ADR SUMMER PART V.
REPUBLIC ACT NO. 876 provides for the appointment of a single arbitrator, the demand shall be set forth a
AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION
AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE
PROCEDURE FOR ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES
Section 1. Short Title. - This Act shall be known as "The Arbitration Law."
Section 2. Persons and matters subject to arbitration. - Two or more persons or parties may
submit to the arbitration of one or more arbitrators any controversy existing between them at
the time of the submission and which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save
upon such grounds as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations, appraisals or
other controversies which may be collateral, incidental, precedent or subsequent to any issue
between the parties.
A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or
a person judicially declared to be incompetent, unless the appropriate court having
jurisdiction approve a petition for permission to submit such controversy to arbitration made
by the general guardian or guardian ad litem of the infant or of the incompetent.
But where a person capable of entering into a submission or contract has knowingly entered
into the same with a person incapable of so doing, the objection on the ground of incapacity
can be taken only in behalf of the person so incapacitated.
Section 3. Controversies or cases not subject to the provisions of this Act. - This Act shall not
apply to controversies and to cases which are subject to the jurisdiction of the Court of
Industrial Relations or which have been submitted to it as provided by Commonwealth Act
Numbered One hundred and three, as amended.
Section 4. Form of arbitration agreement. - A contract to arbitrate a controversy thereafter
arising between the parties, as well as a submission to arbitrate an existing controversy shall
be in writing and subscribed by the party sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section two hereof,
providing for arbitration of any controversy, shall be deemed a consent of the parties to the
jurisdiction of the Court of First Instance of the province or city where any of the parties
resides, to enforce such contract or submission.
Section 5. Preliminary procedure. - An arbitration shall be instituted by:
(a) In the case of a contract to arbitrate future controversies by the service by
either party upon the other of a demand for arbitration in accordance with the
contract. Such demand shall be set forth the nature of the controversy, the amount
involved, if any, and the relief sought, together with a true copy of the contract
providing for arbitration. The demand shall be served upon any party either in
person or by registered mail. In the event that the contract between the parties
specific time within which the parties shall agree upon such arbitrator. If the
contract between the parties provides for the appointment of three arbitrators, one
to be selected by each party, the demand shall name the arbitrator appointed by the
party making the demand; and shall require that the party upon whom the demand
is made shall within fifteen days after receipt thereof advise in writing the party
making such demand of the name of the person appointed by the second party;
such notice shall require that the two arbitrators so appointed must agree upon the
third arbitrator within ten days from the date of such notice.
(b) In the event that one party defaults in answering the demand, the aggrieved
party may file with the Clerk of the Court of First Instance having jurisdiction over
the parties, a copy of the demand for arbitration under the contract to arbitrate,
with a notice that the original demand was sent by registered mail or delivered in
person to the party against whom the claim is asserted. Such demand shall set forth
the nature of the controversy, the amount involved, if any, and the relief sought, and
shall be accompanied by a true copy of the contract providing for arbitration.
(c) In the case of the submission of an existing controversy by the filing with the
Clerk of the Court of First Instance having jurisdiction, of the submission
agreement, setting forth the nature of the controversy, and the amount involved, if
any. Such submission may be filed by any party and shall be duly executed by both
parties.
(d) In the event that one party neglects, fails or refuses to arbitrate under a
submission agreement, the aggrieved party shall follow the procedure prescribed
in subparagraphs (a) and (b) of this section.
Section 6. Hearing by court. - A party aggrieved by the failure, neglect or refusal of another to
perform under an agreement in writing providing for arbitration may petition the court for an
order directing that such arbitration proceed in the manner provided for in such agreement.
Five days notice in writing of the hearing of such application shall be served either personally
or by registered mail upon the party in default. The court shall hear the parties, and upon
being satisfied that the making of the agreement or such failure to comply therewith is not in
issue, shall make an order directing the parties to proceed to arbitration in accordance with
the terms of the agreement. If the making of the agreement or default be in issue the court
shall proceed to summarily hear such issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no default in the proceeding thereunder,
the proceeding shall be dismissed. If the finding be that a written provision for arbitration
was made and there is a default in proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this
Act, within ten days after such motions, petitions, or applications have been heard by it.
Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising out
of an agreement providing for the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding
is referable to arbitration, shall stay the action or proceeding until an arbitration has been had
in accordance with the terms of the agreement: Provided, That the applicant, for the stay is
not in default in proceeding with such arbitration.
ADR SUMMER PART V.
Section 8. Appointment of arbitrators. - If, in the contract for arbitration or in the submission
described in section two, provision is made for a method of naming or appointing an
arbitrator or arbitrators, such method shall be followed; but if no method be provided therein
the Court of First Instance shall designate an arbitrator or arbitrators.
The Court of First Instance shall appoint an arbitrator or arbitrators, as the case may be, in the
following instances:
(a) If the parties to the contract or submission are unable to agree upon a single
arbitrator; or
(b) If an arbitrator appointed by the parties is unwilling or unable to serve, and his
successor has not been appointed in the manner in which he was appointed; or
(c) If either party to the contract fails or refuses to name his arbitrator within
fifteen days after receipt of the demand for arbitration; or
(d) If the arbitrators appointed by each party to the contract, or appointed by one
party to the contract and by the proper Court, shall fail to agree upon or to select
the third arbitrator.
(e) The court shall, in its discretion appoint one or three arbitrators, according to
the importance of the controversy involved in any of the preceding cases in which
the agreement is silent as to the number of arbitrators.
(f) Arbitrators appointed under this section shall either accept or decline their
appointments within seven days of the receipt of their appointments. In case of
declination or the failure of an arbitrator or arbitrators to duly accept their
appointments the parties or the court, as the case may be, shall proceed to appoint
a substitute or substitutes for the arbitrator or arbitrators who decline or failed to
accept his or their appointments.
Section 9. Appointment of additional arbitrators. - Where a submission or contract provides
that two or more arbitrators therein designated or to be thereafter appointed by the parties,
may select or appoint a person as an additional arbitrator, the selection or appointment must
be in writing. Such additional arbitrator must sit with the original arbitrators upon the
hearing.
Section 10. Qualifications of arbitrators. - Any person appointed to serve as an arbitrator
must be of legal age, in full-enjoyment of his civil rights and know how to read and write. No
person appointed to served as an arbitrator shall be related by blood or marriage within the
sixth degree to either party to the controversy. No person shall serve as an arbitrator in any
proceeding if he has or has had financial, fiduciary or other interest in the controversy or
cause to be decided or in the result of the proceeding, or has any personal bias, which might
prejudice the right of any party to a fair and impartial award.
No party shall select as an arbitrator any person to act as his champion or to advocate his
cause.
If, after appointment but before or during hearing, a person appointed to serve as an
arbitrator shall discover any circumstances likely to create a presumption of bias, or which he
believes might disqualify him as an impartial arbitrator, the arbitrator shall immediately
disclose such information to the parties. Thereafter the parties may agree in writing:
(a) to waive the presumptive disqualifying circumstances; or
(b) to declare the office of such arbitrator vacant. Any such vacancy shall be filled in
the same manner as the original appointment was made.
Section 11. Challenge of arbitrators. - The arbitrators may be challenged only for the reasons
mentioned in the preceding section which may have arisen after the arbitration agreement or
were unknown at the time of arbitration.
The challenge shall be made before them.
If they do not yield to the challenge, the challenging party may renew the challenge before the
Court of First Instance of the province or city in which the challenged arbitrator, or, any of
them, if there be more than one, resides. While the challenging incident is discussed before
the court, the hearing or arbitration shall be suspended, and it shall be continued immediately
after the court has delivered an order on the challenging incident.
Section 12. Procedure by arbitrators. - Subject to the terms of the submission or contract, if
any are specified therein, are arbitrators selected as prescribed herein must, within five days
after appointment if the parties to the controversy reside within the same city or province, or
within fifteen days after appointment if the parties reside in different provinces, set a time
and place for the hearing of the matters submitted to them, and must cause notice thereof to
be given to each of the parties. The hearing can be postponed or adjourned by the arbitrators
only by agreement of the parties; otherwise, adjournment may be ordered by the arbitrators
upon their own motion only at the hearing and for good and sufficient cause. No adjournment
shall extend the hearing beyond the day fixed in the submission or contract for rendering the
award, unless the time so fixed is extended by the written agreement of the parties to the
submission or contract or their attorneys, or unless the parties have continued with the
arbitration without objection to such adjournment.
The hearing may proceed in the absence of any party who, after due notice, fails to be present
at such hearing or fails to obtain an adjournment thereof. An award shall not be made solely
on the default of a party. The arbitrators shall require the other party to submit such evidence
as they may require for making an award.
No one other than a party to said arbitration, or a person in the regular employ of such party
duly authorized in writing by said party, or a practicing attorney-at-law, shall be permitted by
the arbitrators to represent before him or them any party to the arbitration. Any party
desiring to be represented by counsel shall notify the other party or parties of such intention
at least five days prior to the hearing.
The arbitrators shall arrange for the taking of a stenographic record of the testimony when
such a record is requested by one or more parties, and when payment of the cost thereof is
assumed by such party or parties.
ADR SUMMER PART V.
Persons having a direct interest in the controversy which is the subject of arbitration shall Section 18. Proceeding in lieu of hearing. - The parties to a submission or contract to arbitrate
have the right to attend any hearing; but the attendance of any other person shall be at the may, by written agreement, submit their dispute to arbitration by other than oral hearing. The
discretion of the arbitrators. parties may submit an agreed statement of facts. They may also submit their respective
contentions to the duly appointed arbitrators in writing; this shall include a statement of facts,
together with all documentary proof. Parties may also submit a written argument. Each party
Section 13. Oath of arbitrators. - Before hearing any testimony, arbitrators must be sworn, by
shall provide all other parties to the dispute with a copy of all statements and documents
any officer authorized by law to administer an oath, faithfully and fairly to hear and examine
submitted to the arbitrators. Each party shall have an opportunity to reply in writing to any
the matters in controversy and to make a just award according to the best of their ability and
other party's statements and proofs; but if such party fails to do so within seven days after
understanding. Arbitrators shall have the power to administer the oaths to all witnesses
receipt of such statements and proofs, he shall be deemed to have waived his right to reply.
requiring them to tell the whole truth and nothing but the truth in any testimony which they
Upon the delivery to the arbitrators of all statements and documents, together with any reply
may give in any arbitration hearing. This oath shall be required of every witness before any of
statements, the arbitrators shall declare the proceedings in lieu of hearing closed.
his testimony is heard.

Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have the power to require
any person to attend a hearing as a witness. They shall have the power to subpoena witnesses
and documents when the relevancy of the testimony and the materiality thereof has been
demonstrated to the arbitrators. Arbitrators may also require the retirement of any witness
during the testimony of any other witness. All of the arbitrators appointed in any controversy
must attend all the hearings in that matter and hear all the allegations and proofs of the
parties; but an award by the majority of them is valid unless the concurrence of all of them is
expressly required in the submission or contract to arbitrate. The arbitrator or arbitrators
shall have the power at any time, before rendering the award, without prejudice to the rights
of any party to petition the court to take measures to safeguard and/or conserve any matter
which is the subject of the dispute in arbitration.
Section 15. Hearing by arbitrators. - Arbitrators may, at the commencement of the hearing,
ask both parties for brief statements of the issues in controversy and/or an agreed statement
of facts. Thereafter the parties may offer such evidence as they desire, and shall produce such
additional evidence as the arbitrators shall require or deem necessary to an understanding
and determination of the dispute. The arbitrators shall be the sole judge of the relevancy and
materiality of the evidence offered or produced, and shall not be bound to conform to the
Rules of Court pertaining to evidence. Arbitrators shall receive as exhibits in evidence any
document which the parties may wish to submit and the exhibits shall be properly identified
at the time of submission. All exhibits shall remain in the custody of the Clerk of Court during
the course of the arbitration and shall be returned to the parties at the time the award is
made. The arbitrators may make an ocular inspection of any matter or premises which are in
dispute, but such inspection shall be made only in the presence of all parties to the
arbitration, unless any party who shall have received notice thereof fails to appear, in which
event such inspection shall be made in the absence of such party.
Section 19. Time for rendering award. - Unless the parties shall have stipulated by written
agreement the time within which the arbitrators must render their award, the written award
of the arbitrators shall be rendered within thirty days after the closing of the hearings or if the
oral hearings shall have been waived, within thirty days after the arbitrators shall have
declared such proceedings in lieu of hearing closed. This period may be extended by mutual
consent of the parties.alf-itc
Section 20. Form and contents of award. - The award must be made in writing and signed and
acknowledged by a majority of the arbitrators, if more than one; and by the sole arbitrator, if
there is only one. 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.
In the event that the parties to an arbitration have, during the course of such arbitration,
settled their dispute, they may request of the arbitrators that such settlement be embodied in
an award which shall be signed by the arbitrators. No arbitrator shall act as a mediator in any
proceeding in which he is acting as arbitrator; and all negotiations towards settlement of the
dispute must take place without the presence of the arbitrators.
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.
The arbitrators shall have the power to assess in their award the expenses of any party
against another party, when such assessment shall be deemed necessary.

Section 16. Briefs. - At the close of the hearings, the arbitrators shall specifically inquire of all Section 21. Fees of arbitration. - The fees of the arbitrators shall be fifty pesos per day unless
parties whether they have any further proof or witnesses to present; upon the receipt of a the parties agree otherwise in writing prior to the arbitration.
negative reply from all parties, the arbitrators shall declare the hearing closed unless the
parties have signified an intention to file briefs. Then the hearing shall be closed by the
Section 22. Arbitration deemed a special proceeding. - Arbitration under a contract or
arbitrations after the receipt of briefs and/or reply briefs. Definite time limit for the filing of
submission shall be deemed a special proceeding, of which the court specified in the contract
such briefs must be fixed by the arbitrators at the close of the hearing. Briefs may filed by the
or submission, or if none be specified, the Court of First Instance for the province or city in
parties within fifteen days after the close of the oral hearings; the reply briefs, if any, shall be
which one of the parties resides or is doing business, or in which the arbitration was held,
filed within five days following such fifteen-day period.
shall have jurisdiction. Any application to the court, or a judge thereof, hereunder shall be
made in manner provided for the making and hearing of motions, except as otherwise herein
Section 17. Reopening of hearing. - The hearing may be reopened by the arbitrators on their expressly provided.
own motion or upon the request of any party, upon good cause, shown at any time before the
award is rendered. When hearings are thus reopened the effective date for the closing of the
Section 23. Confirmation of award. - At any time within one month after the award is made,
hearings shall be the date of the closing of the reopened hearing.
any party to the controversy which was arbitrated may apply to the court having jurisdiction,
ADR SUMMER PART V.
as provided in section twenty-eight, for an order confirming the award; and thereupon the
court must grant such order unless the award is vacated, modified or corrected, as prescribed
herein. Notice of such motion must be served upon the adverse party or his attorney as
prescribed by law for the service of such notice upon an attorney in action in the same court.
Section 24. Grounds for vacating award. - In any one of the following cases, the court must
make an order vacating the award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of
them; or
The order may modify and correct the award so as to effect the intent thereof and promote
justice between the parties.
Section 26. Motion to vacate, modify or correct award: when made. - Notice of a motion to
vacate, modify or correct the award must be served upon the adverse party or his counsel
within thirty days after award is filed or delivered, as prescribed by law for the service upon
an attorney in an action.
Section 27. Judgment. - Upon the granting of an order confirming, modifying or correcting an
award, judgment may be entered in conformity therewith in the court wherein said
application was filed. Costs of the application and the proceedings subsequent thereto may be
awarded by the court in its discretion. If awarded, the amount thereof must be included in the
judgment.

Section 28. Papers to accompany motion to confirm, modify, correct, or vacate award. - The
(c) That the arbitrators were guilty of misconduct in refusing to postpone the
party moving for an order confirming, modifying, correcting, or vacating an award, shall at the
hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and
time that such motion is filed with the court for the entry of judgment thereon also file the
material to the controversy; that one or more of the arbitrators was disqualified to
following papers with the Clerk of Court;
act as such under section nine hereof, and wilfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any party have
been materially prejudiced; or (a) The submission, or contract to arbitrate; the appointment of the arbitrator or
arbitrators; and each written extension of the time, if any, within which to make the
award.
(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. (b) A verified of the award.

Where an award is vacated, the court, in its discretion, may direct a new hearing either before (c) Each notice, affidavit, or other paper used upon the application to confirm,
the same arbitrators or before a new arbitrator or arbitrators to be chosen in the manner modify, correct or vacate such award, and a copy of each of the court upon such
provided in the submission or contract for the selection of the original arbitrator or application.
arbitrators, and any provision limiting the time in which the arbitrators may make a decision
shall be deemed applicable to the new arbitration and to commence from the date of the
The judgment shall be docketed as if it were rendered in an action.
court's order.

The judgment so entered shall have the same force and effect in all respects, as, and be subject
Where the court vacates an award, costs, not exceeding fifty pesos and disbursements may be
to all the provisions relating to, a judgment in an action; and it may be enforced as if it had
awarded to the prevailing party and the payment thereof may be enforced in like manner as
been rendered in the court in which it is entered.
the payment of costs upon the motion in an action.

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this
Section 25. Grounds for modifying or correcting award. - In any one of the following cases, the
Act, or from a judgment entered upon an award through certiorari proceedings, but such
court must make an order modifying or correcting the award, upon the application of any
appeals shall be limited to questions of law. The proceedings upon such an appeal, including
party to the controversy which was arbitrated:
the judgment thereon shall be governed by the Rules of Court in so far as they are applicable.

(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.
Section 30. Death of party. - Where a party dies after making a submission or a contract to
arbitrate as prescribed in this Act, the proceedings may be begun or continued upon the
application of, or notice to, his executor or administrator, or temporary administrator of his
estate. In any such case, the court may issue an order extending the time within which notice
of a motion to confirm, vacate, modify or correct an award must be served. Upon confirming
an award, where a party has died since it was filed or delivered, the court must enter
judgment in the name of the original party; and the proceedings thereupon are the same as
where a party dies after a verdict.
ADR SUMMER PART V.
Section 31. Repealing clause. - The provisions of chapters one and two, Title XIV, of the Civil
Code shall remain in force. All other laws and parts of laws inconsistent with this Act are
hereby repealed. If any provision of this Act shall be held invalid the remainder that shall not
be affected thereby.
Section 32. Effectivity. - This Act shall take effect six months after its approval.
Approved: June 19, 1953
G.R. No. L-8933 February 28, 1957
SILVERIO UMBAO, plaintiff-appellee,
vs.
SANTIAGO YAP, defendant-appellant.
E. G. Cammayo for appellant.
Mauro C. Reyes, Jr. for appellee.
BENGZON, J.:
This is an appeal from the judgment of the Manila Court of First Instance "ordering the
defendant to pay to the plaintiff the sum of P2,298.97, representing plaintiff's unpaid
overtime pay while in defendant's employ, plus P300 as attorney's fees, with interest on the
amount first mentioned at the rate of 6 per cent per annum from the date of the filing of the
complaint on November 4, 1954, until said amount has been paid in full. With costs against
the defendant."
The complaint sought enforcement of an arbitration award rendered by the Wage
Administration Service in pursuance of the arbitration agreement signed by Silverio Umbao
and Santiago Yap to settle their dispute regarding unpaid wages claimed by the first as
employee from the second as employer.
The complaint alleged that in June 1954 both had agreed in writing to "submit their case to
the Wage Administration Service for investigation" and "to abide by whatever decision (said)
office may render on the case" which "they recognized . . . to be final and conclusive." It also
alleged, that proper investigation had been conducted by Severo Puncan of the same Service,
who after hearing the parties and considering their evidence, declared in a written report,
respondent Yap to be liable for unpaid wages in the amount of P2,998.97; that the award had
been approved by Ruben Santos, Acting Chief of the Service; and that Yap had refused to abide
by and comply with it. The pleading included a copy of the arbitration agreement and of the
award.
The defendant's answer did not deny the existence of the covenant and of the award. But it
questioned the enforceability of both, 1 contending mainly that the Service had no legal
authority to act as arbitration, that the procedural requirements of Republic Act No. 602 had
not been followed, and that the provisions of Republic Act No. 876 known as the Arbitration
Law had been disregarded.
In view of the answer, the plaintiff asked for judgment on the pleadings. And the Court,
nothing non-observance of the procedure outlined in Republic Act No. 876, gave judgment for
defendant. However upon motion to reconsider, the judge seeing differently, held the
arbitration agreements to be a contract obligatory on the parties under the provisions of the
New Civil Code Arts. 2042 et seq. Consequently he rendered judgment against defendant, the
dispositive part of which has been quoted above. Hence this appeal.
Defendant argues that the New Civil Code does not apply, because arbitration only takes place
where a covenant is entered into "whereby parties litigant by making reciprocal concessions
or agreements of facts, avoid a litigation or put an end to one already commenced" which was
not the case at bar. The argument evidently assumes that a compromise agreement is the
same as an arbitration agreement. Such assumption is error: one is different from the other;
they are treated in two separate chapters of the Code.
Again appellant argues that the award should not be executed because the arbitration had not
been appointed in accordance with rules promulgated by the Supreme Court, pursuant to
Article 2046 of the New Civil Code.
ART. 2046. The appointment of arbitrators and the procedure for arbitration shall
be governed by the provisions of such rules of court as the Supreme Court shall
promulgate.
No rules have been promulgated by this Court. However the Legislature adopted such rules in
Republic Act No. 876 known as "The Arbitration Law' effective December 1953.
The question then is: has this arbitration by the Service conformed with the Act? This brings
up the appellant's first assignment of error he points out that no application had been filed in
court for the appointment of the arbitrator under Republic Act No. 876, and the court had
appointed Severo Puncan as such.
Said act was obviously adopted to supplement-not to supplant-the New Civil Code on
arbitration. It expressly declares that "the provisions of chapters one and two, Title XIV, Book
of the Civil Code the parties may select the arbitrator without court intervention. And section
8 of the Act impliedly permits them to do so. There is nothing in Republic Act 876 requiring
court permission of knowledge or intervention before the arbitrator selected by the parties
may perform his assigned work.
True, there is section 5 of the Act which provides:
SEC. 5. Preliminary procedure. An arbitration shall be instituted by:
(a) In the case of a contract to arbitrate future controversies by the service by
either party upon the other of a demand for arbitration in accordance with the
contract. Such demand shall set forth the nature of the controversy, the amount
involved, if any, and the relief sought, together with a true copy of the contract
providing for arbitration. . . .
(b) In the event that one party defaults in answering the demand, the aggrieved
party may file with the Clerk of Court of First Instance having jurisdiction over the
parties, a copy of the demand for arbitration under the contract to arbitrate, . . . .
ADR SUMMER PART V.
(c) In the case of the submission of an existing controversy by the filing with the Wherefore, the judgment should be, and is hereby affirmed, with costs. So ordered.
clerk of the Court of First Instance having jurisdiction, of the submission
agreement, setting forth the nature of the controversy, and the amount involved, if
G.R. No. L-43825 May 9, 1988
any. Such submission may be filed by any party and shall be duly executed by both
parties.
CONTINENTAL MARBLE CORP. and FELIPE DAVID, petitioner,
vs.
(d) In the event that one party neglets, fails or refuses to arbitrate under a
NATIONAL LABOR RELATIONS COMMISSION (NLRC); ARBITRATOR JOSE T. COLLADO and
submission agreement, the aggrieved party shall follow the procedure prescribed
RODITO NASAYAO, respondents.
in subparagraphs (a) and (b) of this section.

Benito P. Fabie for petitioners.

Paragraph (c) seems, at first glance, to require the institution of court proceedings. But on
second thought it will be preceived that court action is needed when one party, after entering
into the contract to arbitrate, neglets, fails or refuses to arbitrate as provided in paragraph (d) Narciso C. Parayno, Jr. for respondents.
It may also be applied where the arbitrator has not been selected by the parties who have
agreed to arbitrate. The section does not mean there can be no arbitration without a previous
court actuation.

The case between herein litigants has not required court intervention from the beginning,
because they had named the arbitrator: the Administration Service 2 and necessarily the
proper officer, thereof, Severo Puncan. And this defendant should not be permitted to
question the authority of said officer now, because he voluntarily submitted his evidence to
him; and he only turned around to deny such authority when the resultant verdict adversely
affected his pocket. He even appealed to the Secretary of Labor, and without questioning
Puncan's authority, pleaded for exoneration on the merits. 3
So much for court initiative, and arbitrator's appointment. As to the arbitration proceedings,
Republic Act No. 876 contains provisions about the procedure to be adopted by arbitrators,
their oath, the hearings, and the form and content of the award. Even so, herein appellant
asserted no prejudicial departure therefrom.
As already stated. Republic Act No. 876 did not require court intervention (in the case at
bar) prior to the award of the arbitrator, no ground for it having arisen, as the parties
voluntarily took steps to carry out the settlement process down to the arbiter's decision. It
was only after such award, when defendant refused to comply that judicial action became
necessary, thru the means afforded by the statute:
SEC. 23. Confirmation of award. At any time within one month after the award is
made, any party to the controversy which was arbitrated may apply to the court
having jurisdiction, as provided thereupon the court must grant such order unless
the award is vacated, modified or corrected, as prescribed herein. . . .
SEC. 27. Judgment. Upon the granting of an order confirming, modifying or
correcting an award, judgment maybe entered in conformity therewith in the court
wherein said application was filed. . . . (Republic Act 876.) .
These provisions, we believe, apply whether or not the court intervened from the very
beginning.
Now then, examining the complaint and the judgment entered herein in the light of the above
directions, we find substantial conformity therewith; so much so that defendant raised no
issue on the same.
PADILLA, J.:
In this petition for mandamus, prohibition and certiorari with preliminary injunction,
petitioners seek to annul and set aside the decision rendered by the respondent Arbitrator
Jose T. Collado, dated 29 December 1975, in NLRC Case No. LR-6151, entitled: "Rodito
Nasayao, complainant, versus Continental Marble Corp. and Felipe David, respondents," and
the resolution issued by the respondent Commission, dated 7 May 1976, which dismissed
herein petitioners' appeal from said decision.
In his complaint before the NLRC, herein private respondent Rodito Nasayao claimed that
sometime in May 1974, he was appointed plant manager of the petitioner corporation, with
an alleged compensation of P3,000.00, a month, or 25% of the monthly net income of the
company, whichever is greater, and when the company failed to pay his salary for the months
of May, June, and July 1974, Rodito Nasayao filed a complaint with the National Labor
Relations Commission, Branch IV, for the recovery of said unpaid varies. The case was
docketed therein as NLRC Case No. LR-6151.
Answering, the herein petitioners denied that Rodito Nasayao was employed in the company
as plant manager with a fixed monthly salary of P3,000.00. They claimed that the undertaking
agreed upon by the parties was a joint venture, a sort of partnership, wherein Rodito Nasayao
was to keep the machinery in good working condition and, in return, he would get the
contracts from end-users for the installation of marble products, in which the company would
not interfere. In addition, private respondent Nasayao was to receive an amount equivalent to
25% of the net profits that the petitioner corporation would realize, should there be any.
Petitioners alleged that since there had been no profits during said period, private respondent
was not entitled to any amount.
The case was submitted for voluntary arbitration and the parties selected the herein
respondent Jose T. Collado as voluntary arbitrator. In the course of the proceedings, however,
the herein petitioners challenged the arbitrator's capacity to try and decide the case fairly and
judiciously and asked him to desist from further hearing the case. But, the respondent
arbitrator refused. In due time, or on 29 December 1975, he rendered judgment in favor of the
complainant, ordering the herein petitioners to pay Rodito Nasayao the amount of P9,000.00,
within 10 days from notice. 1
ADR SUMMER PART V.
Upon receipt of the decision, the herein petitioners appealed to the National Labor Relations
Commission on grounds that the labor arbiter gravely abused his discretion in persisting to
hear and decide the case notwithstanding petitioners' request for him to desist therefrom:
and that the appealed decision is not supported by evidence. 2
On 18 March 1976, Rodito Nasayao filed a motion to dismiss the appeal on the ground that the
decision of the voluntary arbitrator is final, unappealable, and immediately executory; 3 and,
on 23 March 1976, he filed a motion for the issuance of a writ of execution. 4
Acting on the motions, the respondent Commission, in a resolution dated 7 May 1976,
dismissed the appeal on the ground that the decision appealed from is final, unappealable and
immediately executory, and ordered the herein petitioners to comply with the decision of the
voluntary arbitrator within 10 days from receipt of the resolution. 5
The petitioners are before the Court in the present recourse. As prayed for, the Court issued a
temporary restraining order, restraining herein respondents from enforcing and/or carrying
out the questioned decision and resolution. 6
The issue for resolution is whether or not the private respondent Rodito Nasayao was
employed as plant manager of petitioner Continental Marble Corporation with a monthly
salary of P3,000.00 or 25% of its monthly income, whichever is greater, as claimed by said
respondent, or entitled to receive only an amount equivalent to 25% of net profits, if any, that
the company would realize, as contended by the petitioners.
The respondent arbitrator found that the agreement between the parties was for the
petitioner company to pay the private respondent, Rodito Nasayao, a monthly salary of
P3,000.00, and, consequently, ordered the company to pay Rodito Nasayao the amount of
P9,000.00 covering a period of three (3) months, that is, May, June and July 1974.
The respondent Rodito Nasayao now contends that the judgment or award of the voluntary
arbitrator is final, unappealable and immediately executory, and may not be reviewed by the
Court. His contention is based upon the provisions of Art. 262 of the Labor Code, as amended.
The petitioners, upon the other hand, maintain that "where there is patent and manifest abuse
of discretion, the rule on unappealability of awards of a voluntary arbitrator becomes flexible
and it is the inherent power of the Courts to maintain the people's faith in the administration
of justice." The question of the finality and unappealability of a decision and/or award of a
voluntary arbitrator had been laid to rest in Oceanic Bic Division (FFW) vs. Romero, 7and
reiterated in Mantrade FMMC Division Employees and Workers Union vs. Bacungan. 8 The Court
therein ruled that it can review the decisions of voluntary arbitrators, thus-
We agree with the petitioner that the decisions of voluntary arbitrators
must be given the highest respect and as a general rule must be accorded
a certain measure of finality. This is especially true where the arbitrator
chosen by the parties enjoys the first rate credentials of Professor
Flerida Ruth Pineda Romero, Director of the U.P. Law Center and an
academician of unquestioned expertise in the field of Labor Law. It is not
correct, however, that this respect precludes the exercise of judicial
review over their decisions. Article 262 of the Labor Code making
voluntary arbitration awards final, inappealable, and executory except
where the money claims exceed P l 00,000.00 or 40% of paid-up capital
of the employer or where there is abuse of discretion or gross
incompetence refers to appeals to the National Labor Relations
Commission and not to judicial review.
Inspite of statutory provisions making 'final' the decisions of certain
administrative agencies, we have taken cognizance of petitions
questioning these decisions where want of jurisdiction, grave abuse of
discretion, violation of due process, denial of substantial justice, or
erroneous interpretation of the law were brought to our attention. There
is no provision for appeal in the statute creating the Sandiganbayan but
this has not precluded us from examining decisions of this special court
brought to us in proper petitions. ...
The Court further said:
A voluntary arbitrator by the nature of her fucntions acts in quasi-
judicial capacity. There is no reason why herdecisions involving
interpretation of law should be beyond this Court's review.
Administrative officials are presumed to act in accordance with law and
yet we do hesitate to pass upon their work where a question of law is
involved or where a showing of abuse of authority or discretion in their
official acts is properly raised in petitions for certiorari.
The foregoing pronouncements find support in Section 29 of Republic Act No. 876, otherwise
known as the Arbitration Law, which provides:
Sec. 29. Appeals An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
judgment thereon shall be governed by the Rules of Court in so far as
they are applicable.
The private respondent, Rodito Nasayao, in his Answer to the petition, 9 also claims that the
case is premature for non-exhaustion of administrative remedies. He contends that the
decision of the respondent Commission should have been first appealed by petitioners to the
Secretary of Labor, and, if they are not satisfied with his decision, to appeal to the President of
the Philippines, before resort is made to the Court.
The contention is without merit. The doctrine of exhaustion of administrative remedies
cannot be invoked in this case, as contended. In the recent case of John Clement Consultants,
Inc. versus National Labor Relations Commission, 10 the Court said:
As is well known, no law provides for an appeal from decisions of the
National Labor Relations Commission; hence, there can be no review and
reversal on appeal by higher authority of its factual or legal conclusions.
When, however, it decides a case without or in excess of its jurisdiction,
or with grave abuse of discretion, the party thereby adversely affected
may obtain a review and nullification of that decision by this Court
through the extraordinary writ of certiorari. Since, in this case, it appears
that the Commission has indeed acted without jurisdiction and with
ADR SUMMER PART V.
grave abuse of discretion in taking cognizance of a belated appeal sought
to be taken from a decision of Labor Arbiter and thereafter reversing it,
the writ of certiorari will issue to undo those acts, and do justice to the
aggrieved party.
We also find no merit in the contention of Rodito Nasayao that only questions of law, and not
findings of fact of a voluntary arbitrator may be reviewed by the Court, since the findings of
fact of the voluntary arbitrator are conclusive upon the Court.
While the Court has accorded great respect for, and finality to, findings of fact of a voluntary
arbitrator 11 and administrative agencies which have acquired expertise in their respective
fields, like the Labor Department and the National Labor Relations Commission, 12 their
findings of fact and the conclusions drawn therefrom have to be supported by substantial
evidence. ln that instant case, the finding of the voluntary arbitrator that Rodito Nasayao was
an employee of the petitioner corporation is not supported by the evidence or by the law.
On the other hand, we find the version of the petitioners to be more plausible and in accord
with human nature and the ordinary course of things. As pointed out by the petitioners, it was
illogical for them to hire the private respondent Rodito Nasayao as plant manager with a
monthly salary of P3,000.00, an amount which they could ill-afford to pay, considering that
the business was losing, at the time he was hired, and that they were about to close shop in a
few months' time.
Besides, there is nothing in the record which would support the claim of Rodito Nasayao that
he was an employee of the petitioner corporation. He was not included in the company
payroll, nor in the list of company employees furnished the Social Security System.
Most of all, the element of control is lacking. In Brotherhood Labor Unity Movement in the
Philippines vs. Zamora, 13the Court enumerated the factors in determining whether or not an
employer-employee relationship exists, to wit:
In determining the existence of an employer-employee relationship, the
elements that are generally considered are the following: (a) the
selection and engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the employer's power to control the
employee with respect to the means and methods by which the work is
to be accomplished. It is the so-called "control test" that is the most
important element (Investment Planning Corp. of the Phils. vs. The Social
Security System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra, and
Rosario Brothers, Inc. v. Ople, 131 SCRA 72).<re||an1w>
In the instant case, it appears that the petitioners had no control over the conduct of Rodito
Nasayao in the performance of his work. He decided for himself on what was to be done and
worked at his own pleasure. He was not subject to definite hours or conditions of work and, in
turn, was compensated according to the results of his own effort. He had a free hand in
running the company and its business, so much so, that the petitioner Felipe David did not
know, until very much later, that Rodito Nasayao had collected old accounts receivables, not
covered by their agreement, which he converted to his own personal use. It was only after
Rodito Nasayao had abandoned the plant following discovery of his wrong- doings, that Felipe
David assumed management of the plant.
Absent the power to control the employee with respect to the means and methods by which
his work was to be accomplished, there was no employer-employee relationship between the
parties. Hence, there is no basis for an award of unpaid salaries or wages to Rodito Nasayao.
WHEREFORE, the decision rendered by the respondent Jose T. Collado in NLRC Case No. LR-
6151, entitled: "Rodito Nasayao, complainant, versus Continental Marble Corp. and Felipe
David, respondents," on 29 December 1975, and the resolution issued by the respondent
National Labor Relations Commission in said case on 7 May 1976, are REVERSED and SET
ASIDE and another one entered DISMISSING private respondent's complaints. The temporary
restraning order heretofore isued by the Court is made permanent. Without costs.
SO ORDERED.
G.R. No. 173137, January 11, 2016
BASES CONVERSION DEVELOPMENT AUTHORITY, Petitioner, v. DMCI PROJECT
DEVELOPERS, INC., Respondent.
G.R. NO. 173170
NORTH LUZON RAILWAYS CORPORATION, Petitioner, v. DMCI PROJECT DEVELOPERS,
INC.Respondent.
DECISION
LEONEN, J.:
An arbitration clause in a document of contract may extend to subsequent documents of
contract executed for the same purpose. Nominees of a party to and beneficiaries of a contract
containing an arbitration clause may become parties to a proceeding initiated based on that
arbitration clause.
On June 10, 1995, Bases Conversion Development Authority (BCDA) entered into a Joint
Venture Agreement1 with Philippine National Railways (PNR) and other foreign
corporations.2chanroblesvirtuallawlibrary
Under the Joint Venture Agreement, the parties agreed to construct a railroad system from
Manila to Clark with possible extensions to Subic Bay and La Union and later, possibly to
Ilocos Norte and Nueva Ecija.3 BCDA shall establish North Luzon Railways Corporation
(Northrail) for purposes of constructing, operating, and managing the railroad system. 4 The
Joint Venture Agreement contained the following provision:
ARTICLE XVI
ARBITRATION
16. If any dispute arise hereunder which cannot be settled by mutual accord
between the parties to such dispute, then that dispute shall be referred
to arbitration. The arbitration shall be held in whichever place the
parties to the dispute decide and failing mutual agreement as to a
ADR SUMMER PART V.
location within twenty-one (21) days after the occurrence of the dispute,
shall be held in Metro Manila and shall be conducted in accordance with
the Philippine Arbitration Law (Republic Act No. 876) supplemented by
the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. All award of such arbitration shall be final and binding upon
the parties to the dispute.5
BCDA organized and incorporated Northrail.6 Northrail was registered with the Securities and
Exchange Commission on August 22, 1995.7chanroblesvirtuallawlibrary
BCDA invited investors to participate in the railroad project's financing and implementation.
Among those invited were D.M. Consunji, Inc. and Metro Pacific
Corporation.8chanroblesvirtuallawlibrary
On February 8, 1996, the Joint Venture Agreement was amended to include D.M.
Consunji, Inc. and/or its nominee as party.9 Under the amended Joint Venture Agreement,
D.M. Consunji, Inc. shall be an additional investor of Northrail. 10 It shall subscribe to 20% of
the increase in Northrail's authorized capital stock. 11chanroblesvirtuallawlibrary
On February 8, 1996, BCDA and the other parties to the Joint Venture Agreement, including
D.M. Consunji, Inc. and/or its nominee, entered into a Memorandum of Agreement.12 Under
this agreement, the parties agreed that the initial seed capital of P600 million shall be infused
to Northrail.13Of that amount, P200 million shall be D.M. Consunji, Inc.'s share, which shall be
converted to equity upon NorthraiPs privatization.14 Later, D.M. Consunji, Inc.'s share was
increased to P300 million.15chanroblesvirtuallawlibrary
Upon BCDA and Northrail's request,16 DMCI Project Developers, Inc. (DMCI-PDI) deposited
P300 million into NorthraiPs account with Land Bank of the Philippines.17 The deposit was
made on August 7, 199618for its "future subscription of the Northrail shares of stocks." 19 In
NorthraiPs 1998 financial statements submitted to the Securities and Exchange Commission,
this amount was reflected as "Deposits For Future Subscription." 20 At that time, NorthraiPs
application to increase its authorized capital stock was still pending with the Securities and
Exchange Commission.21chanroblesvirtuallawlibrary
In letters22dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the other parties
that DMCI-PDI shall be its designated nominee for all the agreements it entered and
would enter with them in connection with the railroad project. Pertinent portions of the
letters provide:
[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA
and MOA, DMCI would like to notify all the parties that it is designating PDI as its nominee in
both agreements and such other agreements that may be signed by the parties in furtherance of
or in connection with the PROJECT. By this nomination, all the rights, obligations, warranties
and commitments of DMCI under the JVA and MOA shall henceforth be assumed performed
and delivered by PDI.23 (Emphasis supplied)
Later, Northrail withdrew from the Securities and Exchange Commission its application for
increased authorized capital stock.24 Moreover, according to DMCI-PDI, BCDA applied for
Official Development Assistance from Obuchi Fund of Japan.25 This required Northrail to be a
100% government-owned and controlled corporation.26chanroblesvirtuallawlibrary
On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail the return of
its P300 million deposit.27 DMCI-PDI cited Northrail's failure to increase its authorized capital
stock as reason for the demand.28 BCDA and Northrail refused to return the deposit29 for the
following reasons:
a) At the outset, DMCI PDI/FBDC's participation in Northrail was as a joint venture partner
and co-investor in the Manila Clark Rapid Railway Project, and as such, was granted
corresponding representation in the Northrail Board.
b) DMCI PDI/FBDC was privy to all the deliberations of the Northrail Board and participated
in the decisions made and policies adopted to pursue the project.
c) DMCI PDI/FBDC had full access to the financial statements of Northrail and was regularly
informed of the corporation's financial condition.30chanrobleslaw
Upon BCDA's request, the Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 116, Series of 200131 on June 27, 2001. The OGCC stated that "since no increase in capital
stock was implemented, it is but proper to return the investments of both FBDC and
DMCI[.]"32chanroblesvirtuallawlibrary
In a January 19, 2005 letter,33 DMCI-PDI reiterated the request for the refund of its P300
million deposit for future Northrail subscription. On March 18, 2005, BCDA denied34 DMCI-
PDI's request:
We regret to say that we are of the position that the P300 [million] contribution should not be
returned to DMCI for the following reasons:
a. the P300 million was in the nature of a contribution, not deposits for
future subscription; and
b. DMCI, as a joint venture partner, must share in profits and losses. 35
On August 17, 2005,36 DMCI-PDI served a demand for arbitration to BCDA and Northrail, citing
the arbitration clause in the June 10, 1995 Joint Venture Agreement. 37 BCDA and Northrail
failed to respond.38chanroblesvirtuallawlibrary
DMCI-PDI filed before the Regional Trial Court of Makati39 a Petition to Compel
Arbitration40 against BCDA and Northrail, pursuant to the alleged arbitration clause in the
Joint Venture Agreement.41 DMCI-PDI prayed for "an order directing the parties to proceed to
arbitration in accordance with the terms and conditions of the
agreement."42chanroblesvirtuallawlibrary
BCDA filed a Motion to Dismiss43 on the ground that there was no arbitration clause that
DMCI-PDI could enforce since DMCI-PDI was not a party to the Joint Venture Agreement
containing the arbitration clause.44 Northrail filed a separate Motion to Dismiss45 on the
ground that the court did not have jurisdiction over it and that DMCI-PDI had no cause for
arbitration against it.46chanroblesvirtuallawlibrary
In the Decision47 dated February 9, 2006, the trial court denied BCDA's and Northrail's
Motions to Dismiss and granted DMCI-PDI's Petition to Compel Arbitration. The dispositive
portion of the decision reads:
ADR SUMMER PART V.
WHEREFORE, the petition is granted. The parties are ordered to present their dispute to
arbitration in accordance with Article XVI of the Joint Agreement.
SO ORDERED.48chanrobleslaw
The trial court ruled that the arbitration clause in the Joint Venture Agreement should cover
all subsequent documents including the amended Joint Venture Agreement and the
Memorandum of Agreement. The three (3) documents constituted one contract for the
formation and funding of Northrail.49chanroblesvirtuallawlibrary
The trial court also ruled that even though DMCI-PDI was not a signatory to the Joint Venture
Agreement and the Memorandum of Agreement, it was an assignee of D.M. Consunji, Inc.'s
rights. Therefore, it could invoke the arbitration clause in the Joint Venture
Agreement.50chanroblesvirtuallawlibrary
In an Order51 dated June 9, 2006, the trial court denied BCDA and Northrail's Motion for
Reconsideration of the February 9, 2006 trial court Decision.
BCDA filed a Rule 45 Petition before this court, assailing the February 9, 2006 trial court
Order granting DMCI-PDI's Petition to Compel Arbitration and the June 9, 2006 Order denying
BCDA and Northrail's Motion for Reconsideration.52chanroblesvirtuallawlibrary
The issue in this case is whether DMCI-PDI may compel BCDA and Northrail to submit to
arbitration.
BCDA argued that only the parties to an arbitration agreement can be bound by that
agreement.53 The arbitration clause that DMCI-PDI sought to enforce was in the Joint Venture
Agreement, to which DMCI-PDI was not a party.54 There was also no evidence that the right to
compel arbitration under the Joint Venture Agreement was assigned to DMCI-PDI. 55 Assuming
that there was such an assignment, BCDA did not consent to or recognize it.56 Therefore, the
trial court's conclusion that DMCI-PDI was D.M. Consunji, Inc.'s assignee had no basis. 57 In
BCDA's view, DMCI-PDI had no right to compel BCDA to submit to
arbitration.58chanroblesvirtuallawlibrary
BCDA also argued that the trial court decided the Motion to Dismiss in violation of the parties'
right to due process. The trial court should have conducted a hearing so that the parties could
have presented their respective positions on the issue of assignment. The trial court merely
accepted DMCI-PDI's allegations, without basis.59chanroblesvirtuallawlibrary
In a separate Petition for Review,60 Northrail argued that it cannot be compelled to submit
itself to arbitration because it was not a party to the arbitration
agreement.61chanroblesvirtuallawlibrary
Northrail also argued that DMCI-PDI cannot initiate an action to compel BCDA and Northrail
to arbitration because DMCI-PDI itself was not a party to the arbitration agreement. DMCI-PDI
was not D.M. Consunji, Inc.'s assignee because BCDA did not consent to that
assignment.62chanroblesvirtuallawlibrary
In its Comment63 on BCDA's Petition, DMCI-PDI argued that Rule 45 was a wrong mode of
appeal.64 The issues raised by BCDA did not involve questions of
law.65chanroblesvirtuallawlibrary
DMCI-PDI pointed out that BCDA breached their agreement when it failed to apply the P300
million deposit to Northrail subscriptions. It turned out that such application was rendered
impossible by the alleged loan requirement that Northrail be wholly owned by the
government and by Northrail's withdrawal from the Securities and Exchange Commission of
its application for an increase in authorized capital stock. 66chanroblesvirtuallawlibrary
DMCI-PDI also argued that it is an assignee and nominee of D.M. Consunji, Inc., which is a
party to the contracts. Therefore, it is also a party to the arbitration
clause.67chanroblesvirtuallawlibrary
DMCI-PDI contended that the arbitration agreement extended to all documents relating to the
project.68Even though the agreement was expressed only in the Joint Venture Agreement, its
effect extends to the amendment to the Joint Venture Agreement and Memorandum of
Agreement.69chanroblesvirtuallawlibrary
DMCI-PDI emphasized that BCDA had always recognized it as D.M. Consunji's assignee in its
correspondences with the OGCC and with the President of DMCI, Mr. Isidro Consunji. 70 In
those letters, BCDA described DMCI-PDI's participation as being the "joint venture partner . . .
and co-investor in the Manila Clark Rapid Railway Project[.]" 71 Hence, it is now estopped from
denying its personality in this case.72chanroblesvirtuallawlibrary
We rule for DMCI-PDI.chanRoblesvirtualLawlibrary
I
The state has a policy in favor of arbitration
At the outset, we must state that BCDA and Northrail invoked the correct remedy. Rule 45 is
applicable when the issues raised before this court involved purely questions of law.
In Villamor v. Balmores:73chanroblesvirtuallawlibrary
[t]here is a question of law "when there is doubt or controversy as to what the law is on a
certain [set] of facts." The test is "whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence." Meanwhile, there is a question of fact when
there is "doubt ... as to the truth or falsehood of facts." The question must involve the
examination of probative value of the evidence presented.74chanroblesvirtuallawlibrary
BCDA and Northrail primarily ask us to construe the arbitration clause in the Joint Venture
Agreement. They assert that the clause does not bind DMCI-PDI and Northrail. This issue is a
question of law. It does not require us to examine the probative value of the evidence
presented. The prayer is essentially for this court to determine the scope of an arbitration
clause.
Arbitration is a mode of settling disputes between parties.75 Like many alternative dispute
resolution processes, it is a product of the meeting of minds of parties submitting a pre-
defined set of disputes. They agree among themselves to a process of dispute resolution that
avoids extended litigation.
The state adopts a policy in favor of arbitration. Republic Act No. 9285 76 expresses this policy:
SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote
party autonomy in the resolution of disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Towards this end, the State shall encourage and
actively promote the use of Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court dockets. As such, the State shall provide
means for the use of ADR as an efficient tool and an alternative procedure for the resolution of
appropriate cases. Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to the adoption by the
ADR SUMMER PART V.
Supreme Court of any ADR system, such as mediation, conciliation, arbitration, or any JOINT VENTURE AGREEMENT
combination thereof as a means of achieving speedy and efficient means of resolving cases
pending before all courts in the Philippines which shall be governed by such rules as the KNOW ALL MEN BY THESE PRESENTS:
Supreme Court may approve from time to time. (Emphasis supplied)
This Joint Venture Agreement (JVA) made and executed at Makati, Metro Manila, this__ day
of June 1995 by and between:
Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as
early as 1949 when our Civil Code was approved.77 Republic Act No. 87678 later explicitly
The BASES CONVERSION DEVELOPMENT AUTHORITY
recognized the validity and enforceability of parties' decision to submit disputes and related
issues to arbitration.79chanroblesvirtuallawlibrary
. . . hereinafter referred to as BASECON;
Arbitration agreements are liberally construed in favor of proceeding to arbitration. We
80
The PHILIPPINE NATIONAL RAILWAYS ...;
adopt the interpretation that would render effective an arbitration clause if the terms of the
agreement allow for such interpretation.81 In LM Power Engineering Corporation v. Capitol
The following corporations collectively referred to as the Foreign Group:
Industrial Construction Groups, Inc.,82 this court said:
a) CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A... .;
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is b) ENTRECANALES Y TAVORA, SA . . .;
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should
be granted. Any doubt should be resolved in favor of arbitration. 83chanrobleslaw c) CUBIERTAS MZOV, S.A. . . .;

This manner of interpreting arbitration clauses is made explicit in Section 25 of Republic Act d) COBRA, S.A....; and
No. 9285:
e) Others who may later participate in the JVA.chanRoblesvirtualLawlibrary
SEC. 25. Interpretation of the Act.-In interpreting the Act, the court shall have due regard to the
policy of the law in favor of arbitration. Where action is commenced by or against multiple -and-
parties, one or more of whom are parties to an arbitration agreement, the court shall refer to
arbitration those parties who are bound by the arbitration agreement although the civil action EUROMA DEVELOPMENT CORPORATION . . .
may continue as to those who are not bound by such arbitration agreement.
WITNESSETH:

Hence, we resolve the issue of whether DMCI-PDI may compel BCDA and Northrail to submit
to arbitration proceedings in light of the policy in favor of arbitration. ....

BCDA and Northrail assail DMCI-PDI's right to compel them to submit to arbitration based on
the assumption that DMCI-PDI was not a party to the agreement containing the arbitration
clause.
Three documents (a) Joint Venture Agreement, (b) amended Joint Venture Agreement, and
(c) Memorandum of Agreement represent the agreement between BCDA, Northrail, and
D.M. Consunji, Inc. Among the three documents, only the Joint Venture Agreement contains
the arbitration clause. DMCI-PDI was allegedly not a party to the Joint Venture Agreement.
To determine the coverage of the arbitration clause, the relation among the three documents
and DMCI-PDI's involvement in the execution of these documents must first be understood.
The Joint Venture Agreement was executed by BCDA, PNR, and some foreign
corporations.84 The purpose of the Joint Venture Agreement was for the construction of a
railroad system from Manila to Clark with a possible extension to Subic Bay and later to San
Fernando, La Union, Laoag, Ilocos Norte, and San Jose, Nueva Ejica. 85 Under the Joint Venture
Agreement, BCDA agreed to incorporate Northrail, which shall have an authorized capital
stock of F5.5 billion.86 The parties agreed that BCDA/PNR shall have a 30% equity with
Northrail.87 Other Filipino partners shall have a total of 50% equity, while foreign partners
shall have at most 20% equity.88 Pertinent provisions of the Joint Venture Agreement are as
follows:
WHEREAS, a project identified pursuant to the aforesaid policy is the establishment of a
Premier International Airport Complex located at the former Clark Air Base as expressed in
Executive Order 174 s. 1994 in order to accommodate the expected heavy flow of passenger
and cargo traffic to and from the Philippines, to start the development of the Northern Luzon
Grid and to accelerate the development of Central Luzon and finally to decongest Metro
Manila of its vehicular traffic;
WHEREAS, in order to implement and provide such a mass transit and access system, the
parties hereto agreed to construct a double-trac[k] railway system from Manila to Clark with a
possible extension to Subic Bay and later to San Fernando, La Union, as the second phase, and
finally to Laoag, Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of the project,
hereinafter referred to as the PROJECT;
ARTICLE I
DEFINITION OF TERMS
....
1.5 "PROJECT" means the construction, operation and management of a double-track railway
system from Manila to Clark with an extension to Subic Bay, and a possible extension to San
Fernando, La Union, as the second phase, and finally to Laoag, Ilocos Norte and to San Jose,
ADR SUMMER PART V.
Nueva Ecija, as the third phase of the PROJECT.
1.6 "North Luzon Railways Corporation (NORTHRAIL)["] means the joint venture
corporation to be established in accordance with Article II hereof.
. . . .chanRoblesvirtualLawlibrary
ARTICLE II
THE NORTH LUZON RAILROAD CORPORATION
2.1 BASECON shall establish and incorporate in accordance with the laws of the Republic of
the Philippines a corporation to be known as NORTH LUZON RAILWAYS CORPORATION
(NORTHRAIL) with an initial capitalization of one hundred million pesos (PI 00,000,000.00).
2.2 NORTHRAIL shall eventually have an authorized capital stock of FIVE BILLION FIVE
HUNDRED MILLION PESOS (P 5.5 Billion) divided into 55,000,000 shares with par value of P
100 per share.
. . . .chanRoblesvirtualLawlibrary
ARTICLE III
PURPOSE OF NORTHRAIL
A. PRIMARY PURPOSE
3.1 To construct, operate and manage a railroad system to serve Northern and Central Luzon;
and to develop, construct, manage, own, lease, sublease and operate establishments and
facilities of all kinds related to the railroad system;
. . . .chanRoblesvirtualLawlibrary
ARTICLE IV
PARTICIPATION/TRANSFER/ENCUMBRANCE OF SHARES
4.1 NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by
the parties to this JVA in accordance with the following equity proportion/participation:
parties to such dispute, then that dispute shall be referred to arbitration. The arbitration shall
be held in whichever place the parties to the dispute decide and failing mutual agreement as
to a location within twenty-one (21) days after the occurrence of the dispute, shall be held in
Metro Manila and shall be conducted in accordance with the Philippine Arbitration Law
(Republic Act No. 876) as supplemented by the Rules of Conciliation and Arbitration of the
International Chamber of Commerce. All award of such arbitration shall be final and binding
upon the parties to the dispute.
ARTICLE XVII
ASSIGNMENT
17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or
incur any encumbrance of its rights or any part of its rights and obligations hereunder or any
shares of stocks of NORTHRAIL to any person, firm or corporation without the prior written
consent of the other parties or except as provided in the Articles of Incorporation and By-
Laws of NORTHRAIL and this Agreement.
17.2 This Agreement shall inure to the benefit of and be binding upon the parties hereto and
their respective successors and permitted assignees and designees or nominees whenever
possible.89chanrobleslaw
The Joint Venture Agreement was amended on February 8, 1996 90 to include D.M. Consunji,
Inc. and/or its nominee as party.91 The participations of the parties in Northrail were also
modified. Pertinent provisions of the amended Joint Venture Agreement are reproduced as
follows:
This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement)
made and executed at_____________ , Metro Manila, on this 8th day of February 1996 by and
among:chanRoblesvirtualLawlibrary
BASES CONVERSION DEVELOPMENT AUTHORITY . . . hereinafter referred to as BASECON;
with
PHILIPPINE NATIONAL RAILWAYS ...

Foreign Group up to 20% and

Euroma/Filipino partners 50%
BASECON/PNR 30% The following corporations collectively referred to as the FOREIGN GROUP:

.... CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A.. . .;

4.4 The shares owned by Filipino stockholders including BASECON, PNR, EUROMA ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV, S.A. . . .;
Development Corporation and hereinafter to be owned by Filipino corporations shall not be
less than sixty percent (60%) at any given time. COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and
. . . .chanRoblesvirtualLawlibrary
Other investors who may later participate in the Joint Venture;chanRoblesvirtualLawlibrary
ARTICLE XVI
and
ARBITRATION

16. If any dispute arise hereunder which cannot be settled by mutual accord between the
Other local investors to be represented by EUROMA DEVELOPMENT CORPORATION . . .
ADR SUMMER PART V.
and
P.M. CONSUNJI. INC. and/or its nominee . . .
WITNESSETH THAT
WHEREAS, a Joint Venture Agreement (JVA) was executed on the 10 th of June 1995 between
BASECON, PNR, FOREIGN GROUP, and EUROMA;
....
NOW, THEREFORE, for and in consideration of the foregoing premises and of the mutual
covenant contained therein, THE PARTIES HEREBY AGREE that the JVA should be amended
as follows:
1. In Article 1.3, D.M. CONSUNJI, INC. shall be included as
strategic partner, being one of the Philippine registered
companies selected by BASECON, PNR and the Lead Group on
the basis of its qualifications for the implementation of the
Project.
2. Article 4.1 should read as follows:
"NORTHRAIL shall increase its authorized capital stock upon
the subscription thereon by the Parties to this JVA in
accordance with the following equity
proportion/participation:
SRG.............................................. up to 10%
DMCI..................................................... 20%
BASECON/PNR............................. up to 30%
Others..................................................... 40%
3. In Article 4.4, the Filipino corporations whose total shares in
NORTHRAIL's capital stock, which should not be less than
sixty percent (60%) at any given time, shall include D.M.
CONSUNJI, INC.93 (Underscoring supplied)
On February 8, 1996, the same date of the execution of the amended Joint Venture Agreement,
the same parties executed a Memorandum of Agreement94 "to set up the mechanics for raising
the seed capitalization needed by NORTHRAIL[.]"95 Pertinent provisions of the Memorandum
of Agreement are reproduced as follows:
WITNESSETH THAT
WHEREAS, the Manila - Clark Rapid Railway System Project, hereinafter referred to as the
Project, was identified as one of the major infrastructure projects to accelerate the
development of Central Luzon, particularly the former U.S. bases at Clark and Subic;
....
WHEREAS, the North Luzon Railways Corporation (NORTHRAIL) was organized and
incorporated to implement the development, construction, operation and maintenance of the
railway system in Northern Luzon;
WHEREAS, NORTHRAIL is wholly owned and controlled by BASECON;
WHEREAS, the privatization of NORTHRAIL is necessary in order to accelerate the
implementation of the Project by tapping the financial resources and expertise of the private
sector;
....
WHEREAS, the Parties of the Joint Venture Agreement (JVA) of 10 June 1995, namely
BASECON, PNR, SPANISH RAILWAY GROUP and EUROMA, agreed to invite other private
investors to help in the financing and implementation of the Project, and to raise the required
equity in order to accelerate the privatization of NORTHRAIL;
WHEREAS, DMCI and other private investors. . . have manifested their desire to be strategic
partners in implementing the Project;
WHEREAS, DMCI and other private investors have the financial capability to implement the
Project;
WHEREAS, Phase I of the Project covers the Manila - Clark section of the North Luzon railway
network as defined by the JVA of 10 June 1995 . . .[;]
. . . .chanRoblesvirtualLawlibrary
ARTICLE I
PURPOSE
1.1 Purpose. This Agreement is entered into by the Parties in order to set up the mechanics
for raising the seed capitalization needed by NORTHRAIL to accelerate the implementation of
the Project.
. . . .chanRoblesvirtualLawlibrary
ARTICLE II
TERMS OF AGREEMENT
....
2.1 The Parties agree to put up the necessary seed capitalization needed by NORTHRAIL to
fast-track the implementation of the Rapid Rail Transit System Project according to the
following schedule:
BCDA/PNR...................... PHP 300 Million
DMCI..................................................... PHP 200 Million
SRG...................................................... PHP 100 Million
TOTAL................................................... PHP 600 Million
....
2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and others are committed to be
converted to equity when NORTHRAIL is privatized.96chanroblesvirtuallawlibrary
ADR SUMMER PART V.
There is no rule that a contract should be contained in a single document. 97 A whole contract
may be contained in several documents that are consistent with one
other.98chanroblesvirtuallawlibrary
Moreover, at any time during the lifetime of an agreement, circumstances may arise that may
cause the parties to change or add to the terms they previously agreed upon. Thus,
amendments or supplements to the agreement may be executed by contracting parties to
address the circumstances or issues that arise while a contract subsists.
When an agreement is amended, some provisions are changed. Certain parts or provisions
may be added, removed, or corrected. These changes may cause effects that are inconsistent
with the wordings of the contract before the changes were applied. In that case, the old
provisions shall be deemed to have lost their force and effect, while the changes shall be
deemed to have taken effect. Provisions that are not affected by the changes usually remain
effective.
When a contract is supplemented, new provisions that are not inconsistent with the old
provisions are added. The nature, scope, and terms and conditions are expanded. In that case,
the old and the new provisions form part of the contract.
A reading of all the documents of agreement shows that they were executed by the same
parties. Initially, the Joint Venture Agreement was executed only by BCD A, PNR, and the
foreign corporations. When the Joint Venture Agreement was amended to include D.M.
Consunji, Inc. and/or its nominee, D.M. Consunji, Inc. and/or its nominee were deemed to
have been also a party to the original Joint Venture Agreement executed by BCDA, PNR, and
the foreign corporations. D.M. Consunji, Inc. and/or its nominee became bound to the terms of
both the Joint Venture Agreement and its amendment.
Moreover, each document was executed to achieve the single purpose of implementing the
railroad project, such that documents of agreement succeeding the original Joint Venture
Agreement merely amended or supplemented the provisions of the original Joint Venture
Agreement.
The first agreement the Joint Venture Agreement defined the project, its purposes, the
parties, the parties' equity participation, and their responsibilities. The second agreement
the amended Joint Venture Agreement - only changed the equity participation of the parties
and included D.M. Consunji, Inc. and/or its nominee as party to the railroad project. The third
agreement the Memorandum of Agreement raised the seed capitalization of Northrail
from P100 million as indicated in the first agreement to P600 million, in order to accelerate
the implementation of the same project defined in the first agreement.
The Memorandum of Agreement is an implementation of the Joint Venture Agreement and the
amended Joint Venture Agreement. It could not exist without referring to the provisions of the
original and amended Joint Venture Agreements. It assumes a prior knowledge of its terms.
Thus, it referred to "North Luzon railway network as defined by the JVA of 10 June
1995[.]"99chanroblesvirtuallawlibrary
In other words, each document of agreement represents a step toward the implementation of
the project, such that the three agreements must be read together for a complete
understanding of the parties' whole agreement. The Joint Venture Agreement, the amended
Joint Venture Agreement, and the Memorandum of Agreement should be treated as one
contract because they all form part of a whole agreement.
Hence, the arbitration clause in the Joint Venture Agreement should not be interpreted as
applicable only to the Joint Venture Agreement's original parties. The succeeding agreements
are deemed part of or a continuation of the Joint Venture Agreement. The arbitration clause
should extend to all the agreements and its parties since it is still consistent with all the terms
and conditions of the amendments and supplements.chanRoblesvirtualLawlibrary
II
BCDA and Northrail argued that they did not consent to D.M. Consunji, Inc.'s assignment of
rights to DMCI-PDI. Therefore, DMCI-PDI did not validly become a party to any of the
agreement. Section 17.1 of the Joint Venture Agreement provides that rights under the
agreement may not be assigned, transferred, or conveyed without the consent of the other
party.100 Thus:
17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or
incur any encumbrance of its rights or any part of its rights and obligations hereunder or any
shares of stocks of NORTHRAIL to any person, firm or corporation without the prior written
consent of the other parties or except as provided in the Articles of Incorporation and By-
Laws of NORTHRAIL and the Agreement.101chanroblesvirtuallawlibrary
However, Section 17.2 of the Joint Venture Agreement provides that the agreement shall be
binding on nominees:
17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their
respective successors and permitted assignees and designees or nominees whenever
applicable.102 (Emphasis supplied)
The principal parties to the agreement after its amendment include D.M. Consunji, Inc. and/or
its nominee:
AMENDMENT TO THE JOINT VENTURE AGREEMENT
This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement)
made and executed at _____________ , Metro Manila, on this 8th day of February 1996 by and
among:
BASES CONVERSION DEVELOPMENT AUTHORITY . . .
with
PHILIPPINE NATIONAL RAILWAYS . . .chanRoblesvirtualLawlibrary
and
....
D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created
pursuant to the laws of the Republic of the Philippines . . .103 (Emphasis
supplied)chanRoblesvirtualLawlibrary
MEMORANDUM OF AGREEMENT
This Agreement made and executed at Pasig, Metro Manila, Philippines on this 8[th] day of
ADR SUMMER PART V.
February 1996 by and among:
BASES CONVERSION DEVELOPMENT AUTHORITY . . .chanRoblesvirtualLawlibrary
with
PHILIPPINE NATIONAL RAILWAYS ...chanRoblesvirtualLawlibrary
and
D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created
pursuant to the laws of the Republic of the Philippines . . .104 (Emphasis supplied)
Based on DMCI-PDFs letter to BCDA and Northrail dated April 4, 1997, D.M. Consunji, Inc.
designated DMCI-PDI as its nominee for the agreements it entered into in relation to the
project:
[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA
and MOA, DMCI would like to notify all the parties that it is designating PDI as its nominee in
both agreements and such other agreements that may be signed by the parties in furtherance of
or in connection with the PROJECT. By this nomination, all the rights, obligations, warranties
and commitments of DMCI under the JVA and MOA shall henceforth be assumed performed
and delivered by PDI.105 (Emphasis supplied)
Thus, lack of consent to the assignment is irrelevant because there was no assignment or
transfer of rights to DMCI-PDI. DMCI-PDI was D.M. Consunji, Inc.'s nominee.
Section 17.2 of the Joint Venture Agreement clearly shows an intent to treat assignment and
nomination differently.
17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their
respective successors and permitted assignees and designees or nominees whenever
applicable.106 (Emphasis supplied)
Assignment involves the transfer of rights after the perfection of a contract. Nomination
pertains to the act of naming the party with whom it has a relationship of trust or agency.
In Philippine Coconut Producers Federation, Inc. (COCOFED) v. Republic, 107 this court defined
"nominee" as follows:
In its most common signification, the term "nominee'' refers to one who is designated to act
for another usually in a limited way; a person in whose name a stock or bond certificate is
registered but who is not the actual owner thereof is considered a nominee." Corpus Juris
Secundum describes a nominee as one:
". . . designated to act for another as his representative in a rather limited sense. It has no
connotation, however, other than that of acting for another, in representation of another or as
the grantee of another. In its commonly accepted meaning the term connoted the delegation of
authority to the nominee in a representative or nominal capacity only, and does not connote
the transfer or assignment to the nominee of any property in, or ownership of, the rights of
the person nominating him."108 (Citations omitted)
Contrary to BCDA and Northrail's position, therefore, the agreement's prohibition against
transfers, conveyance, and assignment of rights without the consent of the other party does
not apply to nomination.
DMCI-PDI is a party to all the agreements, including the arbitration agreement. It may, thus,
invoke the arbitration clause against all the parties.chanRoblesvirtualLawlibrary
III
Northrail, although not a signatory to the contracts, is also bound by the arbitration
agreement.
In Lanuza v. BF Corporation,109 we recognized that there are instances when non-signatories to
a contract may be compelled to submit to arbitration. 110 Among those instances is when a non-
signatory is allowed to invoke rights or obligations based on the
contract.111chanroblesvirtuallawlibrary
The subject of BCDA and D.M. Consunji, Inc.'s agreement was the construction and operation
of a railroad system. Northrail was established pursuant to this agreement and its terms, and
for the same purpose, thus:
ARTICLE III
PURPOSE OF NORTHRAIL
A. PRIMARY PURPOSE
3.1. To construct, operate and manage a railroad system to serve Northern and Central Luzon;
and to develop, construct, manage, own, lease, sublease and operate establishments and
facilities of all kinds related to the railroad system[.] 112chanrobleslaw
Northrail's capitalization and the composition of its subscribers are also subject to the
provisions of the original and amended Joint Venture Agreements, and the subsequent
Memorandum of Agreement. It was pursuant to the terms of these agreements that Northrail
demanded from D.M. Consunji, Inc. the infusion of its share in subscription.
Therefore, Northrail cannot deny understanding that its existence, purpose, rights, and
obligations are tied to the agreements. When Northrail demanded for the amount of D.M.
Consunji, Inc.'s subscription based on the agreements and later accepted the latter's funds, it
proved that it was bound by the agreements' terms. It is also deemed to have accepted the
term that such funds shall be used for its privatization. It cannot choose to demand the
enforcement of some of its provisions if it is in its favor, and then later by whim, deny being
bound by its terms.
Hence, when BCDA and Northrail decided not to proceed with Northrail's privatization and
the transfer of subscriptions to D.M. Consunji, Inc., any obligation to return its supposed
subscription attached not only to BCDA as party to the agreement but primarily to Northrail
as beneficiary that impliedly accepted the terms of the agreement and received D.M. Consunji,
Inc.'s funds.
ADR SUMMER PART V.
There is, therefore, merit to DMCI-PDI's argument that if the Civil Code 113 gives third party
beneficiaries to a contract the right to demand the contract's fulfillment in its favor, the
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the
reverse should also be true.114A beneficiary who communicated his or her acceptance to the
terms of the agreement before its revocation may be compelled to abide by the terms of an
agreement, including the arbitration clause. In this case, Northrail is deemed to have February 16, 2005 decision[1] and August 16, 2005 resolution[2] of the Court of Appeals (CA) in
communicated its acceptance of the terms of the agreements when it accepted D.M. Consunji,
Inc.'s funds.
CA-G.R. SP No. 81940.
Finally, judicial efficiency and economy require a policy to avoid multiplicity of suits. As we
said in Lanuza:
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a
Moreover, in Heirs ofAugusto Salas, this court affirmed its policy against multiplicity of suits
and unnecessary delay. This court said that "to split the proceeding into arbitration for some
licensing agreement with respondent World Interactive Network Systems (WINS) Japan Co.,
parties and trial for other parties would "result in multiplicity of suits, duplicitous procedure
and unnecessary delay." This court also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding. While the facts of that case prompted Ltd., a foreign corporation licensed under the laws of Japan. Under the agreement, respondent
this court to direct the trial court to proceed to determine the issues of that case, it did not
prohibit courts from allowing the case to proceed to arbitration, when circumstances
warrant.115chanrobleslaw was granted the exclusive license to distribute and sublicense the distribution of the television

WHEREFORE, the petitions are DENIED. The February 9, 2006 Regional Trial Court Decision service known as The Filipino Channel (TFC) in Japan. By virtue thereof, petitioner undertook
and the June 9, 2006 Regional Trial Court Order are AFFIRMED.
to transmit the TFC programming signals to respondent which the latter received through its
SO ORDERED.cralawlawlibrary

decoders and distributed to its subscribers.

ABS-CBN BROADCASTING G.R. No. 169332 A dispute arose between the parties when petitioner accused respondent of inserting nine
CORPORATION,

episodes of WINS WEEKLY, a weekly 35-minute community news program for Filipinos in
Petitioner, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ, Japan, into the TFC programming from March to May 2002. [3] Petitioner claimed that these
- v e r s u s - CORONA,
AZCUNA and
were unauthorized insertions constituting a material breach of their agreement.
LEONARDO-DE CASTRO, JJ.
WORLD INTERACTIVE
NETWORK SYSTEMS (WINS) Consequently, on May 9, 2002, [4] petitioner notified respondent of its intention to terminate
JAPAN CO., LTD.,
Respondent. Promulgated:
February 11, 2008 the agreement effective June 10, 2002.

x--------------------------------------------------x
Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its
DECISION

CORONA, J.: agreement with petitioner. It contended that the airing of WINS WEEKLY was made with

petitioner's prior approval. It also alleged that petitioner only threatened to terminate their

agreement because it wanted to renegotiate the terms thereof to allow it to demand higher
ADR SUMMER PART V.

fees. Respondent also prayed for damages for petitioner's alleged grant of an exclusive Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the

distribution license to another entity, NHK (Japan Broadcasting Corporation).[5] alternative, a petition for certiorari under Rule 65 of the same Rules, with application for

temporary restraining order and writ of preliminary injunction. It was docketed as CA-G.R. SP
The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on
No. 81940. It alleged serious errors of fact and law and/or grave abuse of discretion
the following issues in their terms of reference (TOR) [6]:
amounting to lack or excess of jurisdiction on the part of the arbitrator.
1. Was the broadcast of WINS WEEKLY by the claimant duly
authorized by the respondent [herein petitioner]?

2. Did such broadcast constitute a material breach of the Respondent, on the other hand, filed a petition for confirmation of arbitral award before the
agreement that is a ground for termination of the agreement in
accordance with Section 13 (a) thereof?
Regional Trial Court (RTC) of Quezon City, Branch 93, docketed as Civil Case No. Q-04-51822.
3. If so, was the breach seasonably cured under the same
contractual provision of Section 13 (a)?
Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of
4. Which party is entitled to the payment of damages they claim
and to the other reliefs prayed for?
Quezon City from further proceeding with the hearing of respondent's petition for
xxx xxx xxx
confirmation of arbitral award. After the petition was admitted by the appellate court, the RTC

of Quezon City issued an order holding in abeyance any further action on respondent's
The arbitrator found in favor of respondent. He held that petitioner gave its approval to
[7]

petition as the assailed decision of the arbitrator had already become the subject of an appeal
respondent for the airing of WINS WEEKLY as shown by a series of written exchanges
in the CA. Respondent filed a motion for reconsideration but no resolution has been issued by
between the parties. He also ruled that, had there really been a material breach of the
the lower court to date.[8]
agreement, petitioner should have terminated the same instead of sending a mere notice to

On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBNs petition
terminate said agreement. The arbitrator found that petitioner threatened to terminate the

for lack of jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision
agreement due to its desire to compel respondent to re-negotiate the terms thereof for higher

shall be final and unappealable and that no motion for reconsideration shall be filed, then the
fees. He further stated that even if respondent committed a breach of the agreement, the same

petition for review must fail. It ruled that it is the RTC which has jurisdiction over questions
was seasonably cured. He then allowed respondent to recover temperate damages, attorney's

relating to arbitration. It held that the only instance it can exercise jurisdiction over an arbitral
fees and one-half of the amount it paid as arbitrator's fee.

award is an appeal from the trial court's decision confirming, vacating or modifying the
ADR SUMMER PART V.
arbitral award. It further stated that a petition for certiorari under Rule 65 of the Rules of
Court is proper in arbitration cases only if the courts refuse or neglect to inquire into the facts
of an arbitrator's award. The dispositive portion of the CA decision read:
WHEREFORE, the instant petition is hereby DISMISSED for lack of
jurisdiction. The application for a writ of injunction and temporary
restraining order is likewise DENIED. The Regional Trial Court of
Quezon City Branch 93 is directed to proceed with the trial for the
Petition for Confirmation of Arbitral Award.
SO ORDERED.
Petitioner moved for reconsideration. The same was denied. Hence, this petition.
Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to
vacate the award in the RTC and only in case of denial could it elevate the matter to the CA via
a petition for review under Rule 43 and (b) the assailed decision implied that an aggrieved
party to an arbitral award does not have the option of directly filing a petition for review
under Rule 43 or a petition for certiorari under Rule 65 with the CA even if the issues raised
pertain to errors of fact and law or grave abuse of discretion, as the case may be, and not
dependent upon such grounds as enumerated under Section 24 (petition to vacate an arbitral
award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part of the CA.
The issue before us is whether or not an aggrieved party in a voluntary arbitration
dispute may avail of, directly in the CA, a petition for review under Rule 43 or a petition for
certiorari under Rule 65 of the Rules of Court, instead of filing a petition to vacate the award
in the RTC when the grounds invoked to overturn the arbitrators decision are other than
those for a petition to vacate an arbitral award enumerated under RA 876.
RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has
jurisdiction over questions relating to arbitration, [9] such as a petition to vacate an arbitral
award.
Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made
by an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of the following
cases, the court must make an order vacating the award upon the
petition of any party to the controversy when such party proves
affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means;
or
(b) That there was evident partiality or corruption in the arbitrators or
any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing to hear
evidence pertinent and material to the controversy; that one or more of
the arbitrators was disqualified to act as such under section nine hereof,
and willfully refrained from disclosing such disqualifications or of any
other misbehavior by which the rights of any party have been materially
prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the subject
matter submitted to them was not made.
Based on the foregoing provisions, the law itself clearly provides that the RTC must
issue an order vacating an arbitral award only in any one of the . . . cases enumerated therein.
Under the legal maxim in statutory construction expressio unius est exclusio alterius, the
explicit mention of one thing in a statute means the elimination of others not specifically
ADR SUMMER PART V.
but because the respondent appellate court found that the trial court
had no legal basis for vacating the award. (Emphasis supplied).
mentioned. As RA 876 did not expressly provide for errors of fact and/or law and grave abuse

of discretion (proper grounds for a petition for review under Rule 43 and a petition for
In cases not falling under any of the aforementioned grounds to vacate an award, the Court

certiorari under Rule 65, respectively) as grounds for maintaining a petition to vacate an
has already made several pronouncements that a petition for review under Rule 43 or a

arbitral award in the RTC, it necessarily follows that a party may not avail of the latter remedy
petition for certiorari under Rule 65 may be availed of in the CA. Which one would depend on

on the grounds of errors of fact and/or law or grave abuse of discretion to overturn an arbitral
the grounds relied upon by petitioner.

award.
In Luzon Development Bank v. Association of Luzon Development Bank Employees,[11] the Court

held that a voluntary arbitrator is properly classified as a quasi-judicial instrumentality and

Adamson v. Court of Appeals [10] gave ample warning that a petition to vacate filed in the RTC

is, thus, within the ambit of Section 9 (3) of the Judiciary Reorganization Act, as amended.
which is not based on the grounds enumerated in Section 24 of RA 876 should be dismissed.

Under this section, the Court of Appeals shall exercise:

In that case, the trial court vacated the arbitral award seemingly based on grounds included in
xxx xxx xxx
Section 24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, the CA
(3) Exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial Courts and
reversed the decision of the trial court and affirmed the arbitral award. In affirming the CA, we quasi-judicial agencies, instrumentalities, boards or commissions,
including the Securities and Exchange Commission, the Employees
held: Compensation Commission and the Civil Service Commission, except
those falling within the appellate jurisdiction of the Supreme Court in
The Court of Appeals, in reversing the trial court's decision held that the accordance with the Constitution, the Labor Code of the Philippines
nullification of the decision of the Arbitration Committee was not based on under Presidential Decree No. 442, as amended, the provisions of this
the grounds provided by the Arbitration Law and that xxx private Act and of subparagraph (1) of the third paragraph and subparagraph
respondents (petitioners herein) have failed to substantiate with any (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
evidence their claim of partiality. Significantly, even as respondent judge (Emphasis supplied)
ruled against the arbitrator's award, he could not find fault with their
impartiality and integrity. Evidently, the nullification of the award
rendered at the case at bar was not made on the basis of any of the
grounds provided by law. As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate
xxx xxx xxx
jurisdiction of the CA. This decision was taken into consideration in approving Section 1 of
It is clear, therefore, that the award was vacated not because of
evident partiality of the arbitrators but because the latter interpreted
Rule 43 of the Rules of Court.[12] Thus:
the contract in a way which was not favorable to herein petitioners and
because it considered that herein private respondents, by submitting the
SECTION 1. Scope. - This Rule shall apply to appeals from judgments or
controversy to arbitration, was seeking to renege on its obligations under
final orders of the Court of Tax Appeals and from awards, judgments,
the contract.
final orders or resolutions of or authorized by any quasi-judicial agency
in the exercise of its quasi-judicial functions. Among these agencies are
xxx xxx xxx
the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land
It is clear then that the Court of Appeals reversed the trial court not
Registration Authority, Social Security Commission, Civil Aeronautics
because the latter reviewed the arbitration award involved herein,
ADR SUMMER PART V.
Board, Bureau of Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board, National
unappealable and that no further judicial recourse if either party disagrees with the whole or
Telecommunications Commission, Department of Agrarian Reform
under Republic Act Number 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions any part of the arbitrator's award may be availed of cannot be held to preclude in proper
Board, Insurance Commission, Philippine Atomic Energy Commission,
Board of Investments, Construction Industry Arbitration Commission,
and voluntary arbitrators authorized by law. (Emphasis supplied) cases the power of judicial review which is inherent in courts. [16] We will not hesitate to

review a voluntary arbitrator's award where there is a showing of grave abuse of authority or

discretion and such is properly raised in a petition for certiorari[17] and there is no appeal, nor
This rule was cited in Sevilla Trading Company v. Semana,[13] Manila Midtown Hotel v.

any plain, speedy remedy in the course of law.[18]

Borromeo,[14] and Nippon Paint Employees Union-Olalia v. Court of Appeals. [15] These cases held

Significantly, Insular Savings Bank v. Far East Bank and Trust

that the proper remedy from the adverse decision of a voluntary arbitrator, if errors of fact

Company[19] definitively outlined several judicial remedies an aggrieved party to an arbitral

and/or law are raised, is a petition for review under Rule 43 of the Rules of Court. Thus,

award may undertake:

petitioner's contention that it may avail of a petition for review under Rule 43 under the
(1) a petition in the proper RTC to issue an order to vacate the
circumstances of this case is correct. award on the grounds provided for in Section 24 of RA 876;
(2) a petition for review in the CA under Rule 43 of the Rules of
Court on questions of fact, of law, or mixed questions of fact
As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted and law; and
(3) a petition for certiorari under Rule 65 of the Rules of Court
should the arbitrator have acted without or in excess of his
to, we hold the same to be in accordance with the Constitution and jurisprudence.
jurisdiction or with grave abuse of discretion amounting to
lack or excess of jurisdiction.

Section 1 of Article VIII of the 1987 Constitution provides that:

SECTION 1. The judicial power shall be vested in one Supreme Court and
in such lower courts as may be established by law. Nevertheless, although petitioners position on the judicial remedies available to it was

Judicial power includes the duty of the courts of justice to settle

actual controversies involving rights which are legally demandable and correct, we sustain the dismissal of its petition by the CA. The remedy petitioner availed of,
enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on entitled alternative petition for review under Rule 43 or petition for certiorari under Rule 65,
the part of any branch or instrumentality of the
Government. (Emphasis supplied)
was wrong.

As may be gleaned from the above stated provision, it is well within the power and

Time and again, we have ruled that the remedies of appeal and certiorari are mutually
jurisdiction of the Court to inquire whether any instrumentality of the Government, such as a

exclusive and not alternative or successive.[20]

voluntary arbitrator, has gravely abused its discretion in the exercise of its functions and

prerogatives. Any agreement stipulating that the decision of the arbitrator shall be final and
ADR SUMMER PART V.

Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of Therefore, the issues clearly fall under the classification of errors of fact and law questions

fact, law or mixed questions of fact and law. [21]While a petition for certiorari under Rule 65 which may be passed upon by the CA via a petition for review under Rule 43. Petitioner

should only limit itself to errors of jurisdiction, that is, grave abuse of discretion amounting to cleverly crafted its assignment of errors in such a way as to straddle both judicial remedies,

a lack or excess of jurisdiction. [22] Moreover, it cannot be availed of where appeal is the proper that is, by alleging serious errors of fact and law (in which case a petition for review under

remedy or as a substitute for a lapsed appeal.[23] Rule 43 would be proper) and grave abuse of discretion (because of which a petition for

certiorari under Rule 65 would be permissible).

In the case at bar, the questions raised by petitioner in its alternative petition before the CA

were the following: It must be emphasized that every lawyer should be familiar with the distinctions between the

A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR

two remedies for it is not the duty of the courts to determine under which rule the
GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST
OF WINS WEEKLY WAS DULY AUTHORIZED BY ABS-CBN.
petition should fall.[24] Petitioner's ploy was fatal to its
B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE
UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL cause. An appeal taken either to this Court or the CA by the wrong or inappropriate mode
BREACH OF THE AGREEMENT.
shall be dismissed.[25] Thus, the alternative petition filed in the CA, being an inappropriate
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS
SEASONABLY CURED THE BREACH. mode of appeal, should have been dismissed outright by the CA.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE
DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision and August 16,
WINS.

E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR 2005 resolution of the Court of Appeals in CA-G.R. SP No. 81940 directing the Regional Trial
GRAVELY ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN
THE UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT Court of Quezon City, Branch 93 to proceed with the trial of the petition for confirmation of
OF P850,000.00.

F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A arbitral award is AFFIRMED.
SIMPLE ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE
ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION.
Costs against petitioner.

SO ORDERED.
A careful reading of the assigned errors reveals that the real issues calling for the CA's

resolution were less the alleged grave abuse of discretion exercised by the arbitrator and

Facts:
more about the arbitrators appreciation of the issues and evidence presented by the parties.
ADR SUMMER PART V.
Petitioner ABS-CBN Broadcasting Corporation entered into a licensing agreement with cleverly crafted its assignment of errors in such a way as to straddle both judicial remedies,
respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign corporation that is, by alleging serious errors of fact and law (in which case a petition for review under
licensed under the laws of Japan, in that the former granted respondent the exclusive license Rule 43 would be proper) and grave abuse of discretion (because of which a petition for
to distribute and sublicense the distribution of the television service known as The Filipino certiorari under Rule 65 would be permissible).
Channel (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC Wherefore, the petition is hereby denied. The decision and resolution of the CA directing the
programming signals to respondent which the latter received through its decoders and RTC to proceed with the trial of the petition for confirmation of arbitral award is affirmed.
distributed to its subscribers. A dispute arose between the parties when petitioner accused
respondent of inserting nine episodes of WINS WEEKLY, a weekly 35-minute community news
program for Filipinos in Japan, into the TFC programming. Petitioner claimed that these were
unauthorized insertions constituting a material breach of their agreement. Consequently,
petitioner notified respondent of its intention to terminate the agreement. Thereafter,
respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with
petitioner. The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator who then
rendered a decision in favor of respondent holding that petitioner gave its approval for the
airing of WINS WEEKLY as shown by a series of written exchanges between the parties and
that petitioner threatened to terminate the agreement due to its desire to compel respondent
to re-negotiate the terms thereof for higher fees. He then allowed respondent to recover
temperate damages, attorneys fees and one-half of the amount it paid as arbitrators fee.
Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the
alternative, a petition for certiorari under Rule 65 of the same Rules, with application for
temporary restraining order and writ of preliminary injunction. Respondent, on the other
hand, filed a petition for confirmation of arbitral award. The CA rendered the assailed decision
dismissing ABS-CBNs petition for lack of jurisdiction. Petitioner moved for reconsideration
but the same was denied.
Issue:
The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute
may avail of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari
under Rule 65 of the Rules of Court, instead of filing a petition to vacate the award in the RTC
when the grounds invoked to overturn the arbitrators decision are other than those for a
petition to vacate an arbitral award enumerated under RA 876.
Ruling:
RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has
jurisdiction over questions relating to arbitration, such as a petition to vacate an arbitral
award. As RA 876 did not expressly provide for errors of fact and/or law and grave abuse of
discretion (proper grounds for a petition for review under Rule 43 and a petition for certiorari
under Rule 65, respectively) as grounds for maintaining a petition to vacate an arbitral award
in the RTC, it necessarily follows that a party may not avail of the latter remedy on the
grounds of errors of fact and/or law or grave abuse of discretion to overturn an arbitral
award. Adamson v. Court of Appeals gave ample warning that a petition to vacate filed in the
RTC which is not based on the grounds enumerated in Section 24 of RA 876 should be
dismissed.
In cases not falling under any of the aforementioned grounds to vacate an award, the Court
has already made several pronouncements that a petition for review under Rule 43 or a
petition for certiorari under Rule 65 may be availed of in the CA. Which one would depend on
the grounds relied upon by petitioner.
Nevertheless, although petitioners position on the judicial remedies available to it was
correct, we sustain the dismissal of its petition by the CA. The remedy petitioner availed of,
entitled alternative petition for review under Rule 43 or petition for certiorari under Rule 65,
was wrong. Time and again, we have ruled that the remedies of appeal and certiorari are
mutually exclusive and not alternative or successive.
A careful reading of the assigned errors reveals that the real issues calling for the CAs
resolution were less the alleged grave abuse of discretion exercised by the arbitrator and
more about the arbitrators appreciation of the issues and evidence presented by the parties.
Therefore, the issues clearly fall under the classification of errors of fact and law questions
which may be passed upon by the CA via a petition for review under Rule 43. Petitioner