statutory, the mode or manner by which this
right may be exercised is a question of procedure which may be altered and modified
provided that vested rights are not impaired.There is no controversy on the principle that
the right to appeal is statutory. However, the mode or manner by which this right may be
exercised is a question of procedure which may be altered and modified provided that vested
rights are not impaired. The Supreme Court is bestowed by the Constitution with the power
and prerogative, inter alia, to promulgate rules concerning pleadings, practice and procedure
in all courts, as well as to review rules of procedure of special courts and quasi-judicial
bodies, which, however, shall remain in force until disapproved by the Supreme Court. This
power is constitutionally enshrined to enhance the independence of the Supreme Court.
Same; Same; Same; No litigant has a vested right in a particular remedy, which may be
changed by substitution without impairing vested rightshe can have none in rules of
procedure which relate to remedy.The right to appeal from judgments, awards, or final
orders of the CIAC is granted in E.O. No. 1008. The procedure for the exercise or application
of this right was initially outlined in E.O. No. 1008. While RA. No. 7902 circulars
subsequently issued by the Supreme Court and its ammendments to the 1997 Rules on
Procedure effectively modified the manner by which

the right to appeal ought to be exercised, nothing in these changes impaired vested rights.
The new rules do not take away the right to appeal allowed in E.O. No. 1008. They only
prescribe a new procedure to enforce the right. No litigant has a vested right in a particular
remedy, which may be changed by substitution without impairing vested rights; hence, he
can have none in rules of procedure which relate to remedy.
Same; Same; Same; The Terms of Reference (TOR), any contract or agreement of the parties
cannot amend, modify, limit, restrict or circumscribe legal remedies or the jurisdiction of
courts, rules of procedure are matters of public order and interest and unless the rules
themselves so allow, they cannot be altered, changed or regulated by agreements between or
stipulations of the parties for their singular convenience.The foregoing discussion renders
academic MCIs assertion on the binding effect of its stipulation with CHATHAM in the
TOR that the decision of the CIAC shall be final and non-appealable except on questions of
law. The agreement merely adopted Section 19 of E.O. No. 1008, which, as shown above,
had been modified. The TOR, any contract or agreement of the parties cannot amend, modify,
limit, restrict or circumscribe legal remedies or the jurisdiction of courts. Rules of procedure
are matters of public order and interest and unless the rules themselves so allow, they cannot
be altered, changed or regulated by agreements between or stipulations of the parties for their
singular convenience.
Same; Same; Same; Settled is the general rule that the findings of facts of the Court of
Appeals are binding on the Supreme Court.Settled is the general rule that the findings of
facts of the Court of Appeals are binding on us. There are recognized exceptions to the rule,
such as when the findings are contrary to those of the trial court, as in this case. Hence, we
have to take a closer reexamination of this case.
60
work of the Chatham House; Engr. Alex Bautista, Area Manager of RKDCCI; Mr. Avelino
M. Mercado, CHATHAMS Project Manager; and Engr. Jose T. Infante.
Abello, Concepcion, Regala & Cruz for petitioner.

In the meantime, the TOR was amended and finalized on 19 August 1998.2
Picazo, Buyco, Tan, Fider & Santos for private respondent.
The facts, as admitted by the parties before the CIAC and incorporated in the original TOR,
are as follows:
701
_______________
701
Rollo, 101-107; Annex C.
Id., 108-110; Annex C-1. All references to the owner and claimant or contractor were
charged to CHATMAM and MCI, respectively.
DAVIDE, JR., C.J.:
702
The core issue in this case is whether under existing law and rules the Court of Appeals can
also review findings of facts of the Construction Industry Arbitration Commission (CIAC).
702
Respondent Chatham Properties, Inc. (CHATHAM) and petitioner Metro Construction, Inc.
(MCI) entered into a contract for the construction of a multi-storey building known as the
Chatham House located at the corner of Herrera and Valero Streets, Salcedo Village, Makati
City, Metro Manila. In. April 1998, MCI sought to collect from CHATHAM a sum of money
for unpaid progress billings and other charges and instituted a request for adjudication of its
claims with the CIAC. The case was docketed as CIAC Case No. 10-98. The arbitral tribunal
was composed of Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C. Aquino
as members.
The preliminary conference before the CIAC started in June 1998 and was concluded a
month after with the signing of the Terms of Reference (TOR) of the Case.1 The hearings
immediately started with the presentation of MCIs witnesses, namely: Ms. Ma. Suzette S.
Nucum, Chief Accountant; Ms. Isabela Redito, Office Engineer; Mr. John Romulo, Field
Manager; and Dr. John Y. Lai, President. CHATHAMS witnesses were: Engr. Ruperto
Kapunan III, Managing Director of RK Development and Construction Co., Inc. (RKDCCI),
which was the Construction Manager firm hired by CHATHAM to oversee the construction

1. 1. On 21 April 1994, the parties formally entered into a x x x contract for the
construction of the Chatham House x x x for the contract price of P50,000,000.00
inclusive of value-added tax, subject to adjustments in accordance with Article 9 of
the contract. Construction of the project, however, commenced on 15 April 1994 upon
the release by CHATHAM of the downpayment.
2. 2. On 12 July 1994, a Supplemental Contract was executed by and between the
parties whereby CHATHAM authorized MCI to procure in behalf of the former
materials, equipment, tools, fixtures, refurbishing, furniture, and accessories
necessary for the completion of the project. 3. Under Section 1.04 of the
Supplemental Contract, the total amount of procurement and transportation cost[s]
61
and expenses which may be reimbursed by MCI from CHATHAM shall not exceed
the amount of P75,000,000.00.
3. 4. In the course of the construction, Change Orders No. 1, 4, 8A, 11, 12 and 13 were
implemented, payment of which were recommended by x x x RKDCCI and approved
by one of CHATHAMS Project Managers, Romulo F. Sugay.

1. 5. Is MCI entitled to an additional reimbursement of P40,000.00 for bonuses granted
to workers as an incentive for the early completion of each floor?
4. 5. On 15 September 1995, CHATHAM through its Project Manager, Romulo F.

Sugay, agreed to give P20,000 per floor for five (5) floors, or a total of P100,000.00
as bonus/incentive pay to MCIs construction workers for the completion of each
floor on schedule. CHATHAM reimbursed MCI the amount of 560,000.00
corresponding to bonuses advanced to its workers by the latter for the 14th, 16th, and
17th floors.
2. 6. Were the deductions in the amount of P1,393,458.84 made by CHATHAM in

MCIs progress billing reasonable?
5. 6. CHATHAMS payments to MCI totaled P104,875,792.37, representing payments

for portions of MCIs progress billings and x x x additional charges.
5. 9. Did MCI fail to complete and/or deliver the project within the approved completion
period? If so, is MCI liable for liquidated damages and how much?
The parties then stipulated on the following issues, again, as set forth in the TOR:
3. 7. Is MCIs claim of P1,646,502.00 for labor escalation valid?

4. 8. Is MCI entitled to payment of attendance fee? To what extent and how much?
6. 10. Whether or not CHATHAM is entitled to x x x additional counterclaims as

follows:
1. 1. Is MCI entitled to its claims for unpaid progress billings amounting to

P21,062,339.76?
7. 11. Whether or not CHATHAM is entitled to x x x additional countterclaims as

follows:
2. 2. Were the approved Change Orders 1, 4, 8a, 11, 12 and 13 fully paid by
CHATHAM? If not, is MCI entitled to its claim for the unpaid balance?
1. 11.1. Core testing expenses and penalty for concrete strength failure P3,630,587.38
3. 3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15, 16, 17, 19 and 20?
2. 11.2. Expenses to rectify structural steel works for the foundation P1,331,139.74.
4. 4. Were the CHB works from the 8th to the 31st floors part of the original contract or
in the nature of extra/additional works? Is CHATHAM liable for the same? If so, how
much?
3. 11.3. Cost of additional materials (concrete & rebars) supplied by CPI P5,761,457.91.
703
703
1. 12. Are the parties entitled to their respective claims for attorneys fees and cost of
litigation? If so, how much?3
In the resolution of these issues, the CIAC discovered significant data, which were not
evident or explicit in the documents and records but otherwise revealed or elicited during the
hearings, which the CIAC deemed material and relevant to the complete adjudication of the
62
case. In its decision of 19 October 1998,4 the CIAC made the following findings and
conclusions:
progress billings and payments under both contracts were made on the basis of percentage of
project completion.
It was established during the hearing that the contract was awarded to MCI through
negotiation as no bidding was conducted, x x x It was also revealed that two agreements were
entered into, one is labeled Construction Contract for the total fixed amount of
P50,000,000.00 and the other a Supplemental Contract for an amount not to exceed
575,000,000.00. The
Both documentary and testimonial evidence prove that, effectively, the construction contract
and supplemental contract is but one agreement for a lump sum contract amount of
P125,000,000.00.
_______________
There was also the admitted fact that the contract was negotiated and awarded in the absence
of a complete construction plan. In any case, in support of the total contract amount of P125
MILLION, is a Cost Breakdown (Exh. 17-L), where the estimated quantities of owner
furnished materials (OFM) are indicated. It is however, understood that these quantities are
estimates, based on (an) incomplete set of construction plans. It is likewise understood that
except for the OFM, all the other costs in the Cost Breakdown form the basis for the lumpsum agreement under the contract, subject to adjustment only if there are any significant
changes in the contract plans.
Rollo, 103-107.
Decision of the CIAC, Rollo, 276-325; Annex E.
704
704

latter is supposed to cover the procurement of materials for the project. The Construction
Contract provides for monthly progress billings and payments based on actual
accomplishments of the various phases of work. The Supplemental Contract provides for
reimbursement of [the] total amount of procurement and transportation costs and expenses,
upon MCIs presentation of suppliers invoices/receipts.
However, from testimonies of witnesses from both parties, it was revealed that the two
distinct manner(s) of payment to MCI was set aside. The earlier attempt by CHATHAM to
prove that MCI was remiss in submitting suppliers invoices and/or receipts in support of its
billings against the Supplemental Contract was in fact later on abandoned when
CHATHAMS witness Mercado admitted that the matter of adherence to the payment
provision of the Supplemental Contract is a non-issue. This was borne out by the fact that
xxx
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4), informed MCI that it was
confirming the agreement allegedly accepted by Dr. Lai that the Building Committee will
take over the management of the construction operations (of the project) albeit under certain
conditions. Specifically, the take over was for an interim period and will extend only after
concreting of up to basement level 5 or up to 30 May 1995 Whichever is later. The letter also
stated that the Building Committee x x x Will be responsible for management and direction
including management of MCI engineers at the site, sequencing of work, additional labor,
additional equipment and management of the yard and staging area. The letter, however,
emphasized that the intent is not a take over of the contract or
705
705

63
take over of the entire work and in fact, it was mentioned that MCI will still be responsible
for earth anchoring and steel fabrication work.
706
CHATHAM claims that the interim take-over was necessitated by MCIs delay in the
progress of its work, due allegedly to MCIs lack of manpower and equipment. During the
hearings of this case, this claim of MCIs lack of manpower, necessary equipment, qualified
engineers and inefficient construction management was testified to by both Mr. Mercado [of
CHATHAM] and Engr. Kapunan of RKDCCI. CHATHAMS witnesses, however, testified
that in spite of these alleged deficiencies, MCI was nevertheless allowed to continue to take
full control of the operations. When asked why termination of the contract was not resorted
to if truly, MCI was not performing its contracted obligations, witnesses Mercado and
Kapunan cited special relations between the owner of MCI (Dr. John Lai) and the president
of CHATHAM (Mr. Lamberto Un Ocampo) as the reason.
706
On the other hand, Dr. Lai contends that, as explained in his letter to CHATHAM dated 17
February 1995, (Exh. 4-A) MCIs work was on schedule. During the hearings, Dr. Lai also
insisted that beginning 15 February 1995, MCI was relieved of full control of the
construction operations, that it was relegated to (be) a mere supplier of labor, materials and
equipment, and that the alleged interim takeover actually extended through the completion of
the project. Dr. Lai cited CHATHAMS purchases of materials, fielding labor force and subcontracting works allegedly for the project without his knowledge and consent as proof that
CHATHAM had taken full control of the project.
To the above allegation of MCI that CHATHAM went ahead and procured materials, hired
labor and entered into sub-contract agreements with the intention of eventually charging the
costs thereof to MCI, witness Mercado countered, that CHATHAM has the right to do this
under the provisions of Article 27 of the contract, dealing with Recision, Cancellation,
Termination of Contract.
By way of responding to the various counterclaims of CHATHAM, MCI referred to a letter
of [the former] addressed to MCI dated 18 January 1997 (Exhibit E-1) the first paragraph of
which reads as follows:
After evaluating all the documents issued and received from both Chatham Properties Inc.
and Metro Construction, Inc., the Building Committee of Chatham Properties, Inc. evaluated
them. The Building Committee finds the total receivable of Metro Construction is in the
amount of EIGHT MILLION PESOS (P8,000,000.00) only.

When queried by the Tribunal if the said amount already took into account the costs and
expenses (Chatham) claims to have incurred for the account of MCI, Mr. Mercado answered
in the affirmative. When queried further how the amount was arrived at, Mr. Mercado replied
that it was the sum the Building Committee figured it was willing to pay MCI simply to close
the issue.
Mr. Mercado even added that while MCI is not actually entitled to this amount, it was out of
friendship that CHATHAM offered this sum to MCI as final settlement under the contract.
It is with the above attendant circumstances that this Tribunal will be guided in the resolution
of issues brought before it for adjudication. From what this Tribunal finds as peculiar
circumstances surrounding the contracting and implementation of the CHATHAM House
Project, it arrived at the following fundamental conclusions:
1. 1. That indeed special friendly relations were present between the parties in this
case, although decisions by either party on any particular issue were made not purely
on the basis of such special relations. For example, this Tribunal believes that,
contrary to the allegation of (CHATHAMS) witnesses, the decision not to terminate
the contract was not due to the admitted special relations only, but also due to the
greater problems the project would be faced with by terminating the MCI contract
and mobilizing another contractor.
2. 2. That while there was no official termination of the contract, the manner by which
CHATHAM had taken upon themselves the procurement of materials, the fielding of
labor, the control over MCFs engineers, and the subcontracting of various phases of
work on its own, is considered by this Tribunal as implied termination of the contract.
The idea of allowing MCI to remain on the project in spite of what CHATHAM
64
claims (to be) MCIs shortcomings, and MCIs agreement to stay on the project under
conditions set by CHATHAM, is believed a matter of mutual benefit to both parties.
3. 3. That CHATHAMS invoking its rights under the provisions of Article 27 of the
construction contract is believed out of place, as it failed to observe the required
antecedent acts before it can exercise its prerogative under the said contract provision.
4. 4. That there is no reason to believe, either party was in any way guilty of bad faith in
acting as it did on certain relevant matters. However, this Tribunal is of the belief that
due perhaps to the eagerness on the part particularly of CHATHAMS representatives
to take such steps it considered necessary to insure completion of the project within
the period desired by CHATHAM, it deviated from
707
707

some generally accepted procedures in the construction industry in dealing with MCI. One
example was not giving MCI the opportunity to rectify some of what CHATHAM considered
as construction deficiencies and instead engaging the services of other parties to undertake
the corrective works and later on charging the costs thereof to MCI.
In addition to the above conclusions resulting from what this Tribunal considered peculiar of
circumstances surrounding the implementation of the project that were revealed during the
proceedings of this case, this Tribunal finds the necessity of establishing a cut-off date with
regard to the fiscal liability of one party towards the other. Mr. Avelino Mercado of
CHATHAM presented a list of what he claims as its Payments to MCI (Exhibit 7)
summarized as follows:
a. Down payment (Paid in two equal trances)
P20,000,000.00
b. Cash Advance for Mobilization
800,000.00
c. Payments of Progress Billings up to Billing No. 19
71,081,183.44
d. Other Payments (Mar 1994 to Apr 1996)
5,474,419.67
e. Advances on MCI Payrolls (April 1996 to March 1997)
8,196,755.51
Total
P104,752,358.42
The records of this case show that the last progress payment to MCI was in January 1996
representing payment of Progress Billing No. 19 for the period ending 31 December 1995.
The percentage of completion claimed then by MCI was 80.02%, the amount evaluated and
eventually paid to MCI was the equivalent of 77.15% work accomplishment. No further
progress payments were made thereafter, other than for advances to cover MCI payrolls from
April 1996 to March 1997 in the amount of P8,196,755.51 and for various advances and
payments of approved change orders in the amount of P5,474,419.67.
In the meantime, up to Billing No. 23 for the period ending 30 April 1996, MCI billed
CHATHAM a total accomplishment of 95.29%. This billing was however, evaluated by
CHATHAM, and in its letter to MCI dated 27 May 1996 (Exhibit E) it confirmed that MCIs
remaining balance of work stands at P7,374,201.15 as of 23 May 1996. This amount,
percentage-wise, equals roughly 5.88% of the contract amount as testified to by Engr. Jose
Infante. (Exhibit 22-B). Therefore, what was computed as MCIs work accomplishment as of
23 May 1996 was 94.12% and it is this evaluation which this Tribunal believes MCI is
entitled to as of said date.
65
Applying this percentage of completion of 94.12% to the P125,000,000.00 contract amount

gives a total accomplishment equivalent to P117,650,000.00 as of 23 May 1996. Add to this
amount the sum of P5,353,091.08 representing the total of approved Change Orders as of 31
708
708

December 1995 gives a total MCI accomplishment of P123,003,091.08, as CHATHAM saw
it. Of this amount, CHATHAM admitted having paid MCI the total sum of P104,752,358.42
only (Exhibit 7) up to March 15, 1997, leaving a balance of P18,250,732.66. It should be
noted that of the total payment of P104,752,358.42, the sum of P5,750,000.00 was paid after
May 1996 so that as of 23 May 1996, CHATHAMS total payment to MCI was
P99,002,358.42.
Effectively, therefore, the amount due MCI as of 23 May 1996 amounted to P24,005,732.66
computed as follows:
Total accomplishment as of 23 May 1996 at 94.12%
P117,655,000.00
Balance due MCI as of 23 May 1996
P24,005,732.66
Of the above balance of P24,005,732.66 as of 23 May 1996, the only payments made by
CHATHAM to MCI is the sum of P5,750,000.00 from June 1996 onwards, allegedly to cover
MCI payrolls. It is of course noted that CHATHAMS suspension of further payments to
MCI was because it had been undertaking on its own, the further procurement of materials
and sub-contracting of various phases of works on the project.
In consideration of the above facts, this Tribunals conclusion that there was in fact an
implied take over of the project is further confirmed. Furthermore, this Tribunal additionally
concludes that the cut-off date for purposes of delineating the financial obligations of the
parties between them should be 23 May 1996, the date when CHATHAM evaluated MCIs
accomplishment at 94.10% but nevertheless suspended all further progress payments to MCI.
MCI presented further documentary evidence (Exhibit E-6) the subject of which is
PUNCHLISTING-CIVIL STRUCTURAL. In this particular document which bears the
signatures of representatives of both MCI and RKDCCI, MCI tried to prove that as of 30
August 1996 it had actually attained 99.16% work accomplishment. While it may be true that
as of that date the project had reached 99.16% completion, there is no incontrovertible
evidence showing that MCI was responsible for such accomplishment. This was in fact
actually testified to by Engr. Alex Bautista of RKDCCI, when he said that it was an
evaluation of the projects completion stage, not necessarily MCIs work accomplishment.
This Tri709
Add approved change orders
5,353,091.08
Total
709
P123,008,091.08
Less payments up to 23 May 1996
99,002,358.42
66
bunal therefore stands firm on its conclusion that MCIs accomplishment is only up to the
extent of 94.10%5
Rollo, Decision of CIAC, 304-305.
710
With those findings, the CIAC disposed of the specific money claims by either granting or
reducing them. On Issue No. 9, i.e., whether CHATHAM failed to complete and/or deliver
the project within the approved completion period and, if so, whether CHATHAM is liable
for liquidated damages and how much, the CIAC ruled in this wise:
This Tribunal holds that the provision of the contract insofar as the Overall Schedule is
concerned cannot justifiably be applied in the instant case in view of the implied take-over of
the Chatham House project by CHATHAM. Accordingly, this Tribunal finds no necessity to
resolve whether or not MCI complete[d] and/or delivere[d] the project within the approved
completion period. In fact, Mr. Mercado testified that it was CHATHAM who ultimately
completed the project, with assistance of the construction managers.
In any case, this Tribunal finds merit in RKDCCIs claim that MCI was in delay in the
concreting milestone and that [it] is liable for liquidated damages therefor. This,
notwithstanding MCIs invoking that Chatham is estopped from claiming liquidated damages
after it failed to deduct the alleged liquidated damages from MCIs progress billings. This
Tribunal holds that such failure to deduct, which CHATHAM claims it did in order not to
hamper progress of work in the project, is an option which [it] may or may not exercise.
However, this Tribunal finds that CHATHAMS Exh. 11-A where the liquidated damages on
delays in concreting milestone was applied is not consistent with [its] own Exhibit 3-1. This
Tribunal notes that in Exh. 11-A, CHATHAM included a projected delay of 85 days for the
Helipad Concreting works, while no such projected delay was included in Exh. 3-1 as it
should be.
This Tribunal holds that Exh. 3-1 showing a delay of 294 days in concreting milestones
should rightfully be used in computing liquidated damages. Accordingly, this Tribunal holds
that MCI is liable for liquidated damages in the amount of P3,062,498.78 as follows:
1/4 x 1/3 [(1/10 x P125,000,000.00) 1%] 1 x 294 = P3,062,498.78.6
710

The CIAC then decreed:
Accordingly, as presented below, all the amounts due MCI are firstlisted and added up and
the total payment is deducted therefrom. Theadmitted total payment figure as reflected in the
Terms of Reference is theamount applied instead of the total reflected in CHATHAMs
Summary ofPayments which incidentally reflected a lesser amount. From the BalanceDue
MCP the Amounts CPI is Held Entitled To is deducted and the NetAmount Due MCI is
arrived at.
A.
AMOUNTS HELD MCI IS ENTITLED TO:
A.1.
From the original contract:
94.12% of P125,000,000.00
P117,650,000.00
A.2
Approved Change Orders
5,353,091.08
A.3
Pending Change Orders
1,648,560.46
A.4
CHB Works
1,248,654.71
_______________
5
Rollo, 280-285.
67
A.5
Workers Bonus
-0-
B.4.
Cash Payments in Behalf of MCI
2,214,715.68
A.6
Disputed Deductions
909,484.70
Total Amount Due CPI
P7,391,494.40
A.7
Labor Escalation
1,076,256.00
C.
NET AMOUNT DUE MCI (A minus B)
P16,126,922.91
A.8
Attendance Fee
508,162.73
Total
P128,394,209.68
WHEREFORE, judgment is hereby rendered in favor of the Claim-ant [MCI] directing

Respondent [CHATHAM] to pay Claimant [MCI] the net sum of SIXTEEN MILLION ONE
HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY TWO & 91/100
(16,126,922.91) PE-SOS.
SO ORDERED.7
Less:Total payments-Item II-6 of TOR
104,875,792.37
Balance Due MCI
P23,518,417.31
Impugning the decision of the CIAC, CHATHAM instituted a petition for review with the
Court of Appeals, which was docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM
alleged that:
_______________
B.
AMOUNTS HELD CPI IS ENTITLED TO:
B.1.
Liquidated Damages
P3,062,498.78
B.2.
Actual Damages
335,994.50
B.3.
Penalties
1,778,285.44
Id. 324-325.
711
711

68
The Arbitral Tribunal grossly erred in failing to indicate specific reference to the evidence
presented or to the transcript of stenographic notes in arriving at its questioned Decision, in
violation of the cardinal rule under Section 1, Rule 36 of the Revised Rules of Civil
Procedure that a judgment must state clearly and definitely the facts and the law on which it
is based.
MCIs Petition for Review with the Court of Appeals, 8-9; OR, 15-16.
Per Rivera, J., with Abad Santos, Jr. and Salas, B., JJ., concurring.
712
The Tribunals conclusions are grounded entirely on speculations, surmises and conjectures.
The Arbitral Tribunal grossly erred in failing to consider the evidence presented by
CHATHAM and the testimony of its witnesses.
The Arbitral Tribunal gravely abused its discretion in considering arbitrarily that there was an
implied takeover contrary to the facts and evidence submitted.
The Arbitral Tribunal committed grave error and gross misapprehension of facts in holding
that CHATHAM is not entitled to liquidated damages despite failure of MCI to meet the
over-all schedule of completion.
The Arbitral Tribunal manifestly erred in holding that MCI is entitled to its claim for unpaid
progress billings.
The Arbitral Tribunal committed gross and reversible error in equating the percentage of
MCIs work accomplishment with the entire work in place, despite evidence to the contrary.
The Arbitral Tribunal gravely erred in making 23 May 1996 as the cut-off date for purposes
of delineating the financial obligations of the parties.
The Arbitral Tribunal erred in denying CHATHAM its claim for actual damages pursuant to
Article 27.8 of the Construction Contract. The facts set forth in CHATHAMS Answer with
Compulsory Counterclaim as well as its documentary and testamentary evidence were not
overturned or controverted by any contrary evidence.8
In its decision of 30 September 1999,9 the Court of Appeals simplified the assigned errors
into one core issue, namely, the propriety of the CIACs factual findings and conclusions.
In upholding
712

the decision of the CIAC, the Court of Appeals confirmed the jurisprudential principle that
absent any showing of arbitrariness, the CIACs findings as an administrative agency and
quasi-judicial body should not only be accorded great respect but also given the stamp of
finality. However, the Court of Appeals found exception in the CIACs disquisition of Issue
No. 9 on the matter of liquidated damages.
The Court of Appeals disagreed with the CIACs finding that there was an implied takeover
by CHATHAM of the project and that it was unnecessary for the CLAC to rule on whether
MCI completed and/or delivered the project within the approved completion schedule of the
project since CHATHAM failed to observe the antecedent acts required for the termination of
the contract, as set forth in the Construction Agreement.
The Court of Appeals ascertained that the evidence overwhelmingly proved that there was no
takeover by CHATHAM and that MCI exercised complete control, authority and
responsibility over the construction. In support of this conclusion, the appellate court pointed
to the following evidentiary bases:10
1. 1. Testimony of CHATHAMS Engr. Kapunan that the interim takeover for the works
on the basement was triggered by lack of manpower and delays as early as February
1995, as evidenced by their assessment11 and that the interim takeover was only with
respect to the direction or management of the field operations and was limited only to
works on the basement and intended to assist MCI to catch up with the schedule of
_______________
69
completion, since at that time the project was very much delayed; thereafter, the MCI
was back in full control of the project.12
i.e. while the takeover is effective immediately it will extend only after concreting Level B-1
or approximately until 30 May 1995 which ever is later.
2. 2. Testimony of Engr. Bautista that the takeover was only partial and temporary and
limited to the management portion on the basement only and that MCI was always in
control of the project.13
Exhibit 4-A Letter dated 17 February 1995 written by Dr. Lai of MCI to Engr. Kapunan in
response to the latters 15 February 1995 letter stating that [A]lso we were assured that we
will not be responsible for any errors or accidents that may occur during this INTERIM
period, indicating that Dr. Lai was very much aware of the interim period.
_______________
10
See Decision of the Court of Appeals, Rollo, 88-90.
11
Exhibit 19-Q and 19-R; TSN 5 August 1998, 82-83.
12
TSN, 5 August 1998, 84-85.
13
TSN, 19 August 19, 1998, 173-182.
Exhibit 4-CLetter dated 15 February 1995 written by Engr. Ben C. Ruiz of RKDCCI to
Dr. Lai containing the reasons for the takeover.
Exhibit 8ALetter dated 5 September 1995 written by Dr. E.G. Tabujara to Dr. Lai/Romy
Laron (Project Manager of MCI) requesting for an engineer of MCI to accompany the
inspector of RKDCCI to witness batching procedures. By so doing, Dr. E.G. Tabujara
acknowledged that Dr. Lai was in control of the project.
Exhibit 8Letter dated 4 September 1995 by Engr. Romulo R. Sugay to Dr. Lai offering
an incentive to the workers of MCI to exert (their) best effort for topping off by the end of
December; another clear indication that Dr. Lai was in control of the project.
713
713

1. 3. Testimony of Engr. Infante that MCI personnel were constantly present in the
project and the intervention (not takeover) by CHATHAM was justified to ensure
completion of the project on time.14
2. 4. Documentary exhibits evincing the nature and extent of MCIs work during the
takeover period which belied its claims that it was not in control of the project
because of the takeover thus:
Exhibit 4Letter dated is February 1995 of Engr. Kapunan of RKDCCI to John Lai of
MCI stating that the takeover of directions or management of the field operations is interim,
Exhibit 4-DLetter dated 4 January 1996 indicating that Mr. H.T. Go offered Dr Lai an
incentive of P1,800,000 on the condition that MCI meets the new schedule/milestones.
MCIs acceptance of the incentive offer likewise shows that MCI was in control of the
Project.
Exhibits 3, 3-J, 3-M, 3-N, 3-W-1, 3-X, 3-Y, and 3-Zamong others
containing reminders to MCI of its duties and shortcomings, likewise attest to the fact that
MCI was in control (of) and responsible for the Project, although markedly deficient.
_______________
14
TSN, 7 September 1998, 62-63.
714
714

70
the delays in the overall schedule of completion pursuant to Art. 13.5 of the Construction
Agreement, to wit:

Exhibits 5, 5-A, 5-B, 5-C, 5-D, 5-E, 5-F, 5-O, C-7, and E-9
evidencing that MCI continued to manage other works on the project even during the time of
the interim takeover of the basement works, as seen in the series of communications between
CHATHAM or RKDCCI and MCI within the period beginning February 1995 to 30 May
1995.
1. 5. Respondents Request for Adjudication, Annex G, Records, Folder No. 6which
incorporated Change Order No. 12, among others, dated 28 August 1995,
recommended by the RKDCCI and accepted by Dr. Lai, and which request for an
extension of 25 days readily showed that even after 30 May 1995, after the close of
the supposed takeover period, MCI was still the contractor in complete control of the
project for it would not have otherwise accepted the said change order if it (were) no
longer the Contractor of the project due to the termination of the Construction
agreement as of said date on account of the alleged takeover.
2. 6. Exhibits 3-J, 3-M, 3-Q, 3-R, 3-V, 3-W-1, 3-W-2, 5-F, 5-1, 6,
12-II, 12-JJ, 12-MM, and 12-NNtending to prove that RKDCCI monitored
the work from start to finish and had zealously pointed out to MCI the defects or
improper execution of the construction works, and gave MCI all the opportunity to
rectify the construction deficiencies and complete the works of the project.
The Court of Appeals concluded that the interim takeover was necessitated by CHATHAMS
insistence to meet its own turnover dates with the buyers of the projects units. Thus,
CHATHAM was constrained to hire subcontractors with sufficient manpower and
supervision and incur various expenses to facilitate the completion of the project and/or assist
MCI in making up for its delay.
The Court of Appeals then considered it imperative to determine whether MCI failed to
complete the project on time for which it may be held liable for liquidated damages based on
13.5. Over-All ScheduleFor not meeting the final completion date of the PROJECT, the
OWNER will deduct from the Contract Sum or amounts due the CONTRACTOR, the
amount equivalent to 1/10 of 1% of the Contract Sum for every calendar day of delay,
provided, however, that the maximum penalty should not exceed 25% of the fee payable to
the CONTRACTOR as stipulated in the Bill of Quantities. Penalties from
715
715

concreting milestones shall be deducted from the penalty of Over-All Schedule.15
The Court of Appeals disposed of the controversy in this wise:
As is extant from the records, the completion date of the Project under the Construction
Contract or under the revised construction schedule was never met by reason of [MCIs] lack
of manpower, necessary equipment, qualified engineers and inefficient management of the
construction works on the Project. Thus, under the Contract (Exhibit I), [MCI] had 780
days, or until 22 January 1996, from starting date, or April 12, 1994, to finish the project. The
completion date, however, was not followed and was revised as early as December 17, 1994,
extending the milestone dates up to March 15, 1996 (Exhibits 3-G and 3-H). As of
December 25, 1995, the number of days delayed was already 294 days. Thus, on February
22, 1996, the contract milestones were again revised, inclusive of 53 days extension, to May
23, 1996 (Exhibits 3-1 and 3-0). The May 23, 1996 turnover milestone nor the July 22,
1996 turnover of the whole project were neither met (Exhibits 3-P, 3-R 3-S and 3-T but
[CHATHAM] was again constrained to allow [MCI] to continue working on the Project to
complete the balance of the works (Exhibit M). And all throughout the construction of the
71
Project, [CHATHAM] had to assist [MCI] along the way to expedite the execution and
completion of the Project (Exhibits 3-K and 3-V).
From the foregoing disquisitions, it is clear that [MCI] is liable for liquidated damages, as per
Article 13.5 of the Construction Contract, for its failure to complete the project within the
period stipulated in the Construction Contract and even despite an extension of 53 days from
the original schedule or of the overall schedule of completion. [MCI] should therefore pay
[CHATHAM] the amount of liquidated damages equivalent to P24,125,000.00 for 193 days
of delay in the overall schedule of completion counted from overall completion date on July
22, 1996 up to the date of completion on February 15, 1997, as stated in the Certificate of
Occupancy, computed as follows, to wit:
1998 is hereby AFFIRMED with the modification on [MCIs] liability for liquidated damages
in the amount of P24,125,000.00. Thus,
A.
AMOUNTS [MCI] IS ENTITLED TO:
A.1.
From the original contract:
94.12% of P125,000,000.00
P117,650,000.00
A.2
Approved Change Orders
5,353,091.08
A.3
Pending Change Orders
1,648,560.46
A.4
CHB Works
1,248,654.71
A.5
Workers Bonus
-0-
A.6
Disputed Deductions
909,484.70
A.7
Labor Escalation
1,076,256.00
A.8
Attendance Fee
508,162.73
Total
P128,394,209.68
_______________
15
OR, 487-488.
716
716

1/10[l%(P125,000,000.00)] per day x 193 days
= [1/10 (P1,250,000.00)] per day x 193 days
= P125,000.00 per day x 193 days
= P24,125,000.00
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered partially granting
[CHATHAMs] claim for liquidated damages. The Tribunals Decision dated 19 October
72
MCI promptly filed on 25 October 1999 a motion for reconsideration. In its Resolution of 4
February 2000, the Court of Appeals
_______________
B.
C.
Less: Total payments-Item 11-6 of TOR
104,875,792.37
Balance Due Respondent
P 23,518,417.31
Rollo, 91-92.
717
AMOUNTS [CHATHAM] IS ENTITLED TO:
B.1.
Liquidated Damages
P24,125,000.00
B.2.
Actual Damages
335,994.50
B.3.
Penalties
1,778,285.44
B.4.
Cash Payments in Behalf of MCI
2,214,715.68
Total Amount Due CPI
P28,453,995.62
NET AMOUNT DUE [CHATHAM] (B minus A)
16
4,935,578.31
Correspondingly, Respondent [MCI] is hereby directed to pay the Petitioner [CHATHAM]

the net sum of FOUR MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE
HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31) PESOS.16
717

denied MCFs motion for reconsideration for lack of merit, as well as CHATHAMS Motion
to Lift Garnishment and Levy Pending Appeal, filed on 13 October 1999, for being
premature.17
Thus, MCI filed the instant petition for review to challenge the decision of the Court of
Appeals. MCI alleges that the Court of Appeals erred in reviewing and reversing the CIACs
factual findings, that there was an implied takeover by CHATHAM of the project, and that
MCI was not in delay in the overall schedule. In so doing, the Court of Appeals contravened
Section 19 of Executive Order (E.O.) No. 1008,18 which limits the review of an Arbitral
Award to only questions of law, thus:
Section 19. Finality of AwardsThe arbitral award shall be binding upon the parties. It shall
be final and inappealable (sic) except on questions of law which shall be appealable to the
Supreme Court.
MCI then asserts that as signatories to the contract, it and CHATHAM complied with this
legal provision when they included as part of their TOR the stipulation that [t]he decision of
the Arbitral Tribunal shall be final and non-appealable except on questions of law.
Accordingly, the binding character of this provision upon the parties is conclusive and final.
73
MCI also contends that while it may be argued that recent (1) issuances by the Supreme
Court, specifically, Circular No. 1-91, which eventually became Revised Administrative
Circular No. 1-95; (2) legislation, in particular, Republic Act No. 7902, which amended
Batas Pambansa Blg. 129; and (3) amendments to the Rules on Civil Procedure, modifying
E.O. No. 1008 in the sense that questions of facts, of law, or mixed questions of facts and
law may be the subject of an appeal of the CIACs decision to the Court of Appeals, it is still
E.O. No. 1008 which remains to be the fundamental and substantive law that endows parties
to an arbitral controversy the right to appeal. Hence, the provisions on appeal of E.O. No.
1008 should be controlling, i.e., only questions of law
_______________
17
For its part, CHATHAM avers that the evolution on the rules governing appeals from
judgments, decisions, resolutions, orders or awards of the CIAC convincingly disclose that
E.O. No. 1008 has already been superseded. With the power of the Supreme Court to
promulgate rules concerning the protection and enforcement of constitutional rights,
pleadings, practice, and procedure in all courts, its issuances and amendments to the Rules on
Civil Procedure, not to mention R.A. No. 7902, as enacted by Congress, effectively modified
E.O. No. 1008. Accordingly, the judgments, awards, decisions, resolutions, orders or awards
of the CIAC are now appealable to the Court of Appeals on questions of facts, mixed
questions of facts and law, and questions of law, and no longer with the Supreme Court on
exclusively questions of law. Further, the TOR cannot limit the expanded jurisdiction of the
Court of Appeals based on the latest rules. Thus, the Court of Appeals did not err in
reviewing the factual findings of the CIAC.
Id., 94-99.
18
Entitled Creating an Arbitration Machinery for the Philippine Construction Industry,

which took effect on 4 February 1985.
Finally, CHATHAM asseverates that the Court of Appeals did not commit grave abuse of
discretion in reversing the CIACs ascertainment on the implied take-over and liquidated
damages.
718
718
CHATHAM also contends that, even if the Court of Appeals can only review questions of
law, said court did not err in rendering the questioned decision as the conclusions therein,
drawn as they were from factual determinations, can be considered questions of law.

should be entertained. Therefore, the only effect of these rules on E.O. No. 1008 is the
transfer of the appeal forum from the Supreme Court to the Court of Appeals.
MCI further asserts that, even assuming that the CIACs findings of facts are reviewable on
appeal, the Court of Appeals gravely abused its discretion when it accepted hook, line and
sinker CHATHAMS contention that MCI was in delay, and ignored competent, clear and
substantial evidence that prove the contrary, and that CHATHAM is not entitled to liquidated
damages.
This Court shall now resolve the primary issue raised in this case.
E.O. No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising
Philippines,
719
719
74
whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof.19 By express provision of Section 19 thereof, the arbitral
award of the CIAC is final and unappealable, except on questions of law, which are
appealable to the Supreme Court.
19
The parties, however, disagree on whether the subsequent Supreme Court issuances on
appellate procedure and R.A. No. 7902 removed from the Supreme Court its appellate
jurisdiction in Section 19 of E.O. No. 1008 and vested the same in the Court of Appeals, and
whether appeals from CIAC awards are no longer confined to questions of law.
720
On 27 February 1991, this Court issued Circular No. 1-91, which prescribes the Rules
Governing Appeals to the Court of Appeals from Final Orders or Decisions of the Court of
Tax Appeals and Quasi-Judicial Agencies. Pertinent portions thereof read as follows:
1. 1. ScopeThese rules shall apply to appeals from final orders or decisions of the
Court of Tax Appeals. They shall also apply to appeals from final orders or decisions
of any quasi-judicial agency from which an appeal is now allowed by statute to the
Court of Appeals or the Supreme Court. Among these agencies are the Securities and
Exchange Commission, 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, Secretary of Agrarian Reform and Special
Agrarian Courts under R.A. No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission and Philippine Atomic Energy Commission.
2. 2. Cases not CoveredThese rules shall not apply to decisions and interlocutory
orders of the National Labor Relations Commission or the Secretary of Labor and
Employment under the Labor Code of the Philippines, the Central Board of
Assessment Appeals, and other quasi-judicial agencies from which no appeal to the
courts is prescribed or allowed by statute.
3. 3. Who may appeal and where to appealThe appeal of a party affected by a final
order, decision, or judgment of the Court of Tax Appeals
_______________
See National Irrigation Administration v. Court of Appeals, 318 SCRA 255, 266 [1999].
720

1. or a quasi-judicial agency shall be taken to the Court of Appeals within the period and
in. the manner herein provided, whether the appeal involves questions of fact or of
law or mixed questions of fact and law. From final judgments or decisions of the
Court of Appeals, the aggrieved party may appeal by certiorari to the Supreme Court
as provided in Rule 45 of the Rules of Court.
Subsequently, on 23 February 1995, R.A. No. 7902 was enacted. It expanded the jurisdiction
of the Court of Appeals and amended for that purpose Section 9 of B.P. Blg. 129, otherwise
known as the Judiciary Reorganization Act of 1980.20
Section 9(3) thereof reads:
Section 9. Jurisdiction.The Court of Appeals shall exercise:
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 Social Security
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.
75
The Court of Appeals shall have the power to try cases and conduct hearings, receive
evidence and perform any and all acts necessary to resolve factual issues raised in cases
falling within its original and appellate jurisdiction, including the power to grant and conduct
new trials or further proceedings, x x x
21
Then this Court issued Administrative Circular No. 1-95, which revised Circular No. 1-91.
Relevant portions of the former reads as follows:
1. Scope.These rules shall apply to appeals from judgments or final orders of the Court of
Tax Appeals and from awards, judgments, final orders or resolutions of any quasi-judicial
agency from which an appeal is
_______________
20
B.P. Blg. 129 was signed into law on 14 August 1981.
21
This took effect on 1 June 1995.
721
721

authorized to be taken to the Court of Appeals or the Supreme Court. Among these agencies
are the Securities and Exchange Commission, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology
Transfer, National Electrification Administration, Energy Regulatory Board, National
Telecommunication Commission, Department of Agrarian Reform under Republic Act No.
6657, Government Service Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, and Construction Industry Arbitration Commission.
Section 2. Cases Not Covered.These rules shall not apply to judgments or final orders
issued under the Labor Code of the Philippines, Central Board of Assessment Appeals, and
by other quasi-judicial agencies from which no appeal to the court is prescribed or allowed.
Section 3. Where to Appeal.An appeal under these rules may be taken to the Court of
Appeals within the period and in the manner herein provided, whether the appeal involves
questions of fact, of law, or mixed questions of fact and law.
Thereafter, this Court promulgated the 1997 Rules on Civil Procedure. Sections 1, 2 and 3 of
Rule 43 thereof provides:
Section 1. Scope.This Rule shall apply to appeals from judgments or final orders of the
Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among
these agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic
Energy Commission, Board of Investments, Construction Industry Arbitration Commission,
and voluntary arbitrators authorized by law.
Section 2. Cases Not CoveredThis Rule shall not apply to judgments or final orders issued
under the Labor Code of the Philippines.
Section 3. Where to Appeal.An appeal under this Rule may be taken to the Court of
Appeals within the period and in the manner herein
722
722
76
23

provided, whether the appeal involves question of fact, of law, or mixed questions of fact and
law.
Through Circular No. 1-91, the Supreme Court intended to establish a uniform procedure for
the review of the final orders or decisions of the Court of Tax Appeals and other quasijudicial agencies provided that an appeal therefrom is then allowed under existing statutes to
either the Court of Appeals or the Supreme Court. The Circular designated the Court of
Appeals as the reviewing body to resolve questions of fact or of law or mixed questions of
fact and law.
It is clear that Circular No. 1-91 covers the CIAC. In the first place, it is a quasi-judicial
agency. A quasi-judicial agency or body has been defined as an organ of government other
than a court and other than a legislature, which affects the rights of private parties through
either adjudication or rule-making.22 The very definition of an administrative agency includes
its being vested with quasi-judicial powers. The ever increasing variety of powers and
functions given to administrative agencies recognizes the need for the active intervention of
administrative agencies in matters calling for technical knowledge and speed in countless
controversies which cannot possibly be handled by regular courts.23 The CIACs primary
function is that of a quasi-judicial agency, which is to adjudicate claims and/or determine
rights in accordance with procedures set forth in E.O. No. 1008.
In the second place, the language of Section 1 of Circular No. 1-91 emphasizes the obvious
inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial agencies.
The introductory words [a]mong these agencies are preceding the enumeration of specific
quasi-judicial agencies only highlight the fact that the list is not exclusive or conclusive.
Further, the overture stresses and acknowledges the existence of other quasi-judicial
_______________
22
See The Presidential Anti-Dollar Salting Task Force v. Court of Appeals, 171 SCRA 348
[1989].
See Tropical Homes v. National Housing Authority, 152 SCRA 540 [1987]; See also
Antipolo Realty Corp. v. NHA, 153 SCRA 399 [1987]; Solid Homes, Inc. v. Payawal, 177
SCRA 572 [1989].
723
723

agencies not included in the enumeration but should be deemed included. In addition, the
CIAC is obviously excluded in the catalogue of cases not covered by the Circular and
mentioned in Section 2 thereof for the reason that at the time the Circular took effect, E.O.
No. 1008 allows appeals to the Supreme Court on questions of law.
In sum, under Circular No. 1-91, appeals from the arbitral awards of the CIAC may be
brought to the Court of Appeals, and not to the Supreme Court alone. The grounds for the
appeal are likewise broadened to include appeals on questions of facts and appeals involving
mixed questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final orders or decisions of the
CIAC is further fortified by the amendments to B.P. Blg. 129, as introduced by R.A. No.
7902. With the amendments, the Court of Appeals is vested with appellate jurisdiction over
all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and
quasi-judicial agencies, instrumentalities, boards or commissions, except those 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 sub-paragraph (1) of the third paragraph and subparagraph (4) of the fourth
paragraph of Section 17 of the Judiciary Act of 1948.
While, again, the CIAC was not specifically named in said provision, its inclusion therein is
irrefutable. The CIAC was not expressly covered in the exclusion. Further, it is a quasijudicial agency or instrumentality. The decision in Luzon Development Bank v. Luzon
77
Development Bank Employees24 sheds light on the matter, thus: Assuming arguendo that the
voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered as a
quasi-judicial agency, board or commission, still both he and the panel are comprehended
within the concept of a quasi-judicial instrumentality. It may even be stated that it was to
meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators
here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction
Industry Arbitration Commission, that the broader term instrumentali-
therein provided. Indisputably, the review of the CIAC award may involve either questions of
fact, of law, or of fact and law.
In view of all the foregoing, we reject MCIs submission that Circular No. 1-91, B.P. Blg.
129, as amended by R.A. 7902, Revised Administrative Circular 1-95, and Rule 43 of the
1997 Rules of Civil Procedure failed to efficaciously modify the provision on appeals in E.O.
No. 1008. We further discard MCIs claim that these amendments have the effect of merely
changing the forum for appeal from the Supreme Court to the Court of Appeals.
_______________
24
249 SCRA 162 [1995].
724
724
There is no controversy on the principle that the right to appeal is statutory. However, the
mode or manner by which this right may be exercised is a question of procedure which may
be altered and modified provided that vested rights are not impaired. The Supreme Court is
bestowed by the Constitution with the power and prerogative, inter alia, to promulgate rules
concerning pleadings, practice and procedure in all courts, as well as to review rules of
procedure of special courts and quasi-judicial bodies, which, however, shall remain in force
until disapproved by the Supreme
725

725
ties was purposely included in [Section 9 of B.P. Blg. 129 as amended by R.A. No. 7902].
An instrumentality is anything used as a means or agency. Thus, the terms governmental

agency or instrumentality are synonymous in the sense that either of them is a means by
which a government acts, or by which a certain government act or function is performed. The
word instrumentality, with respect to a state, contemplates an authority to which the state
delegates governmental power for the performance of a state function.
Court.25 This power is constitutionally enshrined to enhance the independence of the

Supreme Court.26
Any remaining doubt on the procedural mutation of the provisions on appeal in E.O. No.
1008, vis--vis Circular No. 1-91 and R.A. No. 7902, was completely removed with the
issuance by the Supreme Court of Revised Administrative Circular No. 1-95 and the 1997
Rules of Civil Procedure. Both categorically include the CIAC in the enumeration of quasijudicial agencies comprehended therein. Section 3 of the former and Section 3, Rule 43 of
the latter, explicitly expand the issues that may be raised in an appeal from quasi-judicial
agencies or instrumentalities to the Court of Appeals within the period and in the manner
The right to appeal from judgments, awards, or final orders of the CIAC is granted in E.O.
No. 1008. The procedure for the exercise or application of this right was initially outlined in
E.O. No. 1008. While R.A. No. 7902 and circulars subsequently issued by the Supreme
Court and its amendments to the 1997 Rules on Procedure effectively modified the manner
by which the right to appeal ought to be exercised, nothing in these changes impaired vested
rights. The new rules do not take away the right to appeal allowed in E.O. No. 1008. They
only prescribe a new procedure to enforce the right.27 No litigant has a vested right in a
78
particular remedy, which may be changed by substitution without impairing vested rights;
hence, he can have none in rules of procedure which relate to remedy.28
The foregoing discussion renders academic MCIs assertion on the binding effect of its
stipulation with CHATHAM in the TOR that the decision of the CIAC shall be final and nonappealable except on questions of law. The agreement merely adopted Section 19 of E.O. No.
1008, which, as shown above, had been modified.
The TOR, any contract or agreement of the parties cannot amend, modify, limit, restrict or
circumscribe legal remedies or the jurisdiction of courts. Rules of procedure are matters of
public order and interest and unless the rules themselves so allow, they cannot be altered,
changed or regulated by agreements between or stipulations of the parties for their singular
convenience.29
Having resolved the existence of the authority of the Court of Appeals to review the
decisions, awards, or final orders of the CIAC, the Court shall now determine whether the
Court of Ap_______________
25
Article VIII, Section 5 of the 1987 Constitution.
26
See Echegaray v. Secretary of Justice, 301 SCRA 96 [1999]; See also GSIS v. Court of
Appeals, 222 SCRA 685 [1993].
27
See Fabian v. Desierto, 295 SCRA 470 [1998].
28
Ibid.
29
See Republic of the Philippines v. Hernandez, 253 SCRA 509 [1996].
726

peals erred in rendering the questioned decision of 30 September 1999.
Settled is the general rule that the findings of facts of the Court of Appeals are binding on us.
There are recognized exceptions to the rule, such as when the findings are contrary to those
of the trial court,30 as in this case. Hence, we have to take a closer reexamination of this case.
The CIAC is certain that the evidence overwhelmingly tended to prove that the manner by
which CHATHAM took charge in the procurement of materials, fielding of labor, control of
MCI engineers and the subcontracting of various phases of the work, constituted an implied
takeover of the project. The CIAC then concludes that the cut-off date for delineating the
fiscal liabilities of the parties is 23 May 1996 when CHATHAM evaluated MCIs work
accomplishment at 94.12% and then suspended all further progress payments to MCI. For
these reasons, the CIAC found it trifling to determine whether MCI was in delay based on the
Overall Schedule. However, the CIAC discovered that MCI was in delay for 294 days in the
concreting milestone and held the latter liable for liquidated damages in the amount of
P3,062,498.78.
The Court of Appeals made a contrary conclusion and declared that MCI was in delay for
193 days based on the overall schedule of completion of the project and should incur
liquidated damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals found MCI liable for liquidated
damages but on different premises. Based on the CIACs assessment, MCIs responsibility
was anchored on its delay in the concreting milestone, while the Court of Appeals evaluation
concentrated on MCIs delay in completing the project based on the overall schedule of
work. The variance in the evaluation spells a staggering difference in the party who should
ultimately be held liable and the net amount involved.
A study of the final computation of the net amount due in both the final disquisitions of the
CIAC and the Court of Appeals shows
726

_______________
79
30
Litonjua v. Court of Appeals, 286 SCRA 136 [1998]; Rosario v. Court of Appeals, 310
SCRA 464 [1999]; Republic v. Court of Appeals, 314 SCRA 230 [1999].
relied upon by the Court of Appeals when considered by themselves and singly, seemingly
and initially evince MCIs control over the project. However, they eventually lose evidentiary
puissance to support the Court of Appeals conclusion when reckoned against the totality of
the evidence that
727
_______________
727
31
See Decision of the Court of Appeals, Rollo, 88-90.
32
Id.
728
that all the other figures therein are constant, save for the amount of liquidated damages for
which MCI should be accountable. If this Court concurs with the CIACs conclusions, MCIs
responsibility for liquidated damages is, as already stated, P3,062,498.78. Setting this off
against CHATHAMS overall fiscal accountability would bring the latters total liability to
MCI to P16,126,922.91. If the Court of Appeals is correct, MCI would be held liable for a
much higher P24,125,000 liquidated damages. Setting this off against CHATHAMS
monetary responsibilities, MCI would still have to pay CHATHAM P4,935,578.31.
728
After painstakingly combing through the voluminous records, we affirm the findings of the
CIAC. The evidence taken as a whole or in their totality reveals that there was an implied
takeover by CHATHAM on the completion of the project. The evidence that appears to
accentuate the Court of Appeals decision ironically bolstered the CIACs conclusion. The
testimonies of Engr. Kapunan, Engr. Bautista, Dr. Lai, and the letter of Engr. Ruiz,31
acknowledging the temporary takeover by CHATHAM of the project, underscore the
palpable fact that there was indeed a takeover. We confer particular credit to Dr. Lais
testimony that as of 15 February 1995, MCI was relieved of full control of the construction
operations, that it was relegated to a mere supplier of labor, materials and equipment, and
that the alleged interim takeover actually extended through the completion of the project.
Even CHATHAM admits the takeover but sugarcoated the same with words like interim
and charging the costs to MCI. With these glaring admissions, we can even consider that
the takeover was not implied but blatant.
CHATHAM took charge of the completion of the project, particularly, the fact that
CHATHAM suspended all progress billing payments to MCI. The continued presence and
participation of MCI in the project was, as found by the CIAC, a matter of mutual benefit to
and convenience of the parties.
Exhibits 4, 4-A, 4-C, 8A, 8, 4-D, 3, 3-1, 3-M, 3-N, 3-W-1, 3-X,
3-Y, 3-Z, 5, 5-A, 5-B, 5-C, 5-D, 5-E, 5-F, 5-O, C-7, E-9, etc.,32
No pronouncement as to costs.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30 September 1999

decision of the Court of Appeals in CA-G.R. SP No. 49429 is hereby PARTIALLY
MODIFIED by setting aside the order directing Metro Construction, Inc. to pay Chatham
Properties, Inc. the amount of P4,935,578.31. The arbitral award of the Construction Industry
Arbitration Commission in CIAC Case 10-98, promulgated on 19 October 1998, directing
Chatham Properties, Inc. to pay Metro Construction, Inc. the sum of SIXTEEN MILLION
ONE HUNDRED TWENTY-SIX THOUSAND NINE HUNDRED TWENTY-TWO &
91/100 (P16,126,922.91) PESOS, is accordingly REINSTATED.
80
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
Judgment partially modified, award of CIAC reinstated.
Notes.Executive Order No. 1008, otherwise known as the Construction Industry
Arbitration Law vests upon the Construction Industry Arbitration Commission (CIAC)
original and exclusive jurisdiction over disputes arising from, or connected with contracts
entered into by parties involved in construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the abandonment or breach thereof.
(National Irrigation Administration vs. Court of Appeals 318 SCRA 255 [1999])
Voluntary arbitrators, by the nature of their functions, act in quasi-judicial capacity, such that
their decisions are within the scope of judicial review. (Philrock, Inc. vs. Construction
Industry Arbitration Commission, 359 SCRA 632 [2001])
o0o
by parties that have agreed to submit their dispute to voluntary arbitration.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.
Same; Same; Same; Same; The Supreme Court will not countenance the effort of any party to
subvert or defeat the objective of voluntary arbitration for its own private motives.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.
Same; Same; Same; Words and Phrases; Cause of Action Defined.Cause of action is
defined as an act or omission by which a party violates the right of another. 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. The
G.R. Nos. 132848-49. June 26, 2001.*

PHILROCK, INC., petitioner, vs. CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION and Spouses VICENTE and NELIA CID, respondents.
Actions; Arbitration; Construction Industry Arbitration Commission (CIAC); Jurisdiction;
Section 4 of Executive Order (EO) 1008 expressly vests in the CIAC original and exclusive
jurisdiction over disputes arising from or connected with construction contracts entered into
_______________
*
THIRD DIVISION.
633
VOL. 359, JUNE 26, 2001
633
81
Philrock, Inc. vs. Construction Industry Arbitration Commission

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.
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. The Court also notes that
634
Same; Same; Same; Judicial Review; Voluntary arbitrators, by the nature of their functions,
act in quasi-judicial capacity, such that their decisions are within the scope of judicial
review.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. 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. 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.
Interests; 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.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 percent per annum, in the absence
of a stipulation of the rate.
Damages; Where a person and his family 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 brought about by the unreasonable delay in the
construction of their residence due to the delivery of substandard ready-mix concrete by the
supplier, they are entitled to an award of moral damages.Respondents were deprived of the
comfort and the safety of a house and were exposed to the agony of witnessing the wastage
634

during the pendency of the case, Respondent Vicente Cid died without seeing the completion
of their home. Under the circumstances, the award of moral damages is proper.
Same; Nominal damages are recoverable only if no actual or substantial damages resulted
from the breach, or no damage was or can be shown.Nominal damages are recoverable
only if no actual or substantial damages resulted from the breach, or no damage was or can
be shown. Since actual damages have been proven by private respondents for which they
were amply compensated, they are no longer entitled to nominal damages.
Attorneys Fees; Where the award is not only for attorneys fees but also for expenses of
litigation, it does not matter if the litigant represented himself in court, because it is obvious
that he incurred expenses in pursuing his action.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.
82
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
Ponce Enrile, Reyes & Manalastas for petitioner.
The undisputed facts of the consolidated cases are summarized by the CA as follows:
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 (CIAG) 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.
635
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.
_______________
VOL. 359, JUNE 26, 2001
635
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-G.R. 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
Penned by Justice Ramon A. Barcelona with the concurrence of Justices Jesus M. Elbinias,
Division chairman; and Maximiano C. Asuncion, member. By the time the assailed
Resolution was promulgated, Justice Asuncion had died and had thus been replaced by
Justice Jorge S. Imperial.
2
CA Decision, p. 10; rollo, p. 55.
Rollo, p. 44.
636
636

Thereafter, preliminary conferences were held among the parties and their appointed
arbitrators. At these conferences, disagreements arose as to whether moral and exemplary
83
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 [Petitioner
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 Philrocks 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
Philrocks request for the suspension of the proceedings. Philrocks counsel agreed to the
continuation of the proceedings but reserved the right to file a pleading elucidating the
position he [had] raised regarding the Courts Order dated June 13, 1995. The parties then
proceeded to finalize, approve and sign the Terms of Reference. Philrocks 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).
637
VOL. 359, JUNE 26, 2001
637

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, 1995 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. 1. P23,276.25 representing the excess cash payment for materials ordered
by the Claimants, (No. 7 of admitted facts) plus interests thereon at the
rate of 6% per annum from September 26, 1995 to the date payment is
made.
2. 2. P65,000.00 representing retrofitting costs.
3. 3. P13,404.54 representing refund of the value of delivered but
unworkable concrete mix that was laid to waste.
84
4. 4. P50,000.00 representing moral damages.

5. 5. P50,000.00 representing nominal damages.
6. 6. P50,000.00 representing attorneys fees and expenses of litigation.
7. 7. P144,756.80 representing arbitration fees, minus such amount that
may already have been paid to CIAC by respondent.
Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera, presiding
judge, Branch 82 of Regional Trial Court of Quezon City who referred this case to the
Construction Industry Arbitration Commission for arbitration and proper disposition.(pp. 4445, Rollo, CA-G,R.SPNo.42443)4
Before the CA, petitioner filed a Petition for Review, docketed as CA-G.R. SP No. 42443,
contesting the jurisdiction of the CIAC and
_______________
4
CA Decision, pp. 1-5; rollo, pp. 46-50.
638
638

assailing the propriety of the monetary awards in favor of respondent spouses. This Petition
was consolidated by the CA with CA-G.R. SP No. 39781, a Petition for Certiorari earlier
elevated by petitioner questioning the jurisdiction of the CIAC.

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.
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.
_______________
5
The Arbitral Tribunal was composed of Joven B. Joaquin, chairman; Atty. Alfredo F. Tadiar
and Engr. Loreto C. Aquino, members.
639
VOL. 359, JUNE 26, 2001
639

85
Whether or not the awarding o[f] moral and nominal damages and attorneys fees and
expenses of litigation in favor of respondents is proper.
Hence, this petition.
Issues
_______________
6
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.
This case was deemed submitted for decision upon this Courts receipt on October 21, 1999,
of the Memorandum filed and personally signed by Respondent Nelia Cid; Vicente, her
husband, had died in the meantime. The Memorandum for petitioner was signed by Atty.
Pericles C. Consunji of Ponce Enrile Reyes & Manalastas, while the Memorandum for Public
Respondent was signed by Assistant Solicitor Carlos N. Ortega and Solicitor Geraldine C.
Fiel-Macaraig.
B.
640
Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.
640
The petitioner, in its Memorandum, raises the following issues:

A.
C.

Whether or not the awarding of the amount of P23,276.75 for materials ordered by
Respondent Spouses Cid plus interest thereon at the rate of 6% from 26 September 1995 is
proper.
G.
D.
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.
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.
Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees.7
This Courts Ruling

The Petition has no merit.
F.
86
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
_______________
7
Rollo, pp. 155-156.
SECTION 4. Jurisdiction.The CIAC shall have original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the completion of
the contract, or after the abandonment or breach thereof. These disputes may involve
government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute
must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for
materials and workmanship; violation of the terms of agreement; interpretation and/or
application of contractual provi
Agreement were Attys. 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.
_______________
641
VOL. 359, JUNE 26, 2001
641

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
sions; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment; default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines. (EO
1008)
87
Annex C; CA rollo for G.R. SP No. 39781, p. 29.
10
Annex F; CA rollo for G.R. SP No. 39781, pp. 188-203.
_______________
11
See Spouses Benitez v. Court of Appeals, 266 SCRA 242, January 16, 1997.
12
642
642

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
Camara v. Court of Appeals, 310 SCRA 608, 618, July 20, 1999; Delos Reyes v. Court of
Appeals, 285 SCRA 81, 85, January 27, 1998; heberman Realty Corporation v. Typingco, 293
SCRA 316, 327, July 29, 1998.
13
Baluyot v. Court of Appeals, 311 SCRA 29, 45, July 22, 1999; Vergara v. Court of Appeals,
319 SCRA 323, 327, November 26, 1999; Leber-man v. Typinco, ibid., p. 328.
643
VOL. 359, JUNE 26, 2001
643

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
88
longer workable. This Tribunal holds that the unworkability of said concrete mix has been
firmly established.
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
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
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.
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 quasijudicial bodies that have acquired expertise are generally accorded great respect and even
finality, if they
_______________
14
CIAC Decision dated September 24, 1996; CA rollo for G.R. SP No. 42443, p. 42.
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 Philrocks Batching
Plant Department in the amount
_______________
15
644
644
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:

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
Villaflor v. Court of Appeals, 280 SCRA 297, 330, October 9, 1997; Philippine Merchant
Marine School, Inc. v. Court of Appeals, 244 SCRA 770, 785, June 2, 1995; COCOFED v.
Trajano, 241 SCRA 262, 268, February 15, 1995.
16
Villaflor v. CA, ibid.; De Ysasi III v. National Labor Relations Commission, 231 SCRA
173, 185, March 11, 1994.
17
Chung Fu Industries (Phils.), Inc. v. Court of Appeals, 206 SCRA 545, 556, February 25,
1992.
89
645
VOL. 359, JUNE 26, 2001
645
18
CA rollo for G.R. SP No. 39781, p. 195.
19
Ibid., pp. 118-120.
20
CA rollo for G.R. SP No. 42443, p. 36.
of only P102,586.25, which [claimant refused to accept by saying, saka na lang. 18
646
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
646

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 percent 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.
90
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.
Notes.To hold public officers personally liable for moral and exemplary damages and for
attorneys fees for acts done in the performance of official functions, the plaintiff must prove
that these officers exhibited acts characterized by evident bad faith, malice or gross
negligence. But even if their acts have not been so tainted, public officers may still be held
liable for nominal damages if they had violated the plaintiffs constitutional rights.
(Cojuangco vs. Court of Appeals, 309 SCRA 602 (19993)
_______________
21
Rollo, p. 198.
22
Respondent Nelia Cids Explanation; rollo, pp. 184-186.
In cases where no interest had been stipulated by the parties, no accrued conventional interest
could further earn interest upon judicial demand. (David vs. Court of Appeals, 316 SCRA
710 [1999])
23
Go v. Intermediate Appellate Court, 197 SCRA 22, 28-29, May 13, 1991; Ventanilla v.
Centeno, 1 SCRA 215, 220, January 28, 1961; RobesFrancisco Realty v. Court of First
Instance, 86 SCRA 59, 65-66, October 30 1978.
o0o
647
VOL. 359, JUNE 26, 2001
647

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.
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.
Melo (Chairman), Vitug, Gonzaga-Reyes and Sandoval-Gutierrez, JJ., concur.
Petition denied, judgment affirmed with modification.
G.R. No. 126212. March 2, 2000.*

SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS, A.P.
MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY
(FILIPINAS), INC., respondents.
Actions; Complaints; Pleadings and Practice; In determining whether or not the complaint
states a cause of action, the annexes attached to the complaint may be considered, they being
parts of the
________________
*
FIRST DIVISION.
91
136
136
of dispute resolution that is now rightfully vaunted as the wave of the future in
international relations, and is recognized worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement between the parties would therefore be a step
backward.
137
Sea-Land Service, Inc. vs. Court of Appeals

VOL. 327, MARCH 2, 2000
complaint.Resolving first the issue of failure to state a cause of action, respondent Court of
Appeals did not err in reading the Complaint of Florex and respondent AMMLs Answer
together with the Third Party Complaint to determine whether a cause of action is properly
alleged. In Fil-Estate Golf and Development, Inc. vs. Court of Appeals, this Court ruled that
in the determination of whether or not the complaint states a cause of action, the annexes
attached to the complaint may be considered, they being parts of the complaint.
Same; Arbitration; A party is barred from taking judicial action against another if by the
clear terms of their agreement arbitration is the mode provided by which damages and/or
indemnity may be recovered.For respondent Court of Appeals to say that the terms of the
contract do not require arbitration as a condition precedent to judicial action is erroneous. In
the light of the Agreement clauses aforequoted, it is clear that arbitration is the mode
provided by which respondent AMML as Principal Carrier can seek damages and/or
indemnity from petitioner, as Containership Operator. Stated differently, respondent AMML
is barred from taking judicial action against petitioner by the clear terms of their Agreement.
Same; Same; Contracts; Interpretation of Contracts; When the text of a contract is explicit
and leaves no doubt as to its intention, the court may not read into it any other intention that
would contradict its plain import.All told, when the text of a contract is explicit and leaves
no doubt as to its intention, the court may not read into it any other intention that would
contradict its plain import. Arbitration being the mode of settlement between the parties
expressly provided for by their Agreement, the Third Party Complaint should have been
dismissed.
Same; Same; Arbitration is one of the alternative methods of dispute resolution that is now
rightfully vaunted as the wave of the future in international relations, and is recognized
worldwide.This Court has previously held that arbitration is one of the alternative methods
137

Sycip, Salazar, Hernandez & Gatmaitan for petitioner.
Ortega, Del Castillo, Bacorro, Odulio, Calma & Carbonell for private respondents.
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set aside the decision of the Court of
Appeals dated September 29, 1995 in CA-G-R. SP No. 35777,1 dismissing the petition for
certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of
Quezon City, Branch 216, in Civil Case No. Q-92-12593.
The facts are as follows:
On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P.
Moller/Maersk Line (hereinafter referred to as AMML), both carriers of cargo in containerships as well as common carriers, entered into a contract entitled, Co-operation in the
Pacific2 (hereinafter referred to as the Agreement), a vessel sharing agreement whereby
they mutually agreed to purchase, share and exchange needed space for cargo in their
92
respective containerships. Under the Agreement, they could be, depending on the occasion,
either a principal carrier (with a negotiable bill of lading or other contract of carriage with
respect to cargo) or a containership operator (owner, operator or charterer of containership on
which the cargo is carried).
During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc.
(hereinafter referred to as Florex) delivered to private respondent AMML cargo of various
foodstuffs, with Oakland, California as port of dis-
Respondent AMML filed its Answer4 alleging that even on the assumption that Florex was
entitled to reimbursement, it was petitioner who should be liable. Accordingly, respondent
AMML filed a Third Party Complaint5 against petitioner on November 10, 1992, averring
that whatever damages sustained by Florex were caused by petitioner, which actually
received and transported Florexs cargo on its vessels and unloaded them.
Petition, Annex A; Rollo, pp. 71-83.
On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint6 on the
ground of failure to state a cause of action and lack of jurisdiction, the amount of damages
not having been specified therein. Petitioner also prayed either for dismissal or suspension of
the Third Party Complaint on the ground that there exists an arbitration agreement between it
and respondent AMML. On September 27, 1993, the lower court issued an Order denying
petitioners Motion to Dismiss. Petitioners Motion for Reconsideration
Id., Annex O of Annex L; Rollo, pp. 298-352.
________________
________________
138
138
Id., Annex D; Rollo, pp. 88-110.
Id., Annex A-1; of Annex E; Rollo, pp. 122-125.
Id., Annex E; Rollo, pp. 111-127.
Id., Annex F; Rollo, pp. 128-135.
139
charge and San Francisco as place of delivery. The corresponding Bill of Lading No. MAEU
MNL110263 was issued to Florex by respondent AMML. Pursuant to the Agreement,
respondent AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by
petitioner. Under this arrangement, therefore, respondent AMML was the principal carrier
while petitioner was the containership operator.
The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus,
on June 26, 1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping
Agency (Filipinas), Inc. for reimbursement of the value of the cargo and other charges.3
According to Florex, the cargo was received by the consignee only on June 28, 1991, since it
was discharged in Long Beach, California, instead of in Oakland, California on June 5, 1991
as stipulated.
VOL. 327, MARCH 2, 2000
139

was likewise denied by the lower court in its August 22, 1994 Order.
93
Undaunted, petitioner filed a petition for certiorari7 with the Court of Appeals on November
23, 1994. Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial
court.
On September 29, 1995, respondent Court of Appeals rendered the assailed Decision
dismissing the petition for certiorari. With the denial of its Motion for Reconsideration,
petitioner filed the instant petition for review, raising the following issues
I.
THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN
VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING THAT
ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN
AGREEMENT TO ARBITRATE EXISTS.
II.
THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH
JURISPRUDENCE WHEN IT REFUSED TO HAVE THE THIRD-PARTY COMPLAINT
DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION AND FOR RULING
THAT THE FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY
REFERENCE TO ITS ATTACHMENTS.8
Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did
not err in reading the Complaint of Florex and respondent AMMLs Answer together with the
Third Party Complaint to determine whether a cause of action is properly alleged. In FitEstate Golf and Development, Inc. vs. Court of Appeals,9 this Court ruled that in the
________________
7
Id., Annex L; Rollo, pp. 170-186.
Id., p. 7; Rollo, p. 53.
G.R. No. 120958, 265 SCRA 614 [1996].
140

determination of whether or not the complaint states a cause of action, the annexes attached
to the complaint may be considered, they being parts of the complaint.
Coming now to the main issue of arbitration, the pertinent clauses of the Co-operation in the
Pacific contract entered into by the parties provide:
16.2 For the purposes of this agreement the Containership Operator shall be deemed to have
issued to the Principal Carrier for good consideration and for both loaded and empty
containers its non-negotiable memo bills of lading in the form attached hereto as Appendix 6,
consigned only to the Principal Carrier or its agents, provisions of which shall govern the
liability between the Principal Carrier and the Containership Operator and that for the
purpose of determining the liability in accordance with either Lines memo bill of lading, the
number of packages or customary freight units shown on the bill of lading issued by the
Principal Carrier to its shippers shall be controlling.
16.3 The Principal Carrier shall use all reasonable endeavours to defend all in personam and
in rem suits for loss of or damage to cargo carried pursuant to bills of lading issued by it, or
to settle such suits for as low a figure as reasonably possible. The Principal Carrier shall
have the right to seek damages and/or an indemnity from the Containership Operator by
arbitration pursuant to Clause 32 hereof. Notwithstanding the provisions of the Lines memo
bills of lading or any statutory rules incorporated therein or applicable thereto, the Principal
Carrier shall be entitled to commence such arbitration at any time until one year after its
liability has been finally determined by agreement, arbitration award or judgment, such
award or judgment not being the subject of appeal, provided that the Containership
Operator has been given notice of the said claim in writing by the Principal Carrier within
three months of the Principal Carrier receiving notice in writing of the claim. Further the
Principal Carrier shall have the right to grant extensions of time for the commencement of
suit to any third party interested in the cargo without prior reference to the Containership
140
94
Operator provided that notice of any extension so granted is given to the Containership
Operator within 30 days of any such extension being granted.
xxx
xxx
32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as amended by
the Arbitration Act 1979 or any other subsequent legislation and the arbitrators award shall
be final and binding upon Lines. To the extent permitted by the Arbitration Act 1979 the
Lines hereto exclude pursuant to S 3(1) of that Act the jurisdiction of the English High Court
of Justice to entertain any appeal or application under Sections 1 and 2 of the Arbitration Act
1979.10
xxx
141
VOL. 327, MARCH 2, 2000
141

32. ARBITRATION
32.1 If at any time a dispute or claim arises out of or in connection with the Agreement the
Lines shall endeavour to settle such amicably, failing which it shall be referred to arbitration
by a single arbitrator in London, such arbitrator to be appointed by agreement between the
Lines within 14 days after service by one Line upon the other of a notice specifying the
nature of the dispute or claim and requiring reference of such dispute or claim to arbitration
pursuant to this Article.
32.2 Failing agreement upon an arbitrator within such period of 14 days, the dispute shall be
settled by three Arbitrators, each party appointing one Arbitrator, the third being appointed by
the President of the London Maritime Arbitrators Association.
32.3 If either of the appointed Arbitrators refuses or is incapable of acting, the party who
appointed him shall appoint a new Arbitrator in his place.
32.4 If one of the parties fails to appoint an Arbitratoreither originally or by way of
substitutionfor two weeks after the other party having appointed his Arbitrator has sent the
party making default notice by mail, fax or telex to make the appointment, the party
appointing the third Arbitrator shall, after application from the party having appointed his
Arbitrator, also appoint an Arbitrator in behalf of the party making default.
From the foregoing, the following matters are clear: First, disputes between the Principal
Carrier and the Containership Operator arising from contracts of carriage shall be governed
by the provisions of the bills of lading issued to the Principal Carrier by the Containership
Operator. Second, the Principal Carrier shall use its best efforts to defend or settle all suits
_______________
10
Rollo, pp. 326-327, 336-337; emphasis provided.
142
142

against it for loss of or damage to cargo pursuant to bills of lading issued by it. Third, the
Principal Carrier shall have the right to seek damages and/or indemnity from the
Containership Operator by arbitration, pursuant to Clause 32 of the agreement. Fourth, the
Principal Carrier shall have the right to commence such arbitration any time until one year
after its liability has been finally determined by agreement, arbitration award or judgment,
provided that the Containership Operator was given notice in writing by the Principal Carrier
within three months of the Principal Carrier receiving notice in writing of said claim.
Prescinding from the foregoing matters, we find that both the trial court and the Court of
Appeals erred in denying petitioners prayer for arbitration.
95
To begin with, allowing respondent AMMLs Third Party Claim against petitioner to proceed
would be in violation of Clause 16.2 of the Agreement. As summarized, the clause provides
that whatever dispute there may be between the Principal Carrier and the Containership
Operator arising from contracts of carriage shall be governed by the provisions of the bills of
lading deemed issued to the Principal Carrier by the Containership Operator. On the other
hand, to sustain the Third Party Complaint would be to allow private respondent to hold
petitioner liable under the provisions of the bill of lading issued by the Principal Carrier to
Florex, under which the latter is suing in its Complaint, not under the bill of lading petitioner,
as containership operator, issued to respondent AMML, as Principal Carrier, contrary to what
is contemplated in Clause 16.2.
The Court of Appeals ruled that the terms of the Agreement explicitly required that the
principal carriers claim against the containership operator first be finally determined by,
among others, a court judgment, before the right to arbitration accrues. However, the Court
of Appeals failed to consider that, precisely, arbitration is the mode by which the liability of
the Containership Operator may be finally determined. This is clear from the mandate of
Clause 16.3 that (T)he Principal Carrier shall have the right to seek damages
as Containership Operator. Stated differently, respondent AMML is barred from taking

judicial action against petitioner by the clear terms of their Agreement.
As the Principal Carrier with which Florex directly dealt with, respondent AMML can and
should be held accountable by Florex in the event that it has a valid claim against the former.
Pursuant to Clause 16.3 of the Agreement, respondent AMML, when faced with such a suit
shall use all reasonable endeavours to defend itself or settle such suits for as low a figure
as reasonably possible. In turn, respondent AMML can seek damages and/or indemnity from
petitioner as Containership Operator for whatever final judgment may be adjudged against it
under the Complaint of Florex. The crucial point is that collection of said damages and/or
indemnity from petitioner should be by arbitration.
All told, when the text of a contract is explicit and leaves no doubt as to its intention, the
court may not read into it any other intention that would contradict its plain import.11
Arbitration being the mode of settlement between the parties expressly provided for by their
Agreement, the Third Party Complaint should have been dismissed.
This Court has previously held that arbitration is one of the alternative methods of dispute
resolution that is now right-
143
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VOL. 327, MARCH 2, 2000
143

and/or an indemnity from the Containership Operator by arbitration and that it shall be
entitled to commence such arbitration at any time until one year after its liability has been
finally determined by agreement, arbitration award or judgment.
11
Cruz vs. Court of Appeals, G.R. No. 126713, 293 SCRA 239 [1998].
144
144

For respondent Court of Appeals to say that the terms of the contract do not require
arbitration as a condition precedent to judicial action is erroneous. In the light of the
Agreement clauses aforequoted, it is clear that arbitration is the mode provided by which
respondent AMML as Principal Carrier can seek damages and/or indemnity from petitioner,
fully vaunted as the wave of the future in international relations, and is recognized
worldwide. To brush aside a contractual agreement calling for arbitration in case of
disagreement between the parties would therefore be a step backward.12
96
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is

GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 35777 is REVERSED
and SET ASIDE. The Regional Trial Court of Quezon City, Branch 77, is ordered to
DISMISS Respondent AMMLs Third Party Complaint in Civil Case No. Q-92-12593. No
pronouncement as to costs.
SO ORDERED.
Davide, Jr,. (C.J., Chairman), Puno, Kapunan and Pardo, JJ., concur.
Petition granted, judgment reversed and set aside. Third party complaint dismissed.
Notes.In a petition for review of an arbitration award, the Arbitral Tribunal should be
impleaded. (Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc., et al., 228 SCRA
397 [1993])
Interpretation by the arbitrators which is a faithful application of the provisions of an
Agreement does not have the effect of creating a new contract. (Adamson vs. Court of
Appeals, 232 SCRA 602 [1994])
Under the Arbitration Law, the award or decision of the voluntary arbitrator is equated with
that of the Regional Trial Courts. (Luzon Development Bank vs. Association of Luzon
Development Bank Employees, 249 SCRA 162 [1995])
G.R. No. 129916. March 26, 2001.*
o0o
MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN

CAPITAL HOLDINGS CORPORATION, petitioners, vs. ROLANDO M. ZOSA and
HON. JOSE P. SOBERANO, JR., in his capacity as Presiding Judge of Branch 58 of the
________________
Regional Trial Court of Cebu, 7th Judicial Region, Respondents
12
BF Corporation vs. Court of Appeals, G.R. No. 120105, 288 SCRA 267, 286 [1998].
Arbitration; Courts; Jurisdiction; Under Republic Act No. 876, otherwise known as the
Arbitration Law, it is the regional trial court which exercises jurisdiction over questions
relating to arbitration.It is error for the petitioners to claim that the case should fall under
the jurisdiction of the Securities and Exchange Commission [SEC, for brevity]. The
controversy does not in anyway involve the election/appointment of officers of petitioner
MCHC, as claimed by petitioners in their assignment of errors. Respondent Zosas amended
complaint focuses heavily on the illegality of the Employment Agreements Arbitration
Clause initially invoked by him in seeking his termination benefits under Section 8 of the
employment contract. And under Republic Act No. 876, otherwise known as the Arbitration
97
Law, it is the regional trial court which exercises jurisdiction over questions relating to
arbitration.
Actions; Judgments; Law of the Case Doctrine; Words and Phrases; The law of the
case doctrine has been defined as a term applied to an established rule that when an
appellate court passes on a question and remands the cause to the lower court for further
proceedings, the question there settled becomes the law of the case upon subsequent
appeal.The decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the
_______________
*
would, in all probability, work injustice to respondent Zosa. We have repeatedly stressed that
the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the
Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are devoid of support by the evidence on record, or the
assailed judgment is based on misapprehension of facts.
Same; Same; Pleadings and Practice; Issues not raised below cannot be resolved on review
in higher courts.In this connection, petitioners attempt to put respondent in estoppel in
assailing the arbitration clause must be struck down. For one, this issue of estoppel, as
likewise noted by the Court of Appeals, found its way for the first time only on appeal. Wellsettled is the rule that issues not raised below cannot be resolved on review in higher courts.
SECOND DIVISION.
158
158
Magellan Capital Management Corporation vs. Zosa

trial courts assumption of jurisdiction over the case has become the law of the case which
now binds the petitioners. The law of the case doctrine has been defined as a term applied
to an established rule that when an appellate court passes on a question and remands the
cause to the lower court for further proceedings, the question there settled becomes the law of
the case upon subsequent appeal. To note, the CAs decision in CA-G.R. SP No. 43059 has
already attained finality as evidenced by a Resolution of this Court ordering entry of
judgment of said case.
Same; Appeals; Petition for Review; The jurisdiction of the Supreme Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of support by
the evidence on record, or the assailed judgment is based on misapprehension of facts.
Equally unavailing for the petitioners is the review by this Court, via the instant petition, of
the factual findings made by the trial court that the composition of the panel of arbitrators
Contracts; Employment Agreements; Contracts of Adhesion; Employment agreements are

usually contracts of adhesion, and any ambiguity in its provisions is generally resolved
against the party who drafted the document.Employment agreements such as the one at bar
are usually contracts of adhesion. Any ambiguity in its provisions is generally resolved
against the party who drafted the document. Thus, in the relatively recent case of Phil.
Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and
Victoria Abril, we had the occasion to stress that where a contract of employment, being a
contract of adhesion, is ambiguous, any ambiguity therein should be construed strictly
against the party who prepared it.
159
VOL. 355, MARCH 26, 2001
159

Arbitration; Arbitration proceedings are designed to level the playing field among the parties
in pursuit of a mutually acceptable solution to their conflicting claims, and any arrangement
or scheme that would give undue advantage to a party in the negotiating table is anathema
to the very purpose of arbitration and should, therefore, be resisted.We need only to
emphasize in closing that arbitration proceedings are designed to level the playing field
98
among the parties in pursuit of a mutually acceptable solution to their conflicting claims. Any
arrangement or scheme that would give undue advantage to a party in the negotiating table is
anathema to the very purpose of arbitration and should, therefore, be resisted.
160
PETITION for review on certiorari of a decision of the Regional Trial Court of Cebu City,
Br. 58.
Marifel G. Gaerlan and Carpio, Villaraza & Cruz for petitioners.
Francis M. Zosa for respondents.
BUENA, J.:
Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings
Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as
manager for the operation of its business and affairs.1 Pursuant thereto, on the same month,
MCHC, MCMC, and private respondent Rolando M. Zosa entered into an Employment
Agreement designating Zosa as President and Chief Executive Officer of MCHC.
Under the Employment Agreement, the term of respondent Zosas employment shall be coterminous with the management agreement, or until March 1996,2 unless sooner terminated
pursuant to the provisions of the Employment Agreement,3 The grounds
_______________
1
Section 1 of Amended and Restated Management Agreement, Annex B, Rollo, p. 74.
par. 2 of the Pre-Trial Order dated October 21, 1996, Annex BB, Rollo, p. 241.
Annex C of Petition, Rollo, pp. 89-101; 217-229.
160

for termination of employment are also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHCs Board of Directors decided not to re-elect
respondent Zosa as President and Chief Executive Officer of MCHC on account of loss of
trust and confidence4 arising from alleged violation of the resolution issued by MCHCs
board of directors and of the non-competition clause of the Employment Agreement.5
Nevertheless, respondent Zosa was elected to a new position as MCHCs ViceChairman/Chairman for New Ventures Development.6
On September 26, 1995, respondent Zosa communicated his resignation for good reason
from the position of Vice-Chairman under paragraph 7 of the Employment Agreement on the
ground that said position had less responsibility and scope than President and Chief
Executive Officer. He demanded that he be given termination benefits as provided for in
Section 8 (c) (i) (ii) and (iii) of the Employment Agreement.7
In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent
Zosas resignation for good reason, but instead informed him that the Employment
Agreement is terminated for cause, effective November 19, 1995, in accordance with Section
7 (a) (v) of the said agreement, on account of his breach of Section 12 thereof. Respondent
Zosa was further advised that he shall have no further rights under the said Agreement or any
claims against the Manager or the Corporation except the right to receive within thirty (30)
days from November 19, 1995, the amounts stated in Section 8 (a) (i) (ii) of the Agreement.8
Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration
Clause of the Employment Agreement, to wit:
_______________
4
par. 5 of Petitioners Memorandum, Rollo, p. 560.

99
par. 5.1-6.4, ibid., Rollo, pp. 560-562.
par. 4, ibid., Rollo, p. 559.
par. 6-7, Amended Complaint, Rollo, pp. 173-174; p. 562.
Annex O of Petition, Rollo, p. 130.
on April 17, 1996, filed an action for damages against petitioners before the Regional Trial
Court of Cebu12 to enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss13 arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosas claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the
venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig
City and thus, the venue of this case, granting without admitting that the respondent
161
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VOL. 355, MARCH 26, 2001
161

23. Arbitration. In the event that any dispute, controversy or claim arises out of or under any
provisions of this Agreement, then the parties hereto agree to submit such dispute,
controversy or claim to arbitration as set forth in this Section and the determination to be
made in such arbitration shall be final and binding. Arbitration shall be effected by a panel of
three arbitrators. The Manager, Employee and Corporation shall designate one (1) arbitrator
who shall, in turn, nominate and elect who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of an arbitration award, shall take
place in Metro Manila. The arbitrators shall interpret this Agreement in accordance with the
substantive laws of the Republic of the Philippines. The arbitrators shall have no power to
add to, subtract from or otherwise modify the terms of Agreement or to grant injunctive relief
of any nature. Any judgment upon the award of the arbitrators may be entered in any court
having jurisdiction thereof, with costs of the arbitration to be borne equally by the parties,
except that each party shall pay the fees and expenses of its own counsel in the arbitration.
On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his
representative in the arbitration panel9 while MCHC designated Atty. Inigo S. Fojas10 and
MCMC nominated Atty. Enrique I. Quiason11 as their respective representatives in the
arbitration panel. However, instead of submitting the dispute to arbitration, respondent Zosa,
Annex P of Petition, Rollo, p. 131.
10
Annex R of Petition, Rollo, p. 133
11
Annex Q of Petition, Rollo, p. 132.
12
Annex BB, Rollo, p. 241.
13
Annex S, Rollo, pp. 134-145.
162
162

has a cause of action against the petitioners cognizable by the RTC, should be limited only to
RTC-Pasig City.14
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
100
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners
motion to dismiss upon the findings that (1) the validity and legality of the arbitration
provision can only be determined after trial on the merits; and (2) the amount of damages
claimed, which is over P100,000.00, falls within the jurisdiction of the RTC.15 Petitioners
filed a motion for reconsideration which was denied by the RTC in an order dated September
5, 1996.16
In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their
Answer Ad Cautelam with counterclaim reiterating their position that the dispute should be
settled through arbitration and the court had no jurisdiction over the nature of the action.17
On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage
terminated and setting the case for hearing. The order states:
ISSUES:
The Court will only resolve one issue in so far as this case is concerned, to wit:
Whether or not the Arbitration Clause contained in Sec. 23 of the Employment Agreement is
void and of no effect: and, if it is void and of no effect, whether or not the plaintiff is entitled
to damages in accordance with his complaint and the defendants in accordance with their
counter-claim.
It is understood, that in the event the arbitration clause is valid and binding between the
parties, the parties shall submit their respective
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163
VOL. 355, MARCH 26, 2001
163

claim to the Arbitration Committee in accordance with the said arbitration clause, in which
event, this case shall be deemed dismissed.18
On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction,
Addition and Clarification of the Pre-trial Order dated November 15 1996,19 which was
denied by the court in an order dated November 28, 1996.20
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file
their Memoranda to support their respective stand on the issue of the validity of the
arbitration clause contained in the Employment Agreement. In an order dated December 13,
1996, the trial court denied the motion of petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and
prohibition under Rule 65 of the Rules of Court with the Court of Appeals, questioning the
trial court orders dated August 1, 1996, September 5, 1996, and December 13, 1996.21
_______________
18
Pre-trial Order, Annex BB, Rollo, pp. 241-243.
14
Annex U, Rollo, p. 179.
19
Annex CC, Rollo, pp. 248; 566-567.
15
Annex X, Rollo, pp. 185-186.
20
Annex DD, Rollo, p. 252.
16
Annex AA, Rollo, p. 240,
21
The issues submitted to the Court of Appeals are as follows:
17
Par. 9, Petitioners Memorandum, Rollo, p. 566.
I.
101
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OF JURISDICTION WHEN IT ISSUED THE QUESTIONED
ORDERS DATED 1 AUGUST 1996 (ANNEX A), 05 SEPTEMBER 1996 (ANNEX B)
AND 13 DECEMBER 1996 (ANNEX C) WHICH DEFERRED THE RESOLUTION OF
THE ISSUE REGARDING THE VALIDITY OF THE ARBITRATION CLAUSE IN THE
EMPLOYMENT AGREEMENT UNTIL AFTER TRIAL ON THE MERITS.
RESPONDENT COURT ALTED WITHOUT OR IN EXCESS OF JURISDICTION WHEN

IT TOOK COGNIZANCE OF RESPONDENT ZOSAS AMENDED COMPLAINT
INSTEAD OF REFERRING THE SAME IMMEDIATELY TO ARBITRATION
PURSUANT TO THE EMPLOYMENT AGREEMENT BETWEEN PETITIONERS AND
RESPONDENT ZOSA.
IV.
II.
AMOUNTING TO LACK OF JURISDICTION WHEN IT FAILED TO RULE THAT THE
ARBITRATION CLAUSE UNDER THE EMPLOYMENT AGREEMENT IS VALID AND
BINDING ON THE PARTIES THERETO.
164
IN ANY EVENT, RESPONDENT COURT ACTED AND IS CONTINUING TO ACT

WITHOUT JURISDICTION IN HEARING THE CASE BELOW, CONSIDERING THAT
IT HAS NO JURISDICTION OVER THE NATURE OF THE ACTION OR SUIT SINCE
CONTROVERSIES IN THE ELECTION OR APPOINTMENT OF OFFICERS OR
MANAGERS OF A CORPORATION, SUCH AS THE ACTION BROUGHT BY
RESPONDENT ZOSA, FALL WITHIN THE ORIGINAL AND EXCLUSIVE
JURISDICTION OF THE SECURITIES AND EXCHANGE COMMISSION.
V.
164

AMOUNTING TO LACK OF JURISDICTION WHEN IT REFUSED TO DISMISS THE
ACTION BELOW FOR IMPROPER VENUE.
VI.
On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the
petition, the decretal portion of which reads:
WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to
resolve the issue on the validity or effectivity of the arbitration clause in the Employment
Agreement, and to suspend further proceedings in the trial on the merits until the said issue is
re_______________
III.

AMOUNTING TO LACK OF JURISDICTION WHEN IT FAILED TO DISMISS THE
AMENDED COMPLAINT FOR LACK OF THE REQUISITE CERTIFICATION OF NONFORUM SHOPPING.
Court of Appeals Decision, pp. 5-6; Rollo, pp. 316-317.
165
VOL. 355, MARCH 26, 2001
165
102
22
Ibid., pp. 329-330.
23
Annex A, RTC Decision, pp. 72-73.
solved. The questioned orders are set aside insofar as they contravene this Courts resolution
of the issues raised as herein pronounced.
166
The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5)
days from notice.
166
SO ORDERED.22
Petitioners filed a motion for partial reconsideration of the CA decision praying (1) for the
dismissal of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the
parties be directed to submit their dispute to arbitration in accordance with the Employment
Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied
the motion for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision
declaring the arbitration clause in the Employment Agreement partially void and of no
effect. The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered partially declaring the
arbitration clause of the Employment Agreement void and of no effect, only insofar as it
concerns the composition of the panel of arbitrators, and directing the parties to proceed to
arbitration in accordance with the Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants, and the third to be chosen by both the
plaintiff and defendants. The other terms, conditions and stipulations in the arbitration clause
remain in force and effect.23

1. A. The arbitration clause in the employment agreement dated March 1994 between
respondent Zosa and defendants MCHC and MCMC is valid and binding upon the
parties thereto.
2. B. In view of the fact that there are three parties to the employment agreement, it is
but proper that each party be represented in the arbitration panel.
3. C. The trial court grievously erred in its conclusion that petitioners MCMC and
MCHC represent the same interest.
4. D. Respondent Zosa is estopped from questioning the validity of the arbitration
clause, including the right of petitioner MCMC to nominate its own arbitrator, which
he himself has invoked.
In view of the trial courts decision, petitioners filed this petition for review on certiorari,
under Rule 45 of the Rules of Court, assigning the following errors for the Courts resolution:
1. II. In any event, the trial court acted without jurisdiction in hearing the case below,
considering that it has no jurisdiction over the nature of the action or suit since
controversies in the election or appointment of officers or managers of a corporation,
such as the action brought by respondent Zosa, fall within the original and exclusive
jurisdiction of the Securities and Exchange Commission.
1. I. The trial court gravely erred when it ruled that the arbitration clause under the
employment agreement is partially void and of no effect, considering that:
2. III, Contrary to respondent Zosas allegation, the issue of the trial courts jurisdiction
over the case below has not yet been resolved with finality considering that
_______________
103
petitioners have expressly reserved their right to raise said issue in the instant petition.
Moreover, the principle of the law of the case is not applicable in the instant case.
3. IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not
guilty of forum shopping.
4. V. Contrary to respondent Zosas allegation, the instant petition for review involves
only questions of law and not of fact.24
The determination and validity of the agreement is not a matter intrinsically connected with
the regulation and internal affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales
vs. SEC, 169 SCRA 121); it is rather an ordinary case to be decided in accordance with the
general laws, and do not require any particular expertise or training to interpret and apply
(Viray vs. CA, 191 SCRA 308).26
We rule against the petitioners.

It is error for the petitioners to claim that the case should fall under the jurisdiction of the
Securities and Exchange Commission [SEC, for brevity]. The controversy does not in
anyway involve the election/appointment of officers of petitioner MCHC, as claimed by
petitioners in their assignment of errors. Respondent Zosas amended complaint focuses
heavily on the illegality of the Employment Agreements Arbitration Clause initially
invoked by him
Furthermore, the decision of the Court of Appeals in CA-G-R. SP No. 43059 affirming the
trial courts assumption of jurisdiction over the case has become the law of the case which
now binds the petitioners. The law of the case doctrine has been defined as a term applied
to an established rule that when an appellate court passes on a question and remands the
cause to the lower court for further proceedings, the question there settled becomes the law of
the case upon subsequent appeal.27 To note, the CAs decision in CA-G.R. SP No. 43059 has
already attained finality as evidenced by a Resolution of this Court ordering entry of
judgment of said case, to wit:
_______________
24
As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is
raised for the first time in this petition, suffice it to state that the Amended Complaint
squarely put in issue the question whether the Arbitration Clause is valid and effective
between the parties. Although the controversy which spawned the action concerns the
validity of the termination of the service of a corporate officer, the issue on the validity and
effectivity of the arbitration clause is determinable by the regular courts, and do not fall
within the exclusive and original jurisdiction of the SEC.
Rollo, pp. 571-573.
167
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VOL. 355, MARCH 26, 2001
167

in seeking his termination benefits under Section 8 of the employment contract. And under
Republic Act No. 876, otherwise known as the Arbitration Law, it is the regional trial court
which exercises jurisdiction over questions relating to arbitration. We thus advert to the
following discussions made by the Court of Appeals, speaking thru Justice Minerva P.
Gonzaga-Reyes,25 in CA.-G.R. S.P. No. 43059, viz.:
25
Now Associate Justice of this Court.
26
Court of Appeals Decision, p. 16; Rollo, p. 321.
27
Loevillo C. Agustin vs. Court of Appeals and Filinvest Finance Corporation, 271 SCRA
457 [1997].
168
168

104

ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a decision/resolution rendered in the aboveentitled case was filed in this Office, the dispositive part of which reads as follows:
G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of Appeals,
Rolando Zosa, et al.).Considering the petitioners manifestation dated August 11, 1997 and
withdrawal of intention to file petition for review on certiorari, the Court Resolved to
DECLARE THIS CASE TERMINATED and DIRECT the Clerk of Court to INFORM the
parties that the judgment sought to be reviewed has become final and executory, no appeal
therefore having been timely perfected.
and that the same has, on September 17, 1997, become final and executory and is hereby
recorded in the Book of Entries of Judgments.28
Petitioners, therefore, are barred from challenging anew, through another remedial measure
and in any other forum, the authority of the regional trial court to resolve the validity of the
arbitration clause, lest they be truly guilty of forum-shopping which the courts consistently
consider as a contumacious practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the instant petition, of
the factual findings made by the trial court that the composition of the panel of arbitrators
would, in all probability, work injustice to respondent Zosa. We have repeatedly stressed that
the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the
Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are devoid of support by the evidence on record, or the
assailed judgment is based on misapprehension of facts.29
Even if procedural rules are disregarded, and a scrutiny of the merits of the case is
undertaken, this Court finds the trial courts observations on why the composition of the
panel of arbitrators
_______________
28
Rollo, p. 350.
29
Congregation of the Religious of the Virgin Mary vs. CA, 291 SCRA 385 [1998].
169
VOL. 355, MARCH 26, 2001
169

should be voided, incisively correct so as to merit our approval. Thus,
From the memoranda of both sides, the Court is of the view that the defendants [petitioner]
MCMC and MCHC represent the same interest. There is no quarrel that both defendants are
entirely two different corporations with personalities distinct and separate from each other
and that a corporation has a personality distinct and separate from those persons composing
the corporation as well as from that of any other legal entity to which it may be related.
But as the defendants [herein petitioner] represent the same interest, it could never be
expected, in the arbitration proceedings, that they would not protect and preserve their own
interest, much less, would both or either favor the interest of the plaintiff. The arbitration law,
as all other laws, is intended for the good and welfare of everybody. In fact, what is being
challenged by the plaintiff herein is not the law itself but the provision of the Employment
Agreement based on the said law, which is the arbitration clause but only as regards the
composition of the panel of arbitrators. The arbitration clause in question provides, thus:
In the event that any dispute, controversy or claim arise out of or under any provisions of
this Agreement, then the parties hereto agree to submit such dispute, controversy or claim to
arbitration as set forth in this Section and the determination to be made in such arbitration
shall be final and binding. Arbitration shall be effected by a panel of three arbitrators. The
Manager, Employee, and Corporation shall designate one (1) arbitrator who shall, in turn,
nominate and elect as who among them shall be the chairman of the committee. Any such
arbitration, including the rendering of an arbitration award, shall take place in Metro Manila.
105
The arbitrators shall interpret this Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of this Agreement or to grant injunctive relief of any nature. Any
judgment upon the award of the arbitrators may be entered in any court having jurisdiction
thereof, with costs of the arbitration to be borne equally by the parties, except that each party
shall pay the fees and expenses of its own counsel in the arbitration. (Emphasis supplied)
in accordance with the Employment Agreement, but under the panel of three (3) arbitrators,
one (1) arbitrator to represent the plaintiff, one (1) arbitrator to represent both defendants
(MCMC and MCHC) [herein petitioners] and the third arbitrator to be chosen by the plaintiff
[defendant Zosa] and defendants [petitioners].
From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners]
(MCMC and MCHC) have one (1) arbitrator each to compose the panel of three (3)
arbitrators. As the defendant MCMC is the Manager of defendant MCHC, its decision or vote
in the arbitration
In this connection, petitioners attempt to put respondent in estoppel in assailing the

arbitration clause must be struck down. For one, this issue of estoppel, as likewise noted by
the Court of Appeals, found its way for the first time only on appeal. Well-settled is the rule
that issues not raised below cannot be resolved on review in higher courts.31 Secondly,
employment agreements such as the one at bar are usually contracts of adhesion. Any
ambiguity in its provisions is generally resolved against the party who drafted the document.
Thus, in the relatively recent case of Phil Federation of Credit Cooperatives, Inc. (PFCCI)
and Fr. Benedicto Jayoma vs. NLRC and Victoria Abril,32 we had the occasion to stress that
170
170
x x x
xxx
x x x30
_______________
30
Rollo, pp. 71-72.
31
proceeding would naturally and certainly be in favor of its employer and the defendant
MCHC would have to protect and preserve its own interest; hence, the two (2) votes of both
defendants (MCMC and MCHC) would certainly be against the lone arbitrator for the
plaintiff [herein defendant]. Hence, apparently, plaintiff [defendant] would never gpt or
receive justice and fairness in the arbitration proceedings from the panel of arbitrators as
provided in the aforequoted arbitration clause. In fairness and justice to the plaintiff
[defendant], the two defendants (MCMC and MCHC) [herein petitioners] which represent
the same interest should be considered as one and should be entitled to only one arbitrator to
represent them in the arbitration proceedings. Accordingly, the arbitration clause, insofar as
the composition of the panel of arbitrators is concerned should be declared void and of no
effect, because the law says, Any clause giving one of the parties power to choose more
arbitrators than the other is void and of no effect (Article 2045, Civil Code).
The dispute or controversy between the defendants (MCMC and MCHC) [herein
petitioners] and the plaintiff [herein defendant] should be settled in the arbitration proceeding
Casolita, Sr. vs. Court of Appeals, 275 SCRA 257 [1997]; Manalili vs. Court of Appeals,
280 SCRA 400 [1997].
32
G.R. No. 121071, December 11, 1998, 300 SCRA 72.
171
VOL. 355, MARCH 26, 2001
171

where a contract of employment, being a contract of adhesion, is ambiguous, any ambiguity
therein should be construed strictly against the party who prepared it. And, finally,
106
respondent Zosa submitted himself to arbitration proceedings (as there was none yet) before
bewailing the composition of the panel of arbitrators. He in fact, lost no time in assailing the
arbitration clause upon realizing the inequities that may mar the arbitration proceedings if
the existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are designed to level the
playing field among the parties in pursuit of a mutually acceptable solution to their
conflicting claims. Any arrangement or scheme that would give undue advantage to a party in
the negotiating table is anathema to the very purpose of arbitration and should, therefore, be
resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of
the trial court dated July 18, 1997 is AFFIRMED.
172
People vs. Medenilla

or interpretation or enforcement of company personnel policiesillegal termination disputes
do not fall within any of these categories, within a special class of disputes that are generally
within the exclusive original jurisdiction of Labor Arbiters by express provision of law.
(Vivero vs. Court of Appeals, 344 SCRA 268 [2000])
o0o
SO ORDERED.
Bellosillo (Chairman), Mendoza and De Leon, Jr., JJ., concur.
Quisumbing, J., On leave.
Petition dismissed, judgment affirmed,
Notes.Interpretation by the arbitrators which was a faithful application of the provisions of
the Agreement did not have the effect of creating a new contract. (Adamson vs. Court of
Appeals, 232 SCRA 602 [1994])
A voluntary arbitrator commits grave abuse of discretion in finding that an employee did not
commit gross negligence in the performance of her duty where the evidence shows
otherwise. (Citibank, N.A. vs. Gatchalian, 240 SCRA 212 [1995])
Absent an express stipulation in the CBA, the phrase all disputes should be construed as
limited to the areas of conflict traditionally within the jurisdiction of Voluntary Arbitrators,
i.e., dis putes relating to contract-interpretation, contract-implementation,
172
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.
Contracts; Actions; Arbitration; Alternative Dispute Settlement; Even before the enactment
of Republic Act 876, the Supreme Court has countenanced the settlement of disputes through
107
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.There is no doubt that arbitration is valid and
constitutional in our jurisdiction. Even before the enactment of RA 876, this Court has
countenanced the settlement of disputes through arbitration. Unless the agreement is such as
absolutely
_______________
*
SECOND DIVISION.
374
374
Del Monte Corporation-USA vs. Court of Appeals

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. 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.
Same; Same; Same; Same; Parties; Only parties to the Agreement, their assigns or heirs
have the right to arbitrate or could be compelled to arbitrate.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. 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 but only
as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY
SY, and not as to the other parties in this case, in accordance with the recent case of Heirs of
Augusto L. Salas, Jr. v. Laperal Realty Corporation, which superseded that of Toyota Motor
Philippines Corp. v. Court of Appeals.
Same; Same; Same; Same; Where the issue before the Court could not be speedily and
efficiently resolved in its entirety if simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration, is allowed, the trial court should hear and adjudicate
the case in a single and complete proceeding.The object of arbitration is to allow the
expeditious determination of a dispute. 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 arbitra375
VOL. 351, FEBRUARY 7, 2001
375

tion. Accordingly, the interest of justice would only be served if the trial court hears and
adjudicates the case in a single and complete proceeding.
108

Quisumbing, Torres Law Office for petitioners.
Rollo, p. 68.
376
Albano & Associates for private respondent Montebueno Marketing, Inc.

Sioson, Sandiego & Associates for private respondents L.C. Sy and Sabrosa Foods, Inc.
376
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 courts 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
________________
1
Penned by Associate Justice Demetrio G. Demetria, concurred in by Associate Justices

Ramon A Barcelona and Omar U. Amin.
2
Penned by Judge Bienvenido L. Reyes (now Associate Justice of the Court of Appeals),
RTC-Br. 74, Malabon, Metro Manila.

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 MMFs 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 MMIs 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______________
5
See Note 1.
Id., pp. 40-82.

109
Managing Director of Del Monte Corporations Export Sales Department.
Regional Director of Del Monte Corporations Export Sales Department.
Head of Credit Services Department of Del Monte Corporation.
Owner by assignment of Del Monte Trademarks in the Philippines.
MMI to stop coordinating with Antonio Ongpin and to communicate directly instead with
petitioner DMC-USA through Paul E. Derby, Jr.
10
Art. 20. Every person who, contrary to law, willfully and negligently causes damage to
another, shall indemnify the latter for the same.
11
Art. 21. Any person who willfully causes loss or damage to another in a manner that is
contrary to morals, good custom or public policy shall compensate the latter for damages.
12
Art. 23. Even when an act or event causing damage to anothers property was not due to the
fault or negligence of the defendant, the latter shall be liable to indemnity, if through the act
or event, he was benefited.
377
377

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
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, attorneys fees and
litigation expenses.
378
378

On 21 October 1996 petitioners filed a Motion to Suspend Proceedings13 invoking the
arbitration clause in their Agreement with private respondents.
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
110
the suspension of the proceedings considering that the action was for damages with prayer
for the issuance of Writ of Preliminary Attachment and not on the Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for Reconsideration to which private
respondents filed their Comment/Opposition. On 31 January 1997 petitioners filed their
Reply. Subsequently, private respondents filed an Urgent Motion for Leave to Admit
Supplemental Pleading dated 2 April 1997. This Motion was admitted, over petitioners
opposition, in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997
a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and
Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on
the ground that it will not serve the ends of justice and to allow said suspension will only
delay the determination of the issues, frustrate the quest of the parties for a judicious
determination of their respective claims, and lor 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
_______________
13
Rollo, pp. 83-88.
14
Penned by Presiding Judge Amanda Valera Cabigao, RTC-Br. 73, Malabon, Metro Manila.
15
See Note 2.
16
See Note 10.
379
379

trial making arbitration out of the question.17 Petitioners Motion for Reconsideration of
the affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute between the parties warrants
an order compelling them to submit to arbitration.
Petitioners contend that the subject matter of private respondents causes of action arises out
of or relates to the Agreement between petitioners and private respondents. Thus, considering
that the arbitration clause of the Agreement provides that all disputes arising out of or
relating to the Agreement or the parties relationship, including the termination thereof, shall
be resolved by arbitration, they insist on the suspension of the proceedings in Civil Case No.
2637-MN as mandated by Sec. 7 of RA 87618
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
111
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
________________
17
See Note 1.
18
The Arbitration Law.
19
See Notes 9, 10 and 11.

________________
380
380

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 here in the Philippines, thus
warranting the dismissal of the present petition before this Court.
There is no doubt that arbitration is valid and constitutional in our jurisdiction.21 Even before
the enactment of RA 876, this Court has countenanced the settlement of disputes through
arbitration. Unless the agreement is such as absolutely to close the doors of the courts against
the parties, which agreement would be void, the courts will look with favor upon such
amicable arrangement and will only interfere with great reluctance to anticipate or nullify the
20
18 November 1998.
21
Chapter 2, Title XIV, Book IV, New Civil Code of the Philippines.
22
Puromines, Inc. v. Court of Appeals, G.R. No. 91228, 22 March 1993, 220 SCRA 281.
381
381

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
112
heirs.24 Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing
Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its Managing
Director LILY SY are bound by the Agreement and its arbitration clause as they are the only
signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI,
not parties to the Agreement and cannot even be considered assigns or heirs of the parties, are
not bound by the Agreement and the arbitration clause therein. Consequently, referral to
arbitration in the State of California pursuant to the arbitration clause and the suspension of
the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be
called for25 but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private
respondents MMI and LILY SY, and not as to the other parties in this case, in accordance
with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation,26 which
superseded that of Toyota Motor Philippines Corp. v. Court of Appeals.27
________________
23
National Union Fire Insurance Company of Pittsburg v. StoltNielsen Philippines, Inc., G.R.
No. 87958, 26 April 1990, 184 SCRA 682.
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 parties28 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
24
Art. 1311, New Civil Code of the Philippines.
25
See Note 22.
26
G.R. No. 135362, 13 December 1999, 320 SCRA 610.
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.
27
G.R. No. 102881, 7 December 1992, 216 SCRA 236.
________________
28
Citing Mercantile Ins. Co. v. Felipe Ysmael, Jr. & Co., Inc., G.R. No. 43862, 13 January
1989, 169 SCRA 66.
382
382
29
Citing Quillian v. Court of Appeals, G.R. No. 55457, 20 January 1989, 169 SCRA 279.
30
Ibid.
31
Coquia, Jorge R., Annotation, Arbitration as a Means of Reducing Court Congestion, 29

July 1977, 78 SCRA 121.
32
See Note 26.

113
383
383
People vs. Cordero

SO ORDERED.
Mendoza, Buena and De Leon, Jr., JJ., concur.
Quisumbing, J., No Part, related to counsel of a party.
Petition denied, judgment affirmed.
Notes.It is the policy of the State to promote voluntary arbitration as a mode of settling
labor disputes. (Navarro III vs. Damasco, 246 SCRA 260 [1995])
The potentials of arbitration as one of the alternative dispute resolution methods that are now
rightfully vaunted as the wave of the future in international relations, is recognized
worldwide. (BF Corporation vs. Court of Appeals, 288 SCRA 267 [1998])
CHAVEZ v. CA
Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to
the arbitration proceeding to petition the court to take measures to safeguard and/or conserve
any matter which is the subject of the dispute in arbitration. (Home Bankers Savings and
Trust Company vs. Court of Appeals, 318 SCRA 558 [1999])
o0o
114
August 9, 2010.G.R. No. 163582.*

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, petitioner, vs. RAY
BURTON DEVELOPMENT CORPORATION, respondent.
Remedial Law; Appeals; Certiorari; Court emphasized the importance of complying with the
formal requirements for filing a petition for certiorari in Tagle vs. Equitable PCI Bank, 552
SCRA 424 (2008).Petitioner is correct that it was grave error for the CA to have given due
course to respondents petition for certiorari despite its failure to attach copies of relevant
pleadings in CIAC Case No. 13-2002. In Tagle v. Equitable PCI Bank, 552 SCRA 424
(2008), the party filing the petition for certiorari before the CA failed to attach the Motion to
Stop Writ of Possession and the Order denying the same. On the ground of non-compliance
with the rules, the CA dismissed said petition for certiorari. When the case was elevated to
this Court via a petition for certiorari, the same was likewise dismissed. In said case, the
Court emphasized the importance of complying with the formal requirements for filing a
petition for certiorari xxxand held as follows: xxx The aforequoted provisions are plain
and unmistakable. Failure to comply with the requirement that the petition be accompanied
by a duplicate original or certified true copy of the judgment, order, resolution or ruling being
challenged is sufficient ground for the dismissal of said petition. Consequently, it cannot be
said that the Court of Appeals acted with grave abuse of discretion amounting to lack
115
or excess of jurisdiction in dismissing the petition x x x for non-compliance with Sec. 1,

Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court.
Same; Same; Same; As mandated by the rules, the failure to do so is sufficient ground for the
dismissal of the petition.As mandated by the rules, the failure to do so is sufficient ground
for the dismissal of the petition. The CA did not give any convincing reason why the rule
regarding requirements for filing a petition should be relaxed in favor of herein respondent.
Therefore, it was error for the CA to have given due course to the petition for certiorari
despite herein respondents failure to comply with the requirements set forth in Section 1,
Rule 65, in relation to Section 3, Rule 46, of the Revised Rules of Court.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
Roderick Ben C. Santos for petitioner.
Rodolfo C. Britanico for respondent.
PERALTA,J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision1 of the Court of Appeals (CA) dated December 19, 2003, holding
that the Construction Industry Arbitration Commission (CIAC) had no jurisdiction over the
dispute between herein parties, and the CA Resolution2 dated May 24, 2004, denying herein
petitioners motion for reconsideration, be reversed and set aside.
The undisputed facts, as accurately narrated in the CA Decision, are as follows.
On July 20, 1995, petitioner Ray Burton Development Corporation [herein respondent]
(RBDC for brevity) and private respondent William Golangco Construction Corporation
[herein petitioner] (WGCC) entered into a Contract for the construction of the Elizabeth
Place (Office/Residential Condominium).
On March 18, 2002, private respondent WGCC filed a complaint with a request for
arbitration with the Construction Industry Arbitration Commission (hereinafter referred to as
CIAC). In its complaint, private respondent prayed that CIAC render judgment ordering
petitioner to pay private respondent the amount of, to wit:
1.P24,703,132.44 for the unpaid balance on the contract price;
2.P10,602,670.25 for the unpaid balance on the labor cost adjustment;
3.P9,264,503.70 for the unpaid balance of additive works;
4.P2,865,615.10 for extended overhead expenses;
5.P1,395,364.01 for materials cost adjustment and trade contractors utilities
expenses;
6.P4,835,933.95 for interest charges on unpaid overdue billings on labor cost
adjustment and change orders.
or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred
Nineteen and 45/xx (P53,667,219.45) and interest charges based on the prevailing bank rates
on the foregoing amount from March 1, 2002 and until such time as the same shall be fully
paid.
On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on the
ground of lack of jurisdiction. It is petitioners contention that the CIAC acquires jurisdiction
over disputes arising from or connected with construction contracts only when the parties to
the contract agree to submit the same to voluntary arbitration. In the contract between
petitioner and private respondent, petitioner claimed that only disputes by reason of
differences in interpretation of the contract documents shall be deemed subject to arbitration.
Private respondent filed a Comment and Opposition to the aforesaid Motion dated April 15,
2002. Private respondent averred that the claims set forth in the complaint require contract
interpretation and are thus cognizable by the CIAC pursuant to the arbitration clause in the
construction contract between the parties. Moreover, even assuming that the claims do not
involve differing contract interpretation, they are still cognizable by the CIAC as the
arbitration clause mandates their direct filing therewith.
116
On May 6, 2002, the CIAC rendered an Order the pertinent portion of which reads as
follows:
The Commission has taken note of the foregoing arguments of the parties. After due
deliberations, the Commission resolved to DENY Respondent's motion on the
following grounds:
[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides that
any dispute arising under the construction contract shall be submitted to the
Construction Arbitration Authority created by the Government. Even without this
provision, the bare agreement to submit a construction dispute to arbitration vests in
the Commission original and exclusive jurisdiction by virtue of Sec. 4 of Executive
Order No. 1008, whether or not a dispute involves a collection of sum of money or
contract interpretation as long as the same arises from, or in connection with,
contracts entered into by the parties involved. The Supreme Court jurisprudence on
Tesco vs. Vera case referred to by respondent is no longer controlling as the same was
based on the old provision of Article III, Sec. 1 of the CIAC Rules which has long
been amended.
The issue raised by Respondent in its Motion to Dismiss is similar to the issue set
forth in CA-G.R. Sp. No. 67367,[2] Continental Cement Corporation vs. CIAC and
EEI Corporation, where the appellate court upheld the ruling of the CIAC thereon
that since the parties agreed to submit to arbitration any dispute, the same does not
exclude disputes relating to claims for payment in as much as the said dispute
originates from execution of the works. As such, the subject dispute falls within the
original and exclusive jurisdiction of the CIAC.
WHEREFORE, in view of the foregoing, Respondents Motion to Dismiss is
DENIED for lack of merit. Respondent is given anew an inextendible period of ten
(10) days from receipt hereof within which to file its Answer and nominees for the
Arbitral Tribunal. If Respondent shall fail to comply within the prescribed period, the
Commission shall proceed with arbitration in accordance with its Rules. x x x
Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order a
suspension of the proceedings in Case No. 13-2002 until the resolution of the negotiations
between the parties, and consequently, that the period to file an Answer be held in abeyance.
Private respondent filed an Opposition to the aforesaid Motion and a Counter-Motion to

Declare respondent to Have Refused to Arbitrate and to Proceed with Arbitration Ex Parte.
On May 24, 2002 the CIAC issued an Order, the pertinent portion of which reads:
In view of the foregoing, Respondents (petitioners) Motion to Suspend Proceedings is
DENIED. Accordingly, respondent is hereby given a non-extendible period of five (5) days
from receipt thereof within which to submit its Answer and nominees for the Arbitral
Tribunal. In default thereof, claimants (private respondents) Counter-Motion is deemed
granted and arbitration shall proceed in accordance with the CIAC Rules Governing
Construction Arbitration.
SO ORDERED. x x x
On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition for
Certiorari and Prohibition with prayer for the issuance of a temporary restraining order and a
writ of preliminary injunction. Petitioner contended that CIAC acted without or in excess of
its jurisdiction when it issued the questioned order despite the clear showing that there is lack
of jurisdiction on the issue submitted by private respondent for arbitration.3
On December 19, 2003, the CA rendered the assailed Decision granting the petition for
certiorari, ruling that the CIAC had no jurisdiction over the subject matter of the case
because the parties agreed that only disputes regarding differences in interpretation of the
contract documents shall be submitted for arbitration, while the allegations in the complaint
make out a case for collection of sum of money. Petitioner moved for reconsideration of said
ruling, but the same was denied in a Resolution dated May 24, 2004.
Hence, this petition where it is alleged that:
I.
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN
FAILING TO DISMISS PRIVATE RESPONDENT RBDC'S PETITION IN CA-G.R. SP
117
NO. 70959 OUTRIGHT IN VIEW OF RBDC'S FAILURE TO FILE A MOTION FOR

RECONSIDERATION OF THE CIACS ORDER, AS WELL AS FOR RBDCS FAILURE
TO ATTACH TO THE PETITION THE RELEVANT PLEADINGS IN CIAC CASE NO. 132002, IN VIOLATION OF THE REQUIREMENT UNDER RULE 65, SECTIONS 1 AND 2,
PARAGRAPH 2 THEREOF, AND RULE 46, SECTION 3, PARAGRAPH 2 THEREOF.
xxxx
IV.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS
ESTOPPED FROM DISPUTING THE JURISDICTION OF THE CIAC.
II.
xxxx
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC HAS
JURISDICTION OVER WGCCS CLAIMS, WHICH ARE IN THE NATURE OF
ARBITRABLE DISPUTES
V.
FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
IN REFUSING TO PAY HEED TO THE DECLARATION IN EXECUTIVE ORDER NO.
1008 THAT THE POLICY OF THE STATE IS IN FAVOR OF ARBITRATION OF
CONSTRUCTION DISPUTES, WHICH POLICY HAS BEEN REINFORCED FURTHER
BY THE RECENT PASSAGE OF THE ALTERNATIVE DISPUTE RESOLUTION ACT
OF 2004 (R.A. NO. 9285).4
_______________
3 Rollo, pp. 88-91.
80
The petition is meritorious.

80
William Galangco Construction Corporation vs. Ray Burton Developmet Corporation

COVERED BY CLAUSE 17.1 OF ARTICLE XVII INVOLVING CONTRACT
INTERPRETATION.
xxxx
III.
THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO DISCERN THAT
CLAUSE 17.2 OF ARTICLE XVII CANNOT BE TREATED AS BEING LIMITED TO
DISPUTES ARISING FROM INTERPRETATION OF THE CONTRACT.
The aforementioned issues boil down to (1) whether the CA acted with grave abuse of
discretion in failing to dismiss the petition for certiorari filed by herein respondent, in view
of the latters failure to file a motion for reconsideration of the assailed CIAC Order and for
failure to attach to the petition the relevant pleadings in CIAC Case No. 13-2002; and (2)
whether the CA gravely erred in not upholding the jurisdiction of the CIAC over the subject
complaint.
Petitioner is correct that it was grave error for the CA to have given due course to
respondent's petition for certiorari despite its failure to attach copies of relevant pleadings in
CIAC Case No. 13-2002. In Tagle v. Equitable PCI Bank,5 the party filing the petition for
certiorari before the CA failed to attach the Motion to Stop Writ of Possession and the Order
denying the same. On the ground of non-compliance with the rules, the CA dismissed said
petition for certiorari. When the case was elevated to this Court via a petition for certiorari,
the same was likewise dismissed. In said case, the Court emphasized the importance of
complying with the formal requirements for filing a petition for certiorari and held as
follows:
118
x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court. Sec. 1
of Rule 65 reads:
1.SECTIONPetition for certiorari.When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in excess of its or
his 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 ordinary course of law, a person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental relief as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certification of non-forum shopping as provided in the
third paragraph of Section 3, Rule 46. (Emphasis supplied.)
And Sec. 3 of Rule 46 provides:
SEC. 3.Contents and filing of petition; effect of non-compliance with requirements.
The petition shall contain the full names and actual addresses of all the petitioners
and respondents, a concise statement of the matters involved, the factual background
of the case, and the grounds relied upon for the relief prayed for.
In actions filed under Rule 65, the petition shall further indicate the material dates
showing when notice of the judgment or final order or resolution subject thereof was
received, when a motion for new trial or reconsideration, if any, was filed and when
notice of the denial thereof was received.
It shall be filed in seven (7) clearly legible copies together with proof of service
thereof on the respondent with the original copy intended for the court indicated as
such by the petitioner and shall be accompanied by a clearly legible duplicate
original or certified true copy of the judgment, order, resolution, or ruling subject
thereof, such material portions of the record as are referred to therein, and other
documents relevant or pertinent thereto. The certification shall be accomplished by
the proper clerk of court or by his duly-authorized representative, or by the proper
officer of the court, tribunal, agency or office involved or by his duly authorized
representative. The other requisite number of copies of the petition shall be

accompanied by clearly legible plain copies of all documents attached to the original.
xxxx
The failure of the petitioner to comply with any of the foregoing requirements shall be
sufficient ground for the dismissal of the petition. (Emphasis supplied.)
The afore-quoted provisions are plain and unmistakable. Failure to comply with the
requirement that the petition be accompanied by a duplicate original or certified true copy of
the judgment, order, resolution or ruling being challenged is sufficient ground for the
dismissal of said petition. Consequently, it cannot be said that the Court of Appeals acted
with grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing
the petition x x x for non-compliance with Sec. 1, Rule 65, in relation to Sec. 3, Rule 46,
of the Revised Rules of Court.
In the present case, herein petitioner (private respondent below) strongly argued against the
CAs granting due course to the petition, pointing out that pertinent pleadings such as the
Complaint before the CIAC, herein respondents Motion to Dismiss, herein petitioners
Comment and Opposition (Re: Motion to Dismiss), and the Motion to Suspend Proceedings,
have not been attached to the petition. Herein respondent (petitioner before the CA) argued in
its Reply7 before the CA that it did not deem such pleadings or documents germane to the
petition. However, in the CA Resolution8 dated July 4, 2002, the appellate court itself
revealed the necessity of such documents by ordering the submission of copies of pleadings
relevant to the petition. Indeed, such pleadings are necessary for a judicious resolution of the
issues raised in the petition and should have been attached thereto. As mandated by the rules,
the failure to do so is sufficient ground for the dismissal of the petition. The CA did not give
any convincing reason why the rule regarding requirements for filing a petition should be
relaxed in favor of herein respondent. Therefore, it was error for the CA to have given due
course to the petition for certiorari despite herein respondents failure to comply with the
requirements set forth in Section 1, Rule 65, in relation to Section 3, Rule 46, of the Revised
Rules of Court.
Even on the main issue regarding the CIACs jurisdiction, the CA erred in ruling that said
arbitration body had no jurisdiction over the complaint filed by herein petitioner. There is no
question that, as provided under Section 4 of Executive Order No. 1008, also known as the
Construction Industry Arbitration Law, the CIAC has original and exclusive jurisdiction
119
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines and all that is needed for the CIAC to acquire jurisdiction is
for the parties to agree to submit the same to voluntary arbitration. Nevertheless, respondent
insists that the only disputes it agreed to submit to voluntary arbitration are those arising
from interpretation of contract documents. It argued that the claims alleged in petitioners
complaint are not disputes arising from interpretation of contract documents; hence, the
CIAC cannot assume jurisdiction over the case.
Respondents contention is tenuous.
The contract between herein parties contained an arbitration clause which reads as follows:
17.1.1. Any dispute arising in the course of the execution of this Contract by reason of
differences in interpretation of the Contract Documents which the OWNER and the
CONTRACTOR are unable to resolve between themselves, shall be submitted by either party
for resolution or decision, x x x to a Board of Arbitrators composed of three (3) members, to
be chosen as follows:
One (1) member each shall be chosen by the OWNER and the CONTRACTOR. The
said two (2) members, in turn, shall select a third member acceptable to both of them.
The decision of the Board of Arbitrators shall be rendered within fifteen (15) days
from the first meeting of the Board. The decision of the Board of Arbitrators when
reached through the affirmative vote of at least two (2) of its members shall be final
and binding upon the OWNER and the CONTRACTOR.
17.1 Matters not otherwise provided for in this Contract or by special agreement of the
parties shall be governed by the provisions of the Construction Arbitration Law of the
Philippines. As a last resort, any dispute which is not resolved by the Board of Arbitrators
shall be submitted to the Construction Arbitration Authority created by the government.9
In gist, the foregoing provisions mean that herein parties agreed to submit disputes arising by
reason of differences in interpretation of the contract to a Board of Arbitrators the
composition of which is mutually agreed upon by the parties, and, as a last resort, any other
dispute which had not been resolved by the Board of Arbitrators shall be submitted to the
Construction Arbitration Authority created by the government, which is no other than the
CIAC. Moreover, other matters not dealt with by provisions of the contract or by special
agreements shall be governed by provisions of the Construction Industry Arbitration Law, or

Executive Order No. 1008.
The Court finds that petitioners claims that it is entitled to payment for several items under
their contract, which claims are, in turn, refuted by respondent, involves a dispute arising
from differences in interpretation of the contract. Verily, the matter of ascertaining the duties
and obligations of the parties under their contract all involve interpretation of the provisions
of the contract. Therefore, if the parties cannot see eye to eye regarding each others
obligations, i.e., the extent of work to be expected from each of the parties and the valuation
thereof, this is properly a dispute arising from differences in the interpretation of the
contract.
Note, further, that in respondents letter10 dated February 14, 2000, it stated that disputed
items of work such as Labor Cost Adjustment and interest charges, retention, processing of
payment on Cost Retained by WGCC, Determination of Cost of Deletion for miscellaneous
Finishing Works, are considered unresolved dispute[s] as to the proper interpretation of our
respective obligations under the Contract, which should be referred to the Board of
Arbitrators. Even if the dispute subject matter of said letter had been satisfactorily settled by
herein parties, the contents of the letter evinces respondents frame of mind that the claims
being made by petitioner in the complaint subject of this petition, are indeed matters
involving disputes arising from differences in interpretation.
Clearly, the subject matter of petitioners claims arose from differences in interpretation of
the contract, and under the terms thereof, such disputes are subject to voluntary arbitration.
Since, under Section 4 of Executive Order No. 1008 the CIAC shall have original and
exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines and all that is needed for the CIAC to
acquire jurisdiction is for the parties to agree to submit the same to voluntary arbitration,
there can be no other conclusion but that the CIAC had jurisdiction over petitioners
complaint. Furthermore, Section 1, Article III of the CIAC Rules of Procedure Governing
Construction Arbitration (CIAC Rules) further provide that [a]n arbitration clause in a
construction contract or a submission to arbitration of a construction dispute shall be deemed
an agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such
contract or submission. Thus, even if there is no showing that petitioner previously brought
its claims before a Board of Arbitrators constituted under the terms of the contract, this
120
circumstance would not divest the CIAC of jurisdiction. In HUTAMA-RSEA Joint

Operations, Inc. v. Citra Metro Manila Tollways Corporation,11 the Court held that:
arising from, or connected with, contracts entered into by the parties involved in construction
in the Philippines.12
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction
contract shall be deemed as an agreement to submit an existing or future controversy to
CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or
arbitral body in such contract x x x. Elementary is the rule that when laws or rules are clear,
it is incumbent on the court to apply them. When the law (or rule) is unambiguous and
unequivocal, application, not interpretation thereof, is imperative.
Thus, there is no question that in this case, the CIAC properly took cognizance of petitioners
complaint as it had jurisdiction over the same.
IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Court of
Appeals, dated December 19, 2003, and its Resolution dated May 24, 2004 in
Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC is
sufficient to vest the CIAC with jurisdiction over any construction controversy or claim
between the parties. The arbitration clause in the construction contract ipso facto vested the
CIAC with jurisdiction. This rule applies, regardless of whether the parties specifically
choose another forum or make reference to another arbitral body. Since the jurisdiction of
CIAC is conferred by law, it cannot be subjected to any condition; nor can it be waived or
diminished by the stipulation, act or omission of the parties, as long as the parties agreed to
submit their construction contract dispute to arbitration, or if there is an arbitration clause in
the construction contract. The parties will not be precluded from electing to submit their
dispute to CIAC, because this right has been vested in each party by law.
xxxx
It bears to emphasize that the mere existence of an arbitration clause in the construction
contract is considered by law as an agreement by the parties to submit existing or
future controversies between them to CIAC jurisdiction, without any qualification or
condition precedent. To affirm a condition precedent in the construction contract, which
would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be
in conflict with the recognized intention of the law and rules to automatically vest CIAC
with jurisdiction over a dispute should the construction contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the contribution of the construction
industry to national development goals. Realizing that delays in the resolution of construction
industry disputes would also hold up the development of the country, Executive Order No.
1008 expressly mandates the CIAC to expeditiously settle construction industry disputes
and, for this purpose, vests in the CIAC original and exclusive jurisdiction over disputes
September 1, 2010.G.R. No. 176657.*

DEPARTMENT OF FOREIGN AFFAIRS and BANGKO SENTRAL NG PILIPINAS,
petitioners, vs. HON. FRANCO T. FALCON, IN HIS CAPACITY AS THE
PRESIDING JUDGE OF BRANCH 71 OF THE REGIONAL TRIAL COURT IN
PASIG CITY and BCA INTERNATIONAL CORPORATION, respondents.
Remedial Law; Actions; Hierarchy of Courts; Court has full discretionary power to take
cognizance and assume jurisdiction of special civil actions for certiorari and mandamus
filed directly with it for exceptionally compelling reasons or if warranted by the nature of the
issues clearly and specifically raised in the petition.Although the direct filing of petitions
for certiorari with the Supreme Court is discouraged when litigants may still resort to
remedies with the lower courts, we have in the past overlooked the failure of a party to
121
strictly adhere to the hierarchy of courts on highly meritorious grounds. Most recently, we
relaxed the rule on court hierarchy in the case of Roque, Jr. v. Commission on Elections, 599
SCRA 69 (2009), wherein we held: The policy on the hierarchy of courts, which
petitioners indeed failed to observe, is not an iron-clad rule. For indeed the Court has full
discretionary power to take cognizance and assume jurisdiction of special civil actions for
certiorari and mandamus filed directly with it for exceptionally compelling reasons or if
warranted by the nature of the issues clearly and specifically raised in the petition.
Same; Same; Same; The Court may suspend or even disregard rules when the demands of
justice so require.In sum, BCA failed to successfully rebut the presumption that the official
acts (of Mr. Custodio and Mr. Zuniga) were done in good faith and in the regular
performance of official duty. Even assuming the verifications of the petition suffered from
some defect, we have time and again ruled that [t]he ends of justice are better served when
cases are determined on the meritsafter all parties are given full opportunity to ventilate
their causes and defensesrather than on technicality or
_______________
* FIRST DIVISION.
645
645
Department of Foreign Affair vs. Falcon
court, aside from the Supreme Court, may enjoin a national government project unless the
matter is one of extreme urgency involving a constitutional issue such that unless the act
complained of is enjoined, grave injustice or irreparable injury would arise.
Same; Same; Same; Definition of National Government Projects.(a) National
government projects shall refer to all current and future national government infrastructure,
engineering works and service contracts, including projects undertaken by governmentowned and -controlled corporations, all projects covered by Republic Act No. 6975, as
amended by Republic Act No. 7718, otherwise known as the Build-Operate-and-Transfer
Law, and other related and necessary activities, such as site acquisition, supply and/or
installation of equipment and materials, implementation, construction, completion, operation,
maintenance, improvement, repair and rehabilitation, regardless of the source of funding.
Same; Same; Same; Private Sector Infrastructure or Development Projects; Meaning of.
Under Section 2(a) of the BOT Law as amended by Republic Act No. 7718, private sector
infrastructure or development projects are those normally financed and operated by
the public sector but which will now be wholly or partly implemented by the private
sector, including but not limited to, power plants, highways, ports, airports, canals, dams,
hydropower projects, water supply, irrigation, telecommunications, railroads and railways,
transport systems, land reclamation projects, industrial estates or townships, housing,
government buildings, tourism projects, markets, slaughterhouses, warehouses, solid waste
management, information technology networks and database infrastructure, education
and health facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may be authorized by the appropriate agency.646
646
some procedural imperfections. In other words, the Court may suspend or even disregard
rules when the demands of justice so require.
Same; Injunction; Infrastructure Projects; National Government Projects; No court, aside

from the Supreme Court, may enjoin a national government project unless the matter is
one of extreme urgency involving a constitutional issue such that unless the act complained
of is enjoined, grave injustice or irreparable injury would arise.It is indubitable that no
Same; Same; Same; Same; Definition of Infrastructure Projects under the Government
Procurement Reform Act.Republic Act No. 9184, also known as the Government
Procurement Reform Act, defines infrastructure projects in Section 5(k) thereof in this
manner: (k) Infrastructure Projectsinclude the construction, improvement, rehabilitation,
122
demolition, repair, restoration or maintenance of roads and bridges, railways, airports,

seaports, communication facilities, civil works components of information technology
projects, irrigation, flood control and drainage, water supply, sanitation, sewerage and solid
waste management systems, shore protection, energy/power and electrification facilities,
national buildings, school buildings, hospital buildings and other related construction projects
of the government.
Same; Same; Same; Evidence; Evidence adduced by both sides tended to show that the ePassport Project was a procurement contract under Republic Act No. 9184.Taking into
account the different treatment of information technology projects under the BOT Law and
the Government Procurement Reform Act, petitioners contention the trial court had no
jurisdiction to issue a writ of preliminary injunction in the instant case would have been
correct if the e-Passport Project was a project under the BOT Law as they represented to the
trial court. However, petitioners presented no proof that the e-Passport Project was a BOT
project. On the contrary, evidence adduced by both sides tended to show that the e-Passport
Project was a procurement contract under Republic Act No. 9184.
Same; Same; Same; Same; To be considered a service contract or related activity, petitioners
must show that the e-Passport Project is an infrastructure project or necessarily related to an
infrastructure project.Under Republic Act No. 8975, a service contract refers to
infrastructure contracts entered into by any department, office or agency of the national
government with private entities and nongovernment organizations for services related or
incidental to the functions and operations of the department, office or agency concerned. On
the other hand, the phrase other related and necessary activities obviously refers to
activities related to a government infrastructure, engineering works, service contract or
project under the BOT Law. In other words, to be considered a service contract or related
activity, petitioners must show that the e-Passport Project is an infrastructure project or
necessarily related to an infrastructure
647
647
project. This, petitioners failed to do for they saw fit not to present any evidence on the
details of the e-Passport Project before the trial court and this Court. There is nothing on
record to indicate that the e-Passport Project has a civil works component or is necessarily
related to an infrastructure project.
Same; Same; Same; The trial court had jurisdiction to issue a writ of preliminary injunction
against the e-Passport Project.Republic Act No. 9285 is a general law applicable to all
matters and controversies to be resolved through alternative dispute resolution methods. This
law allows a Regional Trial Court to grant interim or provisional relief, including preliminary
injunction, to parties in an arbitration case prior to the constitution of the arbitral tribunal.
This general statute, however, must give way to a special law governing national government
projects, Republic Act No. 8975 which prohibits courts, except the Supreme Court, from
issuing TROs and writs of preliminary injunction in cases involving national government
projects. However, as discussed above, the prohibition in Republic Act No. 8975 is
inoperative in this case, since petitioners failed to prove that the e-Passport Project is national
government project as defined therein. Thus, the trial court had jurisdiction to issue a writ of
preliminary injunction against the e-Passport Project.
Same; Same; To be entitled to injunctive relief the party seeking such relief must be able to
show grave, irreparable injury that is not capable of compensation.Time and again, this
Court has held that to be entitled to injunctive relief the party seeking such relief must be
able to show grave, irreparable injury that is not capable of compensation.
Same; Same; 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.We reiterated this point in Transfield Philippines, Inc. v. Luzon Hydro
Corporation, 443 SCRA 307 (2004), where we likewise opined: 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. 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. Moreover, an
123
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.
Same; Damages; When an injury considered irreparable.An injury is considered
irreparable if it is of such constant and frequent recurrence that no fair and reasonable
redress can be had therefore in a court of law, or where there is no standard by which their
amount can be measured with reasonable accuracy, that is, it is not susceptible of
mathematical computation. It is considered irreparable injury when it cannot be
adequately compensated in damages due to the nature of the injury itself or the nature
of the right or property injured or when there exists no certain pecuniary standard for
the measurement of damages.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Prohibition.
The Solicitor General for petitioner.
Castillo, Laman, Tan, Pantaleon & San Jose for respondent BCA.
SEDALAW collaborating counsel for respondent BCA.
LEONARDO-DE CASTRO,J.:
Before the Court is a Petition for Certiorari and prohibition under Rule 65 of the Rules of
Court with a prayer for the issuance of a temporary restraining order and/or a writ of
preliminary injunction filed by petitioners Department of Foreign Affairs (DFA) and Bangko
Sentral ng Pilipinas (BSP). Petitioners pray that the Court declare as null and void the Order1
dated February 14, 2007 of respondent Judge Franco
_______________
1 Rollo, pp. 84-92.
649
649

T. Falcon (Judge Falcon) in Civil Case No. 71079, which granted the application for
preliminary injunction filed by respondent BCA International Corporation (BCA). Likewise,
petitioners seek to prevent respondent Judge Falcon from implementing the corresponding
Writ of Preliminary Injunction dated February 23, 20072 issued pursuant to the aforesaid
Order.
The facts of this case, as culled from the records, are as follows:
Being a member state of the International Civil Aviation Organization (ICAO), the
Philippines has to comply with the commitments and standards set forth in ICAO Document
No. 93034 which requires the ICAO member states to issue machine readable travel
documents (MRTDs) by April 2010.
Thus, in line with the DFAs mandate to improve the passport and visa issuance system, as
well as the storage and retrieval of its related application records, and pursuant to our
governments ICAO commitments, the DFA secured the approval of the President of the
Philippines, as Chairman of the Board of the National Economic and Development Authority
(NEDA), for the implementation of the Machine Readable Passport and Visa Project (the
MRP/V Project) under the Build-Operate-and-Transfer (BOT) scheme, provided for by
Republic Act No. 6957, as amended by Republic Act No. 7718 (the BOT Law), and its
Implementing Rules and Regulations (IRR). Thus, a Pre-qualification, Bids and Awards
Committee (PBAC) published an invitation to pre-qualify and bid for the supply of the
needed machine readable passports and visas, and conducted the public bidding for the
MRP/V Project on January 10, 2000. Several bidders responded and BCA was among those
that pre-qualified and submitted its technical and financial proposals. On June 29, 2000, the
PBAC found BCAs bid to be the sole complying bid; hence, it permitted the DFA to engage
in direct negotiations with BCA. On even date, the PBAC recommended to the DFA
Secretary the award of the MRP/V Project to BCA on a BOT arrangement.
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In compliance with the Notice of Award dated September 29, 2000 and Section 11.3, Rule 11
of the IRR of the BOT Law, BCA incorporated a project company, the Philippine Passport
Corporation (PPC) to undertake and implement the MRP/V Project.
On February 8, 2001, a Build-Operate-Transfer Agreement (BOT Agreement) between the
DFA and PPC was signed by DFA Acting Secretary Lauro L. Baja, Jr. and PPC President
Bonifacio Sumbilla. Under the BOT Agreement, the MRP/V Project was defined as follows:
Section1.02MRP/V Projectrefers to all the activities and services undertaken in the
fulfillment of the Machine Readable Passport and Visa Project as defined in the Request for
Proposals (RFP), a copy of which is hereto attached as Annex A, including but not limited
to project financing, systems development, installation and maintenance in the Philippines
and Foreign Service Posts (FSPs), training of DFA personnel, provision of all project
consumables (related to the production of passports and visas, such as printer supplies, etc.),
scanning of application and citizenship documents, creation of data bases, issuance of
machine readable passports and visas, and site preparation in the Central Facility and
Regional Consular Offices (RCOs) nationwide.8
On April 5, 2002, former DFA Secretary Teofisto T. Guingona and Bonifacio Sumbilla, this
time as BCA President, signed an Amended BOT Agreement9 in order to reflect the change
in the designation of the parties and to harmonize
Section 11.3 with Section 11.810 of the IRR of the BOT Law. The Amended BOT Agreement
was entered into by the DFA and BCA with the conformity of PPC.
The two BOT Agreements (the original version signed on February 8, 2001 and the amended
version signed April 5, 2002) contain substantially the same provisions except for seven
additional paragraphs in the whereas clauses and two new provisionsSection 9.05 on
Performance and Warranty Securities and Section 20.15 on Miscellaneous Provisions. The
two additional provisions are quoted below:
Section9.05. The PPC has posted in favor of the DFA the performance security required
for Phase 1 of the MRP/V Project and shall be deemed, for all intents and purposes, to be full
compliance by BCA with the provisions of this Article 9.
xxxx
Section20.15. It is clearly and expressly understood that BCA may assign, cede and
transfer all of its rights and obligations under this Amended BOT Agreement to PPC, as fully
as if PPC is the original signatory to this Amended BOT Agreement, provided however that
BCA shall nonetheless be jointly and severally liable with PPC for the performance of all the
obligations and liabilities under this Amended BOT Agreement.11
Also modified in the Amended BOT Agreement was the Project Completion date of the
MRP/V Project which set the completion of the implementation phase of the project within
18 to 23 months from the date of effectivity of the Amended BOT Agreement as opposed to
the previous period found in the original BOT Agreement which set the completion within 18
to 23 months from receipt of the NTP (Notice to Proceed) in accordance with the Project
Master Plan.
On April 12, 2002, an Assignment Agreement12 was executed by BCA and PPC, whereby
BCA assigned and ceded its rights, title, interest and benefits arising from the Amended BOT
Agreement to PPC.
As set out in Article 8 of the original and the Amended BOT Agreement, the MRP/V Project
was divided into six phases:
Phase1.Project Planning PhaseThe Project Proponent [BCA] shall prepare detailed
plans and specifications in accordance with Annex A of this [Amended] BOT Agreement
within three (3) months from issuance of the NTP (Notice to Proceed) [from the date of
effectivity of this Amended BOT Agreement]. This phase shall be considered complete upon
the review, acceptance and approval by the DFA of these plans and the resulting Master Plan,
including the Master Schedule, the business process specifications, the acceptance criteria,
among other plans.
xxxx
The DFA must approve all detailed plans as a condition precedent to the issuance of the CA
[Certificate of Acceptance] for Phase 1.
Phase2.Implementation of the MRP/V Project at the Central FacilityWithin six (6)
months from issuance of the CA for Phase 1, the PROJECT PROPONENT [BCA] shall
complete the implementation of the MRP/V Project in the DFA Central Facility, and establish
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the network design between the DFA Central Facility, the ten (10) RCOs [Regional Consular
Offices] and the eighty (80) FSPs [Foreign Service Posts].
shall bear all costs related to this transfer.13 (Words in brackets appear in the Amended
BOT Agreement)
xxxx
To place matters in the proper perspective, it should be pointed out that both the DFA and
BCA impute breach of the Amended BOT Agreement against each other.
PhaseImplementation of the MRP/V Project at the Regional Consular Offices3.

This phase represents the replication of the systems as approved from the Central Facility to
the RCOs throughout the country, as identified in the RFP [Request for Proposal]. The
approved systems are those implemented, evaluated, and finally approved by DFA as
described in Phase 1. The Project Proponent [BCA] will be permitted to begin site
preparation and the scanning and database building operations in all offices as soon as the
plans are agreed upon and accepted. This includes site preparation and database building
operations in these Phase-3 offices.
Within six (6) months from issuance of CA for Phase 2, the Project Proponent [BCA] shall
complete site preparation and implementation of the approved systems in the ten (10) RCOs,
including a fully functional network connection between all equipment at the Central Facility
and the RCOs.
Phase4.Full Implementation, including all Foreign Service PostsWithin three (3) to
eight (8) months from issuance of the CA for Phase-3, the Project Proponent [BCA] shall
complete all preparations and fully implement the approved systems in the eighty (80) FSPs,
including a fully functional network connection between all equipment at the Central Facility
and the FSPs. Upon satisfactory completion of Phase 4, a CA shall be issued by the DFA.
Phase5.In Service PhaseOperation and maintenance of the complete MRP/V Facility
to provide machine readable passports and visas in all designated locations around the world.
Phase6.Transition/TurnoverTransition/Turnover to the DFA of all operations and
equipment, to include an orderly transfer of ownership of all hardware, application system
software and its source code and/or licenses (subject to Section 5.02 [H]), peripherals,
leasehold improvements, physical and computer security improvements, Automated
Fingerprint Identification Systems, and all other MRP/V facilities shall commence at least six
(6) months prior to the end of the [Amended] BOT Agreement. The transition will include
the training of DFA personnel who will be taking over the responsibilities of system
operation and maintenance from the Project Proponent [BCA]. The Project Proponent [BCA]
According to the DFA, delays in the completion of the phases permeated the MRP/V Project
due to the submission of deficient documents as well as intervening issues regarding
BCA/PPCs supposed financial incapacity to fully implement the project.
On the other hand, BCA contends that the DFA failed to perform its reciprocal obligation to
issue to BCA a Certificate of Acceptance of Phase 1 within 14 working days of operation
purportedly required by Section 14.04 of the Amended BOT Agreement. BCA bewailed that
it took almost three years for the DFA to issue the said Certificate allegedly because every
appointee to the position of DFA Secretary wanted to review the award of the project to
BCA. BCA further alleged that it was the DFAs refusal to approve the location of the DFA
Central Facility which prevented BCA from proceeding with Phase 2 of the MRP/V Project.
Later, the DFA sought the opinion of the Department of Finance (DOF) and the Department
of Justice (DOJ) regarding the appropriate legal actions in connection with BCAs alleged
delays in the completion of the MRP/V Project. In a Letter dated February 21, 2005,14 the
DOJ opined that the DFA should issue a final demand upon BCA to make good on its
obligations, specifically on the warranties and responsibilities regarding the necessary
capitalization and the required financing to carry out the MRP/V Project. The DOJ used as
basis for said recommendation, the Letter dated April 19, 200415 of DOF Secretary Juanita
Amatong to then DFA Secretary Delia Albert stating, among others, that BCA may not be
able to infuse more capital into PPC to use for the completion of the MRP/V Project.
Thus, on February 22, 2005, DFA sent a letter to BCA, through its project company PPC,
invoking BCAs financial warranty under Section 5.02(A) of the Amended BOT
Agreement.17 The DFA required BCA to submit (a) proof of adequate capitalization (i.e., full
or substantial payment of stock subscriptions); (b) a bank guarantee indicating the
availability of a credit facility of P700 million; and (c) audited financial statements for the
years 2001 to 2004.
In reply to DFAs letter, BCA, through PPC, informed the former of its position that its
financial capacity was already passed upon during the prequalification process and that the
126
Amended BOT Agreement did not call for any additional financial requirements for the
implementation of the MRP/V Project. Nonetheless, BCA submitted its financial statements
for the years 2001 and 2002 and requested for additional time within which to comply with
the other financial requirements which the DFA insisted on.
Agreement dated 5 April 2005 (sic)23 effective 09 December 2005. Further, and as a
consequence of this termination, the Department formally DEMAND (sic) that you pay
within ten (10) days from receipt hereof, liquidated damages equivalent to the corresponding
performance security bond that you had posted for the MRP/V Project.
According to the DFA, BCAs financial warranty is a continuing warranty which requires that
it shall have the necessary capitalization to finance the MRP/V Project in its entirety and not
on a per phase basis as BCA contends. Only upon sufficient proof of its financial capability
to complete and implement the whole project will the DFAs obligation to choose and
approve the location of its Central Facility arise. The DFA asserted that its approval of a
Central Facility site was not ministerial and upon its review, BCAs proposed site for the
Central Facility was purportedly unacceptable in terms of security and facilities. Moreover,
the DFA allegedly received conflicting official letters and notices from BCA and PPC
regarding the true ownership and control of PPC. The DFA implied that the disputes among
the shareholders of PPC and between PPC and BCA appeared to be part of the reason for the
hampered implementation of the MRP/V Project.
Please be guided accordingly.
BCA, in turn, submitted various letters and documents to prove its financial capability to
complete the MRP/V Project. However, the DFA claimed these documents were
unsatisfactory or of dubious authenticity. Then on August 1, 2005, BCA terminated its
Assignment Agreement with PPC and notified the DFA that it would directly implement the
MRP/V Project. BCA further claims that the termination of the Assignment Agreement was
upon the instance, or with the conformity, of the DFA, a claim which the DFA disputed.
On December 9, 2005, the DFA sent a Notice of Termination to BCA and PPC due to their
alleged failure to submit proof of financial capability to complete the entire MRP/V Project
in accordance with the financial warranty under Section 5.02(A) of the Amended BOT
Agreement. The Notice states:
After a careful evaluation and consideration of the matter, including the reasons cited in
your letters dated March 3, May 3, and June 20, 2005, and upon the recommendation of the
Office of the Solicitor General (OSG), the Department is of the view that your continuing
default in complying with the requisite bank guarantee and/or credit facility, despite repeated
notice and demand, is legally unjustified.
In light of the foregoing considerations and upon the instruction of the Secretary of Foreign
Affairs, the Department hereby formally TERMINATE (sic) the Subject Amended BOT
On December 14, 2005, BCA sent a letter24 to the DFA demanding that it immediately
reconsider and revoke its previous notice of termination, otherwise, BCA would be
compelled to declare the DFA in default pursuant to the Amended BOT Agreement. When the
DFA failed to respond to said letter, BCA issued its own Notice of Default dated December
22, 200525 against the DFA, stating that if the default is not remedied within 90 days, BCA
will be constrained to terminate the MRP/V Project and hold the DFA liable for damages.
BCAs request for mutual discussion under Section 19.01 of the Amended BOT Agreement26
was purportedly ignored by the DFA and left the dispute unresolved through amicable means
within 90 days. Consequently, BCA filed its Request for Arbitration dated April 7,
200627 with the Philippine Dispute Resolution Center, Inc. (PDRCI), pursuant to
Section 19.02 of the Amended BOT Agreement which provides:
Section19.01Dispute SettlementAny dispute or controversy of any kind whatsoever
between the DFA and the BCA (such dispute or controversy being referred to herein as a
Dispute) which may arise out of or in connection with this Agreement, in the first instance
shall be settled within ninety (90) days through amicable means, such as, but not limited to,
mutual discussion.
Section19.02Failure to Settle AmicablyIf the Dispute cannot be settled amicably
within ninety (90) days by mutual discussion as contemplated under Section 19.01 herein, the
Dispute shall be settled with finality by an arbitrage tribunal operating under International
Law, hereinafter referred to as the Tribunal, under the UNCITRAL Arbitration Rules
contained in Resolution 31/98 adopted by the United Nations General Assembly on
December 15, 1976, and entitled Arbitration Rules on the United Nations Commission on
the International Trade Law. The DFA and the BCA undertake to abide by and implement
the arbitration award. The place of arbitration shall be Pasay City, Philippines, or such other
place as may mutually be agreed upon by both parties. The arbitration proceeding shall be
conducted in the English language.
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As alleged in BCAs Request for Arbitration, PDRCI is a non-stock, non-profit organization

composed of independent arbitrators who operate under its own Administrative Guidelines
and Rules of Arbitration as well as under the United Nations Commission on the
International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration
and other applicable laws and rules. According to BCA, PDRCI can act as an arbitration
center from whose pool of accredited arbitrators both the DFA and BCA may select their own
nominee to become a member of the arbitral tribunal which will render the arbitration award.
of the dispute should be had before an ad hoc arbitration body, and not before the PDRCI
which has as its accredited arbitrators, two of BCAs counsels of record. Likewise, the DFA
insisted that PPC, allegedly an indispensable party in the instant case, should also participate
in the arbitration.
BCAs Request for Arbitration filed with the PDRCI sought the following reliefs:
In DOJ Opinion No. 35 (2006) dated May 31, 2006,33 the DOJ concurred with the steps
taken by the DFA, stating that there was basis in law and in fact for the termination of the
MRP/V Project. Moreover, the DOJ recommended the immediate implementation of the
project (presumably by a different contractor) at the soonest possible time.
1. A judgment nullifying and setting aside the Notice of Termination dated December 9,
2005 of Respondent [DFA], including its demand to Claimant [BCA] to pay liquidated
damages equivalent to the corresponding performance security bond posted by Claimant
[BCA];
2. A judgment (a) confirming the Notice of Default dated December 22, 2005 issued by
Claimant [BCA] to Respondent [DFA]; and (b) ordering Respondent [DFA] to perform its
obligation under the Amended BOT Agreement dated April 5, 2002 by approving the site of
the Central Facility at the Star Mall Complex on Shaw Boulevard, Mandaluyong City, within
five days from receipt of the Arbitral Award; and
A judgment3. ordering respondent [DFA] to pay damages to Claimant [BCA], reasonably
estimated at P50,000,000.00 as of this date, representing lost business opportunities;
financing fees, costs and commissions; travel expenses; legal fees and expenses; and costs of
arbitration, including the fees of the arbitrator/s.29
PDRCI, through a letter dated April 26, 2006,30 invited the DFA to submit its Answer to the
Request for Arbitration within 30 days from receipt of said letter and also requested both the
DFA and BCA to nominate their chosen arbitrator within the same period of time.
Initially, the DFA, through a letter dated May 22, 2006,31 requested for an extension of time
to file its answer, without prejudice to jurisdictional and other defenses and objections
available to it under the law. Subsequently, however, in a letter dated May 29, 2006, the
DFA declined the request for arbitration before the PDRCI. While it expressed its willingness
to resort to arbitration, the DFA pointed out that under Section 19.02 of the Amended BOT
Agreement, there is no mention of a specific body or institution that was previously
authorized by the parties to settle their dispute. The DFA further claimed that the arbitration
The DFA then sought the opinion of the DOJ on the Notice of Termination dated December
9, 2005 that it sent to BCA with regard to the MRP/V Project.
Thereafter, the DFA and the BSP entered into a Memorandum of Agreement for the latter to
provide the former passports compliant with international standards. The BSP then solicited
bids for the supply, delivery, installation and commissioning of a system for the production of
Electronic Passport Booklets or e-Passports.34
For BCA, the BSPs invitation to bid for the supply and purchase of e-Passports (the ePassport Project) would only further delay the arbitration it requested from the DFA.
Moreover, this new e-Passport Project by the BSP and the DFA would render BCAs
remedies moot inasmuch as the e-Passport Project would then be replacing the MRP/V
Project which BCA was carrying out for the DFA.
Thus, BCA filed a Petition for Interim Relief under Section 28 of the Alternative Dispute
Resolution Act of 2004 (R.A. No. 9285),36 with the Regional Trial Court (RTC) of Pasig
City, Branch 71, presided over by respondent Judge Falcon. In that RTC petition, BCA
prayed for the following:
WHEREFORE, BCA respectfully prays that this Honorable Court, before the constitution of
the arbitral tribunal in PDRCI Case No. 30-2006/BGF, grant petitioner interim relief in the
following manner:
(a) upon filing of this Petition, immediately issue an order temporarily restraining
Respondents [DFA and BSP], their agents, representatives, awardees, suppliers and assigns
(i) from awarding a new contract to implement the Project, or any similar electronic passport
or visa project; or (ii) if such contract has been awarded, from implementing such Project or
128
similar projects until further orders from this Honorable Court; after notice(b) and
hearing, issue a writ of preliminary injunction ordering Respondents [DFA and BSP], their
agents, representatives, awardees, suppliers and assigns to desist (i) from awarding a new
contract to implement the Project or any similar electronic passport or visa project; or (ii) if
such contract has been awarded, from implementing such Project or similar projects, and to
maintain the status quo ante pending the resolution on the merits of BCAs Request for
Arbitration; and render judgment affirming the(c) interim relief granted to BCA until the
dispute between the parties shall have been resolved with finality.
BCA also prays for such other relief, just and equitable under the premises.37
BCA alleged, in support for its application for a Temporary Restraining Order (TRO), that
unless the DFA and the BSP were immediately restrained, they would proceed to undertake
the project together with a third party to defeat the reliefs BCA sought in its Request for
Arbitration, thus causing BCA to suffer grave and irreparable injury from the loss of
substantial investments in connection with the implementation of the MRP/V Project.
Thereafter, the DFA filed an Opposition (to the Application for Temporary Restraining Order
and/or ) dated January 18, 2007,38 alleging that BCA has no cause of action against it as the
contract between them is for machine readable passports and visas which is not the same as
the contract it has with the BSP for the supply of electronic passports. The DFA also pointed
out that the Filipino people and the governments international standing would suffer great
damage if a TRO would be issued to stop the e-Passport Project. The DFA mainly anchored
its opposition on Republic Act No. 8975, which prohibits trial courts from issuing a TRO,
preliminary injunction or mandatory injunction against the bidding or awarding of a contract
or project of the national government.
On January 23, 2007, after summarily hearing the parties oral arguments on BCAs
application for the issuance of a TRO, the trial court ordered the issuance of a TRO
restraining the DFA and the BSP, their agents, representatives, awardees, suppliers and
assigns from awarding a new contract to implement the Project or any similar electronic
passport or visa project, or if such contract has been awarded, from implementing such or
similar projects.39 The trial court also set for hearing BCAs application for preliminary
injunction.
Consequently, the DFA filed a Motion for Reconsideration40 of the January 23, 2007 Order.
The BSP, in turn, also sought to lift the TRO and to dismiss the petition. In its Urgent
Omnibus Motion dated February 1, 2007,41 the BSP asserted that BCA is not entitled to an
injunction, as it does not have a clear right which ought to be protected, and that the trial
court has no jurisdiction to enjoin the implementation of the e-Passport Project which, the
BSP alleged, is a national government project under Republic Act No. 8975.
In the hearings set for BCAs application for preliminary injunction, BCA presented as
witnesses, Mr. Bonifacio Sumbilla, its President, Mr. Celestino Mercader, Jr. from the
Independent Verification and Validation Contractor commissioned by the DFA under the
Amended BOT Agreement, and DFA Assistant Secretary Domingo Lucenario, Jr. as adverse
party witness.
The DFA and the BSP did not present any witness during the hearings for BCAs application
for preliminary injunction. According to the DFA and the BSP, the trial court did not have
any jurisdiction over the case considering that BCA did not pay the correct docket fees and
that only the Supreme Court could issue a TRO on the bidding for a national government
project like the e-Passport Project pursuant to the provisions of Republic Act No. 8975.
Under Section 3 of Republic Act No. 8975, the RTC could only issue a TRO against a
national government project if it involves a matter of extreme urgency involving a
constitutional issue, such that unless a TRO is issued, grave injustice and irreparable injury
will arise.
Thereafter, BCA filed an Omnibus Comment [on Opposition and Supplemental Opposition
(To the Application for Temporary Restraining Order and/or Writ of Preliminary Injunction)]
and Opposition [to Motion for Reconsideration (To the Temporary Restraining Order dated
January 23, 2007)] and Urgent Omnibus Motion [(i) To Lift Temporary Restraining Order;
and (ii) To Dismiss the Petition] dated January 31, 2007.42 The DFA and the BSP filed their
separate Replies (to BCAs Omnibus Comment) dated February 9, 200743 and February 13,
2007,44 respectively.
On February 14, 2007, the trial court issued an Order granting BCAs application for
preliminary injunction, to wit:
WHEREFORE, in view of the above, the court resolves that it has jurisdiction over the
instant petition and to issue the provisional remedy prayed for, and therefore, hereby
GRANTS petitioners [BCAs] application for preliminary injunction. Accordingly, upon
posting a bond in the amount of Ten Million Pesos (P10,000,000.00), let a writ of preliminary
injunction issue ordering respondents [DFA and BSP], their agents, representatives,
129
awardees, suppliers and assigns to desist (i) from awarding a new contract to implement the
project or any similar electronic passport or visa project or (ii) if such contract has been
awarded from implementing such project or similar projects.
The motion to dismiss is denied for lack of merit. The motions for reconsideration and to lift
temporary restraining Order are now moot and academic by reason of the expiration of the
TRO.
On February 16, 2007, BCA filed an Amended Petition,46 wherein paragraphs 3.3(b) and
4.3 were modified to add language to the effect that unless petitioners were enjoined from
awarding the e-Passport Project, BCA would be deprived of its constitutionally-protected
right to perform its contractual obligations under the original and amended BOT Agreements
without due process of law. Subsequently, on February 26, 2007, the DFA and the BSP
received the Writ of Preliminary Injunction dated February 23, 2007.
Hence, on March 2, 2007, the DFA and the BSP filed the instant Petition for Certiorari and
prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction, imputing grave abuse of discretion
on the trial court when it granted interim relief to BCA and issued the assailed Order dated
February 14, 2007 and the writ of preliminary injunction dated February 23, 2007.
The DFA and the BSP later filed an Urgent Motion for Issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction dated March 5, 2007.48
respondents from implementing the assailed Order dated 14 February 2007 and the Writ of
Preliminary Injunction dated 23 February 2007, issued by respondent Judge Franco T. Falcon
in Civil Case No. 71079 entitled BCA International Corporation vs. Department of Foreign
Affairs and Bangko Sentral ng Pilipinas, and from conducting further proceedings in said
case until further orders from this Court.
BCA filed on April 2, 2007 its Comment with Urgent Motion to Lift TRO,50 to which the
DFA and the BSP filed their Reply dated August 14, 2007.51
In a Resolution dated June 4, 2007,52 the Court denied BCAs motion to lift TRO. BCA filed
another Urgent Omnibus Motion dated August 17, 2007, for the reconsideration of the
Resolution dated June 4, 2007, praying that the TRO issued on March 12, 2007 be lifted and
that the petition be denied.
In a Resolution dated September 10, 2007,53 the Court denied BCAs Urgent Omnibus
Motion and gave due course to the instant petition. The parties were directed to file their
respective memoranda within 30 days from notice of the Courts September 10, 2007
Resolution.
Petitioners DFA and BSP submit the following issues for our consideration:
Issues
I
On March 12, 2007, the Court required BCA to file its comment on the said petition within
ten days from notice and granted the Office of the Solicitor Generals urgent motion for
issuance of a TRO and/or writ of preliminary injunction,49 thus:
After deliberating on the petition for certiorari and prohibition with temporary restraining
order and/or writ of preliminary injunction assailing the Order dated 14 February 2007 of the
Regional Trial Court, Branch 71, Pasig City, in Civil Case No. 71079, the Court, without
necessarily giving due course thereto, resolves to require respondents to COMMENT thereon
(not to file a motion to dismiss) within ten (10) days from notice.
The Court further resolves to GRANT the Office of the Solicitor Generals urgent motion for
issuance of a temporary restraining order and/or writ of preliminary injunction dated 05
March 2007 and ISSUE a TEMPORARY RESTRAINING ORDER, as prayed for, enjoining
WHETHER OR NOT THE RESPONDENT JUDGE GRAVELY ABUSED HIS

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN HE
ISSUED THE ASSAILED ORDER, WHICH EFFECTIVELY ENJOINED THE
IMPLEMENTATION OF THE E-PASSPORT PROJECTA NATIONAL GOVERNMENT
PROJECT UNDER REPUBLIC ACT NO. 8975.
II
WHETHER OR NOT THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
GRANTING RESPONDENT BCAS INTERIM RELIEF INASMUCH AS:
130
(I)RESPONDENT BCA HAS NOT ESTABLISHED A CLEAR RIGHT

THAT CAN BE PROTECTED BY AN INJUNCTION; AND
(II)RESPONDENT BCA HAS NOT SHOWN THAT IT WILL SUSTAIN
GRAVE AND IRREPARABLE INJURY THAT MUST BE PROTECTED BY
AN INJUNCTION. ON THE CONTRARY, IT IS THE FILIPINO PEOPLE,
WHO PETITIONERS PROTECT, THAT WILL SUSTAIN SERIOUS AND
SEVERE INJURY BY THE INJUNCTION.54
At the outset, we dispose of the procedural objections of BCA to the petition, to wit: (a)
petitioners did not follow the hierarchy of courts by filing their petition directly with this
Court, without filing a motion for reconsideration with the RTC and without filing a petition
first with the Court of Appeals; (b) the person who verified the petition for the DFA did not
have personal knowledge of the facts of the case and whose appointment to his position was
highly irregular; and (c) the verification by the Assistant Governor and General Counsel of
the BSP of only selected paragraphs of the petition was with the purported intent to mislead
this Court.
Although the direct filing of petitions for certiorari with the Supreme Court is discouraged
when litigants may still resort to remedies with the lower courts, we have in the past
overlooked the failure of a party to strictly adhere to the hierarchy of courts on highly
meritorious grounds. Most recently, we relaxed the rule on court hierarchy in the case of
Roque, Jr. v. Commission on Elections,55 wherein we held:
The policy on the hierarchy of courts, which petitioners indeed failed to observe, is not
an iron-clad rule. For indeed the Court has full discretionary power to take cognizance and
assume jurisdiction of special civil actions for certiorari and mandamus filed directly with it
for exceptionally compelling reasons or if warranted by the nature of the issues clearly
and specifically raised in the petition.56 (Emphases ours.)
The Court deems it proper to adopt a similarly liberal attitude in the present case in
consideration of the transcendental importance of an issue raised herein. This is the first time
that the Court is confronted with the question of whether an information and communication
technology project, which does not conform to our traditional notion of the term
infrastructure, is covered by the prohibition on the issuance of court injunctions found in
Republic Act No. 8975, which is entitled An Act to Ensure the Expeditious Implementation
and Completion of Government Infrastructure Projects by Prohibiting Lower Courts from
Issuing Temporary Restraining Orders, Preliminary Injunctions or Preliminary Mandatory

Injunctions, Providing Penalties for Violations Thereof, and for Other Purposes. Taking into
account the current trend of computerization and modernization of administrative and service
systems of government offices, departments and agencies, the resolution of this issue for the
guidance of the bench and bar, as well as the general public, is both timely and imperative.
Anent BCAs claim that Mr. Edsel T. Custodio (who verified the Petition on behalf of the
DFA) did not have personal knowledge of the facts of the case and was appointed to his
position as Acting Secretary under purportedly irregular circumstances, we find that BCA
failed to sufficiently prove such allegations. In any event, we have previously held that
[d]epending on the nature of the allegations in the petition, the verification may be based
either purely on personal knowledge, or entirely on authentic records, or on both sources.57
The alleged lack of personal knowledge of Mr. Custodio (which, as we already stated, BCA
failed to prove) would not necessarily render the verification defective for he could have
verified the petition purely on the basis of authentic records.
As for the assertion that the partial verification of Assistant Governor and General Counsel
Juan de Zuniga, Jr. was for the purpose of misleading this Court, BCA likewise failed to
adduce evidence on this point. Good faith is always presumed. Paragraph 3 of Mr. Zunigas
verification indicates that his partial verification is due to the fact that he is verifying only the
allegations in the petition peculiar to the BSP. We see no reason to doubt that this is the true
reason for his partial or selective verification.
In sum, BCA failed to successfully rebut the presumption that the official acts (of Mr.
Custodio and Mr. Zuniga) were done in good faith and in the regular performance of official
_______________
57 Aparece v. J. Marketing Corporation, G.R. No. 174224, October 17, 2008, 569 SCRA
636, 643.
671
671
131

duty.58 Even assuming the verifications of the petition suffered from some defect, we have
time and again ruled that [t]he ends of justice are better served when cases are determined
on the meritsafter all parties are given full opportunity to ventilate their causes and
defensesrather than on technicality or some procedural imperfections.59 In other words,
the Court may suspend or even disregard rules when the demands of justice so require.60
Bidding or awarding of contract/project of the national government as defined

under Section 2 hereof;(b)
Commencement, prosecution, execution, implementation, operation of any
such contract or project;(c)
Termination or rescission of any such contract/project; and(d)
The undertaking or authorization of any other lawful activity necessary for
such contract/project.(e)
We now come to the substantive issues involved in this case.

On whether the trial court had jurisdiction
to issue a writ of preliminary injunction in
the present case
In their petition, the DFA and the BSP argue that respondent Judge Falcon gravely abused his
discretion amounting to lack or excess of jurisdiction when he issued the assailed orders,
which effectively enjoined the bidding and/or implementation of the e-Passport Project.
According to petitioners, this violated the clear prohibition under Republic Act No. 8975
regarding the issuance of TROs and preliminary injunctions against national government
projects, such as the e-Passport Project.
The prohibition invoked by petitioners is found in Section 3 of Republic Act No. 8975, which
reads:
3.SectionProhibition on the Issuance of Temporary Restraining Orders, Preliminary
Injunctions and Preliminary Mandatory Injunctions.No court, except the Supreme Court,
shall issue any temporary restraining order, preliminary injunction or preliminary mandatory
injunction against the government, or any of its subdivisions, officials or any person or entity,
whether public or private, acting under the governments direction, to restrain, prohibit or
compel the following acts:
Acquisition, clearance and development of the right-of-way and/or site or
location of any national government project;(a)
This prohibition shall apply in all cases, disputes or controversies instituted by a private
party, including but not limited to cases filed by bidders or those claiming to have rights
through such bidders involving such contract/project. This prohibition shall not apply when
the matter is of extreme urgency involving a constitutional issue, such that unless a
temporary restraining order is issued, grave injustice and irreparable injury will arise. The
applicant shall file a bond, in an amount to be fixed by the court, which bond shall accrue in
favor of the government if the court should finally decide that the applicant was not entitled
to the relief sought.
If after due hearing the court finds that the award of the contract is null and void, the court
may, if appropriate under the circumstances, award the contract to the qualified and winning
bidder or order a rebidding of the same, without prejudice to any liability that the guilty party
may incur under existing laws.
From the foregoing, it is indubitable that no court, aside from the Supreme Court, may enjoin
a national government project unless the matter is one of extreme urgency involving a
constitutional issue such that unless the act complained of is enjoined, grave injustice or
irreparable injury would arise. What then are the national government projects over which
the lower courts are without jurisdiction to issue the injunctive relief as mandated by
Republic Act No. 8975?
Section 2(a) of Republic Act No. 8975 provides:
2.SectionDefinition of Terms.
132
(a) National government projects shall refer to all current and future national
government infrastructure, engineering works and service contracts, including projects
undertaken by government-owned and -controlled corporations, all projects covered by
Republic Act No. 6975, as amended by Republic Act No. 7718, otherwise known as the
Build-Operate-and-Transfer Law, and other related and necessary activities, such as site
acquisition, supply and/or installation of equipment and materials, implementation,
construction, completion, operation, maintenance, improvement, repair and rehabilitation,
regardless of the source of funding.
As petitioners themselves pointed out, there are three types of national government projects
enumerated in Section 2(a), to wit:
(a)current and future national government infrastructure projects,
engineering works and service contracts, including projects undertaken by
government-owned and controlled corporations;
(b)all projects covered by R.A. No. 6975, as amended by R.A. No. 7718, or the
Build-Operate-and-Transfer (BOT) Law; and
(c)other related and necessary activities, such as site acquisition, supply and/or
installation of equipment and materials, implementation, construction, completion,
operation, maintenance, improvement repair and rehabilitation, regardless of the
source of funding.
Under Section 2(a) of the BOT Law as amended by Republic Act No. 7718,61 private sector
infrastructure or development projects are those normally financed and operated by
the public sector but which will now be wholly or partly implemented by the private
sector, including but not limited to, power plants, highways, ports, airports, canals, dams,
hydropower projects, water supply, irrigation, telecommunications, railroads and railways,
transport systems, land reclamation projects, industrial estates or townships, housing,
government buildings, tourism projects, markets, slaughterhouses, warehouses, solid waste
management, information technology networks and database infrastructure, education
and health facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may be authorized by the appropriate agency.
In contrast, Republic Act No. 9184,62 also known as the Government Procurement Reform
Act, defines infrastructure projects in Section 5(k) thereof in this manner:
(k)Infrastructure Projectsinclude the construction, improvement, rehabilitation,

demolition, repair, restoration or maintenance of roads and bridges, railways, airports,
seaports, communication facilities, civil works components of information technology
projects, irrigation, flood control and drainage, water supply, sanitation, sewerage and solid
waste management systems, shore protection, energy/power and electrification facilities,
national buildings, school buildings, hospital buildings and other related construction projects
of the government. (Emphasis supplied.)
In the present petition, the DFA and the BSP contend that the bidding for the supply, delivery,
installation and commissioning of a system for the production of Electronic Passport
Booklets, is a national government project within the definition of Section 2 of Republic Act
No. 8975. Petitioners also point to the Senate deliberations on Senate Bill No. 203863 (later
Republic Act No. 8975) which allegedly show the legislatives intent to expand the scope and
definition of national government projects to cover not only the infrastructure projects
enumerated in Presidential Decree No. 1818, but also future projects that may likewise be
considered national government infrastructure projects, like the e-Passport Project, to wit:
Senator Cayetano. x x x Mr. President, the present bill, the Senate Bill No. 2038, is
actually an improvement of P.D. No. 1818 and definitely not a repudiation of what I have
earlier said, as my good friend clearly stated. But this is really an effort to improve both the
scope and definition of the term government projects and to ensure that lower court judges
obey and observe this prohibition on the issuance of TROs on infrastructure projects of the
government.
xxxx
Senator Cayetano. That is why, Mr. President, I did try to explain why I would accept the
proposed amendment, meaning the totality of the repeal of P.D. 1818 which is not found in
the original version of the bill, because of my earlier explanation that the definition of the
term government infrastructure project covers all of those enumerated in Section 1 of P.D.
No. 1818. And the reason for that, as we know, is we do not know what else could be
considered government infrastructure project in the next 10 or 20 years.
x x x So, using the Latin maxim of expression unius est exclusion alterius, which means what
is expressly mentioned is tantamount to an express exclusion of the others, that is the reason
we did not include particularly an enumeration of certain activities of the government found
in Section 1 of P.D. No. 1818. Because to do that, it may be a good excuse for a brilliant
133
lawyer to say Well, you know, since it does not cover this particular activity, ergo, the
Regional Trial Court may issue TRO.
The national government projects covered under the BOT are enumerated under Sec. 2 of
RA 6957, as amended, otherwise known as the BOT Law. Notably, it includes information
technology networks and database infrastructure.
_______________
63 Transcript of Senate Deliberations on Senate Bill 2038 (August 2 and 9, 2000), DFA and
BSP Petition; Rollo, pp. 53-54.
Respondent BSPs request for bid, for the supply, delivery, installation and commissioning of
a system for the production of Electronic Passport Booklets appears to be beyond the scope
of the term civil works. Respondents did not present evidence to prove otherwise.65
(Emphases ours.)
676
676
In relation to information technology projects, infrastructure projects refer to the civil

works components thereof. (R.A. No. 9184 [2003], Sec. 5[c]{sic}).64

Using the foregoing discussions to establish that the intent of the framers of the law was to
broaden the scope and definition of national government projects and national infrastructure
projects, the DFA and the BSP submit that the said scope and definition had since evolved to
include the e-Passport Project. They assert that the concept of infrastructure must now refer
to any and all elements that provide support, framework, or structure for a given system or
organization, including information technology, such as the e-Passport Project.
Interestingly, petitioners represented to the trial court that the e-Passport Project is a BOT
project but in their petition with this Court, petitioners simply claim that the e-Passport
Project is a national government project under Section 2 of Republic Act No. 8975. This
circumstance is significant, since relying on the claim that the e-Passport Project is a BOT
project, the trial court ruled in this wise:
The prohibition against issuance of TRO and/or writ of preliminary injunction under RA
8975 applies only to national government infrastructure project covered by the BOT
Law, (RA 8975, Sec 3[b] in relation to Sec. 2).
_______________
64 The definition of infrastructure under Republic Act No. 9184 is found in Section 5(k),
not Section 5(c).
65 Rollo, pp. 88-89.
677
677

From the foregoing, it can be gleaned that the trial court accepted BCAs reasoning that,
assuming the e-Passport Project is a project under the BOT Law, Section 2 of the BOT Law
must be read in conjunction with Section 5(c) of Republic Act No. 9184 or the Government
Procurement Reform Act to the effect that only the civil works component of information
technology projects are to be considered infrastructure. Thus, only said civil works
component of an information technology project cannot be the subject of a TRO or writ of
injunction issued by a lower court.
134
Although the Court finds that the trial court had jurisdiction to issue the writ of preliminary
injunction, we cannot uphold the theory of BCA and the trial court that the definition of the
term infrastructure project in Republic Act No. 9184 should be applied to the BOT Law.
Section 5 of Republic Act No. 9184 prefaces the definition of the terms therein, including the
term infrastructure project, with the following phrase: For purposes of this Act, the
following terms or words and phrases shall mean or be understood as follows x x x.
This Court has stated that the definition of a term in a statute is not conclusive as to the
meaning of the same term as used elsewhere.66 This is evident when the legislative
definition is expressly made for the purposes of the statute containing such definition.67
There is no legal or rational basis to apply the definition of the term infrastructure project
in one statute to another statute enacted years before and which already defined the types of
projects it covers. Rather, a reading of the two stat_______________
66 Endencia v. David, 93 Phil. 696, 701 (1953); Misamis Lumber Co., Inc. v. Collector of
Internal Revenue, 102 Phil. 116, 122 (1957); Calderon v. Carale, G.R. No. 91636, April 23,
1992, 208 SCRA 254, 263.
67 City of Manila v. Manila Remnant Co., Inc., 100 Phil. 796, 800 (1957).
678
678

utes involved will readily show that there is a legislative intent to treat information
technology projects differently under the BOT Law and the Government Procurement
Reform Act.
In the BOT Law as amended by Republic Act No. 7718, the national infrastructure and
development projects covered by said law are enumerated in Section 2(a) as follows:
2.SEC.Definition of Terms.The following terms used in this Act shall have the
meanings stated below:
(a)Private sector infrastructure or development projectsThe general description
of infrastructure or development projects normally financed and operated by the
public sector but which will now be wholly or partly implemented by the private
sector, including but not limited to, power plants, highways, ports, airports, canals,
dams, hydropower projects, water supply, irrigation, telecommunications, railroads
and railways, transport systems, land reclamation projects, industrial estates of
townships, housing, government buildings, tourism projects, markets,
slaughterhouses, warehouses, solid waste management, information technology
networks and database infrastructure, education and health facilities, sewerage,
drainage, dredging, and other infrastructure and development projects as may be
authorized by the appropriate agency pursuant to this Act. Such projects shall be
undertaken through contractual arrangements as defined hereunder and such other
variations as may be approved by the President of the Philippines.
For the construction stage of these infrastructure projects, the project proponent may
obtain financing from foreign and/or domestic sources and/or engage the services of a
foreign and/or Filipino contractor: Provided, That, in case an infrastructure or a
development facilitys operation requires a public utility franchise, the facility
operator must be a Filipino or if a corporation, it must be duly registered with the
Securities and Exchange Commission and owned up to at least sixty percent (60%) by
Filipinos: Provided, further, That in the case of foreign contractors, Filipino labor
shall be employed or hired in the different phases of construction where Filipino skills
are
679
679
135
SECTION2.2ELIGIBLE TYPES OF PROJECTS

The Construction, rehabilitation, improvement, betterment, expansion, modernization,
operation, financing and maintenance of the
available: Provided, finally, That projects which would have difficulty in sourcing
funds may be financed partly from direct government appropriations and/or from
Official Development Assistance (ODA) of foreign governments or institutions not
exceeding fifty percent (50%) of the project cost, and the balance to be provided by
the project proponent. (Emphasis supplied.)
680
680
A similar provision appears in the Revised IRR of the BOT Law as amended, to wit:
SECTION1.3DEFINITION OF TERMS
For purposes of these Implementing Rules and Regulations, the terms and phrases hereunder
shall be understood as follows:
xxxx
v.Private Sector Infrastructure or Development ProjectsThe general
description of infrastructure or Development Projects normally financed, and operated
by the public sector but which will now be wholly or partly financed, constructed and
operated by the private sector, including but not limited to, power plants, highways,
ports, airports, canals, dams, hydropower projects, water supply, irrigation,
telecommunications, railroad and railways, transport systems, land reclamation
projects, industrial estates or townships, housing, government buildings, tourism
projects, public markets, slaughterhouses, warehouses, solid waste management,
information technology networks and database infrastructure, education and health
facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may otherwise be authorized by the appropriate Agency/LGU pursuant to
the Act or these Revised IRR. Such projects shall be undertaken through Contractual
Arrangements as defined herein, including such other variations as may be approved
by the President of the Philippines.
xxxx
following types of projects which are normally financed and operated by the public sector
which will now be wholly or partly financed, constructed and operated by the private sector,
including other infrastructure and development projects as may be authorized by the
appropriate agencies, may be proposed under the provisions of the Act and these Revised
IRR, provided however that such projects have a cost recovery component which covers at
least 50% of the Project Cost, or as determined by the Approving Body:
xxxx
h.Information technology (IT) and data base infrastructure, including
modernization of IT, geo-spatial resource mapping and cadastral survey for resource
accounting and planning. (Underscoring supplied.)
Undeniably, under the BOT Law, wherein the projects are to be privately funded, the entire
information technology project, including the civil works component and the technological
aspect thereof, is considered an infrastructure or development project and treated similarly as
traditional infrastructure projects. All the rules applicable to traditional infrastructure
projects are also applicable to information technology projects. In fact, the MRP/V Project
awarded to BCA under the BOT Law appears to include both civil works (i.e., site
preparation of the Central Facility, regional DFA offices and foreign service posts) and noncivil works aspects (i.e., development, installation and maintenance in the Philippines and
foreign service posts of a computerized passport and visa issuance system, including creation
136
of databases, storage and retrieval systems, training of personnel and provision of

consumables).
In Section 13.1, the IRR specifies who may be observers during the bidding process for the
different types of procurement activities.
In contrast, under Republic Act No. 9184 or the Government Procurement Reform Act,
which contemplates projects to be funded by public funds, the term infrastructure project
was limited to only the civil works component of information technology projects. The
non-civil works component of information technology projects would be treated as an
acquisition of goods or consulting services as the case may be.681
Section 21 sets out different guidelines for the contents of the invitation to bid and the
periods for advertising and posting the invitation to bid for each type of procurement activity.
681

This limited definition of infrastructure project in relation to information technology
projects under Republic Act No. 9184 is significant since the IRR of Republic Act No. 9184
has some provisions that are particular to infrastructure projects and other provisions that are
applicable only to procurement of goods or consulting services.68
Implicitly, the civil works component of information technology projects are subject to the
provisions on infrastructure projects while the technological and other components would be
covered by the provisions on procurement of goods or consulting services as the
circumstances may warrant.
When Congress adopted a limited definition of what is to be considered infrastructure in
relation to information technology projects under the Government Procurement Reform Act,
legislators are presumed to have taken into account previous
_______________
68 Some examples of provisions in the IRR of Republic Act No. 9184 which differentiate
among infrastructure projects, goods procurement and consulting services procurement
follow:
Section 23 enumerates the proponents eligibility requirements for the procurement of goods
and infrastructure projects while the eligibility requirements for consulting services are
specified in Section 24.
Section 25 lays down different documentation requirements for bids for each type of
procurement activity.
Section 32 sets out the guidelines for bids evaluation for the procurement of goods and
infrastructure projects while Section 33 contains the guidelines for bids evaluation for
consulting services.
Section 42 states that the contract implementation guidelines for the procurement of goods,
infrastructure projects and consulting services are set out in separate annexes (Annexes D,
E and F of the IRR).
682
682

laws concerning infrastructure projects (the BOT Law and Republic Act No. 8975) and
deliberately adopted the limited definition. We can further presume that Congress had written
into law a different treatment for information technology projects financed by public funds
vis--vis privately funded projects for a valid legislative purpose.
137
The idea that the definitions of terms found in the Government Procurement Reform Act
were not meant to be applied to projects under the BOT Law is further reinforced by the
following provision in the IRR of the Government Procurement Reform Act:
The foregoing provision in the IRR can be taken as an administrative interpretation that the
provisions of Republic Act No. 9184 are inapplicable to a BOT project except only insofar as
such portions of the BOT project that are financed by the government.
Section1.Purpose and General Coverage
Taking into account the different treatment of information technology projects under the
BOT Law and the Government Procurement Reform Act, petitioners contention the trial
court had no jurisdiction to issue a writ of preliminary injunction in the instant case would
have been correct if the e-Passport Project was a project under the BOT Law as they
represented to the trial court.
This Implementing Rules and Regulations (IRR) Part A, hereinafter called IRR-A, is
promulgated pursuant to Section 75 of Republic Act No. 9184 (R.A. 9184), otherwise known
as the Government Procurement Reform Act (GPRA), for the purpose of prescribing the
necessary rules and regulations for the modernization, standardization, and regulation of the
procurement activities of the government. This IRR-A shall cover all fully domesticallyfunded procurement activities from procurement planning up to contract implementation
and termination, except for the following:
a) Acquisition of real property which shall be governed by Republic Act No. 8974 (R.A.
8974), entitled An Act to Facilitate the Acquisition of Right-of-Way Site or Location for
National Government Infrastructure Projects and for Other Purposes, and other applicable
laws; and
b)Private sector infrastructure or development projects and other procurement
covered by Republic Act No. 7718 (R.A. 7718), entitled An Act Authorizing the
Financing, Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and for Other Purposes, as amended: Provided, however, That for the
portions financed by the Government, the provisions of this IRR-A shall apply.
However, petitioners presented no proof that the e-Passport Project was a BOT project. On
the contrary, evidence adduced by both sides tended to show that the e-Passport Project was a
procurement contract under Republic Act No. 9184.
The BSPs on-line request for expression of interest and to bid for the e-Passport Project69
from the BSP website and the newspaper clipping70 of the same request expressly stated
that [t]he two stage bidding procedure under Section 30.4 of the Implementing Rules and
Regulation (sic) Part-A of Republic Act No. 9184 relative to the bidding and award of the
contract shall apply. During the testimony of DFA Assistant Secretary Domingo Lucenario,
Jr. before the trial court, he admitted that the e-Passport Project is a BSP procurement project
and that it is the BSP that will pay the suppliers.71 In petitioners Manifestation dated July
29, 200872 and the Erratum73 thereto, petitioners informed the Court that a con_______________
The IRR-B for foreign-funded procurement activities shall be the subject of a subsequent
issuance. (Emphases supplied.)
69 Rollo pp. 273-275 and 787-789; Annex AA of the Petition and Annex 30 of BCAs
Comment.
683
70 Id., at p. 790; Annex 31 of BCAs Comment.

71 Id., at p. 1713; TSN of the hearing held on February 7, 2007.
683
72 Id., at pp. 2347-2353.

73 Id., at pp. 2354-2358.
684
138
74 Id., at p. 2357.
684
685

tract for the supply of a complete package of systems design, technology, hardware,
software, and peripherals, maintenance and technical support, ecovers and datapage security
laminates for the centralized production and personalization of Machine Readable Electronic
Passport was awarded to Francois Charles Oberthur Fiduciaire. In the Notice of Award
dated July 2, 200874 attached to petitioners pleading, it was stated that the failure of the
contractor/supplier to submit the required performance bond would be sufficient ground for
the imposition of administrative penalty under Section 69 of the IRR-A of Republic Act No.
9184.
Being a government procurement contract under Republic Act No. 9184, only the civil works
component of the e-Passport Project would be considered an infrastructure project that may
not be the subject of a lower court-issued writ of injunction under Republic Act No. 8975.
Could the e-Passport Project be considered as engineering works or a service contract or as
related and necessary activities under Republic Act No. 8975 which may not be enjoined?
We hold in the negative. Under Republic Act No. 8975, a service contract refers to
infrastructure contracts entered into by any department, office or agency of the national
government with private entities and nongovernment organizations for services related or
incidental to the functions and operations of the department, office or agency concerned. On
the other hand, the phrase other related and necessary activities obviously refers to
activities related to a government infrastructure, engineering works, service contract or
project under the BOT Law. In other words, to be considered a service contract or related
activity, petitioners must show that the e-Passport Project is an infrastructure project or
necessarily related to an infrastructure project. This, petitioners failed to do for they saw fit
not to present any evidence on the de_______________
685

tails of the e-Passport Project before the trial court and this Court. There is nothing on record
to indicate that the e-Passport Project has a civil works component or is necessarily related to
an infrastructure project.
Indeed, the reference to Section 30.475 of the IRR of Republic Act No. 9184 (a provision
specific to the procurement of goods) in the BSPs request for interest and to bid confirms
that the e-Passport Project is a procurement of goods and not an infrastructure project. Thus,
within the context of Republic Act No. 9184which is the governing law for the e-Passport
Projectthe said Project is not an infrastructure project that
_______________
75 Section 30.4 of the IRR of Republic Act No. 9184 states:
30.4.For the procurement of goods where, due to the nature of the requirements of the
project, the required technical specifications/requirements of the contract cannot be precisely
defined in advance of bidding, or where the problem of technically unequal bids is likely to
occur, a two (2)-stage bidding procedure may be employed. In these cases, the procuring
entity concerned shall prepare the bidding documents, including the technical specification in
the form of performance criteria only. Under this procedure, prospective bidders shall be
requested at the first stage to submit their respective Letter of Intent, eligibility requirements
if needed, and initial technical proposals only (no price tenders). The concerned BAC shall
then evaluate the technical merits of the proposals received from eligible bidders vis--vis the
required performance standards. A meeting/discussion shall then be held by the BAC with
those eligible bidders whose technical tenders meet the minimum required standards
139
stipulated in the bidding documents for purposes of drawing up the final revised technical
specifications/requirements of the contract. Once the final revised technical specifications are
completed and duly approved by the concerned BAC, copies of the same shall be issued to
all the bidders identified in the first stage who shall then be required to submit their revised
technical tenders, including their price proposals in two (2) separate sealed envelopes in
accordance with this IRR-A, at a specified deadline, after which time no more bids shall be
received. The concerned BAC shall then proceed in accordance with the procedure
prescribed in this IRR-A. (Emphasis supplied.)
The following rules on interim or provisional relief shall be observed:(a)

Any party may request that provisional relief be granted against the adverse party.
(1)
Such relief may be granted:(2)
to prevent irreparable loss or injury;(i)
686
686
to provide security for the performance of any obligation;(ii)

to produce or preserve any evidence; or(iii)

_______________
is protected from lower court issued injunctions under Republic Act No. 8975, which, to
reiterate, has for its purpose the expeditious and efficient implementation and completion of
government infrastructure projects.
We note that under Section 28, Republic Act No. 9285 or the Alternative Dispute Resolution
Act of 2004,76 the grant of an interim measure of protection by the proper court before the
constitution of an arbitral tribunal is allowed:
28.Sec.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
an interim measure of protection and for the 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 tribunal or to the extent
that the arbitral tribunal has no power to act or is unable to act effectively, 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.
76 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; approved on April 2, 2004.
687
687

to compel any other appropriate act or omission.(iv)
(3)The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.
(4)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,
140
the party against whom the relief is requested, the grounds for the relief, and the
evidence supporting the request.
failed to prove that the e-Passport Project is national government project as defined therein.
Thus, the trial court had jurisdiction to issue a writ of preliminary injunction against the ePassport Project.
The order shall be binding upon the parties.(5)

(6) Either party may apply with the Court for assistance in implementing or
enforcing an interim measure ordered by an arbitral tribunal.
(7) A party who does not comply with the order shall be liable for all damages
resulting from noncompliance, including all expenses and reasonable attorneys fees,
paid in obtaining the orders judicial enforcement.
Section 3(h) of the same statute provides that the Court as referred to in Article 6 of the
Model Law shall mean a Regional Trial Court.
Republic Act No. 9285 is a general law applicable to all matters and controversies to be
resolved through alternative dispute resolution methods. This law allows a Regional Trial
Court to grant interim or provisional relief, including preliminary injunction, to parties in an
arbitration case prior to the constitution of the arbitral tribunal. This general statute, however,
must give way to a special law governing national government projects, Republic Act No.
8975 which prohibits courts, except the Supreme Court, from issuing TROs and writs of
preliminary injunction in cases involving national government projects.
However, as discussed above, the prohibition in Republic Act No. 8975 is inoperative in this
case, since petitioners
688
688
On whether the trial courts issuance of a

writ of injunction was proper
Given the above ruling that the trial court had jurisdiction to issue a writ of injunction and
going to the second issue raised by petitioners, we answer the question: Was the trial courts
issuance of a writ of injunction warranted under the circumstances of this case?
Petitioners attack on the propriety of the trial courts issuance of a writ of injunction is twopronged: (a) BCA purportedly has no clear right to the injunctive relief sought; and (b) BCA
will suffer no grave and irreparable injury even if the injunctive relief were not granted.
To support their claim that BCA has no clear right to injunctive relief, petitioners mainly
allege that the MRP/V Project and the e-Passport Project are not the same project. Moreover,
the MRP/V Project purportedly involves a technology (the 2D optical bar code) that has been
rendered obsolete by the latest ICAO developments while the e-Passport Project will comply
with the latest ICAO standards (the contactless integrated circuit). Parenthetically, and not as
a main argument, petitioners imply that BCA has no clear contractual right under the
Amended BOT Agreement since BCA had previously assigned all its rights and obligations
under the said Agreement to PPC.
BCA, on the other hand, claims that the Amended BOT Agreement also contemplated the
supply and/or delivery of e-Passports with the integrated circuit technology in the future and
not only the machine readable passport with the 2D optical bar code technology. Also, it is
BCAs assertion that the integrated circuit technology is only optional under the ICAO
689
689

141
690
issuances. On the matter of its assignment of its rights to PPC, BCA counters that it had
already terminated (purportedly at DFAs request) the assignment agreement in favor of PPC
and that even assuming the termination was not valid, the Amended BOT Agreement
expressly stated that BCA shall remain solidarily liable with its assignee, PPC.
Most of these factual allegations and counter-allegations already touch upon the merits of the
main controversy between the DFA and BCA, i.e., the validity and propriety of the
termination of the Amended BOT Agreement (the MRP/V Project) between the DFA and
BCA. The Court deems it best to refrain from ruling on these matters since they should be
litigated in the appropriate arbitration or court proceedings between or among the concerned
parties.
One preliminary point, however, that must be settled here is whether BCA retains a right to
seek relief against the DFA under the Amended BOT Agreement in view of BCAs previous
assignment of its rights to PPC. Without preempting any factual finding that the appropriate
court or arbitral tribunal on the matter of the validity of the assignment agreement with PPC
or its termination, we agree with BCA that it remained a party to the Amended BOT
Agreement, notwithstanding the execution of the assignment agreement in favor of PPC, for
it was stipulated in the Amended BOT Agreement that BCA would be solidarily liable with
its assignee. For convenient reference, we reproduce the relevant provision of the Amended
BOT Agreement here:
Section20.15. It is clearly and expressly understood that BCA may assign, cede and
transfer all of its rights and obligations under this Amended BOT Agreement to PPC
[Philippine Passport Corporation], as fully as if PPC is the original signatory to this Amended
BOT Agreement, provided however that BCA shall nonetheless be jointly and severally
liable with PPC for the performance of all the obligations and liabilities under this
Amended BOT Agreement. (Emphasis supplied.)
690

Furthermore, a review of the records shows that the DFA continued to address its
correspondence regarding the MRP/V Project to both BCA and PPC, even after the execution
of the assignment agreement. Indeed, the DFAs Notice of Termination dated December 9,
2005 was addressed to Mr. Bonifacio Sumbilla as President of both BCA and PPC and
referred to the Amended BOT Agreement executed between the Department of Foreign
Affairs (DFA), on one hand, and the BCA International Corporation and/or the Philippine
Passport Corporation (BCA/PPC). At the very least, the DFA is estopped from questioning
the personality of BCA to bring suit in relation to the Amended BOT Agreement since the
DFA continued to deal with both BCA and PPC even after the signing of the assignment
agreement. In any event, if the DFA truly believes that PPC is an indispensable party to the
action, the DFA may take necessary steps to implead PPC but this should not prejudice the
right of BCA to file suit or to seek relief for causes of action it may have against the DFA or
the BSP, for undertaking the e-Passport Project on behalf of the DFA.
With respect to petitioners contention that BCA will suffer no grave and irreparable injury so
as to justify the grant of injunctive relief, the Court finds that this particular argument merits
consideration.
The BOT Law as amended by Republic Act No. 7718, provides:
7.SEC.Contract Termination.In the event that a project is revoked, cancelled or
terminated by the Government through no fault of the project proponent or by mutual
agreement, the Government shall compensate the said project proponent for its actual
expenses incurred in the project plus a reasonable rate of return thereon not exceeding that
stated in the contract as of the date of such revocation, cancellation or termination: Provided,
That the interest of the Government in this instances shall be duly insured with the
Government Service Insurance System [GSIS] or any other insurance entity duly accredited
by the Office of the Insurance Commissioner: Provided, finally, That the
142
691
on the MRP/V Facility shall be valid for the duration of the effectivity of this
Amended BOT Agreement; or,
B.Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to
designate a substitute BCA for the MRP/V Project, provided the designated
substitute BCA is qualified under existing laws and acceptable to the DFA. This
substitute BCA shall hereinafter be referred to as the Substitute BCA. The Substi-
691
692
cost of the insurance coverage shall be included in the terms and conditions of the bidding
referred to above.
In the event that the government defaults on certain major obligations in the contract and
such failure is not remediable or if remediable shall remain unremedied for an unreasonable
length of time, the project proponent/contractor may, by prior notice to the concerned
national government agency or local government unit specifying the turn-over date,
terminate the contract. The project proponent/contractor shall be reasonably compensated
by the Government for equivalent or proportionate contract cost as defined in the
contract. (Emphases supplied.)
In addition, the Amended BOT Agreement, which is the law between and among the parties
to it, pertinently provides:
Section17.01DefaultIn case a party commits an act constituting an event of
default, the non-defaulting party may terminate this Amended BOT Agreement by
serving a written notice to the defaulting party specifying the grounds for termination and
giving the defaulting party a period of ninety (90) days within which to rectify the default. If
the default is not remedied within this period to the satisfaction of the non-defaulting party,
then the latter will serve upon the former a written notice of termination indicating the
effective date of termination.
692

tute BCA shall assume all the BCAs rights and privileges, as well as the obligations, duties
and responsibilities hereunder; provided, however, that the DFA shall at all times and its sole
option, have the right to invoke and exercise any other remedy which may be available to the
DFA under any applicable laws, rules and/or regulations which may be in effect at any time
and from time to time. The DFA shall cooperate with the creditors with a view to facilitating
the choice of a Substitute BCA, who shall take-over the operation, maintenance and
management of the MRP/V Project, within three (3) months from the BCAs receipt of the
notice of termination from the DFA. The Substituted BCA shall have all the rights and
obligations of the previous BCA as contained in this Amended BOT Agreement; or
C.Take-over the MRP/V Facility and assume all attendant liabilities thereof.
D.In all cases of termination due to the default of the BCA, it shall pay DFA
liquidated damages equivalent to the applicable the (sic) Performance Security.
Section17.02Proponents DefaultIf this Amended BOT Agreement is terminated by

reason of the BCAs default, the DFA shall have the following options:
Section17.03DFAs DefaultIf this Amended BOT Agreement is terminated by the BCA

by reason of the DFAs Default, the DFA shall:
A.Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to
foreclose on the MRP/V Facility. The right of the BCAs unpaid creditors to foreclose
A.Be obligated to take over the MRP/V Facility on an as is, where is basis, and
shall forthwith assume attendant liabilities thereof; and
143
B.Pay liquidated damages to the BCA equivalent to the following amounts, which
may be charged to the insurance proceeds referred to in Article 12:
(1)In the event of termination prior to completion of the implementation
of the MRP/V Project, damages shall be paid equivalent to the value of
completed implementation, minus the aggregate amount of the attendant
liabilities assumed by the DFA, plus ten percent (10%) thereof. The
amount of such compensation shall be determined as of the date of the notice
of termination and shall become due and demandable ninety (90) days after
the date of this notice of termina-
The validity of the DFAs termination of the Amended BOT Agreement and the determination
of the party or parties in default are issues properly threshed out in arbitration proceedings as
provided for by the agreement itself. However, even if we hypothetically accept BCAs
contention that the DFA terminated the Amended BOT Agreement without any default or
wrongdoing on BCAs part, it is not indubitable that BCA is entitled to injunctive relief.
The BOT Law expressly allows the government to terminate a BOT agreement, even without
fault on the part of the project proponent, subject to the payment of the actual expenses
incurred by the proponent plus a reasonable rate of return.
Under the BOT Law and the Amended BOT Agreement, in the event of default on the part of
the government (in this
693
694
693
694

tion. Under this Amended BOT Agreement, the term Value of the Completed
Implementation shall mean the aggregate of all reasonable costs and expenses incurred by
the BCA in connection with, in relation to and/or by reason of the MRP/V Project, excluding
all interest and capitalized interest, as certified by a reputable and independent accounting
firm to be appointed by the BCA and subject to the approval by the DFA, such approval shall
not be unreasonably withheld.
(2)In the event of termination after completion of design, development,
and installation of the MRP/V Project, just compensation shall be paid
equivalent to the present value of the net income which the BCA expects
to earn or realize during the unexpired or remaining term of this
Amended BOT Agreement using the internal rate of return on equity (IRRe)
defined in the financial projections of the BCA and agreed upon by the parties,
which is attached hereto and made as an integral part of this Amended BOT
Agreement as Schedule 1. (Emphases supplied.)

case, the DFA) or on the part of the proponent, the non-defaulting party is allowed to
terminate the agreement, again subject to proper compensation in the manner set forth in the
agreement.
Time and again, this Court has held that to be entitled to injunctive relief the party seeking
such relief must be able to show grave, irreparable injury that is not capable of compensation.
In Lopez v. Court of Appeals,77 we held:
Generally, injunction is a preservative remedy for the protection of ones substantive right or
interest. It is not a cause of action in itself but merely a provisional remedy, an adjunct to a
main suit. It is resorted to only when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation. The
application of the injunctive writ rests upon the existence of an emergency or of a special
144
reason before the main case can be regularly heard. The essential conditions for granting such
temporary injunctive relief are that the complaint alleges facts which appear to be sufficient
to constitute a proper basis for injunction and that on the entire showing from the contending
parties, the injunction is reasonably necessary to protect the legal rights of the plaintiff
pending the litigation. Two requisites are necessary if a preliminary injunction is to issue,
namely, the existence of a right to be protected and the facts against which the injunction is to
be directed are violative of said right. In particular, for a writ of preliminary injunction to
issue, the existence of the right and the violation must appear in the allegation of the
complaint and a preliminary injunction is proper only when the plaintiff (private
respondent herein) appears to be entitled to the relief demanded in his complaint.
(Emphases supplied.)
We reiterated this point in Transfield Philippines, Inc. v. Luzon Hydro Corporation,78 where
we likewise opined:
_______________
77 379 Phil. 743, 749-750; 322 SCRA 686, 691 (2000).
78 G.R. No. 146717, November 22, 2004, 443 SCRA 307, 336; citing Philippine National
Bank v. Ritratto Group, Inc., 414 Phil. 494, 507; 362 SCRA 216, 228 (2001).
serious damage. 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. (Emphasis supplied.)
As the Court explained previously in Philippine Airlines, Inc. v. National Labor Relations
Commission:79
An injury is considered irreparable if it is of such constant and frequent recurrence that
no fair and reasonable redress can be had therefor in a court of law, or where there is no
standard by which their amount can be measured with reasonable accuracy, that is, it is
not susceptible of mathematical computation. It is considered irreparable injury when it
cannot be adequately compensated in damages due to the nature of the injury itself or
the nature of the right or property injured or when there exists no certain pecuniary
standard for the measurement of damages. (Emphases supplied.)
It is still contentious whether this is a case of termination by the DFA alone or both the DFA
and BCA. The DFA contends that BCA, by sending its own Notice of Default, likewise
terminated or abandoned the Amended BOT Agreement. Still, whether this is a termination
by the DFA alone without fault on the part of BCA or a termination due to default on the part
of either party, the BOT Law and the Amended BOT Agreement lay down the measure of
compensation to be paid under the appropriate circumstances.
Significantly, in BCAs Request for Arbitration with the PDRCI, it prayed for, among others,
a judgment ordering
695
695
_______________
79 351 Phil. 172, 186; 287 SCRA 672, 685 (1998).

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. 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
696
696

145
respondent [DFA] to pay damages to Claimant [BCA], reasonably estimated at

P50,000,000.00 as of [the date of the Request for Arbitration], representing lost business
opportunities; financing fees, costs and commissions; travel expenses; legal fees and
expenses; and costs of arbitration, including the fees of the arbitrator/s.80 All the purported
damages that BCA claims to have suffered by virtue of the DFAs termination of the
Amended BOT Agreement are plainly determinable in pecuniary terms and can be
reasonably estimated according to BCAs own words.
Indeed, the right of BCA, a party which may or may not have been in default on its BOT
contract, to have the termination of its BOT contract reversed is not guaranteed by the BOT
Law. Even assuming BCAs innocence of any breach of contract, all the law provides is that
BCA should be adequately compensated for its losses in case of contract termination by the
government.
There is one point that none of the parties has highlighted but is worthy of discussion. In
seeking to enjoin the government from awarding or implementing a machine readable
passport project or any similar electronic passport or visa project and praying for the
maintenance of the status quo ante pending the resolution on the merits of BCAs Request for
Arbitration, BCA effectively seeks to enjoin the termination of the Amended BOT Agreement
for the MRP/V Project.
There is no doubt that the MRP/V Project is a project covered by the BOT Law and, in turn,
considered a national government project under Republic Act No. 8795. Under Section
3(d) of that statute, trial courts are prohibited from issuing a TRO or writ of preliminary
injunction against the government to restrain or prohibit the termination or rescission of any
such national government project/contract.
The rationale for this provision is easy to understand. For if a project proponentthat the
government believes to be in defaultis allowed to enjoin the termination of its contract on
the ground that it is contesting the validity of said termination, then the government will be
unable to enter into a new contract with any other party while the controversy is pending
litigation. Obviously, a courts grant of injunctive relief in such an instance is prejudicial to
public interest since government would be indefinitely hampered in its duty to provide vital
public goods and services in order to preserve the private proprietary rights of the project
proponent. On the other hand, should it turn out that the project proponent was not at fault,
the BOT Law itself presupposes that the project proponent can be adequately compensated
for the termination of the contract. Although BCA did not specifically pray for the trial court
to enjoin the termination of the Amended BOT Agreement and thus, there is no direct
violation of Republic Act No. 8795, a grant of injunctive relief as prayed for by BCA will
indirectly contravene the same statute.
Verily, there is valid reason for the law to deny preliminary injunctive relief to those who
seek to contest the governments termination of a national government contract. The only
circumstance under which a court may grant injunctive relief is the existence of a matter of
extreme urgency involving a constitutional issue, such that unless a TRO or injunctive writ is
issued, grave injustice and irreparable injury will result.
Now, BCA likewise claims that unless it is granted injunctive relief, it would suffer grave and
irreparable injury since the bidding out and award of the e-Passport Project would be
tantamount to a violation of its right against deprivation of property without due process of
law under Article III, Section 1 of the Constitution. We are unconvinced.
Article III, Section 1 of the Constitution provides [n]o person shall be deprived of life,
liberty, or property without due process of law, nor shall any person be denied the equal
protection of the laws. Ordinarily, this constitutional provision has been applied to the
exercise by the State of its sovereign powers such as, its legislative power,81 police power,82
or its power of eminent domain.83
In the instant case, the State action being assailed is the DFAs termination of the Amended
BOT Agreement with BCA. Although the said agreement involves a public service that the
DFA is mandated to provide and, therefore, is imbued with public interest, the relationship of
DFA to BCA is primarily contractual and their dispute involves the adjudication of
contractual rights. The propriety of the DFAs acts, in relation to the termination of the
Amended BOT Agreement, should be gauged against the provisions of the contract itself and
the applicable statutes to such contract. These contractual and statutory provisions outline
what constitutes due process in the present case. In all, BCA failed to demonstrate that there
is a constitutional issue involved in this case, much less a constitutional issue of extreme
urgency.
146
As for the DFAs purported failure to appropriate sufficient amounts in its budget to pay for
liquidated damages to BCA, this argument does not support BCAs position that it will suffer
grave and irreparable injury if it is denied injunctive relief. The DFAs liability to BCA for
damages is contingent on BCA proving that it is entitled to such damages in the proper
proceedings. The DFA has no obligation to set aside funds to pay for liquidated damages, or
any other kind of damages, to BCA until there is a final and executory judgment in favor of
BCA. It is illogical and impractical for the DFA to set aside a significant portion of its budget
for an event that may never happen when such idle funds should be spent on providing
necessary services to the populace. For if it turns out at the end of the arbitration proceedings
that it is BCA alone that is in default, it would be the one liable for liquidated damages to the
DFA under the terms of the Amended BOT Agreement.
With respect to BCAs allegation that the e-Passport Project is grossly disadvantageous to the
Filipino people since it is the government that will be spending for the project unlike the
MRP/V Project which would have been privately funded, the same is immaterial to the issue
at hand. If it is true that the award of the e-Passport Project is inimical to the public good or
tainted with some anomaly, it is indeed a cause for grave concern but it is a matter that must
be investigated and litigated in the proper forum. It has no bearing on the issue of whether
BCA would suffer grave and irreparable injury such that it is entitled to injunctive relief from
the courts.
In all, we agree with petitioners DFA and BSP that the trial courts issuance of a writ of
preliminary injunction, despite the lack of sufficient legal justification for the same, is
tantamount to grave abuse of discretion.
To be very clear, the present decision touches only on the twin issues of (a) the
jurisdiction of the trial court to issue a writ of preliminary injunction as an interim
relief under the factual milieu of this case; and (b) the entitlement of BCA to injunctive
relief. The merits of the DFA and BCAs dispute regarding the termination of the
Amended BOT Agreement must be threshed out in the proper arbitration proceedings.
The civil case pending before the trial court is purely for the grant of interim relief since
the main case is to be the subject of arbitration proceedings.
during the pendency of this case, PDRCI Case No. 30-2006/BGF was dismissed by the
PDRCI for lack of jurisdiction, in view of the lack of agreement between the parties to
arbitrate before the PDRCI.84 In Philippine National Bank v. Ritratto Group, Inc.,85 we
held:
A writ of preliminary injunction is an ancillary or preventive remedy that may only be
resorted to by a litigant to protect or preserve his rights or interests and for no other purpose
during the pendency of the principal action. The dismissal of the principal action thus
results in the denial of the prayer for the issuance of the writ. x x x. (Emphasis
supplied.)
In view of intervening circumstances, BCA can no longer be granted injunctive relief and the
civil case before the trial court should be accordingly dismissed. However, this is without
prejudice to the parties litigating the main controversy in arbitration proceedings, in
accordance with the provisions of the Amended BOT Agreement, which should proceed with
dispatch.
It does not escape the attention of the Court that the delay in the submission of this
controversy to arbitration was caused by the ambiguity in Section 19.02 of the Amended
BOT Agreement regarding the proper body to which a dispute between the parties may be
submitted and the failure of the parties to agree on such an arbitral tribunal. However, this
Court cannot allow this impasse to continue indefinitely. The parties involved must sit down
together in good faith and finally come to an understanding regarding the constitution of an
arbitral tribunal mutually acceptable to them.
WHEREFORE, the instant petition is hereby GRANTED. The assailed Order dated February
14, 2007 of the Regional Trial Court of Pasig in Civil Case No. 71079 and the Writ of
Preliminary Injunction dated February 23, 2007 are REVERSED and SET ASIDE.
Furthermore, Civil Case No. 71079 is hereby DISMISSED.
SO ORDERED.
BCAs petition for interim relief before the trial court is essentially a petition for a
provisional remedy (i.e., preliminary injunction) ancillary to its Request for Arbitration in
PDRCI Case No. 30-2006/BGF. BCA specifically prayed that the trial court grant it interim
relief pending the constitution of the arbitral tribunal in the said PDRCI case. Unfortunately,
Corona (C.J., Chairperson), Velasco, Jr., Del Castillo and Perez, JJ., concur.
Petition granted, Order of Regional Trial Court of Pasig City reversed and set aside.
147
Note.The doctrine of hierarchy of courts is one of the structural aspects intended for the
orderly administration of justice. (Freedom from Debt Coalition vs. Metropolitan Waterworks
and Sewerage System (MWSS), 539 SCRA 621 [2007])
o0o
July 7, 2010.G.R. Nos. 147925-26.*

ELPIDIO S. UY, doing business under the name and style of EDISON
DEVELOPMENT & CONSTRUCTION, petitioner, vs. PUBLIC ESTATES
AUTHORITY, respondent.
Contracts; Unjust Enrichment; The principle of unjust enrichment cannot be validly invoked
by a party who, through his own act or omission, took the risk of being denied payment for
additional costs by not giving the other party prior notice of such costs and/or by not
securing their written consent thereto, as required by law and their contract.On the claim
for costs for additional hauling distance of topsoil and for mobilization of water truck, we
maintain our ruling that a written approval of PEAs general manager was indispensable
before the claim for additional cost can be granted. In this case, the additional costs were
incurred without the written approval of PEA. The denial of Uys claims was, therefore,
appropriate.We cannot sustain this claim that is premised mainly on the principle of unjust
enrichment. We stress that the principle of unjust enrichment cannot be validly invoked by a
party who, through his own act or omission, took the risk of being denied payment for
additional costs by not giving the other party prior notice of such costs and/or by not securing
their written consent thereto, as required by law and their contract.
Judgments; Res Judicata; A party, either by varying the form or action or by bringing
forward in a second case additional parties or arguments, cannot escape the effects of res
judicata when the facts remain the same, at least where such new parties or matter could
have been impleaded or pleaded in the prior action.We find no cogent reason to lift the
injunction issued in CIAC Case No. 03-2001. We are not persuaded by Uys argument that
the claims under CIAC Case No. 03-2001 are different from his claims in CIAC Case No.
02-2000. As we explained in our Decision, there is only one cause of action running through
Uys undertakingsthe violation of his alleged right under the Landscaping and
Construction Agreement. Therefore, the landscaping agreement is indispensable in the
prosecution of his claims in both CIAC Cases No. 02-2000 and No. 03_______________
* SPECIAL THIRD DIVISION.
322
148
322
interest at 6% per annum to be computed from the date of the filing of the complaint until
finality of this Decision and 12% per annum thereafter until full payment. Respondent PEA
is further ordered to pay petitioner Uy 10% of the total award as attorneys fees.323
SO ORDERED.1
Uy vs. Public Estates Authority
Uy seeks partial reconsideration of our Decision. He argues that:

2001. We reiterate that a party, either by varying the form or action or by bringing forward in
a second case additional parties or arguments, cannot escape the effects of res judicata when
the facts remain the same, at least where such new parties or matter could have been
impleaded or pleaded in the prior action.
MOTION
FOR
PARTIAL
RECONSIDERATION
RECONSIDERATION of a decision of the Supreme Court.
and
MOTION
I
x x x THE HONORABLE COURT ERRED IN THE COMPUTATION OF THE DAMAGES
DUE THE PETITIONER FOR THE STANDBY EQUIPMENT COST.
FOR
The facts are stated in the resolution of the Court.

Lucas C. Carpio, Jr. for petitioner.
Maria Victoria V. Sardillo for Public Estates Authority.
II
x x x PETITIONER SHOULD BE REIMBURSED FOR COSTS INCURRED FOR
ADDITIONAL HAULING DISTANCE OF TOPSOIL ALSO BECAUSE THE EVIDENCE
ON RECORD CONFIRMS THE EXISTENCE OF RESPONDENT PEAS WRITTEN
CONSENT, AND THE FACT THAT IT IS INDESPENSABLE TO COMPLETING THE
PROJECT. WITHOUT SUCH ASSURANCE OF REIMBURSEMENT, PETITIONER
WOULD NOT HAVE TAKEN SUCH PRUDENT ACTION.
RESOLUTION
NACHURA,J.:
Before us are (i) the Motion for Partial Reconsideration filed by petitioner Elpidio S. Uy
(Uy), doing business under the name and style of Edison Development & Construction
(EDC), and (ii) the Motion for Reconsideration filed by respondent Public Estates Authority
(PEA) of our June 8, 2009 Decision, the fallo of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and
Joint Resolution of the Court of Appeals in CA-G.R. SP Nos. 59308 and 59849 are
AFFIRMED with MODIFICATIONS. Respondent Public Estates Authority is ordered to
pay Elpidio S. Uy, doing business under the name and style Edison Development and
Construction, P55,680,492.38 for equipment rentals on standby; P2,275,721.00 for the cost
of idle manpower; and P6,050,165.05 for the construction of the nursery shade net area; plus
III
x x x PETITIONER SHOULD BE ALLOWED TO RECOVER THE COSTS HE
INCURRED FOR THE MOBILIZATION OF WATER TRUCKS ALSO BECAUSE
RESPONDENT BREACHED ITS OBLIGATIONS UNDER THE CONTRACT.
IV
WITH REGARD TO THE COURT OF APPEALS ILLEGAL INJUNCTION
PREVENTING PETITIONER FROM RECOVERING HIS CLAIMS AGAINST
RESPONDENT PEA IN CIAC CASE NO. 03-2001, THIS SHOULD HAVE BEEN LIFTED
SINCE IT INVOLVES CLAIMS SEPARATE AND DISTINCT FROM THE CASE A
QUO.2
_______________
149
PEA, on the other hand, assails the Decision on the following grounds:
I.
THE FACTUAL FINDINGS AND CONCLUSIONS OF THE CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION (CIAC) INSOFAR AS THE ARBITRAL
AWARD TO PETITIONER IS CONCERNED, WHICH THE COURT OF APPEALS AND
THE FIRST DIVISION OF THIS HONORABLE COURT AFFIRMED, HAS LONG
BECOME FINAL AND EXECUTORY.
II.
THE CIAC ARBITRAL AWARD HAD ALREADY BEEN IMPLEMENTED UNDER
WRIT OF EXECUTION DATED 19 SEPTEMBER 2000, WRIT OF EXECUTION DATED
31 AUGUST 2001 AND SUPPLEMENTAL WRIT OF EXECUTION DATED 10 APRIL
2002.3
We will deal first with Uys motion.
Uy objects to the factor rate used in the computation of the award for standby equipment
costs. He points out that the actual number of equipment deployed and which remained on
standby, occasioned by the delay in delivery of work areas, has not been considered in the
computation. The Association of Carriers and Equipment Lessors (ACEL) rate or the factor
rate used was only the total average rate, without regard to the actual number of equipment
deployed. He, therefore, insists that an increase in the award is in order.
We find Uys argument on this point meritorious; and this Court is swayed to modify the
formula used in the computation of the award.
The Certification,4 dated December 6, 1996, shows that EDC mobilized the following
equipment for the Heritage Park Project, viz.:
Description
Road Grader
Pay Loader
Dump Trucks
Number
2
2
10
Tractor with attachments

Backhoe
Delivery Trucks
Rolo-tiller
Concrete Mixer
Bar Cutter
Welding Machine
Roller
Bulldozer
Concrete Cutter
Plate Compactor
Compressor/Jack Hammer
Genset 5KVA
Electric drill/ Holesaw
2
2
3
0
4
2
2
1
1
2
2
3
1
4
These equipment remained in the project site on the days that EDC was waiting for the
turnover of additional work areas.5 Thus, we agree with Uy that the actual number of
equipment mobilized should be included in computing the award for standby equipment cost.
The award must, therefore, be modified using the following formula:
Actual period of delay (18.2 months) x average rate per ACEL x number of equipment
However, we cannot simply accept in full Uys claim that he is entitled to P71,009,557.95 as
standby equipment cost. The records show that not all of the equipment were operational;
several were under repair. Accordingly, we find it necessary to remand the records of the case
to the Construction Industry Arbitration Commission (CIAC), which decided the case in the
first instance, for the proper computation of the award of standby equipment cost based on
the foregoing formula.
On the claim for costs for additional hauling distance of topsoil and for mobilization of water
truck, we maintain our ruling that a written approval of PEAs general manager was
indispensable before the claim for additional cost can be granted. In this case, the additional
costs were incurred without the written approval of PEA. The denial of Uys claims was,
therefore, appropriate.
150
We cannot sustain this claim that is premised mainly on the principle of unjust enrichment.
We stress that the principle of unjust enrichment cannot be validly invoked by a party who,
through his own act or omission, took the risk of being denied payment for additional costs
by not giving the other party prior notice of such costs and/or by not securing their written
consent thereto, as required by law and their contract.7
were not granted by the CIAC in its questioned decision, the merits of which were not
submitted to us for determination in the instant petition.8
Similarly, we find no cogent reason to lift the injunction issued in CIAC Case No. 03-2001.
We are not persuaded by Uys argument that the claims under CIAC Case No. 03-2001 are
different from his claims in CIAC Case No. 02-2000. As we explained in our Decision, there
is only one cause of action running through Uys undertakingsthe violation of his alleged
right under the Landscaping and Construction Agreement. Therefore, the landscaping
agreement is indispensable in the prosecution of his claims in both CIAC Cases No. 02-2000
and No. 03-2001. We reiterate that a party, either by varying the form or action or by bringing
forward in a second case additional parties or arguments, cannot escape the effects of res
judicata when the facts remain the same, at least where such new parties or matter could
have been impleaded or pleaded in the prior action.
WHEREFORE, Uys Motion for Partial Reconsideration is PARTLY GRANTED. PEAs

Motion for Reconsideration, on the other hand, is DENIED with FINALITY. The assailed
In fine, except for the claim for standby equipment costs, this Court finds no cogent reason to
depart from our June 8, 2009 Decision.
Indubitably, this Courts Decision in G.R. Nos. 147933-34 will not bar the grant of additional
award to Uy.
_______________
8 Public Estates Authority v. Uy, 423 Phil. 407, 419; 372 SCRA 180, 192 (2001).
328
328
Uy vs. Public Estates Authority
We now go to PEAs motion.

PEA insists that our Decision in this case transgresses the principle of res judicata. It asserts
that the propriety of Uys monetary claims against PEA had already been considered and
passed upon by this Court in G.R. Nos. 147933-34.
The argument is specious.
In G.R. Nos. 147933-34, this Court was very explicit in its declaration that its Decision was
independent of, and without prejudice to, the appeal filed by Uy, viz.:
However, in order not to prejudice the deliberations of the Courts Second Division in G.R.
Nos. 147925-26, it should be stated that the findings made in this case, especially as regards
the correctness of the findings of the CIAC, are limited to the arbitral awards granted to
respondent Elpidio S. Uy and to the denial of the counterclaims of petitioner Public Estates
Authority. Our decision in this case does not affect the other claims of respondent Uy which
Decision dated June 8, 2009 is AFFIRMED with MODIFICATION as to the award of

standby equipment cost. The case is hereby REMANDED to the Construction Industry
Arbitration Commission solely for the purpose of computing the exact amount of standby
equipment cost pursuant to the formula herein specified. The CIAC is DIRECTED to
compute the award and effect payment thereof within thirty (30) days from receipt of the
records of this case.
No further pleadings will be entertained.
SO ORDERED.
Corona, (C.J.),** Velasco, Jr.,*** Brion**** and Peralta, JJ., concur.
151
Motion for Partial reconsideration partly granted, Motion for Reconsideration denied with
finality.
Note.Resulting trust is presumed to have been contemplated by the parties, the intention as
to which is to be found in the nature of their transactions but not expressed in the deed itself;
A constructive trust is created, not by any word evincing a direct intention to create a trust,
but by operation of law in order to satisfy the demands of justice and to prevent unjust
enrichment. (Bejoc vs. Cabreros, 464 SCRA 78 [2005])
o0o
October 20, 2010.G.R. No. 172525.*
SHINRYO
(PHILIPPINES)
INCORPORATED,** respondent
COMPANY,
INC.,
petitioner,
vs.
RRN
Appeals; Administrative Law; Alternative Dispute Resolution (ADR); Construction Industry;

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not only
respect, but also finality, especially when affirmed by the Court of Appeals; Factual findings
of construction arbitrators are final and conclusive and not reviewable by this Court on
appeal.As reiterated by the Court in IBEX International, Inc. v. Government Service
Insurance System, 603 SCRA 306 (2009), to wit: It is settled that findings of fact of quasijudicial bodies, which have acquired expertise because their jurisdiction is confined to
specific matters, are generally accorded not only respect, but also finality, especially
when affirmed by the Court of Appeals. In particular, factual findings of construction
arbitrators are final and conclusive and not reviewable by this Court on appeal. This
rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation, 511 SCRA 335
(2006), we said: In David v. Construction Industry and Arbitration Commission, 435 SCRA
654 (2004), 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 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
152
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. Other recognized exceptions are as
follows: (1) when there is a very clear showing of grave abuse of discretion 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, (2) when the findings of the Court of Appeals are contrary to those
of the CIAC, and (3) when a party is deprived of administrative due process.
Equity; Unjust Enrichment; Unjust enrichment claims do not lie simply because one party
benefits from the efforts or obligations of others, but instead it must be shown that a party
was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.
Petitioners reliance on the principle of unjust enrichment is likewise misplaced. The ruling
of the Court in University of the Philippines v. Philab Industries, Inc., 439 SCRA 467 (2004),
is highly instructive, thus: Unjust enrichment claims do not lie simply because one party
benefits from the efforts or obligations of others, but instead it must be shown that a party
was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not entitled
and that the state of affairs are such that it would be unjust for the person to keep the benefit.
Unjust enrichment is a term used to depict result or effect of failure to make remuneration of
or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.
Arbitration; Mathematical computations, the propriety of arbitral awards, claims for other
costs and abandonment are factual questions.Again, these issues are purely factual
and cannot be properly addressed in this petition for review on certiorari. In Hanjin Heavy
Industries and Construction Co., Ltd. v. Dynamic Planners and Construction Corp., 553
SCRA 541 (2008), it was emphasized that mathematical computations, the propriety of
arbitral awards, claims for other costs and abandonment are factual questions. Since the
discussions of the CIAC and the CA in their respective Decisions show that its factual
findings are supported by substantial evidence, there is no reason why this Court should not
accord finality to said findings. Verily, to accede to petitioners request for a recalibration of
its evidence, which had been thoroughly studied by both the CIAC and the CA would result
in negating the objective of Executive Order No. 1008, which created an arbitration body to
ensure the prompt and efficient settlement of disputes in the construction industry.
Parlade, Hildawa, Parlade & Eco Law Offices for petitioner.
V.Y. Salazar & Associates for respondent.
PERALTA,J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision1 of the Court of Appeals (CA) dated February 22, 2006, affirming
the Decision of the Construction Industry Arbitration Commission (CIAC), and the CA
Resolution2 dated April 26, 2006, denying herein petitioners motion for reconsideration, be
reversed and set aside.
The facts, as accurately narrated in the CA Decision, are as follows.
Petitioner Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic
corporation organized under Philippine laws. Private respondent RRN Incorporated
(hereinafter respondent) is likewise a domestic corporation organized under Philippine laws.
Respondent filed a claim for arbitration against petitioner before CIAC for recovery of
unpaid account which consists of unpaid portions of the sub-contract, variations and unused
materials in the total sum of P5,275,184.17 and legal interest in the amount of P442,014.73.
Petitioner filed a counterclaim for overpayment in the amount of P2,512,997.96.
The parties admitted several facts before the CIAC. It was shown that petitioner and
respondent executed an Agreement and Conditions of Sub-contract (hereafter Agreement
signed on June 11, 1996 and June 14, 1996, respectively. Respondent signified its willingness
to accept and perform for petitioner in any of its projects, a part or the whole of the works
more particularly described in Conditions of Sub-Contract and other Sub-contract
documents.
153
On June 11, 2002, the parties executed a Supply of Manpower, Tools/Equipment,

Consumables for the Electrical Works-Power and Equipment Supply, Bus Duct Installation
for the Phillip Morris Greenfield Project (hereafter Project) covered by Purchase Order Nos.
4501200300-000274 and 4501200300-000275 amounting to P15,724,000.00 and
P9,276,000.00 respectively, or a total amount of P25,000,000.00. The parties also agreed that
respondent will perform variation orders in the Project. In connection with the Project,
petitioner supplied manpower chargeable against respondent.
1How much is the total cost of materials supply chargeable to Claimant?3.
Respondent was not able to finish the entire works with petitioner due to financial
difficulties. Petitioner paid respondent a total amount of P26,547,624.76. On June 25, 2005
[should read 2003], respondent, through its former counsel sent a letter to petitioner
demanding for the payment of its unpaid balance amounting to P5,275,184.17. Petitioner
claimed material back charges in the amount of P4,063,633.43. On September 26, 2003,
respondent only acknowledged P2,371,895.33 as material back charges. Thereafter, on
October 16, 2003, respondent sent another letter to petitioner for them to meet and settle their
dispute.
Is the Respondent entitled to its claim for an overpayment in the amount of

P2,512,997.96?6.
On January 8, 2004, respondent sent another letter to petitioner regarding the cost of
equipment rental and the use of scaffolding. Thereafter, on August 12, 2004, petitioner sent a
letter to respondent denying any unpaid account and the failure in their negotiations for
amicable settlement.
On September 3, 2004, respondent, through its new counsel, advised petitioner of their
intention to submit the matter to arbitration. Thereafter, their dispute was submitted to
arbitration. During the preliminary conference, the parties agreed in their Terms of Reference
to resolve eight issues, to wit:
How much is the value of the remaining works left undone by the Claimant in
the project?4.
Is the Claimants claim for inventory of excess materials valid? If so, how
much is the value thereof?5.
Is Claimant entitled to its claim for interest? If so, how much?7.

Who between the parties shall bear the cost of Arbitration?8.
The CIAC rendered the assailed decision after the presentation of the parties evidence. [The
dispositive portion of said decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the claimant and respondent
is ordered to pay claimant its unpaid account in the sum of P3,728,960.54 plus legal
interest of 6% reckoned from June 25, 2003 up to the filing of the case on
128
128
1.What should be the basis in evaluating the variation cost?

1How much is the variation cost?1.
2. Is the Respondent (petitioner in the instant case) justified in charging
claimant (herein respondent) the equipment rental fee and for the use of the
scaffoldings? If so, how much should be charged to Claimant?
3. What should be the basis in evaluating the total cost of materials supplied
by Respondent to the Project which is chargeable to Claimant?
Shinryo (Philippines) Company, Inc. vs. RPN Incorporated

October 11, 2004 and 12% of P3,728,960.54 from the finality of the judgment until fully paid
and arbitration cost of P104,333.82 representing claimants share of the arbitration cost
which respondent should reimburse.
SO ORDERED.]
154
Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in
Issue No. 2 in so far as the amount of P440,000.00 awarded as back charges for the use of
scaffoldings. x x x3
On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of
the CIAC. The CA upheld the CIAC ruling that petitioner failed to adduce sufficient proof
that the parties had an agreement regarding charges for respondents use of the manlift. As to
the other charges for materials, the CA held that the evidence on record amply supports the
CIAC findings. Petitioner moved for reconsideration of said ruling, but the same was denied
per Resolution dated April 26, 2006.
Hence, this petition where it is alleged that:
I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE
ERROR WHEN IT DENIED PETITIONERS CLAIM FOR MANLIFT EQUIPMENT
RENTAL IN THE AMOUNT OF P511,000.00 DESPITE EVIDENCE ON RECORD THAT
RESPONDENT RRN ACTUALLY USED AND BENEFITED FROM THE MANLIFT
EQUIPMENT.
II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED
RESOLUTION, THE HONORABLE COURT OF APPEALS HAS DECIDED A
QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT.
III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN
AFFIRMING THE CIAC AWARD FOR THE VALUE OF INVENTORIED MATERIALS
CONSIDERING THAT:
A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON
ACCOUNT OF MATERIAL SUPPLY, WHICH INCLUDED THE
INVENTORIED MATERIALS.
B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR.
BONIFACIO ADMITTED THAT RESPONDENT RRN FAILED TO ESTABLISH
WHETHER THE MATERIALS CAME FROM RESPONDENT RRN OR FROM
PETITIONER AND THAT IT WAS PETITIONER THAT ACTUALLY INSTALLED
THE SAID MATERIALS AS PART OF REMAINING WORKS THAT

PETITIONER TOOK OVER FROM RESPONDENT RRN.
C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A
DOUBLE CLAIM OR DOUBLE ENTRY BECAUSE IN THE COMPUTATION
OF THE FINAL ACCOUNT, RESPONDENT RRN WAS CREDITED THE FULL
CONTRACT PRICE AND THE COST OF VARIATIONS, WHICH INCLUDED
THE INVENTORIED MATERIALS.
IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED
RESOLUTION, THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE
ERROR IN THAT IT COMPLETELY DISREGARDED THE PROVISION OF THE
SUBCONTRACT, WHICH ALLOWED PAYMENT OF ACTUAL COST INCURRED BY
PETITIONER IN COMPLETING THE REMAINING WORKS THAT PRIVATE
RESPONDENT ADMITTEDLY FAILED TO COMPLETE.
V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN
IT COMPLETELY DISREGARDED THE EVIDENCE ON ACTUAL COST INCURRED
BY PETITIONER IN COMPLETING THE REMAINING WORKS.
VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN
IT AFFIRMED THE CIAC AWARD FOR INTERESTS AND ARBITRATION COSTS IN
FAVOR OF RESPONDENT RRN.4
The petition is bereft of merit.
Despite petitioners attempts to make it appear that it is advancing questions of law, it is quite
clear that what petitioner seeks is for this Court to recalibrate the evidence it has presented
before the CIAC. It insists that its evidence sufficiently proves that it is entitled to payment
for respondents use of its manlift equipment, and even absent proof of the supposed
agreement on the charges petitioner may impose on respondent for the use of said equipment,
respondent should be made to pay based on the principle of unjust enrichment. Petitioner also
questions the amounts awarded by the CIAC for inventoried materials, and costs incurred by
petitioner for completing the work left unfinished by respondent.
As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance
System,5 to wit:
155
It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not
only respect, but also finality, especially when affirmed by the Court of Appeals. In
particular, factual findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal.
This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation, we said:
In David v. Construction Industry and Arbitration Commission, 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 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.
Other recognized exceptions are as follows: (1) when there is a very clear showing of
grave abuse of discretion 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, (2) when the
findings of the Court of Appeals are contrary to those of the CIAC, and (3) when a
party is deprived of administrative due process.
A perusal of the records would reveal that none of the aforementioned circumstances, which
would justify exemption of this case from the general rule, are present here. Such being the
case, the Court, not being a trier of facts, is not duty-bound to examine, appraise and analyze
anew the evidence presented before the arbitration body.
Petitioners reliance on the principle of unjust enrichment is likewise misplaced. The ruling
of the Court in University of the Philippines v. Philab Industries, Inc.8 is highly instructive,
thus:
Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the
sense that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not entitled
and that the state of affairs are such that it would be unjust for the person to keep the benefit.
Unjust enrichment is a term used to depict result or effect of failure to make remuneration of
or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.
Article 22 of the New Civil Code reads:
Every 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.
In order that accion in rem verso may prosper, the essential elements must be present: (1) that
the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the
enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no
other action based on contract, quasi-contract, crime or quasi-delict.
An accion in rem verso is considered merely an auxiliary action, available only when there is
no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable
action under any other institution of positive law, that action must be resorted to, and the
principle of accion in rem verso will not lie.9
As found by both the CIAC and affirmed by the CA, petitioner failed to prove that
respondents free use of the manlift was without legal ground based on the provisions of their
contract. Thus, the third requisite, i.e., that the enrichment of respondent is without just or
legal ground, is missing. In addition, petitioners claim is based on contract, hence, the fourth
requisitethat the plaintiff has no other action based on contract, quasi-contract, crime or
quasi-delictis also absent. Clearly, the principle of unjust enrichment is not applicable in
this case.
156
The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in
rejecting its claims for costs of some materials.
Carpio
(Chairperson),
Castro**** and Mendoza, JJ., concur.
Again, these issues are purely factual and cannot be properly addressed in this petition for
review on certiorari. In Hanjin Heavy Industries and Construction Co., Ltd. v. Dynamic
Planners and Construction Corp.,10 it was emphasized that mathematical computations, the
propriety of arbitral awards, claims for other costs and abandonment are factual
questions. Since the discussions of the CIAC and the CA in their respective Decisions show
that its factual findings are supported by substantial evidence, there is no reason why this
Court should not accord finality to said findings. Verily, to accede to petitioners request
for a recalibration of its evidence, which had been thoroughly studied by both the CIAC
and the CA would result in negating the objective of Executive Order No. 1008, which
created an arbitration body to ensure the prompt and efficient settlement of disputes in
the construction industry. Thus, the Court held in Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation,11 that:
Petition denied, judgment and resolution affirmed.
x x x 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.
As discussed above, there is nothing in the records that point to any grave abuse of discretion
committed by the CIAC.
The awards for interests and arbitration costs are, likewise, correct as they are in keeping
with prevailing jurisprudence.13
IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of
Appeals dated February 22, 2006 and its Resolution dated April 26, 2006 are AFFIRMED.
SO ORDERED.
Velasco,
Jr.,***
Leonardo-De
Notes.The judgment creditors having received what is due them, should not seek nor be
granted anything more, not even by a final and executory judgment, for to do so would be to
sanction unjust enrichment. (Buan vs. Court of Appeals, 235 SCRA 424 [1994])
The quasi-contract of solutio indebiti is based on the ancient principle that no one shall
enrich himself unjustly at the expense of another. (Genova vs. De Castro, 407 SCRA 165
[2003])
o0o
December 8, 2010.G.R. No. 177556.*

TRANSCEPT CONSTRUCTION AND MANAGEMENT PROFESSIONALS, INC.,
petitioner, vs. TERESA C. AGUILAR, respondent
Arbitration; Construction Industry Arbitration Commission (CIAC); There is substantial

completion when the Contractor completes 95% of the work provided that the remaining
work and the performance of the work necessary to complete the work shall not prevent the
normal use of the completed portion.Section 20.11(A)(a) of the Construction Industry
Authority of the Philippines (CIAP) Document No. 102 provides that [t]here is substantial
completion when the Contractor completes 95% of the Work, provided that the remaining
work and the performance of the work necessary to complete the Work shall not prevent the
normal use of the completed portion.
Same; Same; Court agrees with Construction Industry Arbitration Commissions (CIACs)
application of Article 1234 of the Civil Code, which provides that if the obligation has been
substantially performed in good faith, the obligor may recover as though there had been in
strict and complete fulfillment, less damage suffered by the obligee.According to CIACs
computation, Transcepts accomplishment amounted to 98.16% of the contract price. It is
157
beyond the 95% required under CIAP Document No. 102 and is considered a substantial
completion of the Project. We thus agree with CIACs application of Article 1234 of the Civil
Code, which provides that [i]f the obligation had been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.
Same; Same; There being substantial completion of the project, Aguilar is not entitled to
liquidated damages.There being a substantial completion of the Project, Aguilar is not
entitled to liquidated damages but only to actual damages of P30,076.72, representing the
unaccomplished works in the Second Contract as found by the CIAC, which is the difference
between the contract price of P1,632,436.29 and the accomplishment of P1,602,359.97.
_______________
* SECOND DIVISION.
Before the Court is a petition for review assailing the 24 January 2007 Decision1 and the 20
April 2007 Resolution2 of the Court of Appeals in CA-G.R. SP No. 93021.
The Antecedent Facts
From the decisions of the Court of Appeals and the Construction Industry Arbitration
Commission (CIAC), we gathered the following facts:
On 18 August 2004, Teresa C. Aguilar (Aguilar) entered into an Owner-General Contractor
Agreement (First Contract) with Transcept Construction and Management Professionals, Inc.
(Transcept) for the construction of a two-storey split level vacation house (the Project)
located at Phase 3, Block 3, Lot 7, Canyon Woods, Laurel, Batangas. Under the First
Contract, the Project would cost P3,486,878.64 and was to be completed within 2103
working days from the date of the First Contract or on 7 June 2005. Aguilar paid a
downpayment of P1 million on 27 August 2004.
On 30 November 2004, Transcept submitted its First Billing to Aguilar for work
accomplishments from start to 15 November 2004, in accordance with the Progressive
Billing payment scheme. Aguilar paid P566,356.
575
Transcept Construction and Management Professionals, Inc. vs. Aguilar

King, Capuchino, Tan & Associates for petitioner.
Magno, Aguilar, Corpuz, Solis, Litonjua & Alabanza Law Offices for respondent.
CARPIO,J.:
The Case
575
On 1 February 2005, Aguilar received the Second Billing amounting to P334,488 for the
period of 16 November 2004 to 15 December 2004. Transcept informed Aguilar that nonpayment would force them to halt all works on the Project. Aguilar questioned the Second
Billing as unusual for being 45 days ahead of actual accomplishment. Aguilar did not pay and
on 2 February 2005, Transcept stopped working on the Project.
Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcepts
quality of work. The test showed substandard works done by Transcept. In a letter dated 7
March 2005, Transcept outlined its program to reinforce or redo the substandard works
discovered by ASTEC. On 28 March 2005, ASTEC, through Engr. Jaime E. Rioflorido (Engr.
Rioflorido), sent Aguilar an Evaluation of Contractors Performance which showed that aside
from the substandard workmanship and use of substandard materials, Transcept was
unreasonably and fraudulently billing Aguilar. Of the downpayment amounting to
P1,632,436.29, Engr. Riofloridos reasonable assessment of Transcepts accomplishment
amounted only to P527,875.94. Engr. Rioflorido recommended the partial demolition of
Transcepts work.
158
On 30 May 2005, Transcept and Aguilar entered into a Construction Contract (Second
Contract) to extend the date of completion from 7 June 2005 to 29 July 2005 and to use up
the P1.6 million downpayment paid by Aguilar. Aguilar hired the services of Engr. Edgardo
Anonuevo (Engr. Anonuevo) to ensure that the works would comply with the plans in the
Second Contract.
Transcept failed to finish the Project on 29 July 2005, alleging that the delay was due to
additional works ordered by Aguilar. Transcept also asked for payment of the additional
amount of P290,824.96. Aguilar countered that the Second Contract did not provide for
additional works.
On 2 September 2005, Aguilar sent a demand letter to Transcept asking for payment of
P581,844.54 for refund and damages. Transcept ignored the demand letter. On 6 September
2005, Aguilar filed a complaint against Transcept before CIAC.
The Decision of the CIAC
CIAC assessed the work accomplished with the corresponding costs, as against the
downpayment of P1,632,436.29 which was the contract price in the Second Contract. On 16
January 2006, the CIAC promulgated its Decision.4
For Labor and Materials of the Scope of Work, the CIAC credited the accomplishment to be
P1,110,440.13 representing Aguilars estimate which was reassessed by the CIAC after the
ocular inspection conducted by the parties. For indirect costs for General Requirements of the
Scope of Work, the CIACs computation was P275,355.50. The CIAC noted that Aguilar did
not submit any evidence on indirect costs and her counsel did not cross-examine Transcepts
witnesses on the matter. For the Septic Tank, which the CIAC found to be part of the Second
Contract, the CIAC assessed the accomplishment to amount to P7,300. The CIAC added 5%
Contingencies and 10% Contractors Profit which are the minimum factors in making
estimates practiced in the construction industry. The CIAC thus estimated that the total
accomplishment amounted to P1,602,359.97 which was P30,076.72 below the contract price
of P1,632,436.29. The tabulated amount shows:
Direct Costs for Labor and Materials
Indirect Costs for General Requirements
Septic Tank
P1,110,440.13
275,355.50
_____7,300.00

Sub-Total
Plus 5% Contingencies
Add 10% of Sub-Total for Contractors Profit
Total
P1,110,440.13
P1,393,095.63
69,654.78
___139,309.56
P1,602,359.97
The CIAC ruled that the accomplishment of P1,602,359.97 was 98.16% of P1,632,436.29,
which was way above 95% and should therefore be considered as substantial completion of
the Project. As such, the CIAC ruled that liquidated damages could not be awarded to
Aguilar. The CIAC, however, ruled that Aguilar was entitled to P75,000 as Consultancy
Expenses.
The CIAC also found that Aguilar demanded extra works which entailed additional working
days. The CIAC computed that the additional works performed over and above the Second
Contract amounted to P189,909.91.
The dispositive portion of the CIACs decision reads:
In view of all the foregoing, it is hereby ordered that:
1. Respondent [Transcept] shall pay Claimant [Aguilar] the amount of P30,076.72,
representing the unaccomplished works in the contract, plus 6% interests from the date of the
promulgation of this case, until fully paid.
Respondent shall pay2. Claimant the amount of P75,000.00, representing the cost of
Consultancy Services, plus 6% interests from the date of the promulgation of this case, until
fully paid.
Claimant3. shall pay Respondent the amount of P189,909.91, representing the cost of work
performed over & above the scope of work in the contract.
4. The cost for liquidated damages and cost representing interests of construction bond,
prayed for the Claimant, are denied for being without merit.
Attorneys fees prayed for by both parties are denied for being without merit.5.
159
Cost of Arbitration shall be shared equally by the parties.6.
From the above computation, the Court of Appeals ruled that Transcept only accomplished
87.81% of the contract price thus entitling Aguilar to liquidated damages equivalent to 10%
of P1,632,436.29 or P163,243.63.
SO ORDERED.5
The Court of Appeals further ruled that Transcept was not entitled to payment for additional
works because they were in fact only rectifications of the works poorly done by Transcept.
Finally, the Court of Appeals ruled that Aguilar was able to prove that she paid P135,000 for
consultancy services.
Aguilar assailed the CIACs decision before the Court of Appeals.

The Decision of the Court of Appeals
In its 24 January 2007 Decision, the Court of Appeals reversed the CIACs decision.
The dispositive portion of the Court of Appeals decision reads:
The Court of Appeals agreed with the CIAC that Aguilar did not allege in her complaint the
amount corresponding to the indirect costs for General Requirements. However, the Court of
Appeals made a recomputation of the indirect costs for General Requirements based on
P1,632,436.29 and made the following findings:
WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED and the
assailed decision REVERSED AND SET ASIDE. Accordingly, a new one is entered ordering
respondent to pay petitioner the following:
1) P198,916.02 for unaccomplished works in the second contract, plus 6% interest from
the date of the filing of the case, until fully paid;
_______________
5 Id., at p. 123.
2) P135,000.00, representing the cost of consultancy services, plus 6% interest from the
filing of the case, until fully paid; and
579
P163,243.63 as and by way of liquidated damages.3)

579
Transcept Construction and Management Professionals, Inc. vs. Aguilar

P1,110,440.13
128,799.22
Septic Tank
_____7,300.00
Sub-Total
P1,246,539.35
62,326.96
___124,653.93
Total
P1,433,520.24
The Court of Appeals then deducted P1,433,520.24 from P1,632,436.29 and concluded
that Aguilar is entitled to P198,916.05 instead of P30,076.72.
The award of P189,909.91 in favor of Aguilar for additional works is hereby deleted.
No costs.
SO ORDERED.6
Transcept filed a motion for reconsideration. In its 20 April 2007 Resolution, the Court of
Appeals denied the motion.
Hence, the petition before this Court.
The Issues
The issues in this case are the following:
160
1. Whether the Court of Appeals erred in holding that Aguilar is entitled to P198,916.02
instead of P30,076.72 for unaccomplished works;
Whether the Court of Appeals erred in awarding Aguilar liquidated damages;2.
3. Whether the Court of Appeals erred in deleting the CIACs award of P189,909.91 to
Transcept representing additional works done under the Second Contract; and

Septic Tank
Sub-Total
Total
P1,110,440.13
275,355.50
_____7,300.00
P1,393,095.63
69,654.78
___139,309.56
P1,602,359.97
Whether the Court of Appeals erred in awarding Aguilar the amount of P135,000 for
consultancy services.4.
The Ruling of this Court
Liquidated Damages
Refund for Unaccomplished Works
Section 20.11(A)(a) of the Construction Industry Authority of the Philippines (CIAP)

Document No. 102 provides that [t]here is substantial completion when the Contractor
completes 95% of the Work, provided that the remaining work and the performance of the
work necessary to complete the Work shall not prevent the normal use of the completed
portion.
The petition is partly meritorious.
The Court of Appeals ruled that CIAC erred in adopting Transcepts computation of
unaccomplished works. The Court of Appeals agreed with Aguilar that the CIACs
computation was based on what Transcept submitted which was based on the original
contract price of P3,486,878.64 instead of the contract price of P1,632,436.29 under the
Second Contract.
However, the Court of Appeals failed to consider the CIACs as well as its own finding that
Aguilar did not present any evidence on indirect costs for General Requirements. In addition,
Aguilars counsel did not cross-examine Transcepts witnesses. In short, Aguilar did not
dispute but merely accepted Transcepts computation on indirect expenses. Aguilar did not
interpose any objection to the computation until after the CIAC ruled that Transcept
substantially complied with the Project. We also note Transcepts explanation, as well as the
CIACs finding, that General Requirements refer to mobilization, overhead, insurance,
hoarding and protection, temporary facilities, equipment, materials testing, line set out, asbuilt drawings, and clean out. They had been used up at the start of the Project. Hence, costs
for General Requirements are not dependent on the amount of the contract because they were
incurred at the beginning of the Project. We should therefore revert to the computation made
by the CIAC, as follows:
According to CIACs computation, Transcepts accomplishment amounted to 98.16% of the

contract price. It is beyond the 95% required under CIAP Document No. 102 and is
considered a substantial completion of the Project. We thus agree with CIACs application of
Article 1234 of the Civil Code, which provides that [i]f the obligation had been substantially
performed in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.7
There being a substantial completion of the Project, Aguilar is not entitled to liquidated
damages but only to actual damages of P30,076.72, representing the unaccomplished works
in the Second Contract as found by the CIAC, which is the difference between the contract
price of P1,632,436.29 and the accomplishment of P1,602,359.97.
Additional Works
The Second Contract excluded the construction of the following works:
Architectural Works Roofing System1.
161
Interior Fit-Out Works/Glass/Windows/CAB/CARP2.

Truss System3.
Supply and Installation of Plumbing Fixtures and Bathroom Accessories4.
Supply and Installation of Downspout System5.
The Court of Appeals correctly awarded Aguilar the cost of consultancy services amounting
to P135,000. While Engr. Rioflorido was not presented as a witness, it was established that
Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcepts quality of
work, and that Engr. Rioflorido represented ASTEC. As found by the Court of Appeals,
Aguilar paid Engr. Rioflorido the amount of P65,000 for the services, which should be added
to the P75,000 consultancy services awarded to Aguilar.10
Supply and Installation of Wiring Devices7.
WHEREFORE, we AFFIRM the 24 January 2007 Decision and the 20 April 2007 Resolution
of the Court of Appeals in CA-G.R. SP No. 93021, with the MODIFICATION that the award
of P198,916.02 for unaccomplished works is reduced to P30,076.72, and the award of
P163,243.63 for liquidated damages is deleted.
Supply and Installation of Circuit Breakers8.
SO ORDERED.
Testing and Commissioning.9.8
Corona (C.J.),** Nachura, Abad and Mendoza, JJ., concur.
The CIAC found that Aguilar demanded additional works from Transcept. The CIAC found
that the additional works include the balcony, lifting of roof beams, and extra fast walls
which are not covered by the Second Contract. However, we agree with the Court of Appeals
that the works done were just for correction of the substandard works done under the First
Contract. During the ocular inspection, Aguilar pointed out that the lifting of the roof beam
was done because the construction was three meters short of that specified in the First
Contact.9 Hence, while the roofing system is excluded from the Second Contract, it could not
be said that the lifting of the roof beam is an additional work on the part of Transcept.
Decision affirmed with modification
The Court notes that the Second Contract was entered into by the parties precisely to correct
the substandard works discovered by ASTEC. Hence, Aguilar should not be made to pay for
works done to correct these substandard works.
Electrical Roughing-in and Wiring Works6.
Consultancy Services
Note.Level of work accomplishment of 97.56% complete would by any rational norm, be

considered as substantial to warrant full payment of the contract amount, less actual damages
suffered by the principal. (Diesel Construction Co., Inc. vs. UPSI Property Holdings, Inc.,
549 SCRA 12 [2008])
o0o
January 31, 2011.G.R. No. 175404.*

CARGILL PHILIPPINES, INC., petitioner, vs. SAN FERNANDO REGALA
TRADING, INC., respondent.
Arbitration; Alternative Dispute Resolution; Arbitration, as an alternative mode of settling
disputes, has long been recognized and accepted in our jurisdiction.Arbitration, as an
alternative mode of settling disputes, has long been recognized and accepted in our
jurisdiction. R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as
a system of settling commercial disputes of an international character, is likewise recognized.
162
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.
Same; Same; Contracts; Submission to arbitration is a contract and a clause in a contract
providing that all matters in dispute between the parties shall be referred to arbitration is a
contract.A contract is required for arbitration to take place and to be binding. Submission
to arbitration is a contract and a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. 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.
Same; Same; Same; 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.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 partys 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.
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 petitioners 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:
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles for petitioner.
ARBITRATION
Estelito Mendoza for respondent.
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
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.
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 66 and 77 of Republic Act (R.A.) No. 876, or
the Arbitration Law.
163
Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the
action for rescission of contract and could not be changed by the subject arbitration clause. It
cited cases wherein arbitration clauses, such as the subject clause in the contract, had been
struck down as void for being contrary to public policy since it provided that the arbitration
award shall be final and binding on both parties, thus, ousting the courts of jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already inapplicable, having
been rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law
in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is
invalid and unenforceable, considering that the requirements imposed by the provisions of
the Arbitration Law had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the
issue boiled down to whether the arbitration clause contained in the contract subject of the
complaint is valid and enforceable; that the arbitration clause did not violate any of the cited
provisions of the Arbitration Law.
and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law to
such an agreement would result in disregarding the other sections of the same law and
rendered them useless and mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an 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 partys 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.
On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:
Premises considered, defendants 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 petitioners 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 nonresident arbitrator (American Arbitration Association); that the arbitral award shall be final
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 RTCs 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.
164
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.
Petitioners 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 CAs 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 respondents complaint
filed in Civil Case No. 98-1376 presents the principal issue of whether under the facts alleged
in the complaint, respondent is entitled to rescind its contract with petitioner and for the latter
to pay damages; that such issue constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to
adopt in the same action several defenses, alternatively or hypothetically, even if such
defenses are inconsistent with each other refers to allegations in the pleadings, such as
complaint, counterclaim, cross-claim, third-party complaint, answer, but not to a motion to
dismiss. Finally, respondent claims that petitioners 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.
165
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:
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 petitioners
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 petitioners 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
166
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.
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.
We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and
accepted in our jurisdiction. R.A. No. 876 authorizes arbitration of domestic disputes.
Foreign arbitration, as a system of settling commercial disputes of an international character,
is likewise recognized. 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.
A contract is required for arbitration to take place and to be binding. Submission to
arbitration is a contract and a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. 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.
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
Arbitration is not proper when one of the parties repudiates the existence or validity of the
contract. Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R. No. 161957),
where the Supreme Court held that:
The question of validity of the contract containing the agreement to submit to
arbitration will affect the applicability of the arbitration clause itself. A party
cannot rely on the contract and claim rights or obligations under it and at the
same time impugn its existence or validity. Indeed, litigants are enjoined from
taking inconsistent positions....
Consequently, the petitioner herein cannot claim that the contract was never consummated
and, at the same time, invokes the arbitration clause provided for under the contract which it
alleges to be non-existent or invalid. Petitioner claims that private respondents complaint
lacks a cause of action due to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a fallback position. The
petitioner must first adduce evidence in support of its claim that there is no valid contract
between them and should the court a quo find the claim to be meritorious, the parties may
then be spared the rigors and expenses that arbitration in a foreign land would surely
entail.24
However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had
been modified upon a motion for reconsideration in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of
the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit to arbitration does not
affect the applicability of the arbitration clause itself. A contrary ruling would suggest
that a partys mere repudiation of the main contract is sufficient to avoid arbitration.
167
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 petitioners case, since in
the Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract
with Gonzales and the formers move was premised on the existence of a valid contract;
while Gonzales, who resisted the move of Climax-Arimco for arbitration, did not deny the
existence of the contract but merely assailed the validity thereof on the ground of fraud and
oppression. Respondent claims that in the case before Us, petitioner who is the party insistent
on arbitration also claimed in their Motion to Dismiss/Suspend Proceedings that the contract
sought by respondent to be rescinded did not exist or was not consummated; thus, there is no
room for the application of the separability doctrine, since there is no container or main
contract or an arbitration clause to speak of.
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract
shall not be regarded as invalid or non-existent just because the main contract is invalid or
did not come into existence, since the arbitration agreement shall be treated as a separate
agreement independent of the main contract. To reiterate a contrary ruling would suggest that
a partys mere repudiation of the main contract is sufficient to avoid arbitration and that is
exactly the situation that the separability doctrine sought to avoid. Thus, we find that even the
party who has repudiated the main contract is not prevented from enforcing its arbitration
clause.
Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and
damages with the RTC. In so doing, respondent alleged that a contract exists between
respondent and petitioner. It is that contract which provides for an arbitration clause which
states that any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled before the City of New York by the American Arbitration
Association. The arbitration agreement clearly expressed the parties intention that any
dispute between them as buyer and seller should be referred to arbitration. It is for the
arbitrator and not the courts to decide whether a contract between the parties exists or is
valid.
Respondent contends that assuming that the existence of the contract and the arbitration
clause is conceded, the CAs 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
168
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
petitioners 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. 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. 876the Arbitration Lawas 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.
Carpio (Chairperson), Nachura, Abad and Mendoza, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
169
Note.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. (Korea Technologies Co., Ltd. vs. Lerma, 542 SCRA 1 [2008])
o0o
April 4, 2011.G.R. No. 167022.*

LICOMCEN, INCORPORATED, petitioner, vs. FOUNDATION SPECIALISTS, INC.,
respondent.
April 4, 2011.G.R. No. 169678.*

FOUNDATION SPECIALISTS, INC., petitioner, vs. LICOMCEN, INCORPORATED,
respondent.
_______________
170
Arbitration; Construction Industry Arbitration Commission (CIAC); Reason Behind the

Creation of Construction Industry Arbitration Commission (CIAC).The CIAC was created
through Executive Order No. 1008 (E.O. 1008), in recognition of the need to establish an
arbitral machinery that would expeditiously settle construction industry disputes. The prompt
resolution of problems arising from or connected with the construction industry was
considered of necessary and vital for the fulfillment of national development goals, as the
construction industry provides employment to a large segment of the national labor force and
is a leading contributor to the gross national product.
Same; Same; Jurisdiction; The text of Section 4 of Executive Order (E.O.) 1008 is broad
enough to cover any dispute arising from, or connected with construction contracts, whether
these involve mere contractual money claims or execution of the works.The jurisdiction of
courts and quasi-judicial bodies is determined by the Constitution and the law. It cannot be
fixed by the will of the parties to a dispute; the parties can neither expand nor diminish a
tribunals jurisdiction by stipulation or agreement. The text of Section 4 of E.O. 1008 is
broad enough to cover any dispute arising from, or connected with construction contracts,
whether these involve mere contractual money claims or execution of the works. Considering
the intent behind the law and the broad language adopted, LICOMCEN erred in insisting on
its restrictive interpretation of GC-61. The CIACs jurisdiction cannot be limited by the
parties stipulation that only disputes in connection with or arising out of the physical
construction activities (execution of the works) are arbitrable before it.
Same; Same; Same; The arbitration clause in the construction contract ipso facto vested the
Construction Industry Arbitration Commission (CIAC) with jurisdiction.In fact, all that is
required for the CIAC to acquire jurisdiction is for the parties to a construction
contract to agree to submit their dispute to arbitration. x x x In HUTAMA-RSEA Joint
Operations, Inc. v. Citra Metro Manila Tollways Corporation, 586 SCRA 746 (2009), the
Court declared that the bare fact that the parties x x x incorporated an arbitration clause in
[their contract] is sufficient to vest the CIAC with jurisdiction over any construction
controversy or claim between the parties. The arbitration clause in the construction
contract ipso facto vested the CIAC with jurisdiction.
Same; Same; Same; This jurisdiction cannot be altered by stipulations restricting the nature
of construction disputes, appointing another arbitral body, or making that bodys decision
final and binding.The CIAC is given the original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in
the Philippines. This jurisdiction cannot be altered by stipulations restricting the nature of
construction disputes, appointing another arbitral body, or making that bodys decision final
and binding.
Angara, Abello, Concepcion, Regala & Cruz for Licomcen, Inc.
Nelson A. Clemente for Foundation Specialist, Inc.
BRION,J.:
The Facts
The petitioner, LICOMCEN is a domestic corporation engaged in the business of operating
shopping malls in the country.
In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public
bidding, a lease contract over a lot located in the central business district of the city. Under
the contract, LICOMCEN was obliged to finance the construction of a commercial
complex/mall to be known as the Citimall. It was also granted the right to operate and
manage Citimall for 50 years, and was, thereafter, required to turn over the ownership and
operation to the City Government.
For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as
its engineering consultant. Since the Citimall was envisioned to be a high-rise structure,
LICOMCEN contracted respondent Foundation Specialists, Inc. (FSI) to do initial
construction works, specifically, the construction and installation of bored piles foundation.
LICOMCEN and FSI signed the Construction Agreement,3 and the accompanying Bid
Documents4 and General Conditions of Contract5 (GCC) on September 1, 1997.
Immediately thereafter, FSI purchased the materials needed for the Citimall6 project and
began working in order to meet the 90-day deadline set by LICOMCEN.
On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design
revisions and the suspension of work on the Citimall project. FSI replied on December 18,
1997, expressing concern over the revisions and the suspension, as it had fully mobilized its
171
manpower and equipment, and had ordered the delivery of steel bars. FSI also asked for the
payment of accomplished work amounting to P3,627,818.00.7 A series of correspondence
between LICOMCEN and FSI then followed.
jurisdiction, contending that FSIs claims were matters not subject to arbitration under GC-61
of the GCC, but one that should have been filed before the regular courts of Legaspi City
pursuant to GC-05.20
ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in
the bored piles requirement and a substantial reduction in the number of piles. Thus, ESCA
proposed to FSI that only 50% of the steel bars be delivered to the jobsite and the rest be
shipped back to Manila. Notwithstanding this instruction, all the ordered steel bars arrived in
Legaspi City on January 14, 1998.
During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections
to the CIACs jurisdiction, which the arbitrators simply noted. Both FSI and LICOMCEN
then proceeded to draft the Terms of Reference.21
ESCA replied to FSIs demands for payment on March 24, 1998, objecting to some of
the claims.15 It denied the claim for the cost of the steel bars that were delivered, since the
delivery was done in complete disregard of its instructions. It further disclaimed liability for
the other FSI claims based on the suspension, as its cause was not due to LICOMCENs fault.
FSI rejected ESCAs evaluation of its claims in its April 15, 1998 letter.16
On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment of
P29,232,672.83.17 Since LICOMCEN took no positive action on FSIs demand for
payment,18 FSI filed a petition for arbitration with the Construction Industry Arbitration
Commission (CIAC) on October 2, 2002, docketed as CIAC Case No. 37-2002.19 In the
arbitration petition, FSI demanded payment of the following amounts:
Unpaid accomplished work billings........ P 1,264,404.12a.
Material costs at site .............................
On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad

Cautela Omnibus Motion, insisting that FSIs petition before the CIAC should be dismissed
for lack of jurisdiction; thus, it prayed for the suspension of the arbitration proceedings until
the issue of jurisdiction was finally settled. The CIAC denied LICOMCENs motion in its
February 20, 2003 order,22 finding that the question of jurisdiction depends on certain
factual conditions that have yet to be established by ample evidence. As the CIACs February
20, 2003 order stood uncontested, the arbitration proceedings continued, with both parties
actively participating.
The CIAC issued its decision on July 7, 2003,23 ruling in favor of FSI and awarding the
following amounts:
Unpaid accomplished work billings ........ P 1,264,404.12a.
Material costs at site ............................. 14,643,638.51b.
Equipment and labor standby costs ........
2,957,989.94c.
Unrealized gross pd.rofit ..........................
5,120,000.00
15,143,638.51b.
Equipment and labor standby costs .........
3,058,984.34c.
Unrealized gross profit ............................
9,023,575.29d.
Attorneys fees .........................................
300,000.00e.
Interest expenses .......... equivalent to 15% of the total claimf.

LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to
indefinitely suspend the Citimall project due to the cases filed against it involving its Lease
Contract with the City Government of Legaspi. LICOMCEN also assailed the CIACs
LICOMCEN was also required to bear the costs of arbitration in the total amount of
P474,407.95.
LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November
23, 2004, the CA upheld the CIACs decision, modifying only the amounts awarded by (a)
reducing LICOMCENs liability for material costs at site to P5,694,939.87, and (b) deleting
its liability for equipment and labor standby costs and unrealized gross profit; all the other
awards were affirmed.24 Both parties moved for the reconsideration of the CAs Decision;
LICOMCENs motion was denied in the CAs February 4, 2005 Resolution, while FSIs
motion was denied in the CAs September 13, 2005 Resolution. Hence, the parties filed their
own petition for review on certiorari before the Court.25
172
LICOMCENs Arguments
GC-05. JURISDICTION
LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs
claims are non-arbitrable. In support of its position, LICOMCEN cites GC-61 of the
GCC:GC-61. DISPUTES AND ARBITRATION
Any question between the contracting parties that may arise out of or in connection
with the Contract, or breach thereof, shall be litigated in the courts of Legaspi City except
where otherwise specifically stated or except when such question is submitted for settlement
thru arbitration as provided herein.28
Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the
Contractor [referring to FSI] or the Engineer [referring to ESCA] and the Contractor in
connection with, or arising out of the execution of the Works, such dispute shall first be
referred to and settled by the LICOMCEN, INCORPORATED who shall within a period of
thirty (30) days after being formally requested by either party to resolve the dispute, issue a
written decision to the Engineer and Contractor.
Such decision shall be final and binding upon the parties and the Contractor shall proceed
with the execution of the Works with due diligence notwithstanding any Contractors
objection to the decision of the Engineer. If within a period of thirty (30) days from receipt of
the LICOMCEN, INCORPORATEDs decision on the dispute, either party does not
officially give notice to contest such decision through arbitration, the said decision shall
remain final and binding. However, should any party, within thirty (30) days from receipt of
the LICOMCEN, INCORPORATEDs decision, contest said decision, the dispute shall be
submitted for arbitration under the Construction Industry Arbitration Law, Executive Order
1008. The arbitrators appointed under said rules and regulations shall have full power to open
up, revise and review any decision, opinion, direction, certificate or valuation of the
LICOMCEN, INCORPORATED. Neither party shall be limited to the evidence or arguments
put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said
decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him
from being called as a witness and giving evidence in the arbitration. It is understood that the
obligations of the LICOMCEN, INCORPORATED, the Engineer and the Contractor shall
not be altered by reason of the arbitration being conducted during the progress of the
Works.26
LICOMCEN posits that only disputes in connection with or arising out of the execution of
the Works are subject to arbitration. LICOMCEN construes the phrase execution of the
Works as referring to the physical construction activities, since Works under the GCC
specifically refer to the structures and facilities required to be constructed and completed
for the Citimall project.27 It considers FSIs claims as mere contractual monetary claims
that should be litigated before the courts of Legaspi City, as provided in GC-05 of the GCC:
LICOMCEN also contends that FSI failed to comply with the condition precedent for
arbitration laid down in GC-61 of the GCC. An arbitrable dispute under GC-61 must first be
referred to and settled by LICOMCEN, which has 30 days to resolve it. If within a period of
30 days from receipt of LICOMCENs decision on the dispute, either party does not officially
give notice to contest such decision through arbitration, the said decision shall remain final
and binding. However, should any party, within 30 days from receipt of LICOMCENs
decision, contest said decision, the dispute shall be submitted for arbitration under the
Construction Industry Arbitration Law.
LICOMCEN considers its March 24, 1998 letter as its final decision on FSIs claims, but
declares that FSIs reply letter of April 15, 1998 is not the notice to contest required by
GC-61 that authorizes resort to arbitration before the CIAC. It posits that nothing in FSIs
April 15, 1998 letter states that FSI will avail of arbitration as a mode to settle its dispute
with LICOMCEN. While FSIs final demand letter of March 14, 2001 mentioned its
intention to refer the matter to arbitration, LICOMCEN declares that the letter was made
three years after its March 24, 1998 letter, hence, long after the 30-day period provided in
GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on October 2,
2002.29 Considering FSIs delays in asserting its claims, LICOMCEN also contends that
FSIs action is barred by laches.
With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in
upholding its liability for material costs at site for the reinforcing steel bars in the amount of
P5,694,939.87, computed as follows:3
2nd
initial
rebar
requirements
purchased
Asa Steel Works, Inc. .......................................... P 799,506.83
Reinforcing
steel
bars
purchased
from
dustrial
Sales
(total
net
weight
of
grams) 50% of net amount due ......................... 5,395,433.04
from
ARCA
744,197.66
PagInkilo173
Subtotal ......................................................... . 6,194,939.87

Less
Purchase
cost
of
steel
bars
quileria ........................................................ (500,000.00)
TOTAL
LIABILITY
OF
FOR MATERIAL COSTS AT SITE ................
by
LICOMCEN
5,694,939.87
Ramon
TO
Quin-
LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs
of arbitration. The ruling was apparently based on the finding that LICOMCENs failure or
refusal to meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to
arbitration.34 LICOMCEN asserts that it was FSIs decision to proceed with the delivery of
the steel bars that actually caused the dispute; it insists that it is not the party at fault which
should bear the arbitration costs.35
FSI
Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI [t]he cost of
materials or goods reasonably ordered for the Permanent or Temporary Works which
have been delivered to the Contractor but not yet used, and which delivery has been
certified by the Engineer.31 None of these requisites were allegedly complied with. It
contends that FSI failed to establish that the steel bars delivered in Legaspi City, on January
14, 1998, were for the Citimall project. In fact, the steel bars were delivered not at the site of
the Citimall project, but at FSIs batching plant called Tuanzon compound, a few hundred
meters from the site. Even if delivery to Tuanzon was allowed, the delivery was done in
violation of ESCAs instruction to ship only 50% of the materials. Advised as early as
December 1997 to suspend the works, FSI proceeded with the delivery of the steel bars in
January 1998. LICOMCEN declared that it should not be made to pay for costs that FSI
willingly incurred for itself.32
Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability
should be minimized by the fact that FSI incurred no actual damage from the purchase and
delivery of the steel bars. During the suspension of the works, FSI sold 125,000 kg of steel
bars for P500,000.00 to a third person (a certain Ramon Quinquileria). LICOMCEN alleges
that FSI sold the steel bars for a ridiculously low price of P 4.00/kilo, when the prevailing
rate was P20.00/kilo. The sale could have garnered a higher price that would offset
LICOMCENs liability. LICOMCEN also wants FSI to account for and deliver to it the
remaining 744 metric tons of steel bars not sold. Otherwise, FSI would be unjustly enriched
at LICOMCENs expense, receiving payment for materials not delivered to LICOMCEN.33
FSIs Arguments
FSI takes exception to the CA ruling that modified the amount for material costs at site, and
deleted the awards for equipment and labor standby costs and unrealized profits.
Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of
the steel bars. Under GC-42, it is enough that the materials were delivered to the contractor,
although not used. FSI said that the 744 metric tons of steel bars were ordered and paid for
by it for the Citimall project as early as November 1997. If LICOMCEN contends that these
were procured for other projects FSI also had in Legaspi City, it should have presented proof
of this claim, but it failed to do so.36
ESCAs January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to
Legaspi City; it was not a clear and specific directive. Even if it was, the steel bars were
ordered and paid for long before the notice to suspend was given; by then, it was too late to
stop the delivery. FSI also claims that since it believed in good faith that the Citimall project
was simply suspended, it expected work to resume soon after and decided to proceed with the
shipment.37
Contrary to LICOMCENs arguments, GC-42 of the GCC does not require delivery of the
materials at the site of the Citimall project; it only requires delivery to the contractor, which
is FSI. Moreover, the Tuanzon compound, where the steel bars were actually delivered, is
very close to the Citimall project site. FSI contends that it is a normal construction practice
for contractors to set up a staging site, to prepare the materials and equipment to be used,
rather than stock them in the crowded job/project site. FSI also asserts that it was useless to
have the delivery certified by ESCA because by then the Citimall project had been
suspended. It would be unfair to demand FSI to perform an act that ESCA and LICOMCEN
themselves had prevented from happening.38
174
The CA deleted the awards for equipment and labor standby costs on the ground that FSIs
documentary evidence was inadequate. FSI finds the ruling erroneous, since LICOMCEN
never questioned the list of employees and equipments employed and rented by FSI for the
duration of the suspension.39
FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project.
While LICOMCEN cited several other cases in its petition for review on certiorari as
grounds for suspending the works, its letters/notices of suspension only referred to one case,
OMB-ADM-1-97-0622, an administrative case before the Ombudsman that was dismissed as
early as October 12, 1998. LICOMCEN never notified FSI of the dismissal of this case. More
importantly, no restraining order or injunction was issued in any of these cases to justify the
suspension of the Citimall project.40 FSI posits that LICOMCENs true intent was to
terminate its contract with it, but, to avoid paying damages for breach of contract, simply
declared it as indefinitely suspended. That LICOMCEN conducted another public bidding
for the new designs is a telling indication of LICOMCENs intent to ease out FSI.41 Thus,
FSI states that LICOMCENs bad faith in indefinitely suspending the Citimall project entitles
it to claim unrealized profit. The restriction under GC-41 that [t]he contractor shall have no
claim for anticipated profits on the work thus terminated,42 will not apply because the
stipulation refers to a contract lawfully and properly terminated. FSI seeks to recover
unrealized profits under Articles 1170 and 2201 of the Civil Code.
may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
materials and workmanship; violation of the terms of agreement; interpretation and/or
application of contractual time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost. Excluded from the coverage of this law
are disputes arising from employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the
law. It cannot be fixed by the will of the parties to a dispute; the parties can neither expand
nor diminish a tribunals jurisdiction by stipulation or agreement. The text of Section 4 of
E.O. 1008 is broad enough to cover any dispute arising from, or connected with construction
contracts, whether these involve mere contractual money claims or execution of the works.
Considering the intent behind the law and the broad language adopted, LICOMCEN erred in
insisting on its restrictive interpretation of GC-61. The CIACs jurisdiction cannot be limited
by the parties stipulation that only disputes in connection with or arising out of the physical
construction activities (execution of the works) are arbitrable before it.
The jurisdiction of the CIAC
In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a
construction contract to agree to submit their dispute to arbitration. Section 1, Article III
of the 1988 CIAC Rules of Procedure (as amended by CIAC Resolution Nos. 2-91 and 3-93)
states:
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the
need to establish an arbitral machinery that would expeditiously settle construction industry
disputes. The prompt resolution of problems arising from or connected with the construction
industry was considered of necessary and vital for the fulfillment of national development
goals, as the construction industry provides employment to a large segment of the national
labor force and is a leading contributor to the gross national product.43 Section 4 of E.O.
1008 states:
1.SectionSubmission to CIAC Jurisdiction.An arbitration clause in a construction

contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in
such contract or submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter into a submission
agreement before the claimant may invoke the jurisdiction of CIAC.
4.Sec.Jurisdiction.The CIAC shall have original and exclusive jurisdiction over

construction in the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach thereof. These disputes
An arbitration agreement or a submission to arbitration shall be in writing, but it need not be

signed by the parties, as long as the intent is clear that the parties agree to submit a present or
future controversy arising from a construction contract to arbitration.
The Courts Ruling
175
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,47

the Court declared that the bare fact that the parties x x x incorporated an arbitration clause
in [their contract] is sufficient to vest the CIAC with jurisdiction over any construction
controversy or claim between the parties. The arbitration clause in the construction
contract ipso facto vested the CIAC with jurisdiction.
Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court
sees no intent to limit resort to arbitration only to disputes relating to the physical
construction activities.
If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also
cannot be subjected to a condition precedent. GC-61 requires a party disagreeing with
LICOMCENs decision to officially give notice to contest such decision through
arbitration within 30 days from receipt of the decision. However, FSIs April 15, 1998 letter
is not the notice contemplated by GC-61; it never mentioned FSIs plan to submit the dispute
to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding
FSIs failure to make a proper and timely notice, LICOMCENs decision (embodied in its
March 24, 1998 letter) cannot become final and binding so as to preclude resort to the
CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is for
the parties to agree to submit their dispute to voluntary arbitration:
First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should
be interpreted at its widest signification. Under GC-61, the voluntary arbitration clause
covers any dispute of any kind, not only arising of out the execution of the works but also in
connection therewith. The payments, demand and disputed issues in this casenamely, work
billings, material costs, equipment and labor standby costs, unrealized profitsall arose
because of the construction activities and/or are connected or related to these activities. In
other words, they are there because of the construction activities. Attorneys fees and
interests payment, on the other hand, are costs directly incidental to the dispute. Hence, the
scope of the arbitration clause, as worded, covers all the disputed items.
[T]he mere existence of an arbitration clause in the construction contract is considered

by law as an agreement by the parties to submit existing or future controversies
between them to CIAC jurisdiction, without any qualification or condition precedent. To
affirm a condition precedent in the construction contract, which would effectively suspend
the jurisdiction of the CIAC until compliance therewith, would be in conflict with the
recognized intention of the law and rules to automatically vest CIAC with jurisdiction over a
dispute should the construction contract contain an arbitration clause.48
Second and more importantly, in insisting that contractual money claims can be resolved
only through court action, LICOMCEN deliberately ignores one of the exceptions to the
general rule stated in GC-05:
The CIAC is given the original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the
Philippines.49 This jurisdiction cannot be altered by stipulations restricting the nature of
construction disputes, appointing another arbitral body, or making that bodys decision final
and binding.
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where
otherwise specifically stated or except when such question is submitted for settlement
thru arbitration as provided herein.
The second exception clause authorizes the submission to arbitration of any dispute between
LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI when it filed its petition for
arbitration with the CIAC.
The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is,
therefore, affirmed.
The validity of the indefinite
suspension of the works on the
Citimall project
Before the Court rules on each of FSIs contractual monetary claims, we deem it important to
discuss the validity of LICOMCENs indefinite suspension of the works on the Citimall
project. We quote below two contractual stipulations relevant to this issue:
GC-38. SUSPENSION OF WORKS
176
The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the
authority to suspend the Works wholly or partly by written order for such period as
may be deemed necessary, due to unfavorable weather or other conditions considered
unfavorable for the prosecution of the Works, or for failure on the part of the Contractor to
correct work conditions which are unsafe for workers or the general public, or failure or
refusal to carry out valid orders, or due to change of plans to suit field conditions as found
necessary during construction, or to other factors or causes which, in the opinion of the
Engineer, is necessary in the interest of the Works and to the LICOMCEN,
INCORPORATED. The Contractor [FSI] shall immediately comply with such order to
suspend the work wholly or partly directed.
In case of total suspension or suspension of activities along the critical path of the approved
PERT/CPM network and the cause of which is not due to any fault of the Contractor, the
elapsed time between the effective order for suspending work and the order to resume
work shall be allowed the Contractor by adjusting the time allowed for his execution of
the Contract Works.
The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the
suspension of work when conditions to resume work shall have become favorable or the
reasons for the suspension have been duly corrected.50
GC-41 LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE
THE CONTRACT
xxxx
For Convenience of LICOMCEN, INCORPORATED2.
If any time before completion of work under the Contract it shall be found by the
LICOMCEN, INCORPORATED that reasons beyond the control of the parties render
it impossible or against the interest of the LICOMCEN, INCORPORATED to complete
the work, the LICOMCEN, INCORPORATED at any time, by written notice to the
Contractor, may discontinue the work and terminate the Contract in whole or in part.
Upon the issuance of such notice of termination, the Contractor shall discontinue to work in
such manner, sequence and at such time as the LICOMCEN, INCORPORATED/Engineer
may direct, continuing and doing after said notice only such work and only until such time or
times as the LICOMCEN, INCORPORATED/Engineer may direct.51
Under these stipulations, we consider LICOMCENs initial suspension of the works valid.
GC-38 authorizes the suspension of the works for factors or causes which ESCA deems
necessary in the interests of the works and LICOMCEN. The factors or causes of suspension
may pertain to a change or revision of works, as cited in the December 16, 1997 and January
6, 1998 letters of ESCA, or to the pendency of a case before the Ombudsman (OMB-ADM1-97-0622), as cited in LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998
and February 17, 1998 letters. It was not necessary for ESCA/LICOMCEN to wait for a
restraining or injunctive order to be issued in any of the cases filed against LICOMCEN
before it can suspend the works. The language of GC-38 gives ESCA/LICOMCEN sufficient
discretion to determine whether the existence of a particular situation or condition
necessitates the suspension of the works and serves the interests of LICOMCEN.
Although we consider the initial suspension of the works as valid, we find that
LICOMCEN wrongfully prolonged the suspension of the works (or indefinite
suspension as LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to issue an order
lifting the suspension of work when conditions to resume work shall have become favorable
or the reasons for the suspension have been duly corrected. The Ombudsman case (OMBADM-1-97-0622), which ESCA and LICOMCEN cited in their letters to FSI as a ground for
the suspension, was dismissed as early as October 12, 1998, but neither ESCA nor
LICOMCEN informed FSI of this development. The pendency of the other cases52 may
justify the continued suspension of the works, but LICOMCEN never bothered to inform FSI
of the existence of these cases until the arbitration proceedings commenced. By May 28,
2002, the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed
with the Citimall project;53 again, LICOMCEN failed to relay this information to FSI.
Instead, LICOMCEN conducted a rebidding of the Citimall project based on the new
design.54 LICOMCENs claim that the rebidding was conducted merely to get cost estimates
for the new design goes against the established practice in the construction industry. We find
the CIACs discussion on this matter relevant:
But what is more appalling and disgusting is the allegation x x x that the x x x invitation to
bid was issued x x x solely to gather cost estimates on the redesigned [Citimall project] x x x.
This Arbitral Tribunal finds said act of asking for bids, without any intention of awarding
the project to the lowest and qualified bidder, if true, to be extremely irresponsible and
highly unprofessional. It might even be branded as fraudulent x x x [since] the invited
bidders [were required] to pay P2,000.00 each for a set of the new plans, which amount was
non-refundable. The presence of x x x deceit makes the whole story repugnant and
unacceptable.55
177
LICOMCENs omissions and the imprudent rebidding of the Citimall project are
telling indications of LICOMCENs intent to ease out FSI and terminate their contract.
As with GC-31, GC-42(2) grants LICOMCEN ample discretion to determine what reasons
render it against its interest to complete the workin this case, the pendency of the other
cases and the revised designs for the Citimall project. Given this authority, the Court fails to
the see the logic why LICOMCEN had to resort to an indefinite suspension
For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires
that
of the works, instead of outrightly terminating the contract in exercise of its rights under GC42(2).
Both the CIAC and the CA agreed that these requisites were met by FSI to make
LICOMCEN liable for the cost of the steel bars ordered for the Citimall project; the two
tribunals differed only to the extent of LICOMCENs liability because the CA opined that it
should be limited only to 50% of the cost of the steel bars. A review of the records compels
us to uphold the CAs finding.
We now proceed to discuss the effects of these findings with regard to FSIs monetary claims
against LICOMCEN.
The claim for material costs at site
the materials or goods were reasonably ordered for the Permanent or Temporary
Works;a.the materials or goods were delivered to the Contractor but not yet used;
andb.the delivery was certified by the Engineer.c.
Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works;
ESCAs January 6, 1998 letter reads:
GC-42 of the GCC states:

GC-42 PAYMENT FOR TERMINATED CONTRACT
As per our information to you on December 16, 1997, a major revision in the design of
the Legaspi Citimall necessitated a change in the bored piles requirement of the project. The
change involved a substantial reduction in the number and length of piles.
If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work
executed, satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up
to the date of termination, at the rates and prices provided for in the Contract and in addition:
We expected that you would have suspended the deliveries of the steel bars until the
new design has been approved.
1. The cost of partially accomplished items of additional or extra work agreed upon
by the LICOMCEN, INCORPORATED and the Contractor.
According to you[,] the steel bars had already been paid and loaded and out of Manila
on said date.
2.The cost of materials or goods reasonably ordered for the Permanent or

Temporary Works which have been delivered to the Contractor but not yet used
and which delivery has been certified by the Engineer.
In order to avoid double handling, storage, security problems, we suggest that only 50%
of the total requirement of steel bars be delivered at jobsite. The balance should be
returned to Manila where storage and security is better.
The reasonable cost of demobilization3.
In order for us to consider additional cost due to the shipping of the excess steel bars, we
need to know the actual dates of purchase, payments and loading of the steel bars. Obviously,
we cannot consider the additional cost if you have had the chance to delay the shipping of the
steel bars.57
For any payment due the Contractor under the above conditions, the LICOMCEN,
INCORPORATED, however, shall deduct any outstanding balance due from the Contractor
for advances in respect to mobilization and materials, and any other sum the LICOMCEN,
INCORPORATED is entitled to be credited.56
From the above, it appears that FSI was informed of the necessity of suspending the works as
early as December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to
178
immediately comply with the order to suspend the work.58 Though ESCAs December 16,
1997 notice may not have been categorical in ordering the suspension of the works, FSIs
reply letter of December 18, 1997 indicated that it actually complied with the notice to
suspend, as it said, We hope for the early resolution of the new foundation plan and the
resumption of work.59 Despite the suspension, FSI claimed that it could not stop the
delivery of the steel bars (nor found the need to do so) because (a) the steel bars were ordered
as early as November 1997 and were already loaded in Manila and expected to arrive in
Legaspi City by December 23, 1997, and (b) it expected immediate resumption of work to
meet the 90-day deadline.60
Records, however, disclose that these claims are not entirely accurate. The memorandum of
agreement and sale covering the steel bars specifically stated that these would be withdrawn
from the Cagayan de Oro depot, not Manila;61 indeed, the bill of lading stated that the steel
bars were loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within
three days, on January 14, 1998.62 The loading and delivery of the steel bar thus happened
after FSI received ESCAs December 16, 1997 and January 6, 1998 lettersdays after the
instruction to suspend the works. Also, the same stipulation that authorizes LICOMCEN to
suspend the works allows the extension of the period to complete the works. The relevant
portion of GC-38 states:
In case of total suspension x x x and the cause of which is not due to any fault of the
Contractor [FSI], the elapsed time between the effective order for suspending work and
the order to resume work shall be allowed the Contractor by adjusting the time
allowed for his execution of the Contract Works.63
The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented
and maintained at the construction site during the suspension of the project with the prorated
rentals incurred x x x. To the mind of this Court, these lists are not sufficient to establish
the fact that indeed [FSI] incurred the said expenses. Reliance on said lists is purely
speculative x x x the list of equipments is a mere index or catalog of the equipments,
which may be utilized at the construction site. It is not the best evidence to prove that
said equipment were in fact rented and maintained at the construction site during the
suspension of the work. x x x [FSI] should have presented the lease contracts or any
similar documents such as receipts of payments x x x. Likewise, the list of employees
does not in anyway prove that those employees in the list were indeed at the construction
site or were required to be on call should their services be needed and were being paid their
salaries during the suspension of the project. Thus, in the absence of sufficient evidence,
We deny the claim for equipment and labor standby costs.65
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which
states:
GC-41. LICOMCEN, INCORPORATEDs
TERMINATE THE CONTRACT
RIGHT
TO
SUSPEND
WORK
OR
xxxx
For Convenience of the LICOMCEN, INCORPORATED2.
The above stipulation, coupled with the short period it took to ship the steel bars from
Cagayan de Oro to Legaspi City, thus negates both FSIs argument and the CIACs ruling64
that there was no necessity to stop the shipment so as to meet the 90-day deadline. These
circumstances prove that FSI acted imprudently in proceeding with the delivery, contrary to
LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for only 50%
of the costs of the steel bars delivered.
The claim for equipment and
labor standby costs
x x x. The Contractor [FSI] shall not claim damages for such discontinuance or
termination of the Contract, but the Contractor shall receive compensation for reasonable
expenses incurred in good faith for the performance of the Contract and for reasonable
expenses associated with termination of the Contract. The LICOMCEN, INCORPORATED
will determine the reasonableness of such expenses. The Contractor [FSI] shall have no
claim for anticipated profits on the work thus terminated, nor any other claim, except
for the work actually performed at the time of complete discontinuance, including any
variations authorized by the LICOMCEN, INCORPORATED/Engineer to be done.
The Court upholds the CAs ruling deleting the award for equipment and labor standby costs.
We quote in agreement pertinent portions of the CA decision:
The prohibition, FSI posits, applies only where the contract was properly and lawfully
terminated, which was not the case at bar. FSI also took pains in differentiating its claim for
179
unrealized profit from the prohibited claim for anticipated profits; supposedly, unrealized
profit is one that is built-in in the contract price, while anticipated profit is not. We fail to
see the distinction, considering that the contract itself neither defined nor differentiated the
two terms. [A] contract must be interpreted from the language of the contract itself,
according to its plain and ordinary meaning.66 If the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of the stipulations
shall control.67
Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the
proper procedure in terminating the contract by declaring that it was merely indefinitely
suspended, we deem that FSI is entitled to the payment of nominal damages. Nominal
damages may be awarded to a plaintiff whose right has been violated or invaded by the
defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying
the plaintiff for any loss suffered by him.68 Its award is, thus, not for the purpose of
indemnification for a loss but for the recognition and vindication of a right. A violation of the
plaintiffs right, even if only technical, is sufficient to support an award of nominal
damages.69 FSI is entitled to recover the amount of P100,000.00 as nominal damages.
The liability for costs of arbitration
Under the parties Terms of Reference, executed before the CIAC, the costs of arbitration
shall be equally divided between them, subject to the CIACs determination of which of the
parties shall eventually shoulder the amount.70 The CIAC eventually ruled that since
LICOMCEN was the party at fault, it should bear the costs. As the CA did, we agree with this
finding. Ultimately, it was LICOMCENs imprudent declaration of indefinitely suspending
the works that caused the dispute between it and FSI. LICOMCEN should bear the costs of
arbitration.
WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN,
INCORPORATED, docketed as G.R. No. 167022, and the petition for review on certiorari of
FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The
November 23, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is
MODIFIED to include the award of nominal damages in favor of FOUNDATION
SPECIALISTS, INC. Thus, LICOMCEN, INCORPORATED is ordered to pay
FOUNDATION SPECIALISTS, INC. the following amounts:
P1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC.

billings;a.
P5,694,939.87 for material costs at site; andb.
P100,000.00 for nominal damages.c.
LICOMCEN, INCORPORATED is also ordered to pay the costs of arbitration. No costs.
SO ORDERED.
Carpio-Morales (Chairperson), Bersamin, Villarama, Jr. and Sereno, JJ., concur.
Petitions denied.
Note.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. (Benguet
Corporation vs. Department of Environment and Natural Resources-Mines Adjudication
Board, 545 SCRA 196 [2008])
o0o
February 29, 2012.G.R. No. 185582.*

TUNA PROCESSING, INC., petitioner, vs. PHILIPPINE KINGFORD, INC., respondent.
Statutory Construction; Between a general law and a special law, the latter prevails.In
several cases, this Court had the occasion to discuss the nature and applicability of the
Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus, in
Koruga v. Arcenas, Jr., 590 SCRA 49 (2009), this Court rejected the application of the
Corporation Code and applied the New Central Bank Act. It ratiocinated: Korugas
invocation of the provisions of the Corporation Code is misplaced. In an earlier case with
similar antecedents, we ruled that: The Corporation Code, however, is a general law
180
applying to all types of corporations, while the New Central Bank Act regulates specifically
banks and other financial institutions, including the dissolution and liquidation thereof. As
between a general and special law, the latter shall prevailgeneralia specialibus non
derogant. (Emphasis supplied) Further, in the recent case of Hacienda Luisita, Incorporated
v. Presidential Agrarian Reform Council, 653 SCRA 154 (2011), this Court held: Without
doubt, the Corporation Code is the general law providing for the formation, organization and
regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian
reform. As between a general and special law, the latter shall prevailgeneralia specialibus
non derogant. Following the same principle, the Alternative Dispute Resolution Act of 2004
shall apply in this case as the Act, as its titleAn 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 Purposeswould suggest, is a law especially
enacted to actively promote party autonomy in the resolution of disputes or the freedom of
the party to make their own arrangements to resolve their disputes. It specifically provides
exclusive grounds available to the party opposing an application for recognition and
enforcement of the arbitral award.
Same; Alternative Dispute Resolution; Alternative Dispute Resolution Act of 2004; Conflict
of Laws; The Alternative Dispute Resolution Act of 2004 complies with international
obligations under the New York Convention and the Model Law.Inasmuch as the
Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition,
we do not see the need to discuss compliance with international obligations under the New
York Convention and the Model Law. After all, both already form part of the law. In
particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention 42.in the Act by specifically providing: SEC.Application of the New York
Convention.The New York Convention shall govern the recognition and enforcement of
arbitral awards covered by the said Convention. xxx SEC. 45. Rejection of a Foreign
Arbitral Award.A party to a foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in accordance with the procedural rules to
be promulgated by the Supreme Court only on those grounds enumerated under Article V of
the New York Convention. Any other ground raised shall be disregarded by the regional trial
court. It also expressly adopted the Model Law, to wit: Sec. 19. Adoption of the Model Law
on International Commercial Arbitration. International commercial arbitration shall be
governed by the Model Law on International Commercial Arbitration (the Model Law)
adopted by the United Nations Commission on International Trade Law on June 21, 1985
xxx.
Alternative Dispute Resolution; Alternative Dispute Resolution Act of 2004; Conflict of

Laws; Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing
party in an application for recognition and enforcement of the arbitral award may raise only
those grounds that were enumerated under Article V of the New York Convention.Does a
foreign corporation not licensed to do business in the Philippines have legal capacity to sue
under the provisions of the Alternative Dispute Resolution Act of 2004? We answer in the
affirmative. Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the
opposing party in an application for recognition and enforcement of the arbitral award may
raise only those grounds that were enumerated under Article V of the New York Convention,
to wit: Article V 1. Recognition and enforcement of the award may be refused, at the request
of the party against whom it is invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought, proof that: (a) The parties to the
agreement referred to in article II were, under the law applicable to them, under some
incapacity, or the said agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law of the country where the award
was made; or (b) The party against whom the award is invoked was not given proper notice
of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable
to present his case; or (c) The award deals with a difference not contemplated by or not
falling within the terms of the submission to arbitration, or it contains decisions on matters
beyond the scope of the submission to arbitration, provided that, if the decisions on matters
submitted to arbitration can be separated from those not so submitted, that part of the award
which contains decisions on matters submitted to arbitration may be recognized and
enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or (e) The award has
not yet become binding on the parties, or has been set aside or suspended by a competent
authority of the country in which, or under the law of which, that award was made. 2.
Recognition and enforcement of an arbitral award may also be refused if the competent
authority in the country where recognition and enforcement is sought finds that: (a) The
subject matter of the difference is not capable of settlement by arbitration under the law of
that country; or (b) The recognition or enforcement of the award would be contrary to the
public policy of that country. Clearly, not one of these exclusive grounds touched on the
capacity to sue of the party seeking the recognition and enforcement of the award. Pertinent
provisions of the Special Rules of Court on Alternative Dispute Resolution, which was
promulgated by the Supreme Court, likewise support this position. Rule 13.1 of the Special
Rules provides that [a]ny party to a foreign arbitration may petition the court to recognize
and enforce a foreign arbitral award. The contents of such petition are enumerated in Rule
181
13.5. Capacity to sue is not included. Oppositely, in the Rule on local arbitral awards or
arbitrations in instances where the place of arbitration is in the Philippines, it is specifically
required that a petition to determine any question concerning the existence, validity and
enforceability of such arbitration agreement available to the parties before the
commencement of arbitration and/or a petition for judicial relief from the ruling of the
arbitral tribunal on a preliminary question upholding or declining its jurisdiction after
arbitration has already commenced should state [t]he facts showing that the persons named
as petitioner or respondent have legal capacity to sue or be sued.
Same; Same; Same; When a party enters into a contract containing a foreign arbitration
clause and in fact submits itself to arbitration, it becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby the capacity of the other party
to enter into the contract, participate in the arbitration and cause the implementation of the
result.Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral
award, we deny availment by the losing party of the rule that bars foreign corporations not
licensed to do business in the Philippines from maintaining a suit in our courts. When a party
enters into a contract containing a foreign arbitration clause and, as in this case, in fact
submits itself to arbitration, it becomes bound by the contract, by the arbitration and by the
result of arbitration, conceding thereby the capacity of the other party to enter into the
contract, participate in the arbitration and cause the implementation of the result. Although
not on all fours with the instant case, also worthy to consider is the wisdom of then Associate
Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v.
Court of Appeals, 300 SCRA 579 (1998), to wit: xxx Arbitration, as an alternative mode of
settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it must be stressed,
voluntarily and actively participated in the arbitration proceedings from the very beginning, it
will destroy the very essence of mutuality inherent in consensual contracts.
Same; Same; Same; On the matter of capacity to sue, a foreign arbitral award should be
respected not because it is favored over domestic laws and procedures, but because Republic
Act No. 9285 has certainly erased any conflict of law question.Clearly, on the matter of
capacity to sue, a foreign arbitral award should be respected not because it is favored over
domestic laws and procedures, but because Republic Act No. 9285 has certainly erased any
conflict of law question. Finally, even assuming, only for the sake of argument, that the court
a quo correctly observed that the Model Law, not the New York Convention, governs the
subject arbitral award, petitioner may still seek recognition and enforcement of the award in
Philippine court, since the Model Law prescribes substantially identical exclusive grounds for
refusing recognition or enforcement. Premises considered, petitioner TPI, although not

licensed to do business in the Philippines, may seek recognition and enforcement of the
foreign arbitral award in accordance with the provisions of the Alternative Dispute
Resolution Act of 2004.
Same; Same; Same; Foreign Corporations; The foreign corporations capacity to sue in the
Philippines is not material insofar as the recognition and enforcement of a foreign arbitral
award is concerned.There is no need to consider respondents contention that petitioner
TPI improperly raised a question of fact when it posited that its act of entering into a MOA
should not be considered doing business in the Philippines for the purpose of determining
capacity to sue. We reiterate that the foreign corporations capacity to sue in the Philippines is
not material insofar as the recognition and enforcement of a foreign arbitral award is
concerned.
Remedial Law; Civil Procedure; Foreign Corporations; Petition for Review on Certiorari;
Motion for Reconsideration; Supreme Court has, time and again, ruled that the prior filing
of a motion for reconsideration is not required in certiorari under Rule 45.Respondent
cannot fault petitioner for not filing a,k motion for reconsideration of the assailed Resolution
dated 21 November 2008 dismissing the case. We have, time and again, ruled that the prior
filing of a motion for reconsideration is not required in certiorari under Rule 45.
Same; Same; Courts; Hierarchy of Courts; A strict application of the rule on hierarchy of
courts may be excused when the reason behind the rule is not present in a case where the
issues are not factual but purely legal; Moreover, the novelty and the paramount importance
of the issue raised should be seriously considered; Surely, there is a need to take cognizance
of the case not only to guide the bench and the bar, but if only to strengthen arbitration as a
means of dispute resolution, and uphold the policy of the State embodied in the Alternative
Dispute Resolution Act of 2004.While we agree that petitioner failed to observe the
principle of hierarchy of courts, which, under ordinary circumstances, warrants the outright
dismissal of the case, we opt to relax the rules following the pronouncement in Chua v. Ang,
598 SCRA 229 (2009), to wit: [I]t must be remembered that [the principle of hierarchy of
courts] generally applies to cases involving conflicting factual allegations. Cases which
depend on disputed facts for decision cannot be brought immediately before us as we are not
triers of facts. A strict application of this rule may be excused when the reason behind the
rule is not present in a case, as in the present case, where the issues are not factual but purely
legal. In these types of questions, this Court has the ultimate say so that we merely abbreviate
the review process if we, because of the unique circumstances of a case, choose to hear and
182
decide the legal issues outright. Moreover, the novelty and the paramount importance of the
issue herein raised should be seriously considered. Surely, there is a need to take cognizance
of the case not only to guide the bench and the bar, but if only to strengthen arbitration as a
means of dispute resolution, and uphold the policy of the State embodied in the Alternative
Dispute Resolution Act of 2004.
PETITION for review on certiorari of a resolution of the Regional Trial Court of Makati City,
Br. 61.
Bengzon, Negre, Untalan for petitioner.
The Law Firm of Villanueva, Nueva & Associates for respondent.
PEREZ,J.:
Can a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the licensor), copatentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian
Patent No. ID0003911 (collectively referred to as the Yamaoka Patent),6 and five (5)
Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc.,
Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford
(collectively referred to as the sponsors/licensees)7 entered into a Memorandum of
Agreement (MOA), pertinent provisions of which read:
1.Background and objectives. The Licensor, co-owner of U.S.Patent No.
5,484,619, Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx
wishes to form an alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents, and collecting
royalties.
The Sponsors wish to be licensed under the aforementioned patents in order to
practice the processes claimed in those patents in the United States, the Philippines,
and Indonesia, enforce those patents and collect royalties in conjunction with
Licensor.
xxx
In this Petition for Review on Certiorari under Rule 45, petitioner Tuna Processing, Inc.
(TPI), a foreign corporation not licensed to do business in the Philippines, prays that the
Resolution dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be
declared void and the case be remanded to the RTC for further proceedings. In the assailed
Resolution, the RTC dismissed petitioners Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing under the laws of the Philippines, on
the ground that petitioner lacked legal capacity to sue.
The Antecedents
4.Establishment of Tuna Processors, Inc. The parties hereto agree to the

establishment of Tuna Processors, Inc. (TPI), a corporation established in the State
of California, in order to implement the objectives of this Agreement.
5.Bank account. TPI shall open and maintain bank accounts in the United States,
which will be used exclusively to deposit funds that it will collect and to disburse cash
it will be obligated to spend in connection with the implementation of this Agreement.
6.Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor
shall be assigned one share of TPI for the purpose of being elected as member of the
board of directors. The remaining shares of TPI shall be held by the Sponsors
according to their respective equity shares. 9
xxx
183
The parties likewise executed a Supplemental Memorandum of Agreement10 dated 15

January 2003 and an Agreement to Amend Memorandum of Agreement11 dated 14 July
2003.
Due to a series of events not mentioned in the petition, the licensees, including respondent
Kingford, withdrew from petitioner TPI and correspondingly reneged on their obligations.12
Petitioner submitted the dispute for arbitration before the International Centre for Dispute
Resolution in the State of California, United States and won the case against respondent.13
Pertinent portions of the award read:
13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties,
pursuant to the terms of this award, the total sum to be paid by RESPONDENT
KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS
($1,750,846.10).
(A)For breach of the MOA by not paying past due assessments, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE
THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY
CENTS ($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]
(B)For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the
objectives of the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the total sum
of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDREDNINETY
DOLLARS AND TWENTY CENTS ($271,490.20)[;]14 and
(C)For violation of THE LANHAM ACT and infringement of the YAMAOKA 619
PATENT, RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE
MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). xxx
At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied the
motion for lack of merit,17 respondent sought for the inhibition of Judge Alameda and
moved for the reconsideration of the order denying the motion.18 Judge Alameda inhibited
himself notwithstanding [t]he unfounded allegations and unsubstantiated assertions in the
motion.19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn,
granted respondents Motion for Reconsideration and dismissed the petition on the ground
that the petitioner lacked legal capacity to sue in the Philippines.
Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under
Rule 45, the order of the trial court dismissing its Petition for Confirmation, Recognition,
and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so dismissing the
petition on the ground of petitioners lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
133.Sec.Doing business without a license.No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under
Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
xxx
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The
petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.
Herein plaintiff TPIs Petition, etc. acknowledges that it is a foreign corporation

established in the State of California and was given the exclusive right to license or
sublicense the Yamaoka Patent and was assigned the exclusive right to enforce the said
patent and collect corresponding royalties in the Philippines. TPI likewise admits that it
does not have a license to do business in the Philippines.
184
There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the
Philippines, but sans a license to do so issued by the concerned government agency of the
Republic of the Philippines, when it collected royalties from five (5) Philippine tuna
processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina
Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc. This
being the real situation, TPI cannot be permitted to maintain or intervene in any action, suit
or proceedings in any court or administrative agency of the Philippines. A priori, the
Petition, etc. extant of the plaintiff TPI should be dismissed for it does not have the legal
personality to sue in the Philippines.21
The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act No. 9285
(Alternative Dispute Resolution Act of 2004),22 the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL
Model Law on International Commercial Arbitration (Model Law),23 as none of these
specifically requires that the party seeking for the enforcement should have legal capacity to
sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for
this reason that TPI has brought this matter before this most Honorable Court, as it [i]s
imperative to clarify whether the Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.24
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines
on one hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention
and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of the
Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus, in
Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code and
applied the New Central Bank Act. It ratiocinated:
Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier
case with similar antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types of

corporations, while the New Central Bank Act regulates specifically banks and other
financial institutions, including the dissolution and liquidation thereof. As between a
general and special law, the latter shall prevailgeneralia specialibus non
derogant. (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform
Council,27 this Court held:
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall prevail
generalia specialibus non derogant.28
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in
this case as the Act, as its titleAn 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 Purposeswould suggest, is a law especially enacted to actively
promote party autonomy in the resolution of disputes or the freedom of the party to make
their own arrangements to resolve their disputes.29 It specifically provides exclusive
grounds available to the party opposing an application for recognition and enforcement of the
arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the
instant petition, we do not see the need to discuss compliance with international obligations
under the New York Convention and the Model Law. After all, both already form part of the
law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention in the Act by specifically providing:
42.SEC.Application of the New York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by the said Convention.
xxx
185
45.SEC.Rejection of a Foreign Arbitral Award.A party to a foreign arbitration

proceeding may oppose an application for recognition and enforcement of the arbitral award
in accordance with the procedural rules to be promulgated by the Supreme Court only on
those grounds enumerated under Article V of the New York Convention. Any other ground
raised shall be disregarded by the regional trial court.
The(c) award deals with a difference not contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration, provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, that part of the award which contains decisions
on matters submitted to arbitration may be recognized and enforced; or
It also expressly adopted the Model Law, to wit:
(d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or
19.Sec.Adoption of the Model Law on International Commercial Arbitration.

International commercial arbitration shall be governed by the Model Law on International
Commercial Arbitration (the Model Law) adopted by the United Nations Commission on
International Trade Law on June 21, 1985 xxx.
Now, does a foreign corporation not licensed to do business in the Philippines have legal
capacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004? We
answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in
an application for recognition and enforcement of the arbitral award may raise only those
grounds that were enumerated under Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:
The parties(a) to the agreement referred to in article II were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law of the country where
the award was made; or
The party against whom(b) the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to
present his case; or
The(e) award has not yet become binding on the parties, or has been set aside or suspended
by a competent authority of the country in which, or under the law of which, that award was
made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent
authority in the country where recognition and enforcement is sought finds that:
The subject matter of the difference is not capable of settlement by arbitration under the law
of that country; or(a)
The recognition or enforcement of the award would be contrary to the public policy of that
country.(b)
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31
which was promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition
the court to recognize and enforce a foreign arbitral award. The contents of such petition are
enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in the Rule on local
arbitral awards or arbitrations in instances where the place of arbitration is in the
Philippines,33 it is specifically required that a petition to determine any question
concerning the existence, validity and enforceability of such arbitration agreement34
available to the parties before the commencement of arbitration and/or a petition for judicial
relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining
186
its jurisdiction35 after arbitration has already commenced should state [t]he facts showing
that the persons named as petitioner or respondent have legal capacity to sue or be sued.36
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award,
we deny availment by the losing party of the rule that bars foreign corporations not licensed
to do business in the Philippines from maintaining a suit in our courts. When a party enters
into a contract containing a foreign arbitration clause and, as in this case, in fact submits
itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the result. Although not on all
fours with the instant case, also worthy to consider is the wisdom of then Associate Justice
Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and
judicial circles here and abroad. If its tested mechanism can simply be ignored by an
aggrieved party, one who, it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the very essence of mutuality
inherent in consensual contracts.38
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not
because it is favored over domestic laws and procedures, but because Republic Act No. 9285
has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly observed
that the Model Law, not the New York Convention, governs the subject arbitral award,39
petitioner may still seek recognition and enforcement of the award in Philippine court, since
the Model Law prescribes substantially identical exclusive grounds for refusing recognition
or enforcement.40
Premises considered, petitioner TPI, although not licensed to do business in the Philippines,
may seek recognition and
(a) at the request of the party against whom it is invoked, if that party furnishes to the
competent court where recognition or enforcement is sought proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some
incapacity; or the said agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law of the country where the
award was made; or
(ii) the party against whom the award is invoked was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to
present his case; or
(iii) the award deals with a dispute not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration, provided that, if the decisions on matters
submitted to arbitration can be separated from those not so submitted, that part of the
award which contains decisions on matters submitted to arbitration may be recognized
and enforced; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or
(v) the award has not yet become binding on the parties or has been set aside or
suspended by a court of the country in which, or under the law of which, that award
was made; or
if the court finds that:(b)
the subject-matter of the dispute is not capable of settlement by arbitration under the
law of this State; or(i)
the recognition or enforcement of the award would be contrary to the public policy of
this State.(ii)
xxx(2) enforcement of the foreign arbitral award in accordance with the provisions of the
Alternative Dispute Resolution Act of 2004.
II
187
The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondents contention that petitioner TPI improperly
raised a question of fact when it posited that its act of entering into a MOA should not be
considered doing business in the Philippines for the purpose of determining capacity to
sue. We reiterate that the foreign corporations capacity to sue in the Philippines is not
material insofar as the recognition and enforcement of a foreign arbitral award is concerned.
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral
award, we leave its determination to the court a quo where its recognition and enforcement is
being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the
motion for time to file petition for review on certiorari before the petition was filed with this
Court.47 We, however, find petitioners reply in order. Thus:
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of
the assailed Resolution dated 21 November 2008 dismissing the case. We have, time and
again, ruled that the prior filing of a motion for reconsideration is not required in certiorari
under Rule 45.41
Admittedly, reference to Branch 67 in petitioner TPIs Motion for Time to File a Petition
for Review on26. Certiorari under Rule 45 is a typographical error. As correctly pointed
out by respondent Kingford, the order sought to be assailed originated from Regional Trial
Court, Makati City, Branch 61.
Third. While we agree that petitioner failed to observe the principle of hierarchy of courts,
which, under ordinary circumstances, warrants the outright dismissal of the case,42 we opt to
relax the rules following the pronouncement in Chua v. Ang,43 to wit:
27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy
of petitioner TPIs motion was received by the Metropolitan Trial Court, Makati City, Branch
67. On 8 January 2009, the motion was forwarded to the Regional Trial Court, Makati City,
Branch 61.48
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to
cases involving conflicting factual allegations. Cases which depend on disputed facts for
decision cannot be brought immediately before us as we are not triers of facts.44 A strict
application of this rule may be excused when the reason behind the rule is not present in a
case, as in the present case, where the issues are not factual but purely legal. In these types of
questions, this Court has the ultimate say so that we merely abbreviate the review process if
we, because of the unique circumstances of a case, choose to hear and decide the legal issues
outright.45
Moreover, the novelty and the paramount importance of the issue herein raised should be
seriously considered.46 Surely, there is a need to take cognizance of the case not only to
guide the bench and the bar, but if only to strengthen arbitration as a means of dispute
resolution, and uphold the policy of the State embodied in the Alternative Dispute Resolution
Act of 2004, to wit:
2.Sec.Declaration of Policy.It is hereby declared the policy of the State to actively
promote party autonomy in the resolution of disputes or the freedom of the party to make
their own arrangements to resolve their disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute Resolution (ADR) as an important means
to achieve speedy and impartial justice and declog court dockets. xxx
All considered, petitioner TPI, although a foreign corporation not licensed to do business in
the Philippines, is not, for that reason alone, precluded from filing the Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a Philippine
court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch
61, Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE.
The case is REMANDED to Branch 61 for further proceedings.
SO ORDERED.
Carpio (Chairperson), Brion, Sereno and Reyes, JJ., concur.
Resolution reversed and set aside, case remanded to Branch 61 for further proceedings.
Notes.Supreme Court adheres to the rule that in the absence of evidence to the contrary,
foreign laws on a particular subject are presumed to be the same as those of the Philippines,
and following the most intelligent assumption we can gather, GTZ is akin to a governmental
owned or controlled corporation without original charter which, by virtue of the Corporation
188
Code, has expressly consented to be sued. (Deutsche Gesellschaft Fr Technische

Zusammenarbeit vs. Court of Appeals, 585 SCRA 150 [2009])
Arbitration, as an alternative mode of settling disputes, has long been recognized and
accepted in our jurisdiction. (Cargill Philippines, Inc. vs. San Fernando Regala Trading, Inc.,
641 SCRA 31 [2011])
o0o
January 16, 2013.G.R. No. 179628.*

THE MANILA INSURANCE COMPANY, INC., petitioner, vs. SPOUSES ROBERTO and
AIDA AMURAO, respondents.
Civil Law; Contracts; Suretyship; Words and Phrases; A contract of suretyship is defined as
an agreement whereby a party, called the surety, guarantees the performance by another
189
party, called the principal or obligor, of an obligation or undertaking in favor of a third

party, called the obligee.A contract of suretyship is defined as an agreement whereby a
party, called the surety, guarantees the performance by another party, called the principal or
obligor, of an obligation or undertaking in favor of a third party, called the obligee. It
includes official recognizances, stipulations, bonds or undertakings issued by any company
by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206. We have
consistently held that a suretys liability is joint and several, limited to the amount of the
bond, and determined strictly by the terms of contract of suretyship in relation to the
principal contract between the obligor and the obligee. It bears stressing, however, that
although the contract of suretyship is secondary to the principal contract, the suretys liability
to the obligee is nevertheless direct, primary, and absolute.
Same; Same; Same; Construction Contracts; Monetary claims under a construction contract
are disputes arising from differences in interpretation of the contract because the matter
of ascertaining the duties and obligations of the parties under their contract all involve
interpretation of the provisions of the contract.In William Golangco Construction
Corporation v. Ray Burton Development Corporation, 627 SCRA 74 (2010), we declared that
monetary claims under a construction contract are disputes arising from differences in
interpretation of the contract because the matter of ascertaining the duties and obligations
of the parties under their contract all involve interpretation of the provisions of the contract.
Following our reasoning in that case, we find that the issue of whether respondent-spouses
are entitled to collect on the performance bond issued by petitioner is a dispute arising in the
course of the execution and performance of the CCA by reason of difference in the
interpretation of the contract documents.
Industry Arbitration Law, is broad enough to cover any dispute arising from, or connected
with construction contracts, whether these involve mere contractual money claims or
execution of the works.
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the
Decision4 dated June 7, 2007 and the Resolution5 dated September 7, 2007 of the Court of
Appeals (CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a
Construction Contract Agreement (CCA)6 with Aegean Construction and Development
Corporation (Aegean) for the construction of a six-storey commercial building in Tomas
Morato corner E. Rodriguez Avenue, Quezon City.7 To guarantee its full and faithful
compliance with the terms and conditions of the CCA, Aegean posted performance bonds
secured by petitioner The Manila Insurance Company, Inc.8 (petitioner) and Intra Strata
Assurance Corporation (Intra Strata).9
On November 15, 2001, due to the failure of Aegean to complete the project, respondent
spouses filed with the Regional Trial Court (RTC) of Quezon City, Branch 217, a
Complaint,10 docketed as Civil Case No. Q-01-45573, against petitioner and Intra Strata to
collect on the performance bonds they issued in the amounts of P2,760,000.00 and
P4,440,000.00, respectively.11
Intra Strata, for its part, filed an Answer12 and later, a Motion to Admit Third Party
Complaint,13 with attached Third Party Complaint14 against Aegean, Ronald D. Nicdao, and
Arnel A. Mariano.

Paner, Hosaka & Ypil for petitioner.
Asterio G. Rea for respondents.
DEL CASTILLO,J.:
Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint
states no cause of action16 and that the filing of the Complaint is premature due to the failure
of respondent-spouses to implead the principal contractor, Aegean.17 The RTC, however,
denied the motion in an Order18 dated May 8, 2002. Thus, petitioner filed an Answer with
Counterclaim and Cross-claim,19 followed by a Third Party Complaint20 against Aegean
and spouses Ronald and Susana Nicdao.
The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by

law. Section 4 of Executive Order (E.O.) No. 1008, otherwise known as the Construction
190
During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by
respondent-spouses and Aegean contained an arbitration clause.21 Hence, they filed separate
Motions to Dismiss22 on the grounds of lack of cause of action and lack of jurisdiction.
Issues
Hence, this petition raising the following issues:
Ruling of the Regional Trial Court

On May 5, 2006, the RTC denied both motions.23 Petitioner and Intra Strata separately
moved for reconsideration but their motions were denied by the RTC in its subsequent
Order24 dated September 11, 2006.
A.
THE HONORABLE [CA] ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE
ARE DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE
CONSTRUCTION AGREEMENT THAT THE PARTIES MAY RESORT TO
ARBITRATION BY THE CIAC.
Aggrieved, petitioner elevated the case to the CA by way of special civil action for
certiorari.25
On June 7, 2007, the CA rendered a Decision26 dismissing the petition. The CA ruled that
the presence of an arbitration clause in the CCA does not merit a dismissal of the case
because under the CCA, it is only when there are differences in the interpretation of Article I
of the construction agreement that the parties can resort to arbitration.27 The CA also found
no grave abuse of discretion on the part of the RTC when it disregarded the fact that the CCA
was not yet signed at the time petitioner issued the performance bond on February 29,
2000.28 The CA explained that the performance bond was intended to be coterminous with
the construction of the building.29 It pointed out that if the delivery of the original contract
is contemporaneous with the delivery of the suretys obligation, each contract becomes
completed at the same time, and the consideration which supports the principal contract
likewise supports the subsidiary one.30 The CA likewise said that, although the contract of
surety is only an accessory to the principal contract, the suretys liability is direct, primary
and absolute.31 Thus:
WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of
discretion attended the issuance of the order of the public respondent denying the petitioners
motion to dismiss.
IT IS SO ORDERED.32
Petitioner moved for reconsideration but the CA denied the same in a Resolution33 dated
September 7, 2007.
B.
THE HONORABLE [CA] ERRED IN TREATING [PETITIONER] AS A SOLIDARY
DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.
C.
THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT
THAT THERE WAS NO ACTUAL AND EXISTING CONSTRUCTION AGREEMENT AT
THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON
FEBRUARY 29, 2000.34
Petitioners Arguments
Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only
when there is difference in the interpretation of the contract documents stated in Article I of
the CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it is the CIAC that has
original and exclusive jurisdiction over construction disputes, such as the instant case.36
Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary
debtor instead of a solidary guarantor.37 Petitioner argues that while a surety is bound
solidarily with the obligor, this does not make the surety a solidary co-debtor.38 A surety or
guarantor is liable only if the debtor is himself liable.39 In this case, since respondentspouses and Aegean agreed to submit any dispute for arbitration before the CIAC, it is
imperative that the dispute between respondent-spouses and Aegean must first be referred to
191
arbitration in order to establish the liability of Aegean.40 In other words, unless the liability
of Aegean is determined, the filing of the instant case is premature.41
Finally, petitioner puts in issue the fact that the performance bond was issued prior to the
execution of the CCA.42 Petitioner claims that since there was no existing contract at the
time the performance bond was executed, respondent-spouses have no cause of action against
petitioner.43 Thus, the complaint should be dismissed.44
In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner
(surety) to collect on the performance bond it issued. Petitioner, however, seeks the dismissal
of the Complaint on the grounds of lack of cause of action and lack of jurisdiction.
The respondent-spouses have cause
of action against the petitioner; the
performance bond is coterminous
with the CCA
Respondent spouses Arguments

Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the
case because there is no ambiguity in the provisions of the CCA.45 Besides, petitioner is not
a party to the CCA.46 Hence, it cannot invoke Article XVII of the CCA, which provides for
arbitration proceedings.47 Respondent-spouses also insist that petitioner as a surety is
directly and equally bound with the principal.48 The fact that the performance bond was
issued prior to the execution of the CCA also does not affect the latters validity because the
performance bond is coterminous with the construction of the building.49
Petitioner claims that respondent-spouses have no cause of action against it because at the
time it issued the performance bond, the CCA was not yet signed by respondent-spouses and
Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the bond is coterminous with the
final acceptance of the project.53 Thus, the fact that it was issued prior to the execution of
the CCA does not affect its validity or effectivity.
Our Ruling
The petition has merit.
But while there is a cause of action against petitioner, the complaint must still be dismissed
for lack of jurisdiction.
Nature of the liability of the surety

A contract of suretyship is defined as an agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an obligation
or undertaking in favor of a third party, called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206.50 We have consistently held that a
suretys liability is joint and several, limited to the amount of the bond, and determined
strictly by the terms of contract of suretyship relation to the principal contract between the
obligor and the obligee.51 It bears stressing, however, that although the contract of
suretyship is secondary to the principal contract, the suretys liability to the obligee is
nevertheless direct, primary, and absolute.52
The CIAC has jurisdiction over the case

Section 4 of E.O. No. 1008 provides that:
4.SEC.Jurisdiction.The CIAC shall have original and exclusive jurisdiction over
the contract, or after the abandonment or breach thereof. These disputes may involve
government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute
must agree to submit the same to voluntary arbitration.
materials and workmanship, violation of the terms of agreement, interpretation and/or
192
application of contractual time and delays, maintenance and defects, payment, default of
employer or contractor, and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must
concur: first, the dispute must be somehow connected to a construction contract; and
second, the parties must have agreed to submit the dispute to arbitration proceedings.54
and obligations of the parties under their contract all involve interpretation of the provisions
of the contract.58 Following our reasoning in that case, we find that the issue of whether
respondent-spouses are entitled to collect on the performance bond issued by petitioner is a
dispute arising in the course of the execution and performance of [the CCA] by reason of
difference in the interpretation of the contract documents.
The fact that petitioner is not a party to the CCA cannot remove the dispute from the
jurisdiction of the CIAC because he issue of whether respondent-spouses are entitled to
collect on the performance bond, as we have said, is a dispute arising from or connected to
the CCA.
In this case, both requisites are present.

The parties agreed to submit to arbitration proceedings [a]ny dispute arising in the course of
the execution and performance of [the CCA] by reason of difference in interpretation of the
Contract Documents x x x which [the parties] are unable to resolve amicably between
themselves.55 Article XVII of the CCA reads:
XVIIARBITRATIONARTICLE
17.1 Any dispute arising in the course of the execution and performance of this Agreement
by reason of difference in interpretation of the Contract Documents set forth in Article I
which the OWNER and the CONTRACTOR are unable to resolve amicably between
themselves shall be submitted by either party to a board of arbitrators composed of Three (3)
members chosen as follows: One (1) member shall be chosen by the CONTRACTOR AND
One (1) member shall be chosen by the OWNER. The said Two (2) members, in turn, shall
select a third member acceptable to both of them. The decision of the Board of Arbitrators
shall be rendered within Ten (10) days from the first meeting of the board, which decision
when reached through the affirmative vote of at least Two (2) members of the board shall be
final and binding upon the OWNER and CONTRACTOR.
17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the
parties shall be governed by the provisions of the Arbitration Law, Executive Order No.
1008.56
In William Golangco Construction Corporation v. Ray Burton Development Corporation,57
we declared that monetary claims under a construction contract are disputes arising from
differences in interpretation of the contract because the matter of ascertaining the duties
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc.,59 we rejected the
argument that the jurisdiction of CIAC is limited to the construction industry, and thus,
cannot extend to surety contracts. In that case, we declared that [a]lthough not the
construction contract itself, the perfomance bond is deemed as an associate of the main
construction contract that it cannot be separated or severed from its principal. The
Perfomance Bond is significantly and substantially connected to the construction contract
that there can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008, which has
jurisdiction over any dispute arising from or connected with it.60
In view of the foregoing, we agree with the petitioner that jmisdiction over the instant case
lies with the CIAC, and not with the RTC. Thus, the Complaint filed by respondent-spouses
with the RTC must be dismissed.
WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the
Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are
hereby ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of
Quezon City, Branch 217 is DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of
jurisdiction.
SO ORDERED.
Carpio (Chairperson), Leonardo-De Castro,** Perez and Leonen,*** JJ.
June 26, 2013.G.R. No. 199650.*
193
J PLUS ASIA DEVELOPMENT CORPORATION, petitioner, vs. UTILITY ASSURANCE

CORPORATION, respondent.
Remedial Law; Courts; Appeals; Republic Act No. 9285; R.A. No. 9285 did not confer on
regional trial courts jurisdiction to review awards or decisions of the Construction Industry
Arbitration Commission (CIAC) in construction disputes.We hold that R.A. No. 9285 did
not confer on regional trial courts jurisdiction to review awards or decisions of the CIAC in
construction disputes. On the contrary, Section 40 thereof expressly declares that
confirmation by the RTC is not required, thus: SEC. 40. Confirmation of Award.The
confirmation of a domestic arbitral award shall be governed by Section 23 of R.A. 876. A
domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court. The confirmation of a domestic award shall
be made by the regional trial court in accordance with the Rules of Procedure to be
promulgated by the Supreme Court. A CIAC arbitral award need not be confirmed by the
regional trial court to be executory as provided under E.O. No. 1008.
Administrative Agencies; Construction Industry Arbitration Commission (CIAC);
Jurisdiction; Executive Order (EO) No. 1008 vests upon the Construction Industry
Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes arising
the abandonment or breach thereof.Executive Order (EO) No. 1008 vests upon the CIAC
original and exclusive jurisdiction over disputes arising from, or connected with, contracts
entered into by parties involved in construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the abandonment or breach thereof. By
express provision of Section 19 thereof, the arbitral award of the CIAC is final and
unappealable, except on questions of law, which are appealable to the Supreme Court. With
the amendments introduced by R.A. No. 7902 and promulgation of the 1997 Rules of Civil
Procedure, as amended, the CIAC was included in the enumeration of quasi-judicial agencies
whose decisions or awards may be appealed to the CA in a petition for review under Rule 43.
Such review of the CIAC award may involve either questions of fact, of law, or of fact and
law.
Civil Law; Obligations; Default; Default or mora on the part of the debtor is the delay in the
fulfillment of the prestation by reason of a cause imputable to the former. It is the
nonfulfillment of an obligation with respect to time.Default or mora on the part of the
debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the
former. It is the nonfulfillment of an obligation with respect to time. Article 1169 of the Civil
Code provides: ART. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. x x x x It is a general rule that one who contracts to complete certain work within
a certain time is liable for the damage for not completing it within such time, unless the delay
is excused or waived.
Same; Same; Same; Requisites in Order for the Debtor to Incur in Default.In this
jurisdiction, the following requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.
Same; Contracts; Interpretation of Contracts; Article 1374 of the Civil Code requires that
the various stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.We cannot sustain the
appellate courts interpretation as it is inconsistent with the terms of the Construction
Agreement. Article 1374 of the Civil Code requires that the various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly. Here, the work schedule approved by petitioner was intended,
not only to serve as its basis for the payment of monthly progress billings, but also for
evaluation of the progress of work by the contractor. Article 13.01 (g) (iii) of the
Construction Agreement provides that the contractor shall be deemed in default if, among
others, it had delayed without justifiable cause the completion of the project by more than
thirty (30) calendar days based on official work schedule duly approved by the OWNER.
Same; Damages; Liquidated Damages; A stipulation for liquidated damages is attached to
an obligation in order to ensure performance and has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of
greater responsibility in the event of breach.A stipulation for liquidated damages is
attached to an obligation in order to ensure performance and has a double function: (1) to
provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by
the threat of greater responsibility in the event of breach. The amount agreed upon answers
for damages suffered by the owner due to delays in the completion of the project. As a
precondition to such award, however, there must be proof of the fact of delay in the
performance of the obligation.
194
Same; Obligations; Default; Where a party to a building construction contract fails to

comply with the duty imposed by the terms of the contract, a breach results for which an
action may be maintained to recover the damages sustained thereby, and of course, a breach
occurs where the contractor inexcusably fails to perform substantially in accordance with
the terms of the contract.The contractors default in this case pertains to his failure to
substantially perform the work on account of tremendous delays in executing the scheduled
work activities. Where a party to a building construction contract fails to comply with the
duty imposed by the terms of the contract, a breach results for which an action may be
maintained to recover the damages sustained thereby, and of course, a breach occurs where
the contractor inexcusably fails to perform substantially in accordance with the terms of the
contract.
Same; Contracts; Construction Contracts; Such stipulation allowing the confiscation of the
contractors performance bond partakes of the nature of a penalty clause.The plain and
unambiguous terms of the Construction Agreement authorize petitioner to confiscate the
Performance Bond to answer for all kinds of damages it may suffer as a result of the
contractors failure to complete the building. Having elected to terminate the contract and
expel the contractor from the project site under Article 13 of the said Agreement, petitioner
isclearly entitled to the proceeds of the bond as indemnification for damages it sustained due
to the breach committed by Mabunay. Such stipulation allowing the confiscation of the
contractors performance bond partakes of the nature of a penalty clause. A penalty clause,
expressly recognized by law, is an accessory undertaking to assume greater liability on the
part of the obligor in case of breach of an obligation. It functions to strengthen the coercive
force of obligation and to provide, in effect, for what could be the liquidated damages
resulting from such a breach. The obligor would then be bound to pay the stipulated
indemnity without the necessity of proof on the existence and on the measure of damages
caused by the breach. It is well-settled that so long as such stipulation does not contravene
law, morals, or public order, it is strictly binding upon the obligor.
Same; Same; Same; Performance Bond; By its nature, a performance bond guarantees that
the contractor will perform the contract, and usually provides that if the contractor defaults
and fails to complete the contract, the surety can itself complete the contract or pay damages
up to the limit of the bond.Respondent, however, insists that it is not liable for the breach
committed by Mabunay because by the terms of the surety bond it issued, its liability is
limited to the performance by said contractor to the extent equivalent to 20% of the down
payment. It stresses that with the 32.38% completion of the project by Mabunay, its liability
was extinguished because the value of such accomplishment already exceeded the sum
equivalent to 20% down payment (P8.4 million). The appellate court correctly rejected this
theory of respondent when it ruled that the Performance Bond guaranteed the full and faithful
compliance of Mabunays obligations under the Construction Agreement, and that nowhere
in law or jurisprudence does it state that the obligation or undertaking by a surety may be
apportioned. x x x While the above condition or specific guarantee is unclear, the rest of the
recitals in the bond unequivocally declare that it secures the full and faithful performance of
Mabunays obligations under the Construction Agreement with petitioner. By its nature, a
performance bond guarantees that the contractor will perform the contract, and usually
provides that if the contractor defaults and fails to complete the contract, the surety can itself
complete the contract or pay damages up to the limit of the bond. Moreover, the rule is that if
the language of the bond is ambiguous or uncertain, it will be construed most strongly against
a compensated surety and in favor of the obligees or beneficiaries under the bond, in this case
petitioner as the Project Owner, for whose benefit it was ostensibly executed.
Nisce, Mamuric, Guinto, Rivera & Alcantara Law Offices for petitioner.
Buag & Lotilla Law Offices for respondent.
VILLARAMA, JR.,J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, assailing the Decision1 dated January 27, 2011 and
Resolution2 dated December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No.
112808.
The Facts
STATUS OF PROJECT AS OF 14 NOVEMBER 2008III]

1) After conducting a joint inspection and evaluation of the project to determine the
actual percentage of accomplishment, the contracting parties, assisted by their
195
respective technical groups, SSB assisted by Arch. Elwin Olavario and JPLUS
assisted by Engrs. Joey Rojas and Shiela Botardo, concluded and agreed that as of 14
November 2008, the project is only Thirty One point Thirty Nine Percent
(31.39%) complete.
2) Furthermore, the value of construction materials allocated for the completion of
the project and currently on site has been determined and agreed to be ONE
MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR PESOS
AND FORTY FIVE CENTAVOS (P1,049,364.45).
3) The additional accomplishment of SSB, reflected in its reconciled and
consolidated 8th and 9th billings, is Three point Eighty Five Percent (3.85%) with a
gross value of P1,563,553.34 amount creditable to SSB after deducting the
withholding tax is P1,538,424.84.
4) The unrecouped amount of the down payment is P2,379,441.53 after deducting
the cost of materials on site and the net billable amount reflected in the reconciled and
consolidated 8th and 9th billings. The uncompleted portion of the project is 68.61%
with an estimated value per construction agreement signed is P27,880,419.52.9
(Emphasis supplied.)
On November 19, 2008, petitioner terminated the contract and sent demand letters to
Mabunay and respondent surety. As its demands went unheeded, petitioner filed a Request
for Arbitration10 before the Construction Industry Arbitration Commission (CIAC).
Petitioner prayed that Mabunay and respondent be ordered to pay the sums of P8,980,575.89
as liquidated damages and P2,379,441.53 corresponding to the unrecouped down payment or
overpayment petitioner made to Mabunay.11
In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other
revision works ordered by Joo Han Lee. He asserted that he actually had until April 30, 2009
to finish the project since the 365 days period of completion started only on May 2, 2008
after clearing the retrofitted old structure. Hence, the termination of the contract by petitioner
was premature and the filing of the complaint against him was baseless, malicious and in bad
faith.
Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no
cause of action and the complaint states no cause of action against it. The CIAC denied the
motion to dismiss. Respondents motion for reconsideration was likewise denied.13
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Crossclaims,14 respondent argued that the performance bond merely guaranteed the 20% down
payment and not the entire obligation of Mabunay under the Construction Agreement. Since
the value of the projects accomplishment already exceeded the said amount, respondents
obligation under the performance bond had been fully extinguished. As to the claim for
alleged overpayment to Mabunay, respondent contended that it should not be credited against
the 20% down payment which was already exhausted and such application by petitioner is
tantamount to reviving an obligation that had been legally extinguished by payment.
Respondent also set up a cross-claim against Mabunay who executed in its favor an
Indemnity Agreement whereby Mabunay undertook to indemnify respondent for whatever
amounts it may be adjudged liable to pay petitioner under the surety bond.
Both petitioner and respondent submitted their respective documentary and testimonial
evidence. Mabunay failed to appear in the scheduled hearings and to present his evidence
despite due notice to his counsel of record. The CIAC thus declared that Mabunay is deemed
to have waived his right to present evidence.15
On February 2, 2010, the CIAC rendered its Decision16 and made the following award:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal
hereby adjudges, orders and directs:
Respondents Mabunay and Utassco to jointly and severally1. pay claimant the
following:
a)P4,469,969.90, as liquidated damages, plus legal interest thereon at
the rate of 6% per annum computed from the date of this decision up to
the time this decision becomes final, and 12% per annum computed
from the date this decision becomes final until fully paid, and
b)P2,379,441.53 as unrecouped down payment plus interest thereon
at the rate of 6% per annum computed from the date of this decision up
196
to the time this decision becomes final, and 12% per annum computed
from the date this decision becomes final until fully paid[.]
It being understood that respondent Utasscos liability shall in no case exceed P8.4
million.
because the Construction Agreement provided only for delay in the completion of the project
and not delay on a monthly basis using the work schedule approved by petitioner as the
reference point. Hence, petitioners termination of the contract was premature since the delay
in this case was merely speculative; the obligation was not yet demandable.
The dispositive portion of the CA Decision reads:
2.Respondent Mabunay to pay to claimant the amount of P98,435.89, which is

respondent [Mabunays] share in the arbitration cost claimant had advanced, with
legal interest thereon from January 8, 2010 until fully paid.
3.Respondent Mabunay to indemnify respondent Utassco of the amounts
respondent Utassco will have paid to claimant under this decision, plus interest
thereon at the rate of 12% per annum computed from the date he is notified of such
payment made by respondent Utassco to claimant until fully paid, and to pay Utassco
P100,000.00 as attorneys fees.
SO ORDERED.17
Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules
of Civil Procedure, as amended.
In the assailed decision, the CA agreed with the CIAC that the specific condition in the
Performance Bond did not clearly state the limitation of the suretys liability. Pursuant to
Article 137718 of the Civil Code, the CA said that the provision should be construed in favor
of petitioner considering that the obscurely phrased provision was drawn up by respondent
and Mabunay. Further, the appellate court stated that respondent could not possibly guarantee
the down payment because it is not Mabunay who owed the down payment to petitioner but
the other way around. Consequently, the completion by Mabunay of 31.39% of the
construction would not lead to the extinguishment of respondents liability. The P8.4 million
was a limit on the amount of respondents liability and not a limitation as to the obligation or
undertaking it guaranteed.
However, the CA reversed the CIACs ruling that Mabunay had incurred delay which entitled
petitioner to the stipulated liquidated damages and unrecouped down payment. Citing
Aerospace Chemical Industries, Inc. v. Court of Appeals,19 the appellate court said that not
all requisites in order to consider the obligor or debtor in default were present in this case. It
held that it is only from December 24, 2008 (completion date) that we should reckon default
WHEREFORE, premises considered, the instant petition for review is GRANTED.

The assailed Decision dated 13 January 2010 rendered by the CIAC Arbitral Tribunal
in CIAC Case No. 03-2009 is hereby REVERSED and SET ASIDE. Accordingly,
the Writ of Execution dated 24 November 2010 issued by the same tribunal is hereby
ANNULLED and SET ASIDE.
SO ORDERED.20
Petitioner moved for reconsideration of the CA decision while respondent filed a motion for
partial reconsideration. Both motions were denied.
The Issues
Before this Court petitioner seeks to reverse the CA insofar as it denied petitioners claims
under the Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC
Decision. Specifically, petitioner alleged that
A.THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE
ALTERNATIVE DISPUTE RESOLUTION ACT AND THE SPECIAL RULES ON
ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS
OF JURISDICTION TO REVIEW ARBITRAL AWARDS.
B.THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL
AWARD ON AN ISSUE THAT WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED
IN THE TERMS OF REFERENCE, NOT ASSIGNED AS AN ERROR, AND NOT
ARGUED IN ANY OF THE PLEADINGS FILED BEFORE THE COURT.
C.THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF
AEROSPACE CHEMICAL INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94,
WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS.21
197
Our Ruling
On the procedural issues raised, we find no merit in petitioners contention that with the
institutionalization of alternative dispute resolution under Republic Act (R.A.) No. 9285,22
otherwise known as the Alternative Dispute Resolution Act of 2004, the CA was divested of
jurisdiction to review the decisions or awards of the CIAC. Petitioner erroneously relied on
the provision in said law allowing any party to a domestic arbitration to file in the Regional
Trial Court (RTC) a petition either to confirm, correct or vacate a domestic arbitral award.
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules)
promulgated by this Court and which took effect on October 30, 2009. Since R.A. No. 9285
explicitly excluded CIAC awards from domestic arbitration awards that need to be confirmed
to be executory, said awards are therefore not covered by Rule 11 of the Special ADR
Rules,24 as they continue to be governed by EO No. 1008, as amended and the rules of
procedure of the CIAC. The CIAC Revised Rules of Procedure Governing Construction
Arbitration25 provide for the manner and mode of appeal from CIAC decisions or awards in
Section 18 thereof, which reads:
We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review
awards or decisions of the CIAC in construction disputes. On the contrary, Section 40 thereof
expressly declares that confirmation by the RTC is not required, thus:
18.2SECTION Petition for review.A petition for review from a final award may
be taken by any of the parties within fifteen (15) days from receipt thereof in
accordance with the provisions of Rule 43 of the Rules of Court.
40.SEC.Confirmation of Award.The confirmation of a domestic arbitral award

shall be governed by Section 23 of R.A. 876.
As to the alleged error committed by the CA in deciding the case upon an issue not raised or
litigated before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred
delay in the performance of his obligations under the Construction Agreement was the very
first issue stipulated in the Terms of Reference26 (TOR), which is distinct from the issue of
the extent of respondents liability under the Performance Bond.
A domestic arbitral award when confirmed shall be enforced in the same manner as
final and executory decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in
accordance with the Rules of Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be
executory as provided under E.O. No. 1008. (Emphasis supplied.)
Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over
the contract, or after the abandonment or breach thereof. By express provision of Section 19
thereof, the arbitral award of the CIAC is final and unappealable, except on questions of law,
which are appealable to the Supreme Court. With the amendments introduced by R.A. No.
7902 and promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was
included in the enumeration of quasi-judicial agencies whose decisions or awards may be
appealed to the CA in a petition for review under Rule 43. Such review of the CIAC award
may involve either questions of fact, of law, or of fact and law.23
Indeed, resolution of the issue of delay was crucial upon which depends petitioners right to
the liquidated damages pursuant to the Construction Agreement. Contrary to the CIACs
findings, the CA opined that delay should be reckoned only after the lapse of the one-year
contract period, and consequently Mabunays liability for liquidated damages arises only
upon the happening of such condition.
We reverse the CA.
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by
reason of a cause imputable to the former. It is the nonfulfillment of an obligation with
respect to time.27
Article 1169 of the Civil Code provides:
ART. Those obliged to deliver or to do something incur in delay from1169. the
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
198
xxxx
In this jurisdiction, the following requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.30
_______________
26 Rollo, pp. 202-210.
27 IV Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, 101 (1987 ed.).
In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation
to perform or complete the project was not yet demandable as of November 19, 2008
_______________
148
28 17 Am Jur 2d 387, p. 832.
148
J Plus Asia Development Corporation vs. Utility Assurance Corporation

It is a general rule that one who contracts to complete certain work within a certain time is
liable for the damage for not completing it within such time, unless the delay is excused or
waived.28
The Construction Agreement provides in Article 10 thereof the following conditions as to
completion time for the project
29 Rollo, p. 93.
30 Santos Ventura Hocorma Foundation, Inc. v. Santos, 484 Phil. 447, 457; 441 SCRA 472,
481 (2004), citing IV Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, 102 (1987 ed.). See also Philippine Export and Foreign Loan
Guarantee Corporation v. V.P. Eusebio Construction, Inc., G.R. No. 140047, July 13, 2004,
434 SCRA 202, 218-219.
149
VOL. 700, JUNE 26, 2013
149
1. The CONTRACTOR shall complete the works called for under this Agreement
within ONE (1) YEAR or 365 Days reckoned from the 1st calendar day after signing
of the Notice of Award and Notice to Proceed and receipt of down payment.
2. In this regard the CONTRACTOR shall submit a detailed work schedule for
approval by OWNER within Seven (7) days after signing of this Agreement and full
payment of 20% of the agreed contract price. Said detailed work schedule shall follow
the general schedule of activities and shall serve as basis for the evaluation of the
progress of work by CONTRACTOR.29
when petitioner terminated the contract, because the agreed completion date was still more
than one month away (December 24, 2008). Since the parties contemplated delay in the
completion of the entire project, the CA concluded that the failure of the contractor to catch
up with schedule of work activities did not constitute delay giving rise to the contractors
liability for damages.
199
We cannot sustain the appellate courts interpretation as it is inconsistent with the terms of
the Construction Agreement. Article 1374 of the Civil Code requires that the various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. Here, the work schedule approved by
petitioner was intended, not only to serve as its basis for the payment of monthly progress
billings, but also for evaluation of the progress of work by the contractor. Article 13.01 (g)
(iii) of the Construction Agreement provides that the contractor shall be deemed in default if,
among others, it had delayed without justifiable cause the completion of the project by more
than thirty (30) calendar days based on official work schedule duly approved by the
OWNER.31
Records showed that as early as April 2008, or within four months after Mabunay
commenced work activities, the project was already behind schedule for reasons not
attributable to petitioner. In the succeeding months, Mabunay was still unable to catch up
with his accomplishment even as petitioner constantly advised him of the delays, as can be
gleaned from the following notices of delay sent by petitioners engineer and construction
manager, Engr. Sheila N. Botardo:
April 30, 2008
Seven
Boracay
Malay, Aklan
Shades
of
Blue
Island
Mr. Martin Mabunay:Attention

General Manager
Engr. Reynaldo Gapasin:Thru
Villa Beatriz:Project
Notice of Delay:Subject
Dear Mr. Mabunay:
This is to formalize our discussion with your Engineers during our meeting last April
23, 2008 regarding the delay in the implementation of major activities based on your
submitted construction schedule. Substantial delay was noted in concreting works that
affects your roof framing that should have been 40% completed as of this date. This
delay will create major impact on your over-all schedule as the finishing works will
all be dependent on the enclosure of the building.
In this regard, we recommend that you prepare a catch-up schedule and expedite the
delivery of critical materials on site. We would highly appreciate if you could attend
our next regular meeting so we could immediately address this matter. Thank you.
Very truly yours,
_______________
Engr. Sheila N. Botardo
31 Rollo, p. 94.
Construction Manager LMI/FEPI32
150
October 15, 2008

150
xxxx
Dear Mr. Mabunay,

200
We have noticed continuous absence of all the Engineers that you have assigned onsite to administer and supervise your contracted work. For the past two (2) weeks[,]
your company does not have a Technical Representative
We are expecting deliveries of Owner Supplied Materials very soon, therefore, this
stockroom is badly needed. We will highly appreciate if this matter will be given your
immediate attention.
_______________
Thank you.
32 Id., at p. 104.
x x x x 34
151
November 6, 2008
xxxx
VOL. 700, JUNE 26, 2013
151
Dear Mr. Mabunay,

_______________
33 Id., at p. 106.
manning the jobsite considering the critical activities that are in progress and the
delays in schedule that you have already incurred. In this regard, we would highly
recommend the immediate replacement of your Project Engineer within the week.
34 Id., at p. 107.
152
We would highly appreciate your usual attention on this matter.

x x x x 33
152
November 5, 2008
xxxx
Dear Mr. Mabunay,
This is in reference to your discussion during the meeting with Mr. Joohan Lee last
October 30, 2008 regarding the construction of the Field Office and Stock Room for
Materials intended for Villa Beatriz use only. We understand that you have committed
to complete it November 5, 2008 but as of this date there is no improvement or any
ongoing construction activity on the said field office and stockroom.
We would like to call your attention regarding the decrease in your manpower
assigned on site. We have observed that for the past three (3) weeks instead of
increasing your manpower to catch up with the delay it was reduced to only 8 workers
today from an average of 35 workers in the previous months.
Please note that based on your submitted revised schedule you are already delayed by
approximately 57% and this will worsen should you not address this matter properly.
201
We are looking forward for [sic] your cooperation and continuous commitment in
delivering this project as per contract agreement.
of extension granted by the OWNER, plus One (1) Week grace period, without
any justifiable reason, the CONTRACTOR hereby agrees
x x x x 35
a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent

to One Tenth of One Percent (1/10 of 1%) of the Contract Amount for each
day of delay after any and all extensions and the One (1) week Grace Period
until completed by the CONTRACTOR.
Subsequently, a joint inspection and evaluation was conducted with the assistance of the
architects and engineers of petitioner and Mabunay and it was found that as of November 14,
2008, the project was only 31.39% complete and that the uncompleted portion was 68.61%
with an estimated value per Construction Agreement as P27,880,419.52. Instead of doubling
his efforts as the scheduled completion date approached, Mabunay did nothing to remedy the
delays and even reduced the deployment of workers at the project site. Neither did Mabunay,
at anytime, ask for an extension to complete the project. Thus, on November 19, 2008,
petitioner advised Mabunay of its decision to terminate the contract on account of the
tremendous delay the latter incurred. This was followed by the claim against the Performance
Bond upon the respondent on December 18, 2008.
b. The CONTRACTOR, even after paying for the liquidated damages due to
unexecuted works and/or delays shall not relieve it of the obligation to
complete and finish the construction.
Any sum which maybe payable to the OWNER for such loss may be deducted from
the amounts retained under Article 9 or retained by the OWNER when the works
called for under this Agreement have been finished and completed.
Petitioners claim against the Performance Bond included the liquidated damages provided in
the Construction Agreement, as follows:
Liquidated Damage[s] payable to the OWNER shall be automatically deducted from

the contractors collectibles without prior consent and concurrence by the
CONTRACTOR.
_______________
12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby,
without necessity of any further act and deed, authorizes the OWNER to deduct any
amount that may be due under Item (a) above, from any and all money or amounts
due or which will become due to the CONTRACTOR by virtue of this Agreement
and/or to collect such amounts from the Performance Bond filed by the
CONTRACTOR in this Agreement.36 (Emphasis supplied.)
35 Id., at p. 108.
153
VOL. 700, JUNE 26, 2013
153
_______________
36 Id., at pp. 93-94.

154
12 LIQUIDATED DAMAGES:ARTICLE
Time is of the essence in this Agreement. Should the CONTRACTOR12.01 fail to
complete the PROJECT within the period stipulated herein or within the period
154

202
39 Id., citing Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups,
Inc., G.R. No. 168074, September 26, 2008, 566 SCRA 473, 489.
155
Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code,
which provide:
VOL. 700, JUNE 26, 2013
155
Liquidated damages are those agreed upon by the parties to a contract, to be paid in
case of breach thereof.2226.ART.
ART. Liquidated damages, whether intended as an indemnity or a2227. penalty,
shall be equitably reduced if they are iniquitous or unconscionable.
ART. When the breach of the contract committed by the defendant is not2228. the
one contemplated by the parties in agreeing upon the liquidated damages, the law
shall determine the measure of damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation in order to ensure
performance and has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach.37 The amount agreed upon answers for damages suffered by the owner due
to delays in the completion of the project.38 As a precondition to such award, however, there
must be proof of the fact of delay in the performance of the obligation.39
Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the
contractor to complete the
_______________
37 Atlantic Erectors, Inc. v. Court of Appeals, G.R. No. 170732, October 11, 2012, 684
SCRA 55, 65, citing Philippine Charter Insurance Corporation v. Petroleum Distributors &
Service Corporation, G.R. No. 180898, April 18, 2012, 670 SCRA 166, 177 and Filinvest
Land, Inc. v. Court of Appeals, G.R. No. 138980, September 20, 2005, 470 SCRA 260, 269.
38 Id., citing H.L. Carlos Construction, Inc. v. Marina Properties Corporation, 466 Phil.
182, 205; 421 SCRA 428, 445 (2004).
project within the stipulated period or the extension granted by the owner. However, this will
not defeat petitioners claim for damages nor respondents liability under the Performance
Bond. Mabunay was clearly in default considering the dismal percentage of his
accomplishment (32.38%) of the work he contracted on account of delays in executing the
scheduled work activities and repeated failure to provide sufficient manpower to expedite
construction works. The events of default and remedies of the Owner are set forth in Article
13, which reads:
13 DEFAULT OF CONTRACTOR:ARTICLE
Any of the following shall constitute an Event of Default on the [part] of the
CONTRACTOR.13.01
xxxx
g.In case the CONTRACTOR has done any of the
following:
(i.)has abandoned the Project
(ii.) without reasonable cause, has failed to commence the construction or
has suspended the progress of the Project for twenty-eight days
203
(iii.) without justifiable cause, has delayed the completion of the Project by
more than thirty (30) calendar days based on official work schedule duly
approved by the OWNER
of any equipment or property, loss of business opportunity, additional financing cost or

overhead or opportunity losses related to the unaccomplished portions of the work.40
(Emphasis supplied.)
(iv.) despite previous written warning by the OWNER, is not executing the
construction works in accordance with the Agreement or is persistently or
flagrantly neglecting to carry out its obligations under the Agreement.
As already demonstrated, the contractors default in this case pertains to his failure to
substantially perform the work on account of tremendous delays in executing the scheduled
work activities. Where a party to a building construction contract fails to comply with the
duty imposed by the terms of the contract, a breach results for which an action may be
maintained to recover the damages sustained thereby, and of course, a breach occurs where
the contractor inexcusably fails to perform substantially in accordance with the terms of the
contract.41
(v.) has, to the detriment of good workmanship or in defiance of the

Owners instructions to the contrary, sublet any part of the Agreement.
13.02 If the CONTRACTOR has committed any of the above reasons cited in Item
13.01, the OWNER may after giving fourteen (14) calendar days notice in writing to
the
156
156
_______________
40 Rollo, pp. 94-95.
41 13 Am Jur 2d 72, p. 73.

CONTRACTOR, enter upon the site and expel the CONTRACTOR therefrom without
voiding this Agreement, or releasing the CONTRACTOR from any of its obligations, and
liabilities under this Agreement. Also without diminishing or affecting the rights and powers
conferred on the OWNER by this Agreement and the OWNER may himself complete the
work or may employ any other contractor to complete the work. If the OWNER shall enter
and expel the CONTRACTOR under this clause, the OWNER shall be entitled to confiscate
the performance bond of the CONTRACTOR to compensate for all kinds of damages
the OWNER may suffer. All expenses incurred to finish the Project shall be charged to the
CONTRACTOR and/or his bond. Further, the OWNER shall not be liable to pay the
CONTRACTOR until the cost of execution, damages for the delay in the completion, if any,
and all; other expenses incurred by the OWNER have been ascertained which amount shall
be deducted from any money due to the CONTRACTOR on account of this Agreement. The
CONTRACTOR will not be compensated for any loss of profit, loss of goodwill, loss of use
157
VOL. 700, JUNE 26, 2013
157

The plain and unambiguous terms of the Construction Agreement authorize petitioner to
confiscate the Performance Bond to answer for all kinds of damages it may suffer as a result
of the contractors failure to complete the building. Having elected to terminate the contract
and expel the contractor from the project site under Article 13 of the said Agreement,
petitioner is clearly entitled to the proceeds of the bond as indemnification for damages it
sustained due to the breach committed by Mabunay. Such stipulation allowing the
confiscation of the contractors performance bond partakes of the nature of a penalty clause.
A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater
liability on the part of the obligor in case of breach of an obligation. It functions to strengthen
204
the coercive force of obligation and to provide, in effect, for what could be the liquidated
damages resulting from such a breach. The obligor would then be bound to pay the stipulated
indemnity without the necessity of proof on the existence and on the measure of damages
caused by the breach. It is well-settled that so long as such stipulation does not contravene
law, morals, or public order, it is strictly binding upon the obligor.42
The conditions of this obligation are as follows:

Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE
CONSTRUCTION AND DEVELOPMENT, INC. to post a bond of the
abovestated sum to guarantee 20% down payment for the construction of
Building 25 (Villa Beatriz) 72-Room Condotel, The Lodgings inside Fairways
and Bluewater, Boracay Island, Malay, Aklan.
Respondent, however, insists that it is not liable for the breach committed by Mabunay
because by the terms of the surety bond it issued, its liability is limited to the performance by
said contractor to the extent equivalent to 20% of the down payment. It stresses that with the
32.38% completion of the project by Mabunay, its liability was extinguished because the
value of such accomplishment already exceeded the sum equivalent to 20% down payment
(P8.4 million).
Whereas, said contract required said Principal to give a good and sufficient bond in
the above-stated sum to secure the full and faithful performance on his part of
said contract.
It is a special provision of this undertaking that the liability of the surety under this
bond shall in no case exceed the sum of P8,400,000.00 Philippine Currency.
The appellate court correctly rejected this theory of respondent when it ruled that the
Performance Bond guaranteed the full and faithful compliance of Mabunays obligations
under
Now, Therefore, if the Principal shall well and truly perform and fulfill all the
undertakings, covenants, terms, conditions and agreements stipulated in said contract,
then this obligation shall be null and void; otherwise to remain in full force and
effect.43 (Emphasis supplied.)
_______________
42 Suatengco v. Reyes, G.R. No. 162729, December 17, 2008, 574 SCRA 187, 194, citing
Ligutan v. Court of Appeals, G.R. No. 138677, February 12, 2002, 376 SCRA 560, 567-568.
158
158
While the above condition or specific guarantee is unclear, the rest of the recitals in the bond
unequivocally declare that it secures the full and faithful performance of Mabunays
obligations under the Construction Agreement with petitioner. By its nature, a performance
bond guarantees that the contractor will perform the contract, and usually provides that if the
contractor defaults and fails to complete the contract, the surety can itself complete the
contract or pay damages up to the limit of the bond.44 Moreover, the rule is that if
_______________

the Construction Agreement, and that nowhere in law or jurisprudence does it state that the
obligation or undertaking by a surety may be apportioned.
43 Rollo, p. 100.
44 17 Am Jur 2d 1, p. 192.
159
The pertinent portions of the Performance Bond provide:

VOL. 700, JUNE 26, 2013
159
205
_______________
45 17 Am Jur 2d 3, p. 193.
46 466 Phil. 104; 421 SCRA 367 (2004).

160
the language of the bond is ambiguous or uncertain, it will be construed most strongly against
a compensated surety and in favor of the obligees or beneficiaries under the bond, in this case
petitioner as the Project Owner, for whose benefit it was ostensibly executed.45
The imposition of interest on the claims of petitioner is likewise in order. As we held in
Commonwealth Insurance Corporation v. Court of Appeals46
Petitioner argues that it should not be made to pay interest because its issuance of the
surety bonds was made on the condition that its liability shall in no case exceed the
amount of the said bonds.
We are not persuaded. Petitioners argument is misplaced.
Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union
Gurantee Co. and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang
Machinery Co., Inc., and more recently, in Republic vs. Court of Appeals and R & B
Surety and Insurance Company, Inc., we have sustained the principle that if a surety
upon demand fails to pay, he can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The increased
liability is not because of the contract but because of the default and the necessity
of judicial collection.
Petitioners liability under the suretyship contract is different from its liability under
the law. There is no question that as a surety, petitioner should not be made to pay
more than its assumed obligation under the surety bonds. However, it is clear from the
above-cited jurisprudence that petitioners liability for the payment of interest is not
by reason of the suretyship agreement itself but because of the delay in the payment
of its obligation un-
160

der the said agreement.47 (Emphasis supplied; citations omitted.)
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated
January 27, 2011 and Resolution dated December 8, 2011 of the Court of Appeals in CAG.R. SP No. 112808 are hereby REVERSED and SET ASIDE.
The Award made in the Decision dated February 2, 2010 of the Construction Industry
Arbitration Commission is hereby REINSTATED with the following MODIFICATIONS:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal
hereby adjudges, orders and directs:
1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation
the full amount of the Performance Bond, P8,400,000.00, pursuant to Art. 13 of the
Construction Agreement dated December 24, 2007, with interest at the rate of 6% per
annum computed from the date of the filing of the complaint until the finality of this
decision, and 12% per annum computed from the date this decision becomes final
until fully paid; and
2) Respondent Mabunay to indemnify respondent Utassco of the amounts
respondent Utassco will have paid to claimant under this decision, plus interest
206
thereon at the rate of 12% per annum computed from the date he is notified of such
payment made by respondent Utassco to claimant until fully paid, and to pay Utassco
P100,000.00 as attorneys fees.
SO ORDERED.
SO ORDERED.
Petition granted, judgment and resolution reversed and set aside. Award made by
Construction Industry Arbitration Commission reinstated with modifications.
With the above modifications, the Writ of Execution dated November 24, 2010 issued by the
CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REINSTATED and
UPHELD.
Sereno (CJ., Chairperson), Leonardo-De Castro, Bersamin and Reyes, JJ., concur.
Notes.In Leyte v. Cusi, 152 SCRA 496 (1987), the Supreme Court has admonished against
precipitate orders of default because such orders have the effect of denying a litigant the
chance to be heard. (Mortel vs. Kerr, 685 SCRA 1 [2012])
A party declared in default may at any time after notice thereof and before judgment file a
motion under oath to set aside the order of default upon proper showing that his failure to
answer was due to fraud, accident, mistake or excusable negligence and that he has a
meritorious defense. (Magtoto vs. Court of Appeals, 686 SCRA 88 [2012])
_______________
47 Id., at pp. 112-113; p. 372.
o0o
161
VOL. 700, JUNE 26, 2013
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Heirs of Augusto L. Salas Jr. vs Laperal Realty arbitration case

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Heirs of Augusto L. Salas Jr. vs Laperal Realty arbitration case

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G.R. No. 135362. December 13, 1999.

proceedings and order the parties to proceed to arbitration in accordance

The facts are stated in the opinion of the Court.

Heirs of Augusto L. Salas, Jr. vs. Laperal Realty Corporation

Jone P. Liu Chiang for Abrajano, Lava and Dacillo.

SUPREME COURT REPORTS ANNOTATED

Heirs of Augusto L. Salas, Jr. vs. Laperal Realty Corporation

Annex A of the Petition, Rollo, pp. 19-20.

Presided by Hon. Judge Avelino G. Demetria.

Annex B of the Petition, Rollo, p. 22.

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

Decision of Branch 59 of the Regional Trial Court of Makati City in SP

On May 15, 1987, he entered into an Owner-Contractor Agreement

VOL. 320, DECEMBER 13, 1999

Heirs of Augusto L. Salas, Jr. vs. Laperal Realty Corporation

On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional

Annex D of the Petition, Rollo, pp. 32-49.

Annex E of the Petition, Rollo, pp. 50-56.

Owner-Contractor Agreement, p. 6, Rollo, p. 27.

Annex F of the Petition, Rollo, pp. 58-73.

On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss on

SUPREME COURT REPORTS ANNOTATED

The petitioners causes of action for cancellation of contract and

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

Petition, pp. 7, 9-10, Rollo, pp. 9, 11-12.

Mindanao Portland Cement Corporation v. McDonough Construction

51 Phil. 908, 916-920 (1924).

Bengson v. Chan, supra.

Manila Electric Company v. Pasay Transportation Co., 57 Phil. 600, 603

Art. 1311, Civil Code.

Heirs of Augusto L. Salas, Jr. vs. Laperal Realty Corporation

VOL. 320, DECEMBER 13, 1999

Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code

Costs against private respondents.

Complaint dated February 2, 1998 marked as Annex D of the Petition,

SUPREME COURT REPORTS ANNOTATED

Note.The formal requirements of an agreement to arbitrate are

G.R. No. 120105. March 27, 1998.*

BF CORPORATION, petitioner, vs. COURT OF APPEALS, SHANGRI-LA

SUPREME COURT REPORTS ANNOTATED

BF Corporation vs. Court of Appeals

BF Corporation vs. Court of Appeals

SUPREME COURT REPORTS ANNOTATED

BF Corporation vs. Court of Appeals

in case of disagreement between the parties would therefore be a step backward.

Ponce Enrile, Reyes & Manalastas for petitioner.

BF Corporation vs. Court of Appeals

SUPREME COURT REPORTS ANNOTATED

BF Corporation vs. Court of Appeals

BF Corporation vs. Court of Appeals

Presided by Judge Domingo R. Garcia.

SUPREME COURT REPORTS ANNOTATED

BF Corporation vs. Court of Appeals

BF Corporation vs. Court of Appeals

BF Corporation vs. Court of Appeals

SUPREME COURT REPORTS ANNOTATED

BF Corporation vs. Court of Appeals

SUPREME COURT REPORTS ANNOTATED

BF Corporation vs. Court of Appeals

THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT OF

The above contention is without merit.

VOL. 288, MARCH 27, 1998

BF Corporation vs. Court of Appeals