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.
Before us is a petition for review on certiorari of the Order 1 of Branch 85 of the Regional
Trial Court of Lipa City 2dismissing petitioners' complaint 3 for rescission of several sale
transactions involving land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on
the ground that they failed to first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning
1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor Agreement 4 (hereinafter referred to
as the Agreement) with respondent Laperal Realty Corporation (hereinafter referred to as
Laperal Realty) to render and provide complete (horizontal) construction services on his
land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of
respondent Laperal Realty to exercise general control, supervision and management of the
sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija.
He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a
verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had
then been missing for more than seven (7) years. It was granted on December 12, 1996. 5
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided
portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village,
Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on
June 27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capalan on June 4, 1996 (all of whom are hereinafter referred to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa
City a Complaint 6for declaration of nullity of sale, reconveyance, cancellation of contract,
accounting and damages against herein respondents which was docketed as Civil Case No.
98-0047.
On
April
24,
1998,
respondent
Laperal
Realty
filed
a
Motion
to
Dismiss 7 on the ground that petitioners failed to submit their grievance to arbitration as
required under Article VI of the Agreement which provides:
Art. VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNER'S representative shall be referred to
the committee represented by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and CONTRACTOR. 8
On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo filed a Joint
Answer with Counterclaim and Crossclaim 9 praying for dismissal of petitioners' Complaint
for the same reason.
On August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners'
Complaint for non-compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners' causes of action did not emanate from the Owner-Contractor Agreement.
The petitioners' causes of action for cancellation of contract and accounting are covered by
the exception under the Arbitration Law.
Failure to arbitrate is not a ground for dismissal. 10
In a catena of cases 11 inspired by Justice Malcolm's provocative dissent in Vega v. San
Carlos Milling Co. 12, this Court has recognized arbitration agreements as valid, binding,
enforceable and not contrary to public policy so much so that when there obtains a written
provision for arbitration which is not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in accordance with the terms of
their
agreement 13. Arbitration is the "wave of the future" in dispute resolution. 14 To brush aside a

contractual agreement calling for arbitration in case of disagreement between parties would
be a step backward. 15
Nonetheless, we grant the petition.
A submission to arbitration is a contract. 16 As such, the Agreement, containing the
stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. 17 But
only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly
bound by the Agreement. If respondent Laperal Realty had assigned its rights under the
Agreement to a third party, making the former, the assignor, and the latter, the assignee,
such assignee would also be bound by the arbitration provision since assignment involves
such transfer of rights as to vest in the assignee the power to enforce them to the same
extent as the assignor could have enforced them against the debtor 18 or in this case,
against the heirs of the original party to the Agreement. However, respondents Rockway
Real Estate Corporation, South Ridge Village, Inc., Maharami Development Corporation,
spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and
Jesus Vicente Capellan are not assignees of the rights of respondent Laperal Realty under
the Agreement to develop Salas, Jr.'s land and sell the same. They are, rather, buyers of the
land that respondent Laperal Realty was given the authority to develop and sell under the
Agreement. As such, they are not "assigns" contemplated in Art. 1311 of the New Civil Code
which provides that "contracts take effect only between the parties, their assigns and heirs".
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of
Salas, Jr.'s land when respondent Laperal Realty subdivided it and sold portions thereof to
respondent lot buyers. Thus, they instituted action 19 against both respondent Laperal Realty
and respondent lot buyers for rescission of the sale transactions and reconveyance to them
of the subdivided lots. They argue that rescission, being their cause of action, falls under
the exception clause in Sec. 2 of Republic Act No. 876 which provides that "such submission
[to] or contract [of arbitration] shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract".
The petitioners' contention is without merit. For while rescission, as a general rule, is an
arbitrable issue, 20 they impleaded in the suit for rescission the respondent lot buyers who
are neither parties to the Agreement nor the latter's assigns or heirs. Consequently, the
right to arbitrate as provided in Article VI of the Agreement was never vested in respondent
lot buyers.
Respondent Laperal Realty, as a contracting party to the Agreement, has the right to
compel petitioners to first arbitrate before seeking judicial relief. However, to split the
proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot
buyers, or to hold trial in abeyance pending arbitration between petitioners and respondent
Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and
unnecessary delay. On the other hand, it would be in the interest of justice if the trial court
hears the complaint against all herein respondents and adjudicates petitioners' rights as
against theirs in a single and complete proceeding.
WHEREFORE, the instant petition is hereby GRANTED. The Order dated August 19, 1998 of
Branch 85 of the Regional Trial Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said
court is hereby ordered to proceed with the hearing of Civil Case No. 98-0047.Costs against
private respondents.

[G.R. No. 136154. February 7, 2001]

DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS
HIDALGO, petitioners, vs.
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br.
74, Malabon, Metro Manila, MONTEBUENO MARKETING, INC., LIONG LIONG C. SY and
SABROSA FOODS, INC., respondents.
This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of the Court of
Appeals affirming the 11 November 1997 Order [2] of the Regional Trial Court which denied
petitioners Motion to Suspend Proceedings in Civil Case No. 2637-MN. It also questions the
appellate courts Resolution[3] of 30 October 1998 which denied petitioners Motion for
Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMCUSA) appointed private respondent Montebueno Marketing, Inc. (MMI) as the sole and
exclusive distributor of its Del Monte products in the Philippines for a period of five (5)
years, renewable for two (2) consecutive five (5) year periods with the consent of the
parties. The Agreement provided, among others, for an arbitration clause which states 12. GOVERNING LAW AND ARBITRATION[4]

This Agreement shall be governed by the laws of the State of California and/or, if applicable,
the United States of America. All disputes arising out of or relating to this Agreement or the
parties relationship, including the termination thereof, shall be resolved by arbitration in the
City of San Francisco, State of California, under the Rules of the American Arbitration
Association. The arbitration panel shall consist of three members, one of whom shall be
selected by DMC-USA, one of whom shall be selected by MMI, and third of whom shall be
selected by the other two members and shall have relevant experience in the industry x xxx
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 MMIs 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 LiongLiong C.
Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA, Paul E. Derby, Jr., [6] Daniel
Collins[7]and Luis Hidalgo,[8] and Dewey Ltd.[9] before the Regional Trial Court of Malabon,
Metro Manila. Private respondents predicated their complaint on the alleged violations by
petitioners of Arts. 20,[10] 21[11]and 23[12] of the Civil Code. According to private respondents,
DMC-USA products continued to be brought into the country by parallel importers despite
the appointment of private respondent MMI as the sole and exclusive distributor of Del
Monte products thereby causing them great embarrassment and substantial damage. They
alleged that the products brought into the country by these importers were aged, damaged,
fake or counterfeit, so that in March 1995 they had to cause, after prior consultation with
Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc., the
publication
of
a
"warning
to
the
trade"
paid
advertisement
in
leading
newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with the
publication, instructed private respondent MMI to stop coordinating with Antonio Ongpin and
to communicate directly instead with petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly and surreptitiously continued
to deal with the former in bad faith by involving disinterested third parties and by proposing
solutions which were entirely out of their control. Private respondents claimed that they had
exhausted all possible avenues for an amicable resolution and settlement of their
grievances; that as a result of the fraud, bad faith, malice and wanton attitude of
petitioners, they should be held responsible for all the actual expenses incurred by private
respondents in the delayed shipment of orders which resulted in the extra handling thereof,
the actual expenses and cost of money for the unused Letters of Credit (LCs) and the
substantial opportunity losses due to created out-of-stock situations and unauthorized
shipments of Del Monte-USA products to the Philippine Duty Free Area and Economic Zone;
that the bad faith, fraudulent acts and willful negligence of petitioners, motivated by their
determination to squeeze private respondents out of the outstanding and ongoing
Distributorship Agreement in favor of another party, had placed private respondent LILY SY
on tenterhooks since then; and, that the shrewd and subtle manner with which petitioners
concocted imaginary violations by private respondent MMI of the Distributorship Agreement
in order to justify the untimely termination thereof was a subterfuge. For the foregoing,
private respondents claimed, among other reliefs, the payment of actual damages,
exemplary damages, attorneys fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings[13] invoking the
arbitration clause in their Agreement with private respondents.
In a Resolution[14] dated 23 December 1996 the trial court deferred consideration of
petitioners Motion to Suspend Proceedings as the grounds alleged therein did not constitute
the suspension of the proceedings considering that the action was for damages with prayer
for the issuance of Writ of Preliminary Attachment and not on the Distributorship
Agreement.
On 15 January 1997 petitioners filed a Motion for Reconsideration to which private
respondents filed their Comment/Opposition. On 31 January 1997 petitioners filed
their Reply. Subsequently, private respondents filed an Urgent Motion for Leave to Admit
Supplemental Pleading dated 2 April 1997. This Motion was admitted, over petitioners
opposition, in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997
a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996
and Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on
the ground that it "will not serve the ends of justice and to allow said suspension will only
delay the determination of the issues, frustrate the quest of the parties for a judicious
determination of their respective claims, and/or deprive and delay their rights to seek
redress."[15]

On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the
alleged damaging acts recited in the Complaint, constituting petitioners causes of action,
required the interpretation of Art. 21 of the Civil Code [16] and that in determining whether
petitioners had violated it "would require a full blown trial" making arbitration "out of the
question."[17] Petitioners Motion for Reconsiderationof the affirmation was denied. Hence,
this Petition for Review.
The crux of the controversy boils down to whether the dispute between the parties warrants
an order compelling them to submit to arbitration.
Petitioners contend that the subject matter of private respondents causes of action arises
out of or relates to the Agreement between petitioners and private respondents. Thus,
considering that the arbitration clause of the Agreement provides that all disputes arising
out of or relating to the Agreement or the parties relationship, including the termination
thereof, shall be resolved by arbitration, they insist on the suspension of the proceedings in
Civil Case No. 2637-MN as mandated by Sec. 7 of RA 876 [18] Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of
an agreement providing for arbitration thereof, the court in which such suit or proceeding is
pending, upon being satisfied that the issue involved in such suit or proceeding is referable
to arbitration, shall stay the action or proceeding until an arbitration has been had in
accordance with the terms of the agreement.Provided, That the applicant for the stay is not
in default in proceeding with such arbitration.
Private respondents claim, on the other hand, that their causes of action are rooted in Arts.
20, 21 and 23 of the Civil Code, [19] the determination of which demands a full blown trial, as
correctly held by the Court of Appeals. Moreover, they claim that the issues before the trial
court were not joined so that the Honorable Judge was not given the opportunity to satisfy
himself that the issue involved in the case was referable to arbitration. They submit that,
apparently, petitioners filed a motion to suspend proceedings instead of sending a written
demand to private respondents to arbitrate because petitioners were not sure whether the
case could be a subject of arbitration. They maintain that had petitioners done so and
private respondents failed to answer the demand, petitioners could have filed with the trial
court their demand for arbitration that would warrant a determination by the judge whether
to refer the case to arbitration. Accordingly, private respondents assert that arbitration is
out of the question.
Private respondents further contend that the arbitration clause centers more on venue
rather than on arbitration. They finally allege that petitioners filed their motion for extension
of time to file this petition on the same date [20] petitioner DMC-USA filed a petition to compel
private respondent MMI to arbitrate before the United States District Court in Northern
California, docketed as Case No. C-98-4446. They insist that the filing of the petition to
compel arbitration in the United States made the petition filed before this Court an
alternative remedy and, in a way, an abandonment of the cause they are fighting for here in
the Philippines, thus warranting the dismissal of the present petition before this Court.
There is no doubt that arbitration is valid and constitutional in our jurisdiction. [21] Even
before the enactment of RA 876, this Court has countenanced the settlement of disputes
through arbitration. Unless the agreement is such as absolutely to close the doors of the
courts against the parties, which agreement would be void, the courts will look with favor
upon such amicable arrangement and will only interfere with great reluctance to anticipate
or nullify the action of the arbitrator. [22] Moreover, as RA 876 expressly authorizes arbitration
of domestic disputes, foreign arbitration as a system of settling commercial disputes was
likewise recognized when the Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May
1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements between parties of different
nationalities within a contracting state.[23]
A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between petitioner DMC-USA and private respondent MMI is valid
and the dispute between the parties is arbitrable. However, this Court must deny the
petition.
The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The
provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are respected as
the law between the contracting parties and produce effect as between them, their assigns
and heirs.[24] Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its
Managing Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its
Managing Director LILY SY are bound by the Agreement and its arbitration clause as they are
the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private
respondent SFI, not parties to the Agreement and cannot even be considered assigns or
heirs of the parties, are not bound by the Agreement and the arbitration clause
therein. Consequently, referral to arbitration in the State of California pursuant to the

arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN pending
the return of the arbitral award could be called for [25] but only as to petitioners DMC-USA and
Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not as to the other parties
in this case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal
Realty Corporation,[26] which superseded that of Toyota Motor Philippines Corp. v. Court of
Appeals.[27]
In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become
dysfunctional because of the presence of third parties is untenable ratiocinating that
"[c]ontracts are respected as the law between the contracting parties" [28] and that "[a]s
such, the parties are thereby expected to abide with good faith in their contractual
commitments."[29] However, in Salas, Jr., only parties to the Agreement, their assigns or heirs
have the right to arbitrate or could be compelled to arbitrate. The Court went further by
declaring that in recognizing the right of the contracting parties to arbitrate or to compel
arbitration, the splitting of the proceedings to arbitration as to some of the parties on one
hand and trial for the others on the other hand, or the suspension of trial pending arbitration
between some of the parties, should not be allowed as it would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary delay. [30]
The object of arbitration is to allow the expeditious determination of a dispute. [31] Clearly,
the issue before us could not be speedily and efficiently resolved in its entirety if we allow
simultaneous arbitration proceedings and trial, or suspension of trial pending
arbitration. Accordingly, the interest of justice would only be served if the trial court hears
and adjudicates the case in a single and complete proceeding. [32]
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the
Order of the Regional Trial Court of Malabon, Metro Manila, in Civil Case No. 2637-MN, which
denied petitioners Motion to Suspend Proceedings, is AFFIRMED. The Regional Trial Court
concerned is directed to proceed with the hearing of Civil Case No. 2637-MN with
dispatch. No costs.
SO ORDERED.
Mendoza, Buena, and De Leon, Jr., JJ., concur.
Quisumbing, J., no part, related to counsel of a party.

G.R. No. 127004 March 11, 1999

NATIONAL
STEEL
CORPORATION, petitioner,
vs.
THE REGIONAL TRIAL COURT OF LANAO DEL NORTE, BRANCH 2, ILIGAN CITY and E.
WILLKOM ENTERPRISES, INC., respondents.
Before the Court is a Petition for Certiorari with Prayer for Preliminary Injunction &
Temporary Restraining Order under Rule 65 of the Revised Rules of Court assailing the
decision of the Regional Trial Court of Lanao del Norte, Branch 2, Iligan City, on the following
consolidated cases:
(a) Special Proceeding Case No. 2206 entitled National Steel Corporation vs. E. Willkom
Enterprise Inc. to Vacate Arbitrators Award; and;
(b) Civil Case No. 2198 entitled to E. Willkom Enterprises Inc. vs. National Steel
Corporation for Sum of Money with application for Confirmation of Arbitrators Award.
The facts as found below are, as follows:
. . . On Nov. 18, 1992, petitioner-defendant Edward Willkom Enterprises Inc. (EWEI for
brevity) together with one Ramiro Construction and respondent-petitioner National Steel
Corporation (NSC for short) executed a contract whereby the former jointly undertook the
Contract for Site Development (Exhs. "3" & "D")for the latter's Integrated Iron and Steel
Mills Complex to be established at Iligan City.
Sometime in the year 1983, the services of Ramiro Construction was terminated and on
March 7, 1983, petitioner-defendant EWEI took over Ramiro's contractual obligation. Due to
this and to other causes deemed sufficient by EWEI, extensions of time for the termination
of the project, initially agreed to be finished on July 17, 1983, were granted by NSC.

Differences later arose, Plaintiff-defendant EWEI filed Civil Case No. 1615 before the
Regional Trial Court of Lanao del Norte, Branch 06, (Exhs. "A" and "1") praying essentially
for the payments of P458,381.001 with interest from the time of delay; the price adjustment
as provided by PD 1594; and exemplary damages in the amount of P50,000.00 and
attorney's fees.
Defendant-petitioner NSC filed an answer with counterclaim to plaintiffs complaints on May
18, 1990.
On August 21, 1990, the Honorable Court through Presiding Judge Valario M. Salazar upon
joint motion of both parties had issued an order (Exhs. "C" and "3") dismissing the said
complaint and counterclaim . . . in view of the desire of both parties to implement Sec. 19 of
the contract, providing for a resolution of any conflict by arbitration . . . (emphasis supplied).
In accordance with the aforesaid order, and pursuant to Sec. 19 of the Contract for Site
Development (id) the herein parties constituted an Arbitration Board composed of the
following:
(a) Engr. Pafnucio M. Mejia as Chairman, who was nominated by the two arbitrators earlier
nominated by EWEI and NSC with an Oath of Office (Exh. "E");
(b) Engr. Eutaquio O. Lagapa, Jr., member, who was nominated by EWEI with an oath office
(Exh. "F");
(c) Engr. Gil A. Aberilla, a member who was nominated by NSC, with an Oath of Office (Exh.
"G").
After series of hearings, the Arbitrators rendered the decision (Exh. "H" & "4") which is the
subject matter of these present causes of action, both initiated separately by the herein
contending parties, substantial portion of which directs NSC to pay EWEI, as follows:
(a) P458,381.00 representing EWEI's last billing No. 16 with interest thereon at the rate of 11/4% per month from January 1, 1985 to actual date of payment;
(b) P1,335,514.20 representing price escalation adjustment under PD No. 1594, with
interest thereon at the rate of 1-1/4% per month from January 1, 1985 to actual date of
payment;
(c) P50,000 as and for exemplary damages;
(d) P350,000 as and for attorney's fees; and
(e) P35,000.00 as and for cost of arbitration. 1
The Regional Trial Court of Lanao del Norte Branch 2, Iligan through Judge Maximo B.
Ratunil, rendered judgment as follows:
(1) In Civil Case No. II-2198, declaring the award of the Board of Arbitrators, dated April 21,
1992 to be duly AFFIRMED and CONFIRMED "en toto"; that an entry of judgment be entered
therewith pursuant to Republic Act No. 876 (the Arbitration Law); and costs against
respondent National Steel Corporation.
(2) In Special Proceeding No. II-2206, ordering the petition to vacate the aforesaid award be
DISMISSED.
SO ORDERED. 2
With the denial on October 18, 1996 of its Motion for Reconsideration, the National Steel
Corporation (NSC) has come to this court via the present petition.
After deliberating on the petition as well as the comment and reply thereon, the court gave
due course to the petition and considered the case ripe for decision.
The pivot of inquiry here is whether or not the lower court acted with grave abuse of
discretion in not vacating the arbitrator's award.
A stipulation to refer all future disputes or to submit an ongoing dispute to an arbitrator is
valid. Republic Act 876, otherwise known as the Arbitration Law, was enacted by Congress
since there was a growing need for a law regulating arbitration in general.
The parties in the present case, upon entering into a Contract for Site Development,
mutually agreed that any dispute arising from the said contract shall be submitted for
arbitration. Explicit is Paragraph 19 of subject contract, which reads:
Paragraph 19. ARBITRATION. All disputes, questions or differences which may at any time
arise between the parties hereto in connection with or relating to this Agreement or the
subject matter hereof, including questions of interpretation or construction, shall be referred
to an Arbitration Board composed of three (3) arbitrators, one to be appointed by each
party, and the third, to be appointed by the two (2) arbitrators. The appointment of
arbitrators and procedure for arbitration shall be governed by. the provisions of the
Arbitration Law (Republic Act No. 876). The Board shall apply Philippine Law in adjudicating
the dispute. The decision of a majority of the members of the Arbitration Board shall be
valid, binding, final and conclusive upon the parties, and from which there will be no appeal,
subject to the provisions on vacating, modifying; or correcting an award under the said
Republic Act No. 876. 3
Thereunder, if a dispute should arise from the contract, the Arbitration Board shall assume
jurisdiction and conduct hearings. After the Board comes up with a decision, the parties may
immediately implement the same by treating it as an amicable settlement. However, if one
of the parties refuses to comply or is dissatisfied with the decision, he may file a Petition to

Vacate the Arbitrator's decision before the trial court. On the other hand, the winning party
may ask the trial court's confirmation to have such decision enforced.
It should be stressed that voluntary arbitrators, by the nature of their functions, act in a
quasi-judicial capacity. 4As a rule, findings of facts by quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to specific matters, are accorded
not only respect but even finality if they are supported by substantial evidence, 5 even if not
overwhelming or preponderant. 6 As the petitioner has availed of Rule 65, the Court will not
review the facts found nor even of the law as interpreted or applied by the arbitrator unless
the supposed errors of facts or of law are so patent and gross and prejudicial as to amount
to a grave abuse of discretion or an excess de pouvoir on the part of the arbitrators. 7
Thus, in a Petition to Vacate Arbitrator's Decision before the trial court, regularity in the
performance of official functions is presumed and the complaining party has the burden of
proving the existence of any of the grounds for vacating the award, as provided for by
Sections 24 of the Arbitration Law, to wit:
Sec. 24 GROUNDS FOR VACATING THE AWARD In any one of the following cases, the court
must make an order vacating the award upon the petition of any party to the controversy
when such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud or other undue means;
(b) That there was evident partiality or corruption in the arbitrators of any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified to act as such under
section nine hereof, and wilfully refrained from disclosing such disqualification or of any
other misbehavior by which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made. .
..
The grounds relied upon by the petitioner were the following (a) That there was evident
partiality in the assailed decision of the Arbitrators in favor of the respondent; and (b) That
there was mistaken appreciation of the facts and application of the law by the Arbitrators.
These were the very same grounds alleged by NSC before the trial court in their Petition to
Vacate the Arbitration Award and which petitioner is reiterating in this petition under
scrutiny.
Petitioner's allegation that there was evident partiality is untenable. It is anemic of
evidentiary support.
In the case of Adamson vs. Court of Appeals, 232 SCRA 602, in upholding the decision of the
Board of Arbitrators, this Court ruled that the fact that a party was disadvantaged by the
decision of the Arbitration. Committee does not prove evident partiality. Proofs other than
mere inference are needed to establish evident partiality. Here, petitioner merely averred
evident partiality without any proof to back it up. Petitioner was never deprived of the right
to present evidence nor was there any showing that the Board showed signs of any bias in
favor of EWEI. As correctly found by the trial court:
Thirdly, this Court cannot find its way to support NSC's contention that there was evident
partiality in the assailed Award of the Arbitrator in favor of the respondent because the
conclusion of the Board, which the Court found to be well-founded, is fully supported by
substantial evidence, as follows:
. . . The testimonies of witnesses from both parties were heard to clarify facts and to threash
(sic) out the dispute in the hearings. Upon motion by NSC counsel, the hearing of testimony
from witnesses was terminated on 22 January 1992. To end the testimonies in the hearing
both litigant parties upon query by Arbitrator-Chairman freely declared that there has been
no partiality in the manner the Arbitrators conducted the hearing, that there has been no
instance, where Arbitrators refused to postpone requested or to hear/accept evidence
pertinent and material to the dispute. . . . (emphasis supplied)
Parentethically, and in the light of the record above-mentioned, this Court hereby holds that
the Board of Arbitrators did not commit any "evident partiality" imputed by petitioner NSC.
Above all, this Court must sustain the said decision for it is a well-settled rule that the actual
findings of an administrative body should be affirmed if there is substantial evidence to
support them and the conclusions stated in the decision are not clearly against the law and
jurisprudence, similar to the instant case, Henceforth, every reasonable intendment. will be
indulged to give effect such proceedings and in favor of the regulatory and integrity of the
arbitrators act. (Corpus Juris, Vol. 5, p. 20) 8
Indeed, the allegation of evident partiality is not well-taken because the petitioner failed to
substantiate the same.
Anent the issue of mistaken appreciation of facts and law of the case, the petitioner
theorizes that the awards made by the Board were unsubstantiated and the same were a
plain misapplication of the law and even contrary to jurisprudence. To have a clearer
understanding of the petition, this Court will try to discuss individually the awards made by

the Board, and determine if there was grave abuse of discretion on the part of the trial court
when it adopted such awards in toto.
I. P458,381.00 representing
EWEI's last billing No. 16 with
interest thereon at the rate of 1-1/4%
per month from January 1, 1985
to actual date of payment;
Petitioner seeks to bar payment of the said amount to EWEI. Since the latter failed to
complete the works as agreed upon, NSC had the right to withhold such amount. The same
will be used to cover the cost differential paid to another contractor who finished the work
allegedly left uncompleted by EWEI. Said work cost NSC P1,225,000, and should be made
chargeable to EWEI's receivables on Final Billing No. 16 issued to NSC.
The query here therefore is whether there was failure on the part of EWEI to complete the
work agreed upon. This will determine whether Final Billing No. 16 can be made chargeable
to the cost differential paid by NSC to another contractor.
After a series of hearings, the Board of Arbitrators concluded that the work was completed
by EWEI. As correctly stated:
To authenticate the extent of unfinished work, quantity, unit cost differential and amount,
NSC was required to submit copies of payment vouchers and/or job awards extended to the
other contractor engaged to complete the works. The best efforts by NSC despite the
multiplicity of accounting/auditing/engineering records required in a corporate complex
failed to produce documentary proofs from their Iligan or Makati office despite repeated
requests. NSC failed to substantiate such allusion of completion by another contractor three
unfinished items of works, actual quantities accomplished and unit cost differential paid
chargeable against EWEI.
xxxxxxxxx
The latest evaluation on record of the items of work completed by EWEI under the contract
is drawn from the NSC report (Exhibit "II-d") dated 12 November 1985 submitted with the
EWEI Billing No. 16-Final in the course of processing claim on items of work accomplished.
There is no such report or mention of unfinished work of 90,000 MT of dumped riprap,
100,000 cu m of site grading and 300,000 cu m of spreading common excavated materials
in the EWEI contract alluded to by the NSC as unfinished work otherwise EWEI Billing No. 16Final would not have passed processing for payment unless there is really no such
unfinished work NSC evaluation report with no adverse findings of unfinished work consider
the contract as completed.
To affirm the work items, quantity, unit cost differential and amount of unfinished work left
behind by EWEI, NSC in serving notice of contract termination to EWEI should have instead
specifically cited these obligations in detail for EWEI to perform/comply within 30 days, such
failure to perform/comply should have constituted as an event in default that would have
justified termination of contract of NSC with EWEI. If at all, this unfinished work may be
additional/extra work awarded in 1984 to another contractor at prices higher than the unit
price tendered by EWEI in 1982 and/or the discrepancy between actual quantities of work
accomplished per plans versus estimated quantities of work covered by separate contract
as expansion of the original project.
xxxxxxxxx
IN VIEW OF THE FOREGOING, THE SO-CALLED UNFINISHED WORKS IN THE CONTRACT BY
EWEI ALLUDED TO BY NSC IS NOT CONSIDERED AN OBLIGATION TO PERFORM/COMPLY THUS
ABSOLVING EWEI OF ANY FAILURE TO PERFORM/COMPLY AND THEREFORE CANNOT BE
AVAILED Of AS A RIGHT OR REMEDY BY NSC TO RECOVER UNIT DIFFERENTIAL COST FROM
EWEI FOR THE SAME UNSUBSTANTIATED WORK DONE BY ANOTHER CONTRACTOR. (ANNEX
"C" ARBITRATION, page 86-88 of Rollo.)
Furthermore, under the contract sued upon, it is clear that should the Owner feel that the
work agreed upon was not completed by the contractor, it is incumbent upon the OWNER to
send to CONTRACTOR a letter within seven (7) days after completion of the inspection to
specify the objections thereto. 9 NSC failed to comply with such requirement, and therefore it
would be unfair to refuse payment to EWEI, considering that the latter had faithfully
submitted Final Billing No. 16 believing that its work had been completed because NSC did
not call its attention to any objectionable aspect of their project.
But, what cannot be upheld is the Board's imposition of a 1-1/4% interest per month from
January 1, 1985 to actual date of payment. There is nothing in the said contract to justify or
authorize such an award. The trial court should have therefore disregarded the same and
instead, applied the legal rate of 6% per annum, from Jan. 1, 1985 until this decision
becomes final and executory. This is so because the legal rate of interest on monetary
obligations not arising from loans or forebearance of credits or goods is 6% 10 per annum in
the absence of any stipulation to the contrary.
(II) Price escalation with the
interest rate of 1-1/4% per

month from 1 January 1985 to

actual date of payment.
Petitioner contends that EWEI is not entitled to price escalation absent any stipulation to
that effect in the contract under which, the contract price is fixed, citing Paragraph 2
thereof, which stipulates:
2. CONTRACT PRICE
xxxxxxxxx
The applicable unit prices above fixed are based on the assumption that the disposal areas
for cleared, grubbed materials, debris, excess filling materials and other matters that are to
be disposed of or are within the boundary limits of the site, as designated in Annex A hereof.
In the event that disposal areas fixed and designated in Annex A are diverted and
transferred to such other areas as would be outside the limits of the site as would require
additional costs to the contractor, then Owner shall be liable for such additional hauling
costs of P1.45/km/m3." (Annex "A", Contract for Site Development, page 55 of Rollo).
The phrase "prices above fixed" means that the contract price of the work shall be that
agreed upon by the parties at the time of the execution of the contract, which is the law
between them provided it is not contrary to law, morals, good customs, public order, or
public policy. (Article 1306, New Civil Code). It cannot be inferred therefrom, however, that
the parties are prohibited from imposing future increases or price escalation. It is a cardinal
rule in the interpretation of contracts that "if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control. 11
But price escalation is expressly allowed under Presidential Decree 1594, which law allows
price escalation in all contracts involving government projects including contracts entered
into by government entities and instrumentalities and Government Owned or Controlled
Corporations (GOCCs). It is a basic rule in contracts that law is deemed written into the
contract between the parties. And when there is no prohibitory clause on price escalation,
the Court will allow payment therefor. Thus, petitioner cannot rely on the case of Llama
Development Corporation vs. Court of Appeals and National Steel Corporation, GR
88093, Resolution, Third Division, 20 Sept 1989. It is not applicable here since in that case,
the contract explicitly provided that the contract price stipulated was fixed, inclusive of all
costs and not subject to escalation, (emphasis supplied). This, in effect, waived the
provisions of PD 1594. The case under scrutiny is different as the disputed contract does not
contain a similar provision.
In a vain attempt to evade said law's application, they would like the Court to believe that it
is an acquired asset corporation and not a government owned or controlled corporation so
that they are not within the coverage of PD 1594. Whether NSC is an asset-acquired
corporation or a government owned or controlled corporation is of no moment. It is not
determinative of the pivot of inquiry. It bears emphasizing that during the hearings
conducted by the Board of Arbitrators, there was presented documentary evidence to show
that NSC, despite its being allegedly an asset acquired corporation, allowed price escalation
to another contractor, Geo Transport and Construction, Inc. (GTCI). As said in the decision of
a Board of Arbitrators:
On the other hand, there was documentary evidence presented that NSC granted Geo
Transport and Construction, Inc. (GTCI), the other favored contractor working side by side
with EWEI on the site development project during the same period the GTCE was granted
upon request and paid by NSC an actual sum of P6.9 million as price adjustment
compensation even without the benefit of escalation provision in the contract but allowed in
accordance with PD NO. 1594 enforceable among government controlled or owned
corporation. The statement is embodied in an affidavit (Exhibit "111-h") submitted by affiant
Jose M. Mesina, Asst. to the President and Legal Counsel of GTCI, submitted to the
Arbitrators upon solicitation of EWEI, copy to NSC, on 3 October 1991. NSC did not assail the
affidavit upon receipt of such document as evidence until the hearing of 19 December 1991
when the affidavit was branded by NSC counsel as incorrect and hearsay. Within 7 days
reglamentary period after receipt of affidavit in 3 October 1991, the NSC had the recourse
to contest the affidavit even preferably charge the affiant for slander if NSC could disprove
the statements as untrue. 12
If Petitioner seeks to refute such evidence, it should have done so before the Board of
Arbitrators, during the hearings. To raise the issue now is futile.
However, the same line of reasoning with respect to the first award should be used in
disregarding the interest rate of 1-1/4%. The legal rate of 6% per annum should be similarly
applied to the price escalation to be computed from Jan. 1, 1985 until this decision becomes
final and executory.
(III) The award of P50,000 as
exemplary damages and
P350,000 as attorney's fees;

The exemplary damages and attorneys fees awarded by the Board of Arbitrators should be
deleted in light of the circumstances surrounding the case.
The requirements for an award of exemplary damages, are: (1) they may be imposed by
way of example in addition to compensatory damages, and only after the claimants right to
them has been established; (2) that they cannot be recovered as a matter of right, their
determination depending upon the amount of compensatory damages that may be awarded
to the claimant; (3) the act must be accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner. 13
EWEI cannot claim that NSC acted in bad faith or in a wanton manner when it refused
payment of the Final Billing No. 16. The belief that the work was never completed by EWEI
and that it (NSC) had the right to make it chargeable to the cost differential paid by the
latter to another contractor was neither wanton nor done in evident bad faith. The payment
of legal rate of interest will suffice to compensate EWEI of whatever prejudice it suffered by
reason of the delay caused by NSC.
As regards the award of attorney's fees, award for attorney's fees without justification is a
"conclusion without a premise, its basis being improperly left to speculation and
conjencture." 14 The "fixed counsel's fee" of P350,000 should be disallowed. The trial court
acted with grave abuse of discretion when it adopted the same in toto.
WHEREFORE, the awards made by the Board of Arbitrators which the trial court adopted in
its decision of July 31, 1996, are modified, thus:
(1) The award of P474,780.23 for Billing No. 16-Final and P1,335,514.20 for price adjustment
shall be paid with legal interest of six (6%) percent per annum, from January 1, 1985 until
this decision shall have become final and executory;
(2) The award of P50,000 for exemplary damages and attorney's fees of P350,000 are
deleted; and
(3) The cost of arbitration of P35,000 to supplement arbitration agreement has to be paid.
No pronouncement as to costs.
SO ORDERED.
Romero, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

G.R. No. 121171 December 29, 1998

ASSET PRIVATIZATION TRUST, petitioner,
vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS,
JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M.
ANTONIO, as Minority Stock-Holders of Marinduque Mining and Industrial
Corporation, respondents.
The petition for review on certiorari before us seeks to reverse and set aside the decision of
the Court of Appeals which denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62,
Makati City. The Makati RTC's order upheld and confirmed the award made by the Arbitration
Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount of P2.5
BILLION (or approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed on the Government for
exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a
consequence of the latter's failure to pay its overdue and unpaid obligation of P22 billion to
the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).
The
antecedent
facts
of the case.
The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic Act No. 1528, as amended by Republic Acts
Nos. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on
July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation
Board, granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and
other minerals in the Surigao mineral reservation. 1 MMIC is a domestic corporation engaged
in mining with respondent Jesus S. Cabarrus, Sr. as President and among its original
stockholders.
The Philippine Government undertook to support the financing of MMIC by purchase of MMIC
debenture bonds and extension of guarantees. Further, the Philippine Government obtained
a firm commitment form the DBP and/or other government financing institutions to
subscribe in MMIC and issue guarantee/s for foreign loans or deferred payment

arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of
amount not exceeding US$100 Million. 2
DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were
based on the unutilized portion of the Government commitment. Thereafter, the
Government extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement 3 whereby
MMIC, as mortgagor, agreed to constitute a mortgage in favor or PNB and DBP as
mortgagees, over all MMIC's assets; subject of real estate and chattel mortgage executed
by the mortgagor, and additional assets described and identified, including assets of
whatever kind, nature or description, which the mortgagor may acquire whether in
substitution of, in replenishment, or in addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly
includes the event that the MORTGAGOR shall fail to pay any amount secured by this
Mortgage Trust Agreement when due. 4
Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the
enumerated events of defaults, circumstances by which the mortgagor may be declared in
default, the procedure therefor, waiver of period to foreclose, authority of Trustee before,
during and after foreclosure, including taking possession of the mortgaged properties. 5
In various requests for advances/remittances of loans if huge amounts, Deeds of
Undertaking, Promissory Notes, Loan Documents, Deeds of Real Estate Mortgages, MMIC
invariably committed to pay either on demand or under certain terms the loans and
accommodations secured from or guaranteed by both DBP and PNB.
By 1984, DBP and PNB's financial both in loans and in equity in MMIC had reached
tremendous proportions, and MMIC was having a difficult time meeting its financial
obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92
as of August 31, 1984 and with PNB in the amount of P8,789,028,249.38 as July 15, 1984 or
a total Government expose of Twenty Two Billion Six Hundred Sixty-Eight Million Five
Hundred Thirty-Seven Hundred Seventy and 05/100 (P22, 668,537,770.05), Philippine
Currency. 6 Thus, a financial restructuring plan (FRP) designed to reduce MMIC's interest
expense through debt conversion to equity was drafted by the SycipGorresVelayo
accounting firm. 7 On April 30, 1984, the FRP was approved by the Board of Directors of the
MMIC. 8 However, the proposed FRP had never been formally adopted, approved or ratified
by either PNB or DBP. 9
In August and September 1984, as the various loans and advances made by DBP and PNB to
MMIC had become overdue and since any restructuring program relative to the loans was no
longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP
and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially
foreclose the mortgages in accordance with the Mortgage Trust Agreement. 10
The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly
formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the
Asset Privatization Trust (APT). 11
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC,
filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for
Annulment of Foreclosures, Specific Performance and Damages. 12 The suit, docketed as
Civil Case No. 9900, prayed that the court: (1) annul the foreclosures, restore the foreclosed
assets to MMIC, and require the banks to account for their use and operation in the interim;
(2) direct the banks to honor and perform their commitments under the alleged FRP; and (3)
pay moral and exemplary damages, attorney's fees, litigation expenses and costs.
In the course of the trial, private respondents and petitioner APT, as successor of the DBP
and the PNB's interest in MMIC, mutually agreed to submit the case to arbitration by
entering into a "Compromise and Arbitration Agreement," stipulating, inter alia:
NOW THEREFORE, for and in consideration of the foregoing premises and the mutual
covenants contained herein the parties agree as follows:
1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims
from the Trial Court and to resolve their dispute through arbitration by praying to the Trial
Court to issue a Compromise Judgment based on this Compromise and Arbitration
Agreement.
In withdrawing their dispute from the court and in choosing to resolve it through arbitration,
the parties have agreed that:
(a) their respective money claims shall be reduced to purely money claims; and
(b) as successor and assignee of the PNB and DBP interests in MMIC and the MMIC accounts,
APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the
controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral
award/order against either PNB and/or DBP shall be the responsibility be discharged by and
be enforceable against APT, the parties having agreed to drop PNB and DBP from the
arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall
be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case
No. 9900 shall, with the approval of the Trial Court of this Compromise and Arbitration
Agreement, be transferred and reduced to pure pecuniary/money claims with the parties
waiving and foregoing all other forms of reliefs which they prayed for or should have prayed
for in Civil Case No. 9900. 13
The Compromise and Arbitration Agreement limited the issues to the following:
5. Issues The issues to be submitted for the Committee's resolution shall be (a) Whether
PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of
the MMIC or its directors, (b) Whether or not the actions leading to, and including,. the PNBDBP
foreclosure
of
the
MMIC
assets
were
proper,
valid
and
in
good
faith. 14
This agreement was presented for approval to the trial court. On October 14, 1992, the
Makati RTC, Branch 61, issued an order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.
2. Approving the Compromise and Arbitration Agreement dated October 6, 1997, attached
as Annex "C" of the Omnibus Motion.
3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into
pure money claims; and
4. The Complaint is hereby DISMISSED. 15
The Arbitration Committee was composed of retired Supreme Court Justice Abraham
Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal
Elma as Members. On November 24, 1993, after conducting several hearings, the
Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions
of which read as follows:
Since, as this Committee finds, there is no foreclosure at all as it was not legally and validly
done, the Committee holds and so declares that the loans of PNB and DBP to MMIC. for the
payment and recovery of which the void foreclosure sales were undertaken, continue to
remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP
to the said loans is therefore entitled and retains the right, to collect the same from MMIC
pursuant to, and based on the loan documents signed by MMIC, subject to the legal and
valid defenses that the latter may duly and seasonably interpose. Such loans shall,
however, be reduced by the amount which APT may have realized from the sale of the
seized assets of MMIC which by agreement should no longer be returned even if the
foreclosures were found to be null and void.
The documentary evidence submitted and adopted by the parties (Exhibits "3", "3-B";
Exhibit "100"; and also Exhibit "ZZZ") as their exhibits would show that the total
outstanding obligation due to DBP and PNB as of the date of foreclosure is
P22,668,537,770.05, more or less.
Therefore defendant APT can, and is still entitled to, collect the outstanding obligations of
MMIC to PNB and DBP amounting to P22,668,537,770.05, more or less, with interest thereon
as stipulated in the loan documents from the date of foreclosure up to the time they are
fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of
MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in the
obligations of, MMIC in proportion to its 87% equity in tile total capital stock of MMIC.
xxxxxxxxx
As this Committee holds that the FRP is valid, DBP's equity in MMIC is raised to 87%. So
pursuant to the above provision of the Compromise and Arbitration Agreement, the 87%
equity of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting
in the net actual damages of P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation,
except the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six
per cent (6%) per annum reckoned from August 3, 9, and 24, 1984, paripassu, as and for
actual damages. Payment of these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted
into equity. Should there be any balance due to MMIC after the offsetting, the same shall be
satisfied from the funds representing the purchase price of the sale of the shares of Island
Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that
would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration
Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation,
except the DBP, the sum of P13,000.000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be offset by APT from the

outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted
into equity. Should there be any balance due to MMIC after the offsetting, the same shall be
satisfied from the funds representing the purchase price of the sale of the shares of Island
Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that
would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration
Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that
would supersede it, pursuant to paragraph (9) of the Compromise and Arbitration
Agreement, as and for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED. 16
Motions for reconsideration were filed by both parties, but the same were denied.
On October 17, 1993, private respondents filed in the same Civil Case No. 9900 an
"Application/Motion for Confirmation of Arbitration Award." Petitioner countered with an
"Opposition and Motion to Vacate Judgment" raising the following grounds.
1. The plaintiffs Application/Motion is improperly filed with this branch of the Court,
considering that the said motion is neither a part nor the continuation of the proceedings in
Civil Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants
in the said Civil Case No. 9900 were the Development Bank of the Philippines and the
Philippine National Bank (PNB);
2. Under Section 71 of Rep. Act 876, an arbitration under a contract or submission shall be
deemed a special proceedings and a party to the controversy which was arbitrated may
apply to the court having jurisdiction, (not necessarily with this Honorable Court) for an
order confirming the award;
3. The issues submitted for arbitration have been limited to two: (1) propriety of the
plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings. The
arbitration award sought to be confirmed herein, far exceeded the issues submitted and
even granted moral damages to one of the herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award
where 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. 17
Private respondents filed a "REPLY AND OPPOSITION" dated November 10, 1984, arguing
that a dismissal of Civil Case No. 9900 was merely a "qualified dismissal" to pave the way
for the submission of the controversy to arbitration and operated simply as "a mere
suspension of the proceedings" They denied that the Arbitration Committee had exceeded
its powers.
In an Order dated November 28, 1993, the trial court confirmed the award of the Arbitration
Committee. The dispositive portion of said order reads:
WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and
Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee
promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and
finally settled and clarified in the Separate Opinion dated September 2, 1994 of Committee
Member Elma, and the pertinent provisions of RA 876, also known as the Arbitration Law,
this Court GRANTS PLAINTIFFS' APPLICATION AND THUS CONFIRMS THE ARBITRATION
AWARD, AND JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC),
except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be
partially satisfied from the funds held under escrow in the amount of P503,000,000.00
pursuant to the Escrow Agreement dated April 22, 1988. The balance of the award, after the
escrow funds are fully applied, shall be executed against the APT;
(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00
as and for moral and exemplary damages;
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as
and for moral damages; and
(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of
P1,705,410.23 as arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the
Compromise and Arbitration Agreement, and the final edict of the Arbitration Committee's
decision, and with this Court's Confirmation, the issuance of the Arbitration Committee's
Award shall henceforth be final and executory.
SO ORDERED. 18

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated
November 28, 1994. Private respondents, in turn, submitted their reply and opposition
thereto.
On January 18, 1995, the trial court handed down its order denying APT's motion for
reconsideration for lack of merit and for having been filed out of time. The trial court
declared that "considering that the defendant APT, through counsel, officially and actually
received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994,
the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or
after the lapse of 21 days, was clearly filed beyond the 15-day reglementary period
prescribed or provided for by law for the filing of an appeal from final orders, resolutions,
awards, judgments or decisions of any court in all cases, and by necessary implication for
the filing of a motion for reconsideration thereof."
On February 7, 1995, petitioner received private respondents' Motion for Execution and
Appointment of Custodian of Proceeds of Execution dated February 6, 1995.
Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with
temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul
and declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18,
1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of
discretion. 19 As ground therefor, petitioner alleged that:
I
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE
COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL
CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED.
II
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT
OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE
ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF
AWARD.
III
THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN
EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO
FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURT'S
COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT
PRESUMABLY IS THE OPPOSING COUNSEL'S COPY THEREOF. 20
On July 12, 1995, he Court of Appeals, through its Fifth-Division, denied due course and
dismissed the petition for certiorari.
Hence, the instant petition for review on certiorari imputing to the Court of Appeals the
following errors:
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL
COURT, BRANCH 62 WHICH HAS PREVIOUSLY DISMISSED CIVIL CASE NO. 9900 HAD LOST
JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND NOT
RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW
CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.
II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED
FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE
JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE
THE ARBITRAL AWARD.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT
SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS' MOTION/PETITION FOR
CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS
OF THE MOTION TO VACATE ARBITRAL AWARD.
IV
THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT'S PETITION
FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD.
V
THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON
THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION. 21
The petition is impressed with merit.
I
The RTC of Makati, Branch 62,
did not have jurisdiction to confirm
the arbitral award.

The use of the term "dismissed" is not "a mere semantic imperfection". The dispositive
portion of the Order of the trial court dated October 14, 1992 stated in no uncertain terms:
4. The Complaint is hereby DISMISSED. 22
The term "dismiss" has a precise definition in law. "To dispose of an action, suit, or motion
without trial on the issues involved. Conclude, discontinue, terminate, quash." 23
Admittedly, the correct procedure was for the parties to go back to the court where the case
was pending to have the award confirmed by said court. However, Branch 62 made
the fatal mistake of issuing a final order dismissing the case. While Branch 62 should have
merely suspended the case and not dismissed it, 24 neither of the parties questioned said
dismissal. Thus, both parties as well as said court are bound by such error.
It is erroneous then to argue, as private respondents do, that petitioner APT was charged
with the knowledge that the "case was merely stayed until arbitration finished," as again,
the order of Branch 62 in very clear terms stated that the "complaint was dismissed." By its
own action, Branch 62 had lost jurisdiction over the case. It could not have validly
reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of
Court is specific on how a new case may be initiated and such is not done by mere motion in
a particular branch of the RTC. Consequently, as there was no "pending action" to speak of,
the petition to confirm the arbitral award should have been filed as a new case and raffled
accordingly to one of the branches of the Regional Trial Court.
II
Petitioner was not estopped from
questioning the jurisdiction of
Branch 62 of the RTC of Makati.
The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the
RTC to confirm the arbitral award because it sought affirmative relief in said court by asking
that the arbitral award be vacated.
The rule is that "Where the court itself clearly has no jurisdiction over the subject matter or
the nature of the action, the invocation of this defense may be done at any time. It is
neither for the courts nor for the parties to violate or disregard that rule, let alone to confer
that jurisdiction this matter being legislative in character." 25 As a rule then, neither waiver
nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and
exceptional circumstances. 26 One such exception was enunciated in Tijam vs.
Sibonghanoy, 27 where it was held that "after voluntarily submitting a cause and
encountering an adverse decision on the merits, it is too late for the loser to question the
jurisdiction or power of the court."
Petitioner's situation is different because from the outset, it has consistently held the
position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award;
consequently, it cannot be said that it was estopped from questioning the RTC's jurisdiction.
Petitioner's prayer for the setting aside of the arbitral award was not inconsistent with its
disavowal of the court's jurisdiction.
III
Appeal of petitioner to the
Court of Appeals thru certiorari
under Rule 65 was proper.
The Court of Appeals in dismissing APT's petition for certiorari upheld the trial court's denial
of APT's motion for reconsideration of the trial court's order confirming the arbitral award,
on the ground that said motion was filed beyond the 15-day reglementary period;
consequently, the petition for certiorari could not be resorted to as substitute to the lost
right of appeal.
We do not agree.
Section 99 of Republic Act No. 876, 28 provides that:
. . . An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to questions of law. . . ..
The aforequoted provision, however, does not preclude a party aggrieved by the arbitral
award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of
Court where, as in this case, the Regional Trial Court to which the award was submitted for
confirmation has acted without jurisdiction or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
Sec 1. Petition for Certiorari: When any tribunal, board or officer exercising judicial
functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion and there is no appeal, nor any plain, speed, 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, as the law requires, of such tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action
for certiorari, it being clear from the pleadings and the evidence that the trial court lacked
jurisdiction and/or committed grave abuse of discretion in taking cognizance of private
respondents' motion to confirm the arbitral award and, worse, in confirming said award
which is grossly and patently not in accord with the arbitration agreement, as will be
hereinafter demonstrated.
IV
The nature and limits of the
Arbitrators' power.
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either
as to the law or as to the facts. 29 Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts determined by the arbitrators. 30 They
will not review the findings of law and fact contained in an award, and will not undertake to
substitute their judgment for that of the arbitrators, since any other rule would make an
award the commencement, not the end, of litigation. 31 Errors of law and fact, or an
erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient
to invalidate an award fairly and honestly made. 32 Judicial review of an arbitration is thus,
more limited than judicial review of a trial. 33
Nonetheless, the arbitrators' award is not absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the submission agreement. 34 The parties to such
an agreement are bound by the arbitrators' award only to the extent and in the manner
prescribed by the contract and only if the award is rendered in conformity thereto. 35 Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or
modifying an arbitration award. Where the conditions described in Articles 2038, 36
2039, 37 and 1040 38 of the Civil Code applicable to compromises and arbitration are
attendant, the arbitration award may also be annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals, 39 we held:
. . . . It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators'
award is not absolute and without exceptions. Where the conditions described in Articles
2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the
arbitrator's award may be annulled or rescended. Additionally, under Sections 24 and 25 of
the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrator's
award. Thus, if and when the factual circumstances referred to the above-cited provisions
are present, judicial review of the award is properly warranted.
According, Section 20 of R.A. 876 provides:
Sec. 20. Form and contents of award. The award must be made in writing and signed and
acknowledge by a majority of the arbitrators, if more than one; and by the sole arbitrator, if
there is only only. Each party shall be furnished with a copy of the award. The arbitrators in
their award may grant any remedy or relief which they deem just and equitable and within
the scope of the agreement of the parties, which shall include, but not be limited to, the
specific performance of a contract.
xxxxxxxxx
The arbitrators shall have the power to decide only those matters which have been
submitted to them. The terms of the award shall be confined to such disputes. (Emphasis
ours).
xxxxxxxxx
Sec. 24 of the same law enumerating the grounds for vacating an award states:
Sec. 24. Grounds for vacating award. In any one of the following cases, the court must
make an order vacating the award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration proceeding:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified to act as such under
section nine hereof, and willfully refrained from disclosing such disqualifications or any other
misbehavior by which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made.
(Emphasis ours)
xxxxxxxxx.
Section 25 which enumerates the grounds for modifying the award provides:
Sec. 25. Grounds for modifying or correcting award In anyone of the following cases, the
court must make an order modifying or correcting the award, upon the application of any
party to the controversy which was arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident mistake in the
description of any person, thing or property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting
the merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits of the
controversy, and if it had been a commissioner's report, the defect could have been
amended or disregarded by the court.
xxxxxxxxx
Finally, it should be stressed that while a court is precluded from overturning an award for
errors in the determination of factual issues, nevertheless, if an examination of the record
reveals no support whatever for the arbitrators determinations, their award must be
vacated. 40 in the same manner, an award must be vacated if it was made in "manifest
disregard of the law." 41
Against the backdrop of the foregoing provisions and principles, we find that the arbitrators
came out with an award in excess of their powers and palpably devoid of factual and legal
basis.
V
There was no financial
structuring program:
foreclosure of mortgage
was fully justified.
The point need not be belabored that PNB and DBP had the legitimate right to foreclose of
the mortgages of MMIC whose obligations were past due. The foreclosure was not a
wrongful act of the banks and, therefore, could not be the basis of any award of damages.
There was no financial restructuring agreement to speak of that could have constituted an
impediment to the exercise of the banks' right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a
separate opinion:
1. The various loans and advances made by DBP and PNB to MMIC have become overdue
and remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has
not been complying with the terms of the loan agreement. Restructuring simply connotes
that the obligations are past due that is why it is "restructurable";
2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only
means that MMIC had been informed or notified that its obligations were past due and that
foreclosure is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or
proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC
should have insisted on the FRP. Yet Cabarrus himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with
the honest and sincere belief that foreclosure was the only alternative; a decision further
explained by Dr. PlacidoMapa who testified that foreclosure was, in the judgment of PNB, the
best move to save MMIC itself.
Q : Now in this portion of Exh. "L" which was marked as Exh. "L-1", and we adopted as Exh.
37-A for the respondent, may I know from you, Dr. Mapa what you meant by "that the
decision to foreclose was neither precipitate nor arbitrary"?
A : Well, it is not a whimsical decision but rather decision arrived at after weighty
consideration of the information that we have received, and listening to the prospects which
reported to us that what we had assumed would be the premises of the financial
rehabilitation plan was not materialized nor expected to materialize.
Q : And this statement that "it was premised upon the known fact" that means, it was
referring to the decision to foreclose, was premised upon the known fact that the
rehabilitation plan earlier approved by the stockholders was no longer feasible, just what is
meant "by no longer feasible"?
A : Because the revenue that they were counting on to make the rehabilitation plan
possible, was not anymore expected to be forthcoming because it will result in a short fall
compared to the prices that were actually taking place in the market.
Q : And I suppose that was what you were referring to when you stated that the production
targets and assumed prices of MMIC's products, among other projections, used in the
financial reorganization program that will make it viable were not met nor expected to be
met?
A : Yes.
xxxxxxxxx
Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely
unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts
in PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC
adopted a restructuring program for its loan, it only meant that these loans were already
due and unpaid. If these loans were restructurable because they were already due and

unpaid, they are likewise "forecloseable". The option is with the PNB-DBP on what steps to
take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to
foreclose. Neither does it mean that the FRP is legally binding and implementable. It must
be pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC
with PNB-DBP. It will become the new loan agreement between the lenders and the
borrowers. As in all other contracts, there must therefore be a meeting of minds of the
parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be
bound by it; before it can be implemented. In this case, not an iota of proof has been
presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP.
PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegations
in this regard. 42
Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No.
385, which took effect on January 31, 1974. The decree requires government financial
institutions to foreclose collaterals for loans where the arrearages amount to 20% of the
total outstanding obligations. The pertinent provisions of said decree read as follow:
Sec. 1. It shall be mandatory for government financial institutions, after the lapse of sixty
(60) days from the issuance of this Decree, to foreclose the collaterals and/or securities for
any loan, credit, accommodation, and/or guarantees granted by them whenever the
arrearages on such account, including accrued interest and other charges, amount to at
least twenty percent (20%) of the total outstanding obligations, including interest and other
charges, as appearing in the books of account and/or related records of the financial
institutions concerned. This shall be without prejudice to the exercise by the government
financial institutions of such rights and/or remedies available to them under their respective
contracts with their debtors, including the right to foreclosure on loans, credits,
accommodations and/or guarantees on which the arrearages are less than twenty percent
(20%).
Sec. 2. No restraining order temporary or permanent injunction shall be issued by the court
against any government financial institution in any action taken by such institution in
compliance with the mandatory foreclosure provided in Section 1 hereof, whether such
restraining order, temporary or permanent injunction is sought by the borrower(s) or any
third party or parties, except after due hearing in which it is established by the borrower and
admitted by the government financial institution concerned that twenty percent (20%) of
the outstanding arrearages has been paid after the filing of foreclosure proceedings.
(Emphasis supplied.)
Private respondents' thesis that the foreclosure proceedings were null and void because of
lack of publication in the newspaper is nothing more than a mere unsubstantiated aliegation
not borne out by the evidence. In any case, a disputable presumption exists in favor of
petitioner that official duty has been regularly performed and ordinary course of business
has been followed. 43
VI
Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the
facts of the case, the arbitrators in making the award went beyond the arbitration
agreement.
In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for
judgment in their favor:
1. Declaring the foreclosures effected by the defendants DBP and PNB on the assets of MMIC
null and void and directing said defendants to restore the foreclosed assets to the
possession of MMIC, to render an accounting of their use and/or operation of said assets and
to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof;
2. Directing the defendants DBP and PNB to honor and perform their commitments under
the financial reorganization plan which was approved at the annual stockholders' meeting of
MMIC on 30 April 1984;
3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs
actual damages consisting of the loss of value of their investments amounting to not less
than P80,000,000, the damnumemergens and lucrumcessans in such amount as may be
established during the trial, moral damages in such amount as this Honorable Court may
deem just and equitable in the premises, exemplary damages in such amount as this
Honorable Court may consider appropriate for the purpose of setting an example for the
public good, attorney's fees and litigation expenses in such amounts as may be proven
during the trial, and the costs legally taxable in this litigation.
Further, plaintiffs pray for such other reliefs as may be just and equitable in the premises. 44
Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties
clearly and explicitly defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit
in behalf of the MMIC or its directors;

(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the
MMIC assets were proper, valid and in good faith. 45
Item No. 8 of the Agreement provides for the period by which the Committee was to render
its decision, as well as the nature thereof:
8. Decision. The committee shall issue a decision on the controversy not later than six (6)
months from the date of its constitution.
In the event the committee finds that PLAINTIFFS have the personality to file this suit and
the extra-judicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of
the PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the
evidence which shall be payable in Philippine Pesos at the time of the award. Such award
shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of
the award in accordance with the provisions of par. 9 hereunder. . . . . The PLAINTIFFS'
remedies under this Section shall be in addition to other remedies that may be available to
the PLAINTIFFS, all such remedies being cumulative and not exclusive of each other.
On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity
to sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an
award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be
established or warranted by the evidence. This decision of the arbitration committee in
favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC
assets so that the funds held in escrow mentioned in par. 9 hereunder will thus be released
in
full
in
favor
of
APT. 46
The clear and explicit terms of the submission notwithstanding, the Arbitration Committee
clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring
valid the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit;
and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped
their powers by declaring as
valid the proposed Financial
Restructuring Program.
The Arbitration Committee went beyond its mandate and thus acted in excess of its powers
when it ruled on the validity of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit the issue to
the "validity of the foreclosure" and to transform the relief prayed for therein into pure
money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the
proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent
of the parties thereto. 47 The contract must bind both contracting parties. 48 Private
respondents even by their own admission recognized that the FRP had yet not been carried
out and that the loans of MMIC had not yet been converted into equity. 49
However, the Arbitration Committee not only declared the FRP valid and effective, but also
converted the loans of MMIC into equity raising the equity of DBP to 87%. 50
The Arbitration Committee ruled that there was "a commitment to carry out the FRP" 51 on
the ground of promissory estoppel.
Similarly, the principle of promissory estoppel applies in the present case considering as we
observed, the fact that the government (that is, Alfredo Velayo) was the FRP's proponent.
Although the plaintiffs are agreed that the government executed no formal agreement, the
fact remains that the DBP itself which made representations that the FRP constituted a "way
out" for MMIC. The Committee believes that although the DBP did not formally agree
(assuming that the board and stockholders' approvals were not formal enough), it is bound
nonetheless if only for its conspicuous representations.
Although the DBP sat in the board in a dual capacity as holder of 36% of MMIC's equity
(at that time) and as MMIC's creditor the DBP can not validly renege on its commitments
simply because at the same time, it held interests against the MMIC.
The fact, of course, is that as APT itself asserted, the FRP was being "carried out" although
apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to
meet its targets, the DBP and so this Committee holds can not, in any event, brook any
denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the
government is still bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding success, although it raised DBP's
equity in MMIC to 87%. It is not an excuse, however, for the government to deny its
commitments. 52
Atty. Sison, however, did not agree and correctly observed that:
But the doctrine of promissory estoppel can hardly find application here. The nearest that
there can be said of any estoppel being present in this case is the fact that the board of
MMIC was, at the time the FRP was adopted, mostly composed of PNB and DBP
representatives. But those representatives, singly or collectively, are not themselves PNB or

DBP. They are individuals with personalities separate and distinct from the banks they
represent. PNB and DBP have different boards with different members who may have
different decisions. It is unfair to impose upon them the decision of the board of another
company and thus pin them down on the equitable principle of estoppel. Estoppel is a
principle based on equity and it is certainly not equitable to apply it in this particular
situation. Otherwise the rights of entirely separate distinct and autonomous legal entities
like PNB and DBP with thousands of stockholders will be suppressed and rendered
nugatory. 53
As a rule, a corporation exercises its powers, including the power to enter into contracts,
through its board of directors. While a corporation may appoint agents to enter into a
contract in its behalf, the agent should not exceed his authority. 54 In the case at bar, there
was no showing that the representatives of PNB and DBP in MMIC even had the requisite
authority to enter into a debt-for-equity swap. And if they had such authority, there was no
showing that the banks, through their board of directors, had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of moral damages when its credit
reputation was not exactly something to be considered sound and wholesome. Under Article
2217 of the Civil Code, moral damages include besmirched reputation which a corporation
may possibly suffer. A corporation whose overdue and unpaid debts to the Government
alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid
business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it:
Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral
damages. While the Supreme Court may have awarded moral damages to a corporation for
besmirched reputation in Mambulao vs. PNB, 22 SCRA 359, such ruling cannot find
application in this case. It must be pointed out that when the supposed wrongful act of
foreclosure was done, MMIC's credit reputation was no longer a desirable one. The company
then was already suffering from serious financial crisis which definitely projects an image
not compatible with good and wholesome reputation. So it could not be said that there was
a "reputation" besmirched by the act of foreclosure. 55
The arbiters exceeded their
authority in awarding damages
to MMIC, which is not impleaded
as a party to the derivative suit.
Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of
the proceedings. As it is, the award of damages to MMIC, which was not a party before the
Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest
while the stockholder filing suit for the corporation's behalf is only a nominal party. The
corporation should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in interest. . . . . 56
It is a condition sine qua non that the corporation be impleaded as a party because
. . . Not only is the corporation an indispensable party, but it is also the present rule that it
must be served with process. The reason given is that the judgment must be made binding
upon the corporation in order that the corporation may get the benefit of the suit and may
not bring a subsequent suit against the same defendants for the same cause of action. In
other words the corporation must be joined as party because it is its cause of action that is
being litigated and because judgment must be a res ajudicata against it. 57
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title
legal or equitable to the corporate property; that both of these are in the corporation itself
for the benefit of the stockholders." In other words, to allow shareholders to sue separately
would conflict with the separate corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court
held in the case of Evangelista v. Santos, that "the stockholders may not directly claim
those damages for themselves for that would result in the appropriation by, and the
distribution among them of part of the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities, something which cannot be legally
done in view of section 16 of the Corporation Law . . .;
(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual
on the damages recoverable by the corporation for the same act. 58

If at all an award was due MMIC, which it was not, the same should have been
given sans deduction, regardless of whether or not the party liable had equity in the
corporation, in view of the doctrine that a corporation has a personality separate and
distinct from its individual stockholders or members. DBP's alleged equity, even if it were
indeed 87%, did not give it ownership over any corporate property, including the monetary
award, its right over said corporate property being a mere expectancy or inchoate
right. 59 Notably, the stipulation even had the effect of prejudicing the other creditors of
MMIC.
The arbiters, likewise,
exceeded their authority
in awarding moral damages
to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one breath rule that the case before it
is a derivative suit, in which the aggrieved party or the real party in interest is supposedly
the MMIC, and at the same time award moral damages to an individual stockholder, to wit:
WHEREFORE, premises considered, judgment is hereby rendered:
xxxxxxxxx
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that
would supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as
and for moral damages; . . . 60
The majority decision of the Arbitration Committee sought to justify its award of moral
damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by
the government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus
is the majority stockholder. It then acknowledged that Cabarrus had already recovered said
assets in the RTC, but that "he won no more than actual damages. While the Committee
cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered
moral damages on account of that specific foreclosure, damages the Committee believes
and so holds, he, Jesus S. Cabarrus, Sr., may be awarded in this proceeding." 61
Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the
majority stockholder, having been ventilated in a complaint he previously filed with the RTC,
from which he obtained actual damages, he was barred by res judicata from filing a similar
case in another court, this time asking for moral damages which he failed to get from the
earlier case. 62 Worse, private respondents violated the rule against non-forum shopping.
It is a basic postulate that a corporation has a personality separate and distinct from its
stockholders. 63 The properties foreclosed belonged to MMIC, not to its stockholders. Hence,
if wrong was committed in the foreclosure, it was done against the corporation. Another
reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that
would result in the appropriation by, and the distribution to, him part of the corporation's
assets before the dissolution of the corporation and the liquidation of its debts and
liabilities. The Arbitration Committee, therefore, passed upon matters nor submitted to it.
Moreover, said cause of action had already been decided in a separate case. It is thus quite
patent that the arbitration committee exceeded the authority granted to it by the parties'
Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus,
Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral
damages to Jesus S. Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on these stipulated issues,
the parties themselves have agreed that the basic ingredient of the causes of action in this
case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of
its assets. By agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit
that the cause of action pertains only to the corporation (MMIC) and that they are filing this
for and in behalf of MMIC.
Perforce this has to be so because it is the basic rule in Corporation Law that "the
shareholders have no title, legal or equitable to the property which is owned by the
corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon& Sons vs. Register
of Deeds, 6 SCRA 373, the rule has been reiterated that "a stockholder is not the co-owner
of corporate property." Since the property or assets foreclosed belongs [sic] to MMIC, the
wrong committed, if any, is done against the corporation. There is therefore no direct injury
or direct violation of the rights of Cabarrus et al. There is no way, legal or equitable, by
which Cabarrus et al. could recover damages in their personal capacities even assuming or
just because the foreclosure is improper or invalid. The Compromise and Arbitration
Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am
constrained to dissent from the award of moral damages to Cabarrus. 64

From the foregoing discussions, it is evident that, not only did the arbitration committee
exceed its powers or so imperfectly execute them, but also, its findings and conclusions are
palpably devoid of any factual basis, and in manifest disregard of the law.
We do not find it necessary to remand this case to the RTC for appropriate action. The
pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised
and extensively discussed the issues on the merits. Such being the case, there is sufficient
basis for us to resolve the controversy between the parties anchored on the records and the
pleadings before us. 65
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders
of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19,
1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is
hereby VACATED.
SO ORDERED.

[G.R. No. 129169. November 17, 1999]

NATIONAL IRRIGATION ADMINISTRATION (NIA), petitioner, vs. HONORABLE COURT
OF
APPEALS
(4th
Division),
CONSTRUCTION
INDUSTRY
ARBITRATION
COMMISSION,
and
HYDRO
RESOURCES
CONTRACTORS
CORPORATION, respondents.
In this special civil action for certiorari under Rule 65 of the Rules of Court, the National
Irrigation Administration (hereafter NIA), seeks to annul and set aside the Resolutions [1]of
the Court of Appeals in CA-GR. SP No. 37180 dated 28 June 1996 and 24 February 1997,
which dismissed respectively NIAs petition for certiorari and prohibition against the
Construction Industry Arbitration Commission (hereafter CIAC), and the motion for
reconsideration thereafter filed.
Records show that in a competitive bidding held by NIA in August 1978, Hydro Resources
Contractors Corporation (hereafter HYDRO) was awarded Contract MPI-C-2 for the
construction of the main civil works of the Magat River Multi-Purpose Project. The contract
provided that HYDRO would be paid partly in Philippine pesos and partly in U.S. dollars.
HYDRO substantially completed the works under the contract in 1982 and final acceptance
by NIA was made in 1984. HYDRO thereafter determined that it still had an account
receivable from NIA representing the dollar rate differential of the price escalation for the
contract.[2]
After unsuccessfully pursuing its case with NIA, HYDRO, on 7 December 1994, filed with the
CIAC a Request for Adjudication of the aforesaid claim. HYDRO nominated six arbitrators for
the arbitration panel, from among whom CIAC appointed Engr. Lauro M. Cruz. On 6 January
1995, NIA filed its Answer wherein it questioned the jurisdiction of the CIAC alleging lack of
cause of action, laches and estoppel in view of HYDROs alleged failure to avail of its right to
submit the dispute to arbitration within the prescribed period as provided in the
contract. On the same date, NIA filed a Compliance wherein it nominated six arbitrators,
from among whom CIAC appointed Atty. Custodio O. Parlade, and made a counterclaim
for P1,000,000 as moral damages; at least P100,000 as exemplary damages; P100,000 as
attorneys fees; and the costs of the arbitration. [3]
The two designated arbitrators appointed Certified Public Accountant Joven B. Joaquin as
Chairman of the Arbitration Panel. The parties were required to submit copies of the
evidence they intended to present during the proceedings and were provided the draft
Terms of Reference.[4]
At the preliminary conference, NIA through its counsel Atty. Joy C. Legaspi of the Office of
the Government Corporate Counsel, manifested that it could not admit the genuineness of
HYDROs evidence since NIAs records had already been destroyed. NIA requested an
opportunity to examine the originals of the documents which HYDRO agreed to provide. [5]
After reaching an accord on the issues to be considered by the arbitration panel, the parties
scheduled the dates of hearings and of submission of simultaneous memoranda. [6]
On 13 March 1995, NIA filed a Motion to Dismiss [7]alleging lack of jurisdiction over the
disputes. NIA contended that there was no agreement with HYDRO to submit the dispute to
CIAC for arbitration considering that the construction contract was executed in 1978 and the
project completed in 1982, whereas the Construction Industry Arbitration Law creating CIAC
was signed only in 1985; and that while they have agreed to arbitration as a mode of
settlement of disputes, they could not have contemplated submission of their disputes to
CIAC. NIA further argued that records show that it had not voluntarily submitted itself to
arbitration by CIAC citing TESCO Services, Inc. v. Hon. Abraham Vera, et al., [8] wherein it was
ruled:
CIAC did not acquire jurisdiction over the dispute arising from the sub-contract agreement
between petitioner TESCO and private respondent LAROSA. The records do not show that

the parties agreed to submit the disputes to arbitration by the CIAC xxxx. While both parties
in the sub-contract had agreed to submit the matter to arbitration, this was only between
themselves, no request having been made by both with the CIAC. Hence, as already stated,
the CIAC, has no jurisdiction over the dispute. xxxx. Nowhere in the said article (subcontract) does it mention the CIAC, much less, vest jurisdiction with the CIAC.
On 11 April 1995, the arbitral body issued an order [9] which deferred the determination of
the motion to dismiss and resolved to proceed with the hearing of the case on the merits as
the grounds cited by NIA did not seem to be indubitable. NIA filed a motion for
reconsideration of the aforesaid Order. CIAC in denying the motion for reconsideration ruled
that it has jurisdiction over the HYDROs claim over NIA pursuant to E.O 1008 and that the
hearing should proceed as scheduled. [10]
On 26 May 1996, NIA filed with the Court of Appeals an original action of certiorari and
prohibition with prayer for restraining order and/or injunction, seeking to annul the Orders of
the CIAC for having been issued without or in excess of jurisdiction. In support of its petition
NIA alleged that:
A
RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO HEAR AND TRY THIS DISPUTE
BETWEEN THE HEREIN PARTIES AS E.O. NO. 1008 HAD NO RETROACTIVE EFFECT.
B
THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN ACCORDANCE WITH GC NO.
25, ART. 2046 OF THE CIVIL CODE AND R.A. NO. 876 THE GOVERNING LAWS AT THE TIME
CONTRACT WAS EXECUTED AND TERMINATED.
C
E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT MERELY PROCEDURAL AS RULED BY THE CIAC.
D
AN INDORSEMENT OF THE AUDITOR GENERAL DECIDING A CONTROVERSY IS A DECISION
BECAUSE ALL THE ELEMENTS FOR JUDGMENT ARE THERE; THE CONTROVERSY, THE
AUTHORITY TO DECIDE AND THE DECISION. IF IT IS NOT APPEALED SEASONABLY, THE SAME
BECOMES FINAL.
E
NIA HAS TIMELY RAISED THE ISSUE OF JURISDICTION. IT DID NOT WAIVE NOR IS IT ESTOPPED
FROM ASSAILING THE SAME.
F
THE LEGAL DOCTRINE THAT JURISDICTION IS DETERMINED BY THE STATUTE IN FORCE AT
THE TIME OF THE COMMENCEMENT OF THE ACTION DOES NOT ONLY APPLY TO THE INSTANT
CASE.[11]
The Court of Appeals, after finding that there was no grave abuse of discretion on the part
of the CIAC in issuing the aforesaid Orders, dismissed the petition in its Resolution dated 28
June 1996. NIAs motion for reconsideration of the said decision was likewise denied by the
Court of Appeals on 26 February 1997.
On 2 June 1997, NIA filed before us an original action for certiorari and prohibition with
urgent prayer for temporary restraining order and writ of preliminary injunction, praying for
the annulment of the Resolutions of the Court of Appeals dated 28 June 1996 and 24
February 1997. In the said special civil action, NIA merely reiterates the issues it raised
before the Court of Appeals. [12]
We take judicial notice that on 10 June 1997, CIAC rendered a decision in the main case in
favor of HYDRO.[13] NIA assailed the said decision with the Court of Appeals. In view of the
pendency of the present petitions before us the appellate court issued a resolution dated 26
March 1998 holding in abeyance the resolution of the same until after the instant petitions
have been finally decided.[14]
At the outset, we note that the petition suffers from a procedural defect that warrants its
outright dismissal. The questioned resolutions of the Court of Appeals have already become
final and executory by reason of the failure of NIA to appeal therefrom. Instead of filing this
petition for certiorari under Rule 65 of the Rules of Court, NIA should have filed a timely
petition for review under Rule 45.
There is no doubt that the Court of Appeals has jurisdiction over the special civil action
for certiorari under Rule 65 filed before it by NIA. The original jurisdiction of the Court of
Appeals over special civil actions for certiorari is vested upon it under Section 9(1) of B.P.
129. This jurisdiction is concurrent with the Supreme Court [15] and with the Regional Trial
Court.[16]
Thus, since the Court of Appeals had jurisdiction over the petition under Rule 65, any
alleged errors committed by it in the exercise of its jurisdiction would be errors of judgment
which are reviewable by timely appeal and not by a special civil action of certiorari.[17] If the
aggrieved party fails to do so within the reglementary period, and the decision accordingly
becomes final and executory, he cannot avail himself of the writ of certiorari, his
predicament being the effect of his deliberate inaction. [18]

The appeal from a final disposition of the Court of Appeals is a petition for review under Rule
45 and not a special civil action under Rule 65 of the Rules of Court, now Rule 45 and Rule
65, respectively, of the 1997 Rules of Civil Procedure. [19] Rule 45 is clear that decisions, final
orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the
action or proceedings involved, may be appealed to this Court by filing a petition for review,
which would be but a continuation of the appellate process over the original case. [20] Under
Rule 45 the reglementary period to appeal is fifteen (15) days from notice of judgment or
denial of motion for reconsideration.[21]
In the instant case the Resolution of the Court of Appeals dated 24 February 1997 denying
the motion for reconsideration of its Resolution dated 28 June 1997 was received by NIA on
4 March1997.Thus, it had until 19 March 1997 within which to perfect its appeal. NIA did not
appeal. What it did was to file an original action for certiorari before this Court, reiterating
the issues and arguments it raised before the Court of Appeals.
For the writ of certiorari under Rule 65 of the Rules of Court to issue, a petitioner must show
that he has no plain, speedy and adequate remedy in the ordinary course of law against its
perceived grievance.[22] A remedy is considered plain, speedy and adequate if it will
promptly relieve the petitioner from the injurious effects of the judgment and the acts of the
lower court or agency.[23] In this case, appeal was not only available but also a speedy and
adequate remedy.
Obviously, NIA interposed the present special civil action of certiorari not because it is the
speedy and adequate remedy but to make up for the loss, through omission or oversight, of
the right of ordinary appeal. It is elementary that the special civil action of certiorari is not
and cannot be a substitute for an appeal, where the latter remedy is available, as it was in
this case. A special civil action under Rule 65 of the Rules of Court will not be a cure for
failure to timely file a petition for review on certiorari under Rule 45 of the Rules of
Court. [24] Rule 65 is an independent action that cannot be availed of as a substitute for the
lost remedy of an ordinary appeal, including that under Rule 45, [25] especially if such loss or
lapse was occasioned by ones own neglect or error in the choice of remedies. [26]
For obvious reasons the rules forbid recourse to a special civil action for certiorari if appeal
is available, as the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive.[27] Although there are exceptions to the rules, none is present in
the case at bar. NIA failed to show circumstances that will justify a deviation from the
general rule as to make available a petition for certiorari in lieu of taking an appropriate
appeal.
Based on the foregoing, the instant petition should be dismissed.
In any case, even if the issue of technicality is disregarded and recourse under Rule 65 is
allowed, the same result would be reached since a review of the questioned resolutions of
the CIAC shows that it committed no grave abuse of discretion.
Contrary to the claim of NIA, the CIAC has jurisdiction over the controversy. Executive Order
No.1008, otherwise known as the Construction Industry Arbitration Law which was
promulgated on 4 February 1985, vests upon 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. The 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. [28]
The complaint of HYDRO against NIA on the basis of the contract executed between them
was filed on 7 December 1994, during the effectivity of E.O. No. 1008. Hence, it is well
within the jurisdiction of CIAC. The jurisdiction of a court is determined by the law in force at
the time of the commencement of the action. [29]
NIAs argument that CIAC had no jurisdiction to arbitrate on contract which preceded its
existence is untenable. E.O. 1008 is clear that the CIAC has jurisdiction over all disputes
arising from or connected with construction contract whether the dispute arises before or
after the completion of the contract. Thus, the date the parties entered into a contract and
the date of completion of the same, even if these occurred before the constitution of the
CIAC, did not automatically divest the CIAC of jurisdiction as long as the dispute submitted
for arbitration arose after the constitution of the CIAC. Stated differently, the jurisdiction of
CIAC is over the dispute, not the contract; and the instant dispute having arisen when CIAC
was already constituted, the arbitral board was actually exercising current, not retroactive,
jurisdiction. As such, there is no need to pass upon the issue of whether E.O. No. 1008 is a
substantive or procedural statute.
NIA also contended that the CIAC did not acquire jurisdiction over the dispute since it was
only HYDRO that requested for arbitration. It asserts that to acquire jurisdiction over a case,
as provided under E.O. 1008, the request for arbitration filed with CIAC should be made by
both parties, and hence the request by one party is not enough.
It is undisputed that the contracts between HYDRO and NIA contained an arbitration clause
wherein they agreed to submit to arbitration any dispute between them that may arise

before or after the termination of the agreement. Consequently, the claim of HYDRO having
arisen from the contract is arbitrable. NIAs reliance with the ruling on the case of Tesco
Services Incorporated v. Vera,[30] is misplaced.
The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco case had been
duly amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of Article III of which read
as follows:
Submission to CIAC Jurisdiction - An arbitration clause in a construction contract or a
submission to arbitration of 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.
Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration.Unlike in the original version of Section 1, as applied in the Tesco case,
the law as it now stands does not provide that the parties should agree to submit disputes
arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction
over the same. Rather, it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, their agreement will fall
within the jurisdiction of the CIAC, such that, even if they specifically choose another forum,
the parties will not be precluded from electing to submit their dispute before the CIAC
because this right has been vested upon each party by law, i.e., E.O. No. 1008.[31]
Moreover, it is undeniable that NIA agreed to submit the dispute for arbitration to the
CIAC. NIA through its counsel actively participated in the arbitration proceedings by filing an
answer with counterclaim, as well as its compliance wherein it nominated arbitrators to the
proposed panel, participating in the deliberations on, and the formulation of, the Terms of
Reference of the arbitration proceeding, and examining the documents submitted by HYDRO
after NIA asked for the originals of the said documents. [32]
As to the defenses of laches and prescription, they are evidentiary in nature which could not
be established by mere allegations in the pleadings and must not be resolved in a motion to
dismiss. Those issues must be resolved at the trial of the case on the merits wherein both
parties will be given ample opportunity to prove their respective claims and defenses.
[33]
Under the rule[34] the deferment of the resolution of the said issues was, thus, in order. An
allegation of prescription can effectively be used in a motion to dismiss only when the
complaint on its face shows that indeed the action has already prescribed. [35] In the instant
case, the issue of prescription and laches cannot be resolved on the basis solely of the
complaint. It must, however, be pointed that under the new rules, [36] deferment of the
resolution is no longer permitted. The court may either grant the motion to dismiss, deny it,
or order the amendment of the pleading.
WHEREFORE, the instant petition is DISMISSED for lack of merit. The Court of Appeals is
hereby DIRECTED to proceed with reasonable dispatch in the disposition of C.A. G.R. No.
44527 and include in the resolution thereof the issue of laches and prescription.
SO ORDERED.
G.R. No. 155001

May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL

ANTONIO B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON,
CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO,
MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES
EMPLOYEES
ASSOCIATION
(PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, respondents,
MIASCOR
GROUNDHANDLING
CORPORATION,
DNATA-WINGS
AVIATION
SYSTEMS
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT
SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT
MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION, petitioners-inintervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,

vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF
PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as
Head of the Department of Transportation and Communications, and SECRETARY SIMEON A.
DATUMANONG, in his capacity as Head of the Department of Public Works and
Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,
PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING
O. MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN,
LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO
SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS
(SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under
Rule 65 of the Revised Rules of Court seeking to prohibit the Manila International Airport
Authority (MIAA) and the Department of Transportation and Communications (DOTC) and its
Secretary from implementing the following agreements executed by the Philippine
Government through the DOTC and the MIAA and the Philippine International Air Terminals
Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the Amended
and Restated Concession Agreement dated November 26, 1999, (3) the First Supplement to
the Amended and Restated Concession Agreement dated August 27, 1999, (4) the Second
Supplement to the Amended and Restated Concession Agreement dated September 4,
2000, and (5) the Third Supplement to the Amended and Restated Concession Agreement
dated June 22, 2001 (collectively, the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine
whether the present airport can cope with the traffic development up to the year 2010. The
study consisted of two parts: first, traffic forecasts, capacity of existing facilities, NAIA future
requirements, proposed master plans and development plans; and second, presentation of
the preliminary design of the passenger terminal building. The ADP submitted a Draft Final
Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun,
Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V.
Ramos to explore the possibility of investing in the construction and operation of a new
international airport terminal. To signify their commitment to pursue the project, they
formed the Asia's Emerging Dragon Corp. (AEDC) which was registered with the Securities
and Exchange Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through
the DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT
III) under a build-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA
7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT
III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the
National Economic and Development Authority (NEDA). A revised proposal, however, was
forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA
Investment Coordinating Council (NEDA ICC) Technical Board favorably endorsed the
project to the ICC Cabinet Committee which approved the same, subject to certain
conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution
No. 2 which approved the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of
an invitation for competitive or comparative proposals on AEDC's unsolicited proposal, in
accordance with Sec. 4-A of RA 6957, as amended. The alternative bidders were required to
submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first

envelope should contain the Prequalification Documents, the second envelope the Technical
Proposal, and the third envelope the Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid
Documents and the submission of the comparative bid proposals. Interested firms were
permitted to obtain the Request for Proposal Documents beginning June 28, 1996, upon
submission of a written application and payment of a non-refundable fee of P50,000.00
(US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must
have adequate capability to sustain the financing requirement for the detailed engineering,
design, construction, operation, and maintenance phases of the project. The proponent
would be evaluated based on its ability to provide a minimum amount of equity to the
project, and its capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid
conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The
following amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its
financial proposal an additional percentage of gross revenue share of the Government, as
follows:
i. First 5 years
5.0%
ii. Next 10 years

7.5%

iii. Next 10 years

10.0%
b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price
challenge. Proponent may offer an Annual Guaranteed Payment which need not be of equal
amount, but payment of which shall start upon site possession.
c. The project proponent must have adequate capability to sustain the financing
requirement for the detailed engineering, design, construction, and/or operation and
maintenance phases of the project as the case may be. For purposes of pre-qualification,
this capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the consortium to provide the
minimum amount of equity for the project; and
ii. a letter testimonial from reputable banks attesting that the project proponent and/or the
members of the consortium are banking with them, that the project proponent and/or the
members are of good financial standing, and have adequate resources.
d. The basis for the prequalification shall be the proponent's compliance with the minimum
technical and financial requirements provided in the Bid Documents and the IRR of the BOT
Law. The minimum amount of equity shall be 30% of the Project Cost.
e. Amendments to the draft Concession Agreement shall be issued from time to time. Said
amendments shall only cover items that would not materially affect the preparation of the
proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications
were made. Upon the request of prospective bidder People's Air Cargo & Warehousing Co.,
Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing
Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment
submitted by the challengers would be revealed to AEDC, and that the challengers'
technical and financial proposals would remain confidential. The PBAC also clarified that the
list of revenue sources contained in Annex 4.2a of the Bid Documents was merely indicative
and that other revenue sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated
as Public Utility Fees would be subject to regulation, and those charges which would be
actually deemed Public Utility Fees could still be revised, depending on the outcome of
PBAC's query on the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries and the
PBAC's responses were as follows:
1. It is difficult for Paircargo and Associates to meet the required minimum equity
requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the
capitalization of each member company is so structured to meet the requirements and
needs of their current respective business undertaking/activities. In order to comply with
this equity requirement, Paircargo is requesting PBAC to just allow each member of (sic)
corporation of the Joint Venture to just execute an agreement that embodies a commitment
to infuse the required capital in case the project is awarded to the Joint Venture instead of
increasing each corporation's current authorized capital stock just for prequalification
purposes.
In prequalification, the agency is interested in one's financial capability at the time of
prequalification, not future or potential capability.

A commitment to put up equity once awarded the project is not enough to establish that
"present" financial capability. However, total financial capability of all member companies of
the Consortium, to be established by submitting the respective companies' audited financial
statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for the extension of
a Performance Security to the joint venture in the event that the Concessions Agreement
(sic) is awarded to them. However, Paircargo is being required to submit a copy of the draft
concession as one of the documentary requirements. Therefore, Paircargo is requesting that
they'd (sic) be furnished copy of the approved negotiated agreement between the PBAC
and the AEDC at the soonest possible time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any material
changes would be made known to prospective challengers through bid bulletins. However, a
final version will be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with
the required Bid Security.
On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing
Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp.
(Security Bank) (collectively, Paircargo Consortium) submitted their competitive proposal to
the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the
prequalification documents of the Paircargo Consortium. On the following day, September
24, 1996, the PBAC prequalified the Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards
the Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount
that Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine
requirement in the operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the
issues raised by the latter, and that based on the documents submitted by Paircargo and
the established prequalification criteria, the PBAC had found that the challenger, Paircargo,
had prequalified to undertake the project. The Secretary of the DOTC approved the finding
of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo
Consortium which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's
financial capability, in view of the restrictions imposed by Section 21-B of the General
Banking Act and Sections 1380 and 1381 of the Manual Regulations for Banks and Other
Financial Intermediaries. On October 7, 1996, AEDC again manifested its objections and
requested that it be furnished with excerpts of the PBAC meeting and the accompanying
technical evaluation report where each of the issues they raised were addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the
Paircargo Consortium containing their respective financial proposals. Both proponents
offered to build the NAIA Passenger Terminal III for at least $350 million at no cost to the
government and to pay the government: 5% share in gross revenues for the first five years
of operation, 7.5% share in gross revenues for the next ten years of operation, and 10%
share in gross revenues for the last ten years of operation, in accordance with the Bid
Documents. However, in addition to the foregoing, AEDC offered to pay the government a
total of P135 million as guaranteed payment for 27 years while Paircargo Consortium
offered to pay the government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted
by the Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996
within which to match the said bid, otherwise, the project would be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding
AEDC's failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International
Airport Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated
its objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass
approval of the NEDA-ICC.

On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration
of Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC,
the Chairman of the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his
capacity as Chairman of the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on
a no-objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad
referendum gathered only four (4) of the required six (6) signatures, the NEDA merely noted
the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and
PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the BuildOperate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger
Terminal III" (1997 Concession Agreement). The Government granted PIATCO the franchise
to operate and maintain the said terminal during the concession period and to collect the
fees, rentals and other charges in accordance with the rates or schedules stipulated in the
1997 Concession Agreement. The Agreement provided that the concession period shall be
for twenty-five (25) years commencing from the in-service date, and may be renewed at the
option of the Government for a period not exceeding twenty-five (25) years. At the end of
the concession period, PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement
that were amended by the ARCA were: Sec. 1.11 pertaining to the definition of "certificate of
completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing
with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the
assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c)
dealing with the proceeds of Concessionaire's insurance; Sec. 5.10 with respect to the
temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and
other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards the periodic
adjustment of public utility fees and charges; the entire Article VIII concerning the provisions
on the termination of the contract; and Sec. 10.02 providing for the venue of the arbitration
proceedings in case a dispute or controversy arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the Second Supplement on September 4,
2000; and the Third Supplement on June 22, 2001 (collectively, Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or
"Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide
sufficient funds for the upkeep, maintenance, repair and/or replacement of all airport
facilities and equipment which are owned or operated by MIAA; and further providing
additional special obligations on the part of GRP aside from those already enumerated in
Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as regards the
construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the
proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP
and PIATCO regarding the improvement of Sales Road; and the changes in the timetable. It
also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Sec.
6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA
referring to the Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing, removal,
demolition or disposal of subterranean structures uncovered or discovered at the site of the
construction of the terminal by the Concessionaire. It defined the scope of works; it provided
for the procedure for the demolition of the said structures and the consideration for the
same which the GRP shall pay PIATCO; it provided for time extensions, incremental and
consequential costs and losses consequent to the existence of such structures; and it
provided for some additional obligations on the part of PIATCO as regards the said
structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards
the construction of the surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA
Terminals I and II, had existing concession contracts with various service providers to offer
international airline airport services, such as in-flight catering, passenger handling, ramp
and ground support, aircraft maintenance and provisions, cargo handling and warehousing,
and other services, to several international airlines at the NAIA. Some of these service
providers are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia
Group. Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are the
dominant players in the industry with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers, claiming
that they stand to lose their employment upon the implementation of the questioned

agreements, filed before this Court a petition for prohibition to enjoin the enforcement of
said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning workers,
filed a motion for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen SalacnibBaterina, Clavel Martinez and
ConstantinoJaraula filed a similar petition with this Court. 3
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the
legality of the various agreements. 4
On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P.
Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr.,
Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in the case as
Respondents-Intervenors. They filed their Comment-In-Intervention defending the validity of
the assailed agreements and praying for the dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on
November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacaang
Palace, stated that she will not "honor (PIATCO) contracts which the Executive Branch's legal
offices have concluded (as) null and void." 5
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27,
2002. The Office of the Solicitor General and the Office of the Government Corporate
Counsel filed their respective Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral argument,
the Court then resolved in open court to require the parties to file simultaneously their
respective Memoranda in amplification of the issues heard in the oral arguments within 30
days and to explore the possibility of arbitration or mediation as provided in the challenged
contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the
Government Corporate Counsel prayed that the present petitions be given due course and
that judgment be rendered declaring the 1997 Concession Agreement, the ARCA and the
Supplements thereto void for being contrary to the Constitution, the BOT Law and its
Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO
commenced arbitration proceedings before the International Chamber of Commerce,
International Court of Arbitration (ICC) by filing a Request for Arbitration with the Secretariat
of the ICC against the Government of the Republic of the Philippines acting through the
DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated issues
made difficult by their intersecting legal and economic implications. The Court is aware of
the far reaching fall out effects of the ruling which it makes today. For more than a century
and whenever the exigencies of the times demand it, this Court has never shirked from its
solemn duty to dispense justice and resolve "actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction." 6 To be sure, this Court will
not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they
allege will bar the resolution of the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers 7 having
separate concession contracts with MIAA and continuing service agreements with various
international airlines to provide in-flight catering, passenger handling, ramp and ground
support, aircraft maintenance and provisions, cargo handling and warehousing and other
services. Also included as petitioners are labor unions MIASCOR Workers Union-National
Labor Union and Philippine Airlines Employees Association. These petitioners filed the
instant action for prohibition as taxpayers and as parties whose rights and interests stand to
be violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under
Philippine laws engaged in the business of providing in-flight catering, passenger handling,
ramp and ground support, aircraft maintenance and provisions, cargo handling and
warehousing and other services to several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege that as tax-paying international airline
and airport-related service operators, each one of them stands to be irreparably injured by
the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have
separate and subsisting concession agreements with MIAA and with various international
airlines which they allege are being interfered with and violated by respondent PIATCO.
In
G.R.
No.
155661,
petitioners
constitute
employees
of
MIAA
and
SamahangManggagawasaPaliparanngPilipinas - a legitimate labor union and accredited as

the sole and exclusive bargaining agent of all the employees in MIAA. Petitioners anchor
their petition for prohibition on the nullity of the contracts entered into by the Government
and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the
petition as taxpayers and persons who have a legitimate interest to protect in the
implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations
which directly contravene numerous provisions of the Constitution, specific provisions of the
BOT Law and its Implementing Rules and Regulations, and public policy. Petitioners contend
that the DOTC and the MIAA, by entering into said contracts, have committed grave abuse
of discretion amounting to lack or excess of jurisdiction which can be remedied only by a
writ of prohibition, there being no plain, speedy or adequate remedy in the ordinary course
of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and the
ARCA which grant PIATCO the exclusive right to operate a commercial international
passenger terminal within the Island of Luzon, except those international airports already
existing at the time of the execution of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA IPT III, the Government shall cause the
closure of Ninoy Aquino International Airport Passenger Terminals I and II as international
passenger terminals. With respect to existing concession agreements between MIAA and
international airport service providers regarding certain services or operations, the 1997
Concession Agreement and the ARCA uniformly provide that such services or operations will
not be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry
over except through a separate agreement duly entered into with PIATCO. 8
With respect to the petitioning service providers and their employees, upon the
commencement of operations of the NAIA IPT III, they allege that they will be effectively
barred from providing international airline airport services at the NAIA Terminals I and II as
all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning
service providers will thus be compelled to contract with PIATCO alone for such services,
with no assurance that subsisting contracts with MIAA and other international airlines will be
respected. Petitioning service providers stress that despite the very competitive market, the
substantial capital investments required and the high rate of fees, they entered into their
respective contracts with the MIAA with the understanding that the said contracts will be in
force for the stipulated period, and thereafter, renewed so as to allow each of the
petitioning service providers to recoup their investments and obtain a reasonable return
thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA
on the other hand allege that with the closure of the NAIA Terminals I and II as international
passenger terminals under the PIATCO Contracts, they stand to lose employment.
The question on legal standing is whether such parties have "alleged such a personal stake
in the outcome of the controversy as to assure that concrete adverseness which sharpens
the presentation of issues upon which the court so largely depends for illumination of
difficult constitutional questions."9 Accordingly, it has been held that the interest of a person
assailing the constitutionality of a statute must be direct and personal. He must be able to
show, not only that the law or any government act is invalid, but also that he sustained or is
in imminent danger of sustaining some direct injury as a result of its enforcement, and not
merely that he suffers thereby in some indefinite way. It must appear that the person
complaining has been or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by reason of the
statute or act complained of.10
We hold that petitioners have the requisite standing. In the above-mentioned cases,
petitioners have a direct and substantial interest to protect by reason of the implementation
of the PIATCO Contracts. They stand to lose their source of livelihood, a property right which
is zealously protected by the Constitution. Moreover, subsisting concession agreements
between MIAA and petitioners-intervenors and service contracts between international
airlines and petitioners-intervenors stand to be nullified or terminated by the operation of
the NAIA IPT III under the PIATCO Contracts. The financial prejudice brought about by the
PIATCO Contracts on petitioners and petitioners-intervenors in these cases are legitimate
interests sufficient to confer on them the requisite standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of
Representatives, citizens and taxpayers. They allege that as members of the House of
Representatives, they are especially interested in the PIATCO Contracts, because the
contracts compel the Government and/or the House of Representatives to appropriate funds
necessary to comply with the provisions therein. 11 They cite provisions of the PIATCO
Contracts which require disbursement of unappropriated amounts in compliance with the
contractual obligations of the Government. They allege that the Government obligations in
the PIATCO Contracts which compel government expenditure without appropriation is a

curtailment of their prerogatives as legislators, contrary to the mandate of the Constitution

that "[n]o money shall be paid out of the treasury except in pursuance of an appropriation
made by law."12
Standing is a peculiar concept in constitutional law because in some cases, suits are not
brought by parties who have been personally injured by the operation of a law or any other
government act but by concerned citizens, taxpayers or voters who actually sue in the
public interest. Although we are not unmindful of the cases of Imus Electric Co. v.
Municipality of Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation
must be made only on amounts immediately demandable, public interest demands that we
take a more liberal view in determining whether the petitioners suing as legislators,
taxpayers and citizens have locus standi to file the instant petition. In Kilosbayan, Inc. v.
Guingona,15 this Court held "[i]n line with the liberal policy of this Court on locus
standi, ordinary taxpayers, members of Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before this
Court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders
of various government agencies or instrumentalities." 16 Further, "insofar as taxpayers' suits
are concerned . . . (this Court) is not devoid of discretion as to whether or not it should be
entertained."17 As such ". . . even if, strictly speaking, they [the petitioners] are not covered
by the definition, it is still within the wide discretion of the Court to waive the requirement
and so remove the impediment to its addressing and resolving the serious constitutional
questions raised."18 In view of the serious legal questions involved and their impact on
public interest, we resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review the
instant cases as factual issues are involved which this Court is ill-equipped to resolve.
Moreover, PIATCO alleges that submission of this controversy to this Court at the first
instance is a violation of the rule on hierarchy of courts. They contend that trial courts have
concurrent jurisdiction with this Court with respect to a special civil action for prohibition
and hence, following the rule on hierarchy of courts, resort must first be had before the trial
courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the view
that the crux of the instant controversy involves significant legal questions. The facts
necessary to resolve these legal questions are well established and, hence, need not be
determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction
over the cases at bar. The said rule may be relaxed when the redress desired cannot be
obtained in the appropriate courts or where exceptional and compelling circumstances
justify availment of a remedy within and calling for the exercise of this Court's primary
jurisdiction.19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the
relaxation of the rule. Both petitioners and respondents agree that these cases are
of transcendental importance as they involve the construction and operation of the
country's premier international airport. Moreover, the crucial issues submitted for resolution
are of first impression and they entail the proper legal interpretation of key provisions of the
Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering
the nature of the controversy before the Court, procedural bars may be lowered to give way
for the speedy disposition of the instant cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware that
arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at the
instance of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO will
not oust this Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals, 20 even after finding that the arbitration
clause in the Distributorship Agreement in question is valid and the dispute between the
parties is arbitrable, this Court affirmed the trial court's decision denying petitioner's Motion
to Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling,
this Court held that as contracts produce legal effect between the parties, their assigns and
heirs, only the parties to the Distributorship Agreement are bound by its terms, including
the arbitration clause stipulated therein. This Court ruled that arbitration proceedings could
be called for but only with respect to the parties to the contract in question. Considering
that there are parties to the case who are neither parties to the Distributorship Agreement
nor heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v.
Laperal Realty Corporation,21 held that to tolerate the splitting of proceedings by allowing
arbitration as to some of the parties on the one hand and trial for the others on the other
hand would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary

delay.22 Thus, we ruled that the interest of justice would best be served if the trial court
hears and adjudicates the case in a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate
interests in the resolution of the controversy are not parties to the PIATCO Contracts.
Accordingly, they cannot be bound by the arbitration clause provided for in the ARCA and
hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present controversy, including those raised by
petitioners, cannot be made before an arbitral tribunal. The object of arbitration is precisely
to allow an expeditious determination of a dispute. This objective would not be met if this
Court were to allow the parties to settle the cases by arbitration as there are certain issues
involving non-parties to the PIATCO Contracts which the arbitral tribunal will not be
equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a
duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo
Consortium failed to meet the financial capability required under the BOT Law and the Bid
Documents. They allege that in computing the ability of the Paircargo Consortium to meet
the minimum equity requirements for the project, the entire net worth of Security Bank, a
member of the consortium, should not be considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14,
1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo
Consortium is found to have a combined net worth of P3,900,000,000.00, sufficient to meet
the equity requirements of the project. The said Memorandum was in response to a letter
from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial
capability of the Paircargo Consortium on the ground that it does not have the financial
resources to put up the required minimum equity of P2,700,000,000.00. This contention is
based on the restriction under R.A. No. 337, as amended or the General Banking Act that a
commercial bank cannot invest in any single enterprise in an amount more than 15% of its
net worth. In the said Memorandum, Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial
capability will be evaluated based on total financial capability of all the member companies
of the [Paircargo] Consortium. In this connection, the Challenger was found to have a
combined net worth of P3,926,421,242.00 that could support a project costing
approximately P13 Billion.
It is not a requirement that the net worth must be "unrestricted." To impose that as a
requirement now will be nothing less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial
capability. As stated in Bid Bulletin No. 3, financial capability may also be established by
testimonial letters issued by reputable banks. The Challenger has complied with this
requirement.
To recap, net worth reflected in the Financial Statement should not be taken as the amount
of the money to be used to answer the required thirty percent (30%) equity of the
challenger but rather to be used in establishing if there is enough basis to believe that the
challenger can comply with the required 30% equity. In fact, proof of sufficient equity is
required as one of the conditions for award of contract (Section 12.1 IRR of the BOT Law)
but not for pre-qualification (Section 5.4 of the same document). 23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall
be awarded to the bidder "who, having satisfied the minimum financial, technical,
organizational and legal standards" required by the law, has submitted the lowest bid and
most favorable terms of the project.24 Further, the 1994 Implementing Rules and Regulations
of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx
xxx
xxx
c. Financial Capability: The project proponent must have adequate capability to sustain the
financing requirements for the detailed engineering design, construction and/or operation
and maintenance phases of the project, as the case may be. For purposes of prequalification, this capability shall be measured in terms of (i) proof of the ability of the
project proponent and/or the consortium to provide a minimum amount of equity to the
project, and (ii) a letter testimonial from reputable banks attesting that the project
proponent and/or members of the consortium are banking with them, that they are in good
financial standing, and that they have adequate resources. The government agency/LGU
concerned shall determine on a project-to-project basis and before pre-qualification, the
minimum amount of equity needed. (emphasis supplied)

Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996
amending the financial capability requirements for pre-qualification of the project proponent
as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance of the proponent to the
minimum technical and financial requirements provided in the Bid Documents and in the IRR
of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.
The minimum amount of equity to which the proponent's financial capability will be based
shall be thirty percent (30%) of the project cost instead of the twenty percent (20%)
specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debtto-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt
portion of the project financing should not exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any
challenger to the unsolicited proposal of AEDC has to show that it possesses the
requisite financial capability to undertake the project in the minimum amount of 30% of the
project cost through (i) proof of the ability to provide a minimum amount of equity to the
project, and (ii) a letter testimonial from reputable banks attesting that the project
proponent or members of the consortium are banking with them, that they are in good
financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
P9,183,650,000.00,25 the Paircargo Consortium had to show to the satisfaction of the PBAC
that it had the ability to provide the minimum equity for the project in the amount of at
least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net
worth of P2,783,592.00 and P3,123,515.00 respectively. 26 PAGS' Audited Financial
Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest as its
equity for the project.27 Security Bank's Audited Financial Statements as of 1995 show that it
has a net worth equivalent to its capital funds in the amount of P3,523,504,377.00. 28
We agree with public respondents that with respect to Security Bank, the entire amount of
its net worth could not be invested in a single undertaking or enterprise, whether allied or
non-allied in accordance with the provisions of R.A. No. 337, as amended or the General
Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the
Monetary Board, whenever it shall deem appropriate and necessary to further national
development objectives or support national priority projects, may authorize a commercial
bank, a bank authorized to provide commercial banking services, as well as a governmentowned and controlled bank, to operate under an expanded commercial banking authority
and by virtue thereof exercise, in addition to powers authorized for commercial banks, the
powers of an Investment House as provided in Presidential Decree No. 129, invest in the
equity of a non-allied undertaking, or own a majority or all of the equity in a financial
intermediary other than a commercial bank or a bank authorized to provide commercial
banking services: Provided, That (a) the total investment in equities shall not exceed fifty
percent (50%) of the net worth of the bank; (b) the equity investment in any one enterprise
whether allied or non-allied shall not exceed fifteen percent (15%) of the net worth of the
bank; (c) the equity investment of the bank, or of its wholly or majority-owned subsidiary, in
a single non-allied undertaking shall not exceed thirty-five percent (35%) of the total equity
in the enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that
enterprise; and (d) the equity investment in other banks shall be deducted from the
investing bank's net worth for purposes of computing the prescribed ratio of net worth to
risk assets.
xxx
xxx
xxx
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions. The following limitations and
restrictions shall also apply regarding equity investments of banks.
a. In any single enterprise. The equity investments of banks in any single enterprise shall
not exceed at any time fifteen percent (15%) of the net worth of the investing bank as
defined in Sec. X106 and Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the Paircargo
Consortium is only P528,525,656.55, representing 15% of its entire net worth. The total net
worth therefore of the Paircargo Consortium, after considering the maximum amounts that
may be validly invested by each of its members is P558,384,871.55 or only 6.08% of the
project cost,29 an amount substantially less than the prescribed minimum equity investment
required for the project in the amount of P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest
opportunity, the ability of the bidder to undertake the project. Thus, with respect to the
bidder's financial capacity at the pre-qualification stage, the law requires the government
agency to examine and determine the ability of the bidder to fund the entire cost of the

project by considering the maximum amounts that each bidder may invest in the project at
the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity
in the minimum amount of 30% of the project cost, in accordance with the 70:30 debt-toequity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the
PBAC should determine the maximum amounts that each member of the consortium may
commit for the construction, operation and maintenance of the NAIA IPT III project at the
time of pre-qualification. With respect to Security Bank, the maximum amount which may
be invested by it would only be 15% of its net worth in view of the restrictions imposed by
the General Banking Act. Disregarding the investment ceilings provided by applicable law
would not result in a proper evaluation of whether or not a bidder is pre-qualified to
undertake the project as for all intents and purposes, such ceiling or legal restriction
determines the true maximum amount which a bidder may invest in the project.
Further, the determination of whether or not a bidder is pre-qualified to undertake the
project requires an evaluation of the financial capacity of the said bidder at the time the bid
is submitted based on the required documents presented by the bidder. The PBAC should
not be allowed to speculate on the future financial ability of the bidder to undertake the
project on the basis of documents submitted. This would open doors to abuse and defeat
the very purpose of a public bidding. This is especially true in the case at bar which involves
the investment of billions of pesos by the project proponent. The relevant government
authority is duty-bound to ensure that the awardee of the contract possesses the minimum
required financial capability to complete the project. To allow the PBAC to estimate the
bidder's future financial capability would not secure the viability and integrity of the project.
A restrictive and conservative application of the rules and procedures of public bidding is
necessary not only to protect the impartiality and regularity of the proceedings but also to
ensure the financial and technical reliability of the project. It has been held that:
The basic rule in public bidding is that bids should be evaluated based on the required
documents submitted before and not after the opening of bids. Otherwise, the foundation of
a fair and competitive public bidding would be defeated. Strict observance of the rules,
regulations, and guidelines of the bidding process is the only safeguard to a fair, honest and
competitive public bidding.30
Thus, if the maximum amount of equity that a bidder may invest in the project at the time
the bids are submitted falls short of the minimum amounts required to be put up by the
bidder, said bidder should be properly disqualified. Considering that at the pre-qualification
stage, the maximum amounts which the Paircargo Consortium may invest in the project fell
short of the minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium
was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo
Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of the instant controversy, as
the legal effects of the disqualification of respondent PIATCO's predecessor would come into
play and necessarily result in the nullity of all the subsequent contracts entered by it in
pursuance of the project, the Court feels that it is necessary to discuss in full the pressing
issues of the present controversy for a complete resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid
as it contains provisions that substantially depart from the draft Concession Agreement
included in the Bid Documents. They maintain that a substantial departure from the draft
Concession Agreement is a violation of public policy and renders the 1997 Concession
Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents
is intended to be a draft, i.e., subject to change, alteration or modification, and that this
intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued further
that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which
states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from time to time. Said
amendments shall only cover items that would not materially affect the preparation of the
proponent's proposal.
By its very nature, public bidding aims to protect the public interest by giving the public the
best possible advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law,
competition requires, not only `bidding upon a common standard, a common basis, upon
the same thing, the same subject matter, the same undertaking,' but also that it be
legitimate, fair and honest; and not designed to injure or defraud the government. 31

An essential element of a publicly bidded contract is that all bidders must be on equal
footing. Not simply in terms of application of the procedural rules and regulations imposed
by the relevant government agency, but more importantly, on the contract bidded upon.
Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning
bidder is allowed to later include or modify certain provisions in the contract awarded such
that the contract is altered in any material respect, then the essence of fair competition in
the public bidding is destroyed. A public bidding would indeed be a farce if after the contract
is awarded, the winning bidder may modify the contract and include provisions which are
favorable to it that were not previously made available to the other bidders. Thus:
It is inherent in public biddings that there shall be a fair competition among the bidders. The
specifications in such biddings provide the common ground or basis for the bidders. The
specifications should, accordingly, operate equally or indiscriminately upon all bidders. 32
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a
contract for public work to the lowest responsible bidder, the proposals and specifications
therefore must be so framed as to permit free and full competition. Nor can they enter into
a contract with the best bidder containing substantial provisions beneficial to him, not
included or contemplated in the terms and specifications upon which the bids were invited. 33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft
concession agreement is subject to amendment, the pertinent portion of which was quoted
above, the PBAC also clarified that "[s]aid amendments shall only cover items that would
not materially affect the preparation of the proponent's proposal."
While we concede that a winning bidder is not precluded from modifying or amending
certain provisions of the contract bidded upon, such changes must not constitute
substantial or material amendments that would alter the basic parameters of the contract
and would constitute a denial to the other bidders of the opportunity to bid on the same
terms. Hence, the determination of whether or not a modification or amendment of a
contract bidded out constitutes a substantial amendment rests on whether the contract,
when taken as a whole, would contain substantially different terms and conditions that
would have the effect of altering the technical and/or financial proposals previously
submitted by other bidders. The alterations and modifications in the contract executed
between the government and the winning bidder must be such as to render such executed
contract to be an entirely different contract from the one that was bidded upon.
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc., 34 this Court quoted with
approval the ruling of the trial court that an amendment to a contract awarded through
public bidding, when such subsequent amendment was made without a new public bidding,
is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due execution of a
contract after public bidding is a limitation upon the right of the contracting parties to alter
or amend it without another public bidding, for otherwise what would a public bidding be
good for if after the execution of a contract after public bidding, the contracting parties may
alter or amend the contract, or even cancel it, at their will? Public biddings are held for the
protection of the public, and to give the public the best possible advantages by means of
open competition between the bidders. He who bids or offers the best terms is awarded the
contract subject of the bid, and it is obvious that such protection and best possible
advantages to the public will disappear if the parties to a contract executed after public
bidding may alter or amend it without another previous public bidding. 35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same
agreement that was offered for public bidding, i.e., the draft Concession Agreement
attached to the Bid Documents? A close comparison of the draft Concession Agreement
attached to the Bid Documents and the 1997 Concession Agreement reveals that the
documents differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession
Agreement and the 1997 Concession Agreement may be classified into three distinct
categories: (1) fees which are subject to periodic adjustment of once every two years in
accordance with a prescribed parametric formula and adjustments are made effective only
upon written approval by MIAA; (2) fees other than those included in the first category
which maybe adjusted by PIATCO whenever it deems necessary without need for consent of
DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO which have not
been previously imposed or collected at the Ninoy Aquino International Airport Passenger
Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring
distinctions between the draft Concession Agreement and the 1997 Concession Agreement

lie in the types of fees included in each category and the extent of the supervision and
regulation which MIAA is allowed to exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment in
accordance with a prescribed parametric formula and effective only upon written approval
by MIAA, the draft Concession Agreement includes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and effective
upon MIAA approval are classified as "Public Utility Revenues" and include: 37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is best
appreciated in relation to fees included in the second category identified above. Under
the 1997 Concession Agreement, fees which PIATCO may adjust whenever it deems
necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is
defined as "all other income not classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal Complex." 38 Thus, under the 1997 Concession
Agreement, ground handling fees, rentals from airline offices and porterage fees are no
longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to
regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that may
be imposed by PIATCO. Such regulation may be made by periodic adjustment and is
effective only upon written approval of MIAA. The full text of said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking
fees, aircraft tacking fees, groundhandling fees, rentals and airline offices, check-in-counter
rentals and porterage fees shall be allowed only once every two years and in accordance
with the Parametric Formula attached hereto as Annex F. Provided that adjustments shall be
made effective only after the written express approval of the MIAA. Provided, further, that
such approval of the MIAA, shall be contingent only on the conformity of the adjustments
with the above said parametric formula. The first adjustment shall be made prior to the InService Date of the Terminal.
The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby
and vehicular parking fees and other new fees and charges as contemplated in paragraph 2
of Section 6.01 if in its judgment the users of the airport shall be deprived of a free option
for the services they cover.39
On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
xxx
xxx
xxx
(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting NonPublic Utility Revenues in order to ensure that End Users are not unreasonably deprived of
services. While the vehicular parking fee, porterage fee and greeter/well wisher fee
constitute Non-Public Utility Revenues of Concessionaire, GRP may intervene and require
Concessionaire to explain and justify the fee it may set from time to time, if in the
reasonable opinion of GRP the said fees have become exorbitant resulting in the
unreasonable deprivation of End Users of such services. 40
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2)
porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO
to explain and justify the fees set by PIATCO. In the draft Concession Agreement, vehicular
parking fee is subject to MIAA regulation and approval under the second paragraph of
Section 6.03 thereof while porterage fee is covered by the first paragraph of the same
provision. There is an obvious relaxation of the extent of control and regulation by MIAA with
respect to the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected by
PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not been
previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal
I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the right to
regulate the same under the same conditions that MIAA may regulate fees under the first
category, i.e., periodic adjustment of once every two years in accordance with a prescribed
parametric formula and effective only upon written approval by MIAA. However, under
the 1997 Concession Agreement, adjustment of fees under the third category is not subject
to MIAA regulation.

With respect to terminal fees that may be charged by PIATCO, 41 as shown earlier, this was
included within the category of "Public Utility Revenues" under the 1997 Concession
Agreement. This classification is significant because under the 1997 Concession
Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon
the occurrence of certain extraordinary events specified in the agreement. 42 However, under
the draft Concession Agreement, terminal fees are not included in the types of fees that
may be subject to "Interim Adjustment."43
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal
fees, are denominated in US Dollars 44 while payments to the Government are in Philippine
Pesos. In the draft Concession Agreement, no such stipulation was included. By stipulating
that "Public Utility Revenues" will be paid to PIATCO in US Dollars while payments by PIATCO
to the Government are in Philippine currency under the 1997 Concession Agreement,
PIATCO is able to enjoy the benefits of depreciations of the Philippine Peso, while being
effectively insulated from the detrimental effects of exchange rate fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with respect to
reduction in the types of fees that are subject to MIAA regulation and the relaxation of such
regulation with respect to other fees are significant amendments that substantially
distinguish the draft Concession Agreement from the 1997 Concession Agreement. The
1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable terms
than what was available to other bidders at the time the contract was bidded out. It is not
very difficult to see that the changes in the 1997 Concession Agreement translate to direct
and concrete financial advantages for PIATCO which were not available at the time the
contract was offered for bidding. It cannot be denied that under the 1997 Concession
Agreement only "Public Utility Revenues" are subject to MIAA regulation. Adjustments of all
other fees imposed and collected by PIATCO are entirely within its control. Moreover, with
respect to terminal fees, under the 1997 Concession Agreement, the same is further subject
to "Interim Adjustments" not previously stipulated in the draft Concession Agreement.
Finally, the change in the currency stipulated for "Public Utility Revenues" under the 1997
Concession Agreement, except terminal fees, gives PIATCO an added benefit which was not
available at the time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to
creditors who have provided, loaned or advanced funds for the NAIA IPT III project does not
result in the assumption by the Government of these liabilities. In fact, nowhere in the said
contract does default of PIATCO's loans figure in the agreement. Such default does not
directly result in any concomitant right or obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
xxx
xxx
xxx
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and
the default has resulted in the acceleration of the payment due date of the Attendant
Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall
immediately inform GRP in writing of such default. GRP shall, within one hundred eighty
(180) Days from receipt of the joint written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire
and operator of the Development Facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development
Facility, likewise under the terms and conditions of this Agreement; Provided that if at the
end of the 180-day period GRP shall not have served the Unpaid Creditors and
Concessionaire written notice of its choice, GRP shall be deemed to have elected to take
over the Development Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to take
over the operation of the Development Facility. If the concession company should elect to
designate an operator for the Development Facility, the concession company shall in good
faith identify and designate a qualified operator acceptable to GRP within one hundred
eighty (180) days from receipt of GRP's written notice. If the concession company, acting in
good faith and with due diligence, is unable to designate a qualified operator within the
aforesaid period, then GRP shall at the end of the 180-day period take over the
Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the
books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or

advanced funds actually used for the Project, including all interests, penalties, associated
fees, charges, surcharges, indemnities, reimbursements and other related expenses, and
further including amounts owed by Concessionaire to its suppliers, contractors and subcontractors.
Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant
Liabilities," default by PIATCO of its loans used to finance the NAIA IPT III project triggers the
occurrence of certain events that leads to the assumption by the Government of the liability
for the loans. Only in one instance may the Government escape the assumption of PIATCO's
liabilities, i.e., when the Government so elects and allows a qualified operator to take over
as Concessionaire. However, this circumstance is dependent on the existence and
availability of a qualified operator who is willing to take over the rights and obligations of
PIATCO under the contract, a circumstance that is not entirely within the control of the
Government.
Without going into the validity of this provision at this juncture, suffice it to state that
Section 4.04 of the 1997 Concession Agreement may be considered a form of security for
the loans PIATCO has obtained to finance the project, an option that was not made available
in the draft Concession Agreement. Section 4.04 is an important amendment to the 1997
Concession Agreement because it grants PIATCO a financial advantage or benefit which was
not previously made available during the bidding process. This financial advantage is a
significant modification that translates to better terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the
draft Concession Agreement is subject to amendment because the Bid Documents permit
financing or borrowing. They claim that it was the lenders who proposed the amendments to
the draft Concession Agreement which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow
the project proponent or the winning bidder to obtain financing for the project, especially in
this case which involves the construction, operation and maintenance of the NAIA IPT III.
Expectedly, compliance by the project proponent of its undertakings therein would involve a
substantial amount of investment. It is therefore inevitable for the awardee of the contract
to seek alternate sources of funds to support the project. Be that as it may, this Court
maintains that amendments to the contract bidded upon should always conform to the
general policy on public bidding if such procedure is to be faithful to its real nature and
purpose. By its very nature and characteristic, competitive public bidding aims to protect
the public interest by giving the public the best possible advantages through open
competition.45 It has been held that the three principles in public bidding are (1) the offer to
the public; (2) opportunity for competition; and (3) a basis for the exact comparison of bids.
A regulation of the matter which excludes any of these factors destroys the distinctive
character of the system and thwarts the purpose of its adoption. 46 These are the basic
parameters which every awardee of a contract bidded out must conform to, requirements of
financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this
case, the contract signed by the government and the contract-awardee is an entirely
different contract from the contract bidded, courts should not hesitate to strike down said
contract in its entirety for violation of public policy on public bidding. A strict adherence on
the principles, rules and regulations on public bidding must be sustained if only to preserve
the integrity and the faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service
and for furnishing supplies and other materials. It aims to secure for the government the
lowest possible price under the most favorable terms and conditions, to curtail favoritism in
the award of government contracts and avoid suspicion of anomalies and it places all
bidders in equal footing.47 Any government action which permits any substantial variance
between the conditions under which the bids are invited and the contract executed after the
award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction
which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments were
made on the 1997 Concession Agreement renders the same null and void for being contrary
to public policy. These amendments convert the 1997 Concession Agreement to an entirely
different agreement from the contract bidded out or the draft Concession Agreement. It is
not difficult to see that the amendments on (1) the types of fees or charges that are subject
to MIAA regulation or control and the extent thereof and (2) the assumption by the
Government, under certain conditions, of the liabilities of PIATCO directly translates concrete
financial advantages to PIATCO that were previously not available during the bidding
process. These amendments cannot be taken as merely supplements to or implementing
provisions of those already existing in the draft Concession Agreement. The amendments
discussed above present new terms and conditions which provide financial benefit to PIATCO
which may have altered the technical and financial parameters of other bidders had they
known that such terms were available.
III

Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession
Agreement provides:
Section 4.04 Assignment
xxx
xxx
xxx
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and
the default resulted in the acceleration of the payment due date of the Attendant Liability
prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall
immediately inform GRP in writing of such default. GRP shall within one hundred eighty
(180) days from receipt of the joint written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as concessionaire
and operator of the Development facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development
Facility, likewise under the terms and conditions of this Agreement; Provided, that if at the
end of the 180-day period GRP shall not have served the Unpaid Creditors and
Concessionaire written notice of its choice, GRP shall be deemed to have elected to take
over the Development Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire,
the latter shall form and organize a concession company qualified to takeover the operation
of the Development Facility. If the concession company should elect to designate an
operator for the Development Facility, the concession company shall in good faith identify
and designate a qualified operator acceptable to GRP within one hundred eighty (180) days
from receipt of GRP's written notice. If the concession company, acting in good faith and
with due diligence, is unable to designate a qualified operator within the aforesaid
period, then GRP shall at the end of the 180-day period take over the Development Facility
and assume Attendant Liabilities.
.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the
books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or
advanced funds actually used for the Project, including all interests, penalties, associated
fees, charges, surcharges, indemnities, reimbursements and other related expenses, and
further including amounts owed by Concessionaire to its suppliers, contractors and subcontractors.48
It is clear from the above-quoted provisions that Government, in the event that PIATCO
defaults in its loan obligations, is obligated to pay "all amounts recorded and from time to
time outstanding from the books" of PIATCO which the latter owes to its creditors. 49 These
amounts include "all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses." 50 This obligation of the Government to pay
PIATCO's creditors upon PIATCO's default would arise if the Government opts to take over
NAIA IPT III. It should be noted, however, that even if the Government chooses the second
option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the Government is
still at a risk of being liable to PIATCO's creditors should the latter be unable to designate a
qualified operator within the prescribed period. 51 In effect, whatever option the Government
chooses to take in the event of PIATCO's failure to fulfill its loan obligations, the Government
is still at a risk of assuming PIATCO's outstanding loans. This is due to the fact that the
Government would only be free from assuming PIATCO's debts if the unpaid creditors would
be able to designate a qualified operator within the period provided for in the contract.
Thus, the Government's assumption of liability is virtually out of its control. The Government
under the circumstances provided for in the 1997 Concession Agreement is at the mercy of
the existence, availability and willingness of a qualified operator. The above contractual
provisions constitute a direct government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of government funds
to construct the infrastructure and development projects necessary for economic growth
and development. This is why private sector resources are being tapped in order to finance
these projects. The BOT law allows the private sector to participate, and is in fact
encouraged to do so by way of incentives, such as minimizing the unstable flow of
returns,52 provided that the government would not have to unnecessarily expend scarcely
available funds for the project itself. As such, direct guarantee, subsidy and equity by the
government in these projects are strictly prohibited. 53 This is but logical for if the
government would in the end still be at a risk of paying the debts incurred by the private
entity in the BOT projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee An agreement whereby the government or any of its
agencies or local government units assume responsibility for the repayment of debt directly
incurred by the project proponent in implementing the project in case of a loan default.

Clearly by providing that the Government "assumes" the attendant liabilities, which consists
of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct government
guarantee for the debts incurred by PIATCO in the implementation of the NAIA IPT III project.
It is of no moment that the relevant sections are subsumed under the title of "assignment".
The provisions providing for direct government guarantee which is prohibited by law is clear
from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal
defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:
Section 4.04 Security
xxx
xxx
xxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter
into direct agreement with the Senior Lenders, or with an agent of such Senior Lenders
(which agreement shall be subject to the approval of the BangkoSentralngPilipinas), in such
form as may be reasonably acceptable to both GRP and Senior Lenders, with regard, inter
alia, to the following parameters:
xxx
xxx
xxx
(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the
Senior Lenders, and as a result thereof the Senior Lenders have become entitled to
accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of the
same, and without prejudice to any other rights of the Senior Lenders or any Senior Lenders'
agent may have (including without limitation under security interests granted in favor of the
Senior Lenders), to either in good faith identify and designate a nominee which is qualified
under sub-clause (viii)(y) below to operate the Development Facility [NAIA Terminal 3] or
transfer the Concessionaire's [PIATCO] rights and obligations under this Agreement to a
transferee which is qualified under sub-clause (viii) below;
xxx
xxx
xxx
(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to
designate a nominee or effect a transfer in terms and conditions satisfactory to the Senior
Lenders within one hundred eighty (180) days after giving GRP notice as referred to
respectively in (iv) or (v) above, then GRP and the Senior Lenders shall endeavor in good
faith to enter into any other arrangement relating to the Development Facility [NAIA
Terminal 3] (other than a turnover of the Development Facility [NAIA Terminal 3] to GRP)
within the following one hundred eighty (180) days. If no agreement relating to the
Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within
the said 180-day period, then at the end thereof the Development Facility [NAIA Terminal 3]
shall be transferred by the Concessionaire [PIATCO] to GRP or its designee and GRP shall
make a termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as
hereinafter defined) of the Development Facility [NAIA Terminal 3] or the sum of the
Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall
be deemed terminated upon the transfer of the Development Facility [NAIA Terminal 3] to
GRP pursuant hereto;
xxx
xxx
xxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from
time to time owed or which may become owing by Concessionaire [PIATCO] to Senior
Lenders or any other persons or entities who have provided, loaned, or advanced funds
or provided financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal
3], including, without limitation, all principal, interest, associated fees, charges,
reimbursements, and other related expenses (including the fees, charges and expenses of
any agents or trustees of such persons or entities), whether payable at maturity, by
acceleration or otherwise, and further including amounts owed by Concessionaire [PIATCO]
to its professional consultants and advisers, suppliers, contractors and sub-contractors. 54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to
fulfill its loan obligations to its Senior Lenders, the Government is obligated to directly
negotiate and enter into an agreement relating to NAIA IPT III with the Senior Lenders,
should the latter fail to appoint a qualified nominee or transferee who will take the place of
PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement
after the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA
IPT III to the Government, termination payment equal to the appraised value of the
project or the value of the attendant liabilities whichever is greater. Attendant liabilities as
defined in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not
only to the Senior Lenders with whom PIATCO has defaulted in its loan obligations but to all
other persons who may have loaned, advanced funds or provided any other type of financial
facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt that the Government would
have to pay as a result of PIATCO's default in its loan obligations -- in case no qualified
nominee or transferee is appointed by the Senior Lenders and no other agreement relating
to NAIA IPT III has been reached between the Government and the Senior Lenders --

includes, but is not limited to, "all principal, interest, associated fees, charges,
reimbursements, and other related expenses . . . whether payable at maturity, by
acceleration or otherwise."55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the
government to pay PIATCO's loans not only to its Senior Lenders but all other entities who
provided PIATCO funds or services upon PIATCO's default in its loan obligation with its Senior
Lenders. The fact that the Government's obligation to pay PIATCO's lenders for the latter's
obligation would only arise after the Senior Lenders fail to appoint a qualified nominee or
transferee does not detract from the fact that, should the conditions as stated in the
contract occur, the ARCA still obligates the Government to pay any and all amounts owed by
PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would make
the Government liable for PIATCO's debts is triggered by PIATCO's own default of its loan
obligations to its Senior Lenders to which loan contracts the Government was never a party
to. The Government was not even given an option as to what course of action it should take
in case PIATCO defaulted in the payment of its senior loans. The Government, upon PIATCO's
default, would be merely notified by the Senior Lenders of the same and it is the Senior
Lenders who are authorized to appoint a qualified nominee or transferee. Should the Senior
Lenders fail to make such an appointment, the Government is then automatically obligated
to "directly deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The only way
the Government would not be liable for PIATCO's debt is for a qualified nominee or
transferee to be appointed in place of PIATCO to continue the construction, operation and
maintenance of NAIA IPT III. This "pre-condition", however, will not take the contract out of
the ambit of a direct guarantee by the government as the existence, availability and
willingness of a qualified nominee or transferee is totally out of the government's control. As
such the Government is virtually at the mercy of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified
nominee or transferee or agree to some other arrangement with the Government) and the
existence of a qualified nominee or transferee who is able and willing to take the place of
PIATCO in NAIA IPT III.
The proscription against government guarantee in any form is one of the policy
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the
Government to pay for all loans, advances and obligations arising out of financial facilities
extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO default
in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified nominee
or transferee. This in effect would make the Government liable for PIATCO's loans should the
conditions as set forth in the ARCA arise. This is a form of direct government guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for
a BOT project may be accepted, the following conditions must first be met: (1) the project
involves a new concept in technology and/or is not part of the list of priority projects, (2) no
direct government guarantee, subsidy or equity is required, and (3) the government agency
or local government unit has invited by publication other interested parties to a public
bidding and conducted the same. 56 The failure to meet any of the above conditions will
result in the denial of the proposal. It is further provided that the presence of direct
government guarantee, subsidy or equity will "necessarily disqualify a proposal from being
treated and accepted as an unsolicited proposal." 57 The BOT Law clearly and strictly
prohibits direct government guarantee, subsidy and equity in unsolicited proposals that the
mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It
stands to reason therefore that if a proposal can be denied by reason of the existence of
direct government guarantee, then its inclusion in the contract executed after the said
proposal has been accepted is likewise sufficient to invalidate the contract itself. A
prohibited provision, the inclusion of which would result in the denial of a proposal cannot,
and should not, be allowed to later on be inserted in the contract resulting from the said
proposal. The basic rules of justice and fair play alone militate against such an occurrence
and must not, therefore, be countenanced particularly in this instance where the
government is exposed to the risk of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be
done directly cannot be done indirectly. 58 To declare the PIATCO contracts valid despite the
clear statutory prohibition against a direct government guarantee would not only make a
mockery of what the BOT Law seeks to prevent -- which is to expose the government to the
risk of incurring a monetary obligation resulting from a contract of loan between the project
proponent and its lenders and to which the Government is not a party to -- but would also
render the BOT Law useless for what it seeks to achieve - to make use of the resources of
the private sector in the "financing, operation and maintenance of infrastructure and
development projects"59 which are necessary for national growth and development but
which the government, unfortunately, could ill-afford to finance at this point in time.
IV
Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the State
may, during the emergency and under reasonable terms prescribed by it, temporarily take
over or direct the operation of any privately owned public utility or business affected with
public interest.
The above provision pertains to the right of the State in times of national emergency, and in
the exercise of its police power, to temporarily take over the operation of any business
affected with public interest. In the 1986 Constitutional Commission, the term "national
emergency" was defined to include threat from external aggression, calamities or national
disasters, but not strikes "unless it is of such proportion that would paralyze government
service."60 The duration of the emergency itself is the determining factor as to how long the
temporary takeover by the government would last. 61 The temporary takeover by the
government extends only to the operation of the business and not to the ownership thereof.
As such the government is not required to compensate the private entity-owner of the said
business as there is no transfer of ownership, whether permanent or temporary. The private
entity-owner affected by the temporary takeover cannot, likewise, claim just compensation
for the use of the said business and its properties as the temporary takeover by the
government is in exercise of its police power and not of its power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
.
(c) In the event the development Facility or any part thereof and/or the operations of
Concessionaire or any part thereof, become the subject matter of or be included in any
notice, notification, or declaration concerning or relating to acquisition, seizure or
appropriation by GRP in times of war or national emergency, GRP shall, by written notice to
Concessionaire, immediately take over the operations of the Terminal and/or the Terminal
Complex. During such take over by GRP, the Concession Period shall be suspended;
provided, that upon termination of war, hostilities or national emergency, the operations
shall be returned to Concessionaire, at which time, the Concession period shall commence
to run again.Concessionaire shall be entitled to reasonable compensation for the duration of
the temporary take over by GRP, which compensation shall take into account the reasonable
cost for the use of the Terminal and/or Terminal Complex, (which is in the amount at least
equal to the debt service requirements of Concessionaire, if the temporary take over should
occur at the time when Concessionaire is still servicing debts owed to project lenders), any
loss or damage to the Development Facility, and other consequential damages. If the parties
cannot agree on the reasonable compensation of Concessionaire, or on the liability of GRP
as aforesaid, the matter shall be resolved in accordance with Section 10.01 [Arbitration].
Any amount determined to be payable by GRP to Concessionaire shall be offset from the
amount next payable by Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on
temporary government takeover and obligate the government to pay "reasonable cost for
the use of the Terminal and/or Terminal Complex." 63 Article XII, section 17 of the 1987
Constitution envisions a situation wherein the exigencies of the times necessitate the
government to "temporarily take over or direct the operation of any privately owned public
utility or business affected with public interest." It is the welfare and interest of the public
which is the paramount consideration in determining whether or not to temporarily take
over a particular business. Clearly, the State in effecting the temporary takeover is
exercising its police power. Police power is the "most essential, insistent, and illimitable of
powers."64 Its exercise therefore must not be unreasonably hampered nor its exercise be a
source of obligation by the government in the absence of damage due to arbitrariness of its
exercise.65 Thus, requiring the government to pay reasonable compensation for the
reasonable use of the property pursuant to the operation of the business contravenes the
Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons or
companies, consisting in the exclusive right (or power) to carry on a particular business or
trade, manufacture a particular article, or control the sale of a particular commodity." 66 The
1987 Constitution strictly regulates monopolies, whether private or public, and even
provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987
Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires.
No combinations in restraint of trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to
exist to aid the government in carrying on an enterprise or to aid in the performance of
various services and functions in the interest of the public.67 Nonetheless, a determination
must first be made as to whether public interest requires a monopoly. As monopolies are

subject to abuses that can inflict severe prejudice to the public, they are subject to a higher
level of State regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is
granted the "exclusive right to operate a commercial international passenger terminal
within the Island of Luzon" at the NAIA IPT III. 68This is with the exception of already existing
international airports in Luzon such as those located in the Subic Bay Freeport Special
Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City. 69 As
such, upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of NAIA
would cease to function as international passenger terminals. This, however, does not
prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any other
manner as it may deem appropriate except those activities that would compete with NAIA
IPT III in the latter's operation as an international passenger terminal. 70 The right granted to
PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five (25) years
from the In-Service Date71 and renewable for another twenty-five (25) years at the option of
the government.72 Both the 1997 Concession Agreement and the ARCA further provide that,
in view of the exclusive right granted to PIATCO, the concession contracts of the service
providers currently servicing Terminals 1 and 2 would no longer be renewed and those
concession contracts whose expiration are subsequent to the In-Service Date would cease
to be effective on the said date.73
The operation of an international passenger airport terminal is no doubt an undertaking
imbued with public interest. In entering into a BuildOperate-and-Transfer contract for the
construction, operation and maintenance of NAIA IPT III, the government has determined
that public interest would be served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the private entity undertaking
the said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to
reasonable regulation and supervision by the Government through the MIAA, which is the
government agency authorized to operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached.74
This is in accord with the Constitutional mandate that a monopoly which is not prohibited
must be regulated.75While it is the declared policy of the BOT Law to encourage private
sector participation by "providing a climate of minimum government regulations," 76 the
same does not mean that Government must completely surrender its sovereign power to
protect public interest in the operation of a public utility as a monopoly. The operation of
said public utility cannot be done in an arbitrary manner to the detriment of the public
which it seeks to serve. The right granted to the public utility may be exclusive but the
exercise of the right cannot run riot. Thus, while PIATCO may be authorized to exclusively
operate NAIA IPT III as an international passenger terminal, the Government, through the
MIAA, has the right and the duty to ensure that it is done in accord with public interest.
PIATCO's right to operate NAIA IPT III cannot also violate the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxx
xxx
xxx
(e) GRP confirms that certain concession agreements relative to certain services and
operations currently being undertaken at the Ninoy Aquino International Airport passenger
Terminal I have a validity period extending beyond the In-Service Date. GRP through
DOTC/MIAA, confirms that these services and operations shall not be carried over to the
Terminal and the Concessionaire is under no legal obligation to permit such carryover except through a separate agreement duly entered into with Concessionaire. In the
event Concessionaire becomes involved in any litigation initiated by any such
concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and
harmless on full indemnity basis from and against any loss and/or any liability resulting from
any such litigation, including the cost of litigation and the reasonable fees paid or payable
to Concessionaire's counsel of choice, all such amounts shall be fully deductible by way of
an offset from any amount which the Concessionaire is bound to pay GRP under this
Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-inintervention for G.R. No. 155001 stated that there are two service providers whose contracts
are still existing and whose validity extends beyond the In-Service Date. One contract
remains valid until 2008 and the other until 2010. 77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have
an absolute right for the renewal or the extension of their respective contracts, those
contracts whose duration extends beyond NAIA IPT III's In-Service-Date should not be unduly
prejudiced. These contracts must be respected not just by the parties thereto but also by
third parties. PIATCO cannot, by law and certainly not by contract, render a valid and
binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to
operate, cannot require the Government to break its contractual obligations to the service
providers. In contrast to the arrastre and stevedoring service providers in the case of Anglo-

Fil Trading Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits,
the affected service providers in the cases at bar, have a valid and binding contract with the
Government, through MIAA, whose period of effectivity, as well as the other terms and
conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions
of the 1997 Concession Agreement and the ARCA did not strip government, thru the MIAA,
of its right to supervise the operation of the whole NAIA complex, including NAIA IPT III. As
the primary government agency tasked with the job, 79 it is MIAA's responsibility to ensure
that whoever by contract is given the right to operate NAIA IPT III will do so within the
bounds of the law and with due regard to the rights of third parties and above all, the
interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of the
Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC of the
contract for the construction, operation and maintenance of the NAIA IPT III is null and void.
Further, considering that the 1997 Concession Agreement contains material and substantial
amendments, which amendments had the effect of converting the 1997 Concession
Agreement into an entirely different agreement from the contract bidded upon, the 1997
Concession Agreement is similarly null and void for being contrary to public policy. The
provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession
Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a
direct government guarantee expressly prohibited by, among others, the BOT Law and its
Implementing Rules and Regulations are also null and void. The Supplements, being
accessory contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession
Agreement and the Supplements thereto are set aside for being null and void.
SO ORDERED.

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

LM POWER ENGINEERING CORPORATION, petitioner, vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation
and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve
their disputes amicably, they provide solutions that are less time-consuming, less tedious,
less confrontational, and more productive of goodwill and lasting relationships. [1]
The Case
Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court, seeking
to set aside the January 28, 2000 Decision of the Court of Appeals [3] (CA) in CA-GR CV No.
54232. The dispositive portion of the Decision reads as follows:
WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are ORDERED to present
their dispute to arbitration in accordance with their Sub-contract Agreement. The surety bond posted by
[respondent] is [d]ischarged.[4]
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol
Industrial Construction Groups Inc. entered into a Subcontract Agreement involving
electrical work at the Third Port of Zamboanga.[5]
On April 25, 1985, respondent took over some of the work contracted to petitioner.
[6]
Allegedly, the latter had failed to finish it because of its inability to procure materials. [7]
Upon completing its task under the Contract, petitioner billed respondent in the amount
of P6,711,813.90.[8] Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took
refuge in the termination clause of the Agreement. [9] That clause allowed it to set off the
cost of the work that petitioner had failed to undertake -- due to termination or take-over -against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch
141) a Complaint[10] for the collection of the amount representing the alleged balance due it
under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to
Dismiss,[11] alleging that the Complaint was premature, because there was no prior recourse
to arbitration.

In its Order[12] dated September 15, 1987, the RTC denied the Motion on the ground that the
dispute did not involve the interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause. [13]
After trial on the merits, the RTC[14] ruled that the take-over of some work items by
respondent was not equivalent to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment for the work completed by
petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The
appellate court held as arbitrable the issue of whether 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:
A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding the interpretation
and implementation of the Sub-Contract Agreement dated February 22, 1983 that requires prior recourse to
voluntary arbitration;
B
In the affirmative, whether or not the requirements provided in Article III [1] of CIAC Arbitration Rules regarding
request for arbitration ha[ve] been complied with[.] [17]
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation
of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect
the value of the services it rendered through an ordinary action for the collection of a sum
of money from respondent. On the other hand, the latter contends that there is a need for
prior arbitration as provided in the Agreement. This is because there are some disparities
between the parties positions regarding the extent of the work done, the amount of
advances and billable accomplishments, and the set off of expenses incurred by respondent
in its take-over of petitioners work.
We side with respondent. Essentially, the dispute arose from the partiesncongruent
positions on whether certain provisions of their Agreement could be applied to the
facts. The instant case involves technical discrepancies that are better left to an arbitral
body that has expertise in those areas. In any event, the inclusion of an arbitration clause in
a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of
arbitral bodies, because the awards are still judicially reviewable under certain conditions. [18]
In the case before us, the Subcontract has the following arbitral clause:
6. The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation of this
Agreement which cannot be settled between [respondent] and [petitioner] amicably shall be settled by means of
arbitration x x x.[19]
Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are discrepancies
as to the amount of advances and billable accomplishments, the application of the provision
on termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the following
questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by
respondent in the take-over be set off against the amounts it owed petitioner? (3) How
much were the advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the provision in the Agreement as to
time schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the WORK within the period set
forth in Annex C hereof. NO time extension shall be granted by [respondent] to [petitioner] unless a corresponding
time extension is granted by [the Ministry of Public Works and Highways] to the CONSORTIUM. [20]
Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for any of the following causes:
x xx xxx xxx

6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in accordance with this
Agreement, or persistently or flagrantly neglects to carry out [its] obligations under this Agreement. [21]
Supposedly, as a result of the take-over, respondent incurred expenses in excess of the
contracted price. It sought to set off those expenses against the amount claimed by
petitioner for the work the latter accomplished, pursuant to the following provision:
If the total direct and indirect cost of completing the remaining part of the WORK exceed the sum which would
have been payable to [petitioner] had it completed the WORK, the amount of such excess [may be] claimed by
[respondent] from either of the following:
1. Any amount due [petitioner] from [respondent] at the time of the termination of this Agreement. [22]
The issue as to the correct amount of 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
x xx xxx xxx
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].
x xx xxx xxx
D. IMPORTED MATERIALS AND EQUIPMENT
[Respondent shall open the letters of credit for the importation of equipment and materials listed in Annex E hereof
after the drawings, brochures, and other technical data of each items in the list have been formally approved by [the
Ministry of Public Works and Highways]. However, petitioner will still be fully responsible for all imported
materials and equipment.
All expenses incurred by [respondent], both in foreign and local currencies in connection with the opening of the
letters of credit shall be deducted from the Contract Prices.
x xx xxx xxx
N. OTHER CONDITIONS
x xx xxx xxx
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]
Being an inexpensive, speedy and amicable method of settling disputes, [24] arbitration -along with mediation, conciliation and negotiation -- is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. [25] It is thus regarded as the wave of the future
in international civil and commercial disputes. [26] Brushing aside a contractual agreement
calling for arbitration between the parties would be a step backward. [27]
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate
should be granted.[28] Any doubt should be resolved in favor of arbitration. [29]
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a
formal request for arbitration with the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the question. To bolster its position,
petitioner even cites our ruling in Tesco Services Incorporated v. Vera. [30] We are not
persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration
indeed required the submission of a request for arbitration, as follows:
SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to have recourse to
arbitration by the Construction Industry Arbitration Commission (CIAC) shall submit its Request for Arbitration in
sufficient copies to the Secretariat of the CIAC; PROVIDED, that in the case of government construction contracts,
all administrative remedies available to the parties must have been exhausted within 90 days from the time the
dispute arose.
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC may
now be availed of whenever a contract contains a clause for the submission of a future
controversy to arbitration, in this wise:

SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a construction contract or a submission to

arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to
CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such
contract or submission. When a contract contains a clause for the submission of a future controversy to arbitration,
it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC.
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and
3-93.[31]
The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders et al. [32] (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,[33] from
which we quote thus:
Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC,
it is merely required that the parties agree to submit the same to voluntary arbitration Unlike in the original version
of Section 1, as applied in the Tesco case, the law as it now stands does not provide that the parties should agree to
submit disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the
same. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless of
what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the
CIAC because this right has been vested upon each party by law, i.e., E.O. No. 1008.[34]
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because that clause is binding, they are expected
to abide by it in good faith.[35] And because it covers the dispute between the parties in the
present case, either of them may compel the other to arbitrate. [36]
Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration,
the proper procedure to enable the CIAC to decide on the dispute is to request the stay or
suspension of such action, as provided under RA 876 [the Arbitration Law].[37]
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
G.R. No. 168384
CHARLES BERNARD H. REYES
doing business under the name and
style CBH REYES ARCHITECTS,
Petitioner, Present:
- versus
ANTONIO YULO BALDE II, PAULINO
M. NOTO and ERNESTO J. BATTAD,
SR., in their capacities as Arbitrators of
the CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION, Promulgated:
SPOUSES CESAR and CARMELITA
ESQUIG and ROSEMARIE PAPAS,
Respondents. August 18, 2006
x ---------------------------------------------------------------------------------------- x
Before the Court is a Motion to Inhibit the Honorable Chief Justice and Motion to Refer Case to the Court En Banc,
dated August 4, 2006, filed by Atty. Francisco I. Chavez.
I.
According to the movant, the Motion to Inhibit the Chief Justice is not an accusation of wrongdoing on the part of
the Honorable Chief Justice. Rather it is impelled by Atty. Chavezs perception that in this case, the Honorable Chief
Justice has not acted in an objective, impartial and neutral manner in disposing of incidental issues and motions
presented by the parties.
The movant adds that the dizzying pace by which private respondents motions have been received and favorably
acted upon in record time supports Atty. Chavezs perception that private respondents motions without as much as
requiring petitioner to respond thereto have been granted special attention and favor by the Honorable Chief Justice.
(bold types in original)
Atty. Chavezs perception about the alleged closeness and the good relationship between Atty. Ordoez and the Chief
Justice to impair the latters objectivity and impartiality has no basis, for the following reasons:
(1) The actions taken on the various motions and incidents enumerated by the movant were made by the entire
membership of the First Division. Not being the ponente, the Chief Justice did not initiate or propose any of the
actions and rulings made by the Court. Like the three other Division members, he merely concurred with the

actions/rulings proposed by the ponente. While some orders and actions, especially temporary restraining orders,
are issued in the name of the Division chairman (who in this case is the Chief Justice), they are really collective
actions of the entire Division, not merely those of the Chair. This is the normal procedure in all Divisions, not just
in the First.
(2) The alleged unpleasant interaction these past 19 years between Atty. Chavez and Atty. SedfreyOrdoez with
whom Chief Justice worked either as associate or partner sometime ago has nothing to do at all with the
concurrences made by the Chief Justice on this case. These concurrences were given on the basis only of legal
merit, and on nothing else.
(3) True, the Chief Justice was an associate (not a partner) in 1961 to 1963 in the Salonga, Ordoez and Associates,
which incidentally had been dissolved in 1987. True also, he has had a close personal and professional relationship
with the principal partner in that law firm, Sen. Jovito R. Salonga. That is the reason the Chief Justice has inhibited
himself from cases in which Sen. Salonga was/is a party or a counsel. [1]
However, he had no similar closeness with Atty. Ordoez. That is why he has not inhibited himself from cases
involving Atty. Ordoez. In fact, he has not hesitated, on several occasions, to vote against parties/causes represented
by the former Secretary of Justice.
(4) In fairness to all concerned, Atty. Ordoez has never spoken, directly or indirectly, with the Chief Justice on any
matter pending in the Supreme Court and in any other court.He has never attempted, directly or indirectly,
personally or through others, to influence the Chief Justice in any manner whatsoever. In fact, the Chief Justice
understands that Atty. Ordoez has been seriously ill, going in and out of the hospital, over the past several
months. And yet the Chief Justice has not even visited or spoken with him during such period.
(5) On the other hand, the Chief Justice, when so warranted by the facts and law, has voted in favor of causes and
parties represented by Atty. Chavez. One outstanding example is Chavez v. PCGG (360 Phil. 133, December 9,
1998; 366 Phil. 863, May 19, 1999), which was written by then Associate Justice Artemio V. Panganiban. Atty.
Chavez knows that he has won the vote of the Chief Justice without his having to speak with or influence him in
any manner.
(6) Movants perception that Atty. Ordoezs concern for and interest in upholding the CIAC jurisdiction must have
somehow been relayed to the Honorable Chief Justice is completely baseless. As already stated, there had been no
conversation or communication, directly or indirectly, personally or through others, between the Chief Justice and
Atty. Ordoez (or anyone representing him) about any matter related to any case in this, or any other, court. Neither
is the Chief Justice aware of any alleged personal interest of Atty. Ordoez to uphold the CIAC.
(7) In a few months, the incumbent Chief Justice is scheduled to retire from the judiciary. It is totally inconceivable
that he will smear his eleven year record of integrity, independence and ethical conduct in the Supreme Court with
any action that is less than objective, impartial and neutral. On the other hand, he assures movant (and all
concerned) that he will continue with his vow to lead a judiciary characterized by four Ins: independence, integrity,
industry and intelligence.
II.
Following his misperception of closeness and bonding between Atty. Ordoez and the Chief Justice, the movant
assailed certain proceedings in this Honorable Courts First Division. However, these proceedings can easily be
explained, thus:
(1) Respondents Motion to Include Hon. Pedro Sabundayo, Jr., Presiding Judge, Regional Trial Court of
Muntinlupa City, Branch 203, as public respondent was denied because Section 4, Rule 45 of the Rules of Court
provides that in a petition for review on certiorari to the Supreme Court, there is no need to implead the lower
courts or judges thereof either as petitioners or respondents. There is no irregularity when the Resolution denying
respondents motion was issued when the Chief Justice was on official leave. The remaining Members of the
Division can proceed with official business despite the absence of the Chief Justice as long as the required majority
is present. This is in accordance with Section 4(3), Article VIII of the Constitution which provides that cases or
matters heard by a division shall be decided or resolved with the concurrence of a majority of the Members who
actually took part in the deliberations on the issues in the case and voted thereon, and in no case, without the
concurrence of at least three of such Members.
(2) The issuance of a TRO enjoining the Presiding Judge of Muntinlupa City, Branch 203 from continuing with any
of the proceedings in Civil Case No. 03-110 and from enforcing the Order of the trial court dated June 29,
2006 ordering the sheriff to implement the writ of execution dated May 17, 2006, is in order. Respondents
satisfactorily established that they are entitled to the injunction.
It appears from the records that petitioner filed a complaint against respondents with the Regional Trial Court of
Muntinlupa City which was docketed as Civil Case No. 03-110 praying that an accounting be rendered to determine
the cost of the materials purchased by respondent Papas; that respondents be ordered to pay the cost of the
additional works done on the property; that the Design-Build Construction Agreement be ordered rescinded because
respondents breach the same; and that respondents be ordered to pay moral and exemplary damages. Based on the
same Design-Build Construction Agreement, respondents filed with the Construction Industry Arbitration
Commission (CIAC) a complaint praying that petitioner be ordered to finish the project or, in the alternative, to pay
the cost to finish the same; to reimburse the overpayments made by respondents; and to pay liquidated damages,
attorneys fees and costs of the suit.
On June 8, 2005,[2] the CIAC rendered a decision on the merits of the case awarding in favor of respondents the
sum of P4,419,094.98. The case is presently on appeal with the Court of Appeals [3] docketed as CA-G.R. SP No.
90136.[4]

Meanwhile, on July 29, 2005, the trial court rendered judgment in Civil Case No. 03-110 in favor of petitioner
ordering the respondents to pay P840,300.00 representing the cost of the additional works; P296,658.95
representing the balance of the contract price; P500,000.00 by way of moral damages; P500,000.00 as exemplary
damages; P500,000.00 as attorneys fees and costs of the suit. In an Order dated May 17, 2006, Judge Sabundayo, Jr.
directed Sheriff Melvin T. Bagabaldo to implement the writ of execution by causing the respondents to render an
accounting of all the construction materials they bought for the construction of the project x xx; to levy the goods
and chattels of the [respondents] x xx and to make the sale thereof x x x. [5]
In their Second Manifestation with Prayer for Issuance of a Temporary Restraining Order/Injunction [6] filed with
this Court on July 10, 2006, respondents averred that from July 7, 2006 until 4 oclock in the morning of July 8,
2006, Sheriff Bagabaldo went to the residence of respondent Papas and levied several of her personal properties.
[7]
Respondents bewailed that despite the pronouncement of the Court of Appeals that the CIAC, not the Regional
Trial Court, which has jurisdiction over the case, and despite the pendency of the instant case before us, the
Regional Trial Court still proceeded with the implementation of the writ.
It is important to mention that in both cases, the parties insist that the other breached their obligation under the
Design-Build Construction Agreement. Petitioner however argues that the Regional Trial Court properly took
cognizance of the case while respondents claim that CIAC has the exclusive and original jurisdiction on the subject
matter.Otherwise stated, if we rule in the instant case that CIAC has jurisdiction over the controversy, then it would
necessarily follow that the Regional Trial Court does not have jurisdiction. Since it did not acquire jurisdiction over
the controversy, then the writ of execution that it issued was void. If we allow the RTC Judge and the Sheriff to
continue with the proceedings in Civil Case No. 03-110, then, whatever judgment that would be rendered in the
instant case would be rendered nugatory. In view of the above circumstances, respondents clearly established that
they are entitled to the issuance of a TRO.
Thus on July 12, 2006, the Court issued a Resolution that reads:
Acting on the prayer for issuance of a temporary restraining order/injunction, the Court further resolves to issue a
TEMPORARY RESTRAINING ORDER enjoining the Presiding Judge, Regional Trial Court, Branch 203,
Muntinlupa City, from continuing with any of the proceedings in Civil Case No. 03-110 entitled Charles Bernard H.
Reyes, doing business under the name and style of CBH Reyes Architects vs. Spouses Mely and Cesar Esquig, et al.
[subject matter of the assailed Court of Appeals decision and resolution dated February 18, 2005 and May 20, 2005,
respectively, in CA-G.R. SP No. 83816 entitled Charles Bernard H. Reyes, doing business under the name and style
CBH REYES ARCHITECTS vs. Antonio YuloBalde II, et al] and from enforcing the Order dated June 29, 2006
ordering the designated sheriff to implement the writ of execution dated May 17, 2006 to enforce the decision dated
July 29, 2005 in Civil Case No. 03-110, upon the private respondents filing of a bond in the amount of Three
Hundred Thousand Pesos (P300,000.00) within a period of five (5) days from notice hereof x xx.
(3) Thereafter, respondents filed an Urgent Motion for Clarification of the above resolution. Accordingly, on July
19, 2006, we issued a resolution which is a clarification of the TRO issued on July 12, 2006. Both the July 12,
2006 and July 19, 2006 Resolutions are covered by the same bond in the amount of P300,000.00.
(4) A petition review under Rule 45 of the Rules of Court is not a matter of right but of sound judicial discretion.
[8]
For purposes of determining whether the petition should be dismissed or denied, or where the petition is given
due course, the Supreme Court may require or allow the filing of such pleadings, briefs, memoranda or documents
as it may deem necessary within such periods and under such conditions as it may consider appropriate, and impose
the corresponding sanctions in case of non-filing or unauthorized filing of such pleadings and documents or noncompliance with the conditions therefor.[9] This Court exercised its discretion when it did not require petitioner to
file comment on respondents Manifestation with Urgent Motion to Resolve with Prayer for Injunction, Second
Manifestation with Prayer for Issuance of a Temporary Restraining Order/Injunction, Urgent Motion for
Clarification, and Compliance.
(5) The Court did not exceed its jurisdiction; neither did it encroach on the jurisdiction of the Court of Appeals or
of the lower court when it issued the Resolution dated July 12, 2006. As discussed, there is compelling reason to
issue a TRO as the respondents satisfactorily established they are entitled to the relief demanded. It may further be
said that the issuance of a TRO on July 12, 2006 is not a final determination of the matter. It was a remedy intended
to avoid any irreparable injury that might be caused to the parties.It may be recalled that the CIAC and the trial
court each asserted its jurisdiction over the controversy to the exclusion of the other.
(6) There is no truth or basis to the allegation that the case has been given special attention. All actions on the
motions and incidents have been performed regularly.
WHEREFORE, the Motion to Inhibit the Honorable Chief Justice is DENIED. The Motion to Refer Case to the
Court En Banc is GRANTED.
SO ORDERED.