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RENATO CAYETANO, petitioner,

vs.
CHRISTIAN MONSOD, HON. JOVITO R. SALONGA, COMMISSION ON
APPOINTMENT, and HON. GUILLERMO CARAGUE, in his capacity as Secretary of
Budget and Management, respondents.

Renato L. Cayetano for and in his own behalf.

Sabina E. Acut, Jr. and Mylene Garcia-Albano co-counsel for petitioner.

PARAS, J.:

We are faced here with a controversy of far-reaching proportions. While ostensibly only legal
issues are involved, the Court's decision in this case would indubitably have a profound effect on
the political aspect of our national existence.

The 1987 Constitution provides in Section 1 (1), Article IX-C:

There shall be a Commission on Elections composed of a Chairman and six


Commissioners who shall be natural-born citizens of the Philippines and, at the time of
their appointment, at least thirty-five years of age, holders of a college degree, and must
not have been candidates for any elective position in the immediately preceding -
elections. However, a majority thereof, including the Chairman, shall be members of the
Philippine Bar who have been engaged in the practice of law for at least ten years.
(Emphasis supplied)

The aforequoted provision is patterned after Section l(l), Article XII-C of the 1973 Constitution
which similarly provides:

There shall be an independent Commission on Elections composed of a Chairman and eight


Commissioners who shall be natural-born citizens of the Philippines and, at the time of their
appointment, at least thirty-five years of age and holders of a college degree. However, a
majority thereof, including the Chairman, shall be members of the Philippine Bar who have been
engaged in the practice of law for at least ten years.' (Emphasis supplied)

Regrettably, however, there seems to be no jurisprudence as to what constitutes practice of law


as a legal qualification to an appointive office.

Black defines "practice of law" as:

The rendition of services requiring the knowledge and the application of legal principles
and technique to serve the interest of another with his consent. It is not limited to
appearing in court, or advising and assisting in the conduct of litigation, but embraces the
preparation of pleadings, and other papers incident to actions and special proceedings,
conveyancing, the preparation of legal instruments of all kinds, and the giving of all legal
advice to clients. It embraces all advice to clients and all actions taken for them in matters
connected with the law. An attorney engages in the practice of law by maintaining an
office where he is held out to be-an attorney, using a letterhead describing himself as an
attorney, counseling clients in legal matters, negotiating with opposing counsel about
pending litigation, and fixing and collecting fees for services rendered by his associate.
(Black's Law Dictionary, 3rd ed.)

The practice of law is not limited to the conduct of cases in court. (Land Title Abstract and Trust
Co. v. Dworken, 129 Ohio St. 23, 193 N.E. 650) A person is also considered to be in the practice
of law when he:

... for valuable consideration engages in the business of advising person, firms,
associations or corporations as to their rights under the law, or appears in a representative
capacity as an advocate in proceedings pending or prospective, before any court,
commissioner, referee, board, body, committee, or commission constituted by law or
authorized to settle controversies and there, in such representative capacity performs any
act or acts for the purpose of obtaining or defending the rights of their clients under the
law. Otherwise stated, one who, in a representative capacity, engages in the business of
advising clients as to their rights under the law, or while so engaged performs any act or
acts either in court or outside of court for that purpose, is engaged in the practice of law.
(State ex. rel. Mckittrick v..C.S. Dudley and Co., 102 S.W. 2d 895, 340 Mo. 852)

This Court in the case of Philippine Lawyers Association v.Agrava, (105 Phil. 173,176-177)
stated:

The practice of law is not limited to the conduct of cases or litigation in court; it
embraces the preparation of pleadings and other papers incident to actions and special
proceedings, the management of such actions and proceedings on behalf of clients before
judges and courts, and in addition, conveying. In general, all advice to clients, and all
action taken for them in matters connected with the law incorporation services,
assessment and condemnation services contemplating an appearance before a judicial
body, the foreclosure of a mortgage, enforcement of a creditor's claim in bankruptcy and
insolvency proceedings, and conducting proceedings in attachment, and in matters of
estate and guardianship have been held to constitute law practice, as do the preparation
and drafting of legal instruments, where the work done involves the determination by the
trained legal mind of the legal effect of facts and conditions. (5 Am. Jr. p. 262, 263).
(Emphasis supplied)

Practice of law under modem conditions consists in no small part of work performed
outside of any court and having no immediate relation to proceedings in court. It
embraces conveyancing, the giving of legal advice on a large variety of subjects, and the
preparation and execution of legal instruments covering an extensive field of business
and trust relations and other affairs. Although these transactions may have no direct
connection with court proceedings, they are always subject to become involved in
litigation. They require in many aspects a high degree of legal skill, a wide experience
with men and affairs, and great capacity for adaptation to difficult and complex
situations. These customary functions of an attorney or counselor at law bear an intimate
relation to the administration of justice by the courts. No valid distinction, so far as
concerns the question set forth in the order, can be drawn between that part of the work of
the lawyer which involves appearance in court and that part which involves advice and
drafting of instruments in his office. It is of importance to the welfare of the public that
these manifold customary functions be performed by persons possessed of adequate
learning and skill, of sound moral character, and acting at all times under the heavy trust
obligations to clients which rests upon all attorneys. (Moran, Comments on the Rules of
Court, Vol. 3 [1953 ed.] , p. 665-666, citing In re Opinion of the Justices [Mass.], 194
N.E. 313, quoted in Rhode Is. Bar Assoc. v. Automobile Service Assoc. [R.I.] 179 A.
139,144). (Emphasis ours)

The University of the Philippines Law Center in conducting orientation briefing for new lawyers
(1974-1975) listed the dimensions of the practice of law in even broader terms as advocacy,
counselling and public service.

One may be a practicing attorney in following any line of employment in the profession.
If what he does exacts knowledge of the law and is of a kind usual for attorneys engaging
in the active practice of their profession, and he follows some one or more lines of
employment such as this he is a practicing attorney at law within the meaning of the
statute. (Barr v. Cardell, 155 NW 312)

Practice of law means any activity, in or out of court, which requires the application of law, legal
procedure, knowledge, training and experience. "To engage in the practice of law is to perform
those acts which are characteristics of the profession. Generally, to practice law is to give notice
or render any kind of service, which device or service requires the use in any degree of legal
knowledge or skill." (111 ALR 23)

The following records of the 1986 Constitutional Commission show that it has adopted a liberal
interpretation of the term "practice of law."

MR. FOZ. Before we suspend the session, may I make a manifestation which I forgot to
do during our review of the provisions on the Commission on Audit. May I be allowed to
make a very brief statement?

THE PRESIDING OFFICER (Mr. Jamir).

The Commissioner will please proceed.

MR. FOZ. This has to do with the qualifications of the members of the Commission on
Audit. Among others, the qualifications provided for by Section I is that "They must be
Members of the Philippine Bar" — I am quoting from the provision — "who have been
engaged in the practice of law for at least ten years".
To avoid any misunderstanding which would result in excluding members of the Bar who are
now employed in the COA or Commission on Audit, we would like to make the clarification that
this provision on qualifications regarding members of the Bar does not necessarily refer or
involve actual practice of law outside the COA We have to interpret this to mean that as long as
the lawyers who are employed in the COA are using their legal knowledge or legal talent in their
respective work within COA, then they are qualified to be considered for appointment as
members or commissioners, even chairman, of the Commission on Audit.

This has been discussed by the Committee on Constitutional Commissions and Agencies and we
deem it important to take it up on the floor so that this interpretation may be made available
whenever this provision on the qualifications as regards members of the Philippine Bar engaging
in the practice of law for at least ten years is taken up.

MR. OPLE. Will Commissioner Foz yield to just one question.

MR. FOZ. Yes, Mr. Presiding Officer.

MR. OPLE. Is he, in effect, saying that service in the COA by a lawyer is equivalent to
the requirement of a law practice that is set forth in the Article on the Commission on
Audit?

MR. FOZ. We must consider the fact that the work of COA, although it is auditing, will
necessarily involve legal work; it will involve legal work. And, therefore, lawyers who
are employed in COA now would have the necessary qualifications in accordance with
the Provision on qualifications under our provisions on the Commission on Audit. And,
therefore, the answer is yes.

MR. OPLE. Yes. So that the construction given to this is that this is equivalent to the
practice of law.

MR. FOZ. Yes, Mr. Presiding Officer.

MR. OPLE. Thank you.

... ( Emphasis supplied)

Section 1(1), Article IX-D of the 1987 Constitution, provides, among others, that the Chairman
and two Commissioners of the Commission on Audit (COA) should either be certified public
accountants with not less than ten years of auditing practice, or members of the Philippine Bar
who have been engaged in the practice of law for at least ten years. (emphasis supplied)

Corollary to this is the term "private practitioner" and which is in many ways synonymous with
the word "lawyer." Today, although many lawyers do not engage in private practice, it is still a
fact that the majority of lawyers are private practitioners. (Gary Munneke, Opportunities in Law
Careers [VGM Career Horizons: Illinois], [1986], p. 15).
At this point, it might be helpful to define private practice. The term, as commonly understood,
means "an individual or organization engaged in the business of delivering legal services."
(Ibid.). Lawyers who practice alone are often called "sole practitioners." Groups of lawyers are
called "firms." The firm is usually a partnership and members of the firm are the partners. Some
firms may be organized as professional corporations and the members called shareholders. In
either case, the members of the firm are the experienced attorneys. In most firms, there are
younger or more inexperienced salaried attorneyscalled "associates." (Ibid.).

The test that defines law practice by looking to traditional areas of law practice is essentially
tautologous, unhelpful defining the practice of law as that which lawyers do. (Charles W.
Wolfram, Modern Legal Ethics [West Publishing Co.: Minnesota, 1986], p. 593). The practice of
law is defined as the performance of any acts . . . in or out of court, commonly understood to be
the practice of law. (State Bar Ass'n v. Connecticut Bank & Trust Co., 145 Conn. 222, 140 A.2d
863, 870 [1958] [quoting Grievance Comm. v. Payne, 128 Conn. 325, 22 A.2d 623, 626 [1941]).
Because lawyers perform almost every function known in the commercial and governmental
realm, such a definition would obviously be too global to be workable.(Wolfram, op. cit.).

The appearance of a lawyer in litigation in behalf of a client is at once the most publicly familiar
role for lawyers as well as an uncommon role for the average lawyer. Most lawyers spend little
time in courtrooms, and a large percentage spend their entire practice without litigating a case.
(Ibid., p. 593). Nonetheless, many lawyers do continue to litigate and the litigating lawyer's role
colors much of both the public image and the self perception of the legal profession. (Ibid.).

In this regard thus, the dominance of litigation in the public mind reflects history, not reality.
(Ibid.). Why is this so? Recall that the late Alexander SyCip, a corporate lawyer, once articulated
on the importance of a lawyer as a business counselor in this wise: "Even today, there are still
uninformed laymen whose concept of an attorney is one who principally tries cases before the
courts. The members of the bench and bar and the informed laymen such as businessmen, know
that in most developed societies today, substantially more legal work is transacted in law offices
than in the courtrooms. General practitioners of law who do both litigation and non-litigation
work also know that in most cases they find themselves spending more time doing what [is]
loosely desccribe[d] as business counseling than in trying cases. The business lawyer has been
described as the planner, the diagnostician and the trial lawyer, the surgeon. I[t] need not [be]
stress[ed] that in law, as in medicine, surgery should be avoided where internal medicine can be
effective." (Business Star, "Corporate Finance Law," Jan. 11, 1989, p. 4).

In the course of a working day the average general practitioner wig engage in a number of legal
tasks, each involving different legal doctrines, legal skills, legal processes, legal institutions,
clients, and other interested parties. Even the increasing numbers of lawyers in specialized
practice wig usually perform at least some legal services outside their specialty. And even within
a narrow specialty such as tax practice, a lawyer will shift from one legal task or role such as
advice-giving to an importantly different one such as representing a client before an
administrative agency. (Wolfram, supra, p. 687).

By no means will most of this work involve litigation, unless the lawyer is one of the relatively
rare types — a litigator who specializes in this work to the exclusion of much else. Instead, the
work will require the lawyer to have mastered the full range of traditional lawyer skills of client
counselling, advice-giving, document drafting, and negotiation. And increasingly lawyers find
that the new skills of evaluation and mediation are both effective for many clients and a source
of employment. (Ibid.).

Most lawyers will engage in non-litigation legal work or in litigation work that is constrained in
very important ways, at least theoretically, so as to remove from it some of the salient features of
adversarial litigation. Of these special roles, the most prominent is that of prosecutor. In some
lawyers' work the constraints are imposed both by the nature of the client and by the way in
which the lawyer is organized into a social unit to perform that work. The most common of these
roles are those of corporate practice and government legal service. (Ibid.).

In several issues of the Business Star, a business daily, herein below quoted are emerging trends
in corporate law practice, a departure from the traditional concept of practice of law.

We are experiencing today what truly may be called a revolutionary transformation in


corporate law practice. Lawyers and other professional groups, in particular those
members participating in various legal-policy decisional contexts, are finding that
understanding the major emerging trends in corporation law is indispensable to intelligent
decision-making.

Constructive adjustment to major corporate problems of today requires an accurate


understanding of the nature and implications of the corporate law research function
accompanied by an accelerating rate of information accumulation. The recognition of the
need for such improved corporate legal policy formulation, particularly "model-making"
and "contingency planning," has impressed upon us the inadequacy of traditional
procedures in many decisional contexts.

In a complex legal problem the mass of information to be processed, the sorting and
weighing of significant conditional factors, the appraisal of major trends, the necessity of
estimating the consequences of given courses of action, and the need for fast decision and
response in situations of acute danger have prompted the use of sophisticated concepts of
information flow theory, operational analysis, automatic data processing, and electronic
computing equipment. Understandably, an improved decisional structure must stress the
predictive component of the policy-making process, wherein a "model", of the decisional
context or a segment thereof is developed to test projected alternative courses of action in
terms of futuristic effects flowing therefrom.

Although members of the legal profession are regularly engaged in predicting and
projecting the trends of the law, the subject of corporate finance law has received
relatively little organized and formalized attention in the philosophy of advancing
corporate legal education. Nonetheless, a cross-disciplinary approach to legal research
has become a vital necessity.

Certainly, the general orientation for productive contributions by those trained primarily
in the law can be improved through an early introduction to multi-variable decisional
context and the various approaches for handling such problems. Lawyers, particularly
with either a master's or doctorate degree in business administration or management,
functioning at the legal policy level of decision-making now have some appreciation for
the concepts and analytical techniques of other professions which are currently engaged
in similar types of complex decision-making.

Truth to tell, many situations involving corporate finance problems would require the
services of an astute attorney because of the complex legal implications that arise from
each and every necessary step in securing and maintaining the business issue raised.
(Business Star, "Corporate Finance Law," Jan. 11, 1989, p. 4).

In our litigation-prone country, a corporate lawyer is assiduously referred to as the


"abogado de campanilla." He is the "big-time" lawyer, earning big money and with a
clientele composed of the tycoons and magnates of business and industry.

Despite the growing number of corporate lawyers, many people could not explain what it
is that a corporate lawyer does. For one, the number of attorneys employed by a single
corporation will vary with the size and type of the corporation. Many smaller and some
large corporations farm out all their legal problems to private law firms. Many others
have in-house counsel only for certain matters. Other corporation have a staff large
enough to handle most legal problems in-house.

A corporate lawyer, for all intents and purposes, is a lawyer who handles the legal affairs
of a corporation. His areas of concern or jurisdiction may include, inter alia: corporate
legal research, tax laws research, acting out as corporate secretary (in board meetings),
appearances in both courts and other adjudicatory agencies (including the Securities and
Exchange Commission), and in other capacities which require an ability to deal with the
law.

At any rate, a corporate lawyer may assume responsibilities other than the legal affairs of
the business of the corporation he is representing. These include such matters as
determining policy and becoming involved in management. ( Emphasis supplied.)

In a big company, for example, one may have a feeling of being isolated from the action,
or not understanding how one's work actually fits into the work of the orgarnization. This
can be frustrating to someone who needs to see the results of his work first hand. In short,
a corporate lawyer is sometimes offered this fortune to be more closely involved in the
running of the business.

Moreover, a corporate lawyer's services may sometimes be engaged by a multinational


corporation (MNC). Some large MNCs provide one of the few opportunities available to
corporate lawyers to enter the international law field. After all, international law is
practiced in a relatively small number of companies and law firms. Because working in a
foreign country is perceived by many as glamorous, tills is an area coveted by corporate
lawyers. In most cases, however, the overseas jobs go to experienced attorneys while the
younger attorneys do their "international practice" in law libraries. (Business Star,
"Corporate Law Practice," May 25,1990, p. 4).

This brings us to the inevitable, i.e., the role of the lawyer in the realm of finance. To
borrow the lines of Harvard-educated lawyer Bruce Wassertein, to wit: "A bad lawyer is
one who fails to spot problems, a good lawyer is one who perceives the difficulties, and
the excellent lawyer is one who surmounts them." (Business Star, "Corporate Finance
Law," Jan. 11, 1989, p. 4).

Today, the study of corporate law practice direly needs a "shot in the arm," so to speak.
No longer are we talking of the traditional law teaching method of confining the subject
study to the Corporation Code and the Securities Code but an incursion as well into the
intertwining modern management issues.

Such corporate legal management issues deal primarily with three (3) types of learning:
(1) acquisition of insights into current advances which are of particular significance to the
corporate counsel; (2) an introduction to usable disciplinary skins applicable to a
corporate counsel's management responsibilities; and (3) a devotion to the organization
and management of the legal function itself.

These three subject areas may be thought of as intersecting circles, with a shared area
linking them. Otherwise known as "intersecting managerial jurisprudence," it forms a
unifying theme for the corporate counsel's total learning.

Some current advances in behavior and policy sciences affect the counsel's role. For that
matter, the corporate lawyer reviews the globalization process, including the resulting
strategic repositioning that the firms he provides counsel for are required to make, and
the need to think about a corporation's; strategy at multiple levels. The salience of the
nation-state is being reduced as firms deal both with global multinational entities and
simultaneously with sub-national governmental units. Firms increasingly collaborate not
only with public entities but with each other — often with those who are competitors in
other arenas.

Also, the nature of the lawyer's participation in decision-making within the corporation is
rapidly changing. The modem corporate lawyer has gained a new role as a stakeholder
— in some cases participating in the organization and operations of governance through
participation on boards and other decision-making roles. Often these new patterns
develop alongside existing legal institutions and laws are perceived as barriers. These
trends are complicated as corporations organize for global operations. ( Emphasis
supplied)

The practising lawyer of today is familiar as well with governmental policies toward the
promotion and management of technology. New collaborative arrangements for
promoting specific technologies or competitiveness more generally require approaches
from industry that differ from older, more adversarial relationships and traditional forms
of seeking to influence governmental policies. And there are lessons to be learned from
other countries. In Europe, Esprit, Eureka and Race are examples of collaborative efforts
between governmental and business Japan's MITI is world famous. (Emphasis supplied)

Following the concept of boundary spanning, the office of the Corporate Counsel
comprises a distinct group within the managerial structure of all kinds of organizations.
Effectiveness of both long-term and temporary groups within organizations has been
found to be related to indentifiable factors in the group-context interaction such as the
groups actively revising their knowledge of the environment coordinating work with
outsiders, promoting team achievements within the organization. In general, such
external activities are better predictors of team performance than internal group
processes.

In a crisis situation, the legal managerial capabilities of the corporate lawyer vis-a-vis
the managerial mettle of corporations are challenged. Current research is seeking ways
both to anticipate effective managerial procedures and to understand relationships of
financial liability and insurance considerations. (Emphasis supplied)

Regarding the skills to apply by the corporate counsel, three factors are apropos:

First System Dynamics. The field of systems dynamics has been found an effective tool
for new managerial thinking regarding both planning and pressing immediate problems.
An understanding of the role of feedback loops, inventory levels, and rates of flow,
enable users to simulate all sorts of systematic problems — physical, economic,
managerial, social, and psychological. New programming techniques now make the
system dynamics principles more accessible to managers — including corporate
counsels. (Emphasis supplied)

Second Decision Analysis. This enables users to make better decisions involving
complexity and uncertainty. In the context of a law department, it can be used to appraise
the settlement value of litigation, aid in negotiation settlement, and minimize the cost and
risk involved in managing a portfolio of cases. (Emphasis supplied)

Third Modeling for Negotiation Management. Computer-based models can be used


directly by parties and mediators in all lands of negotiations. All integrated set of such
tools provide coherent and effective negotiation support, including hands-on on
instruction in these techniques. A simulation case of an international joint venture may be
used to illustrate the point.

[Be this as it may,] the organization and management of the legal function, concern three
pointed areas of consideration, thus:

Preventive Lawyering. Planning by lawyers requires special skills that comprise a major
part of the general counsel's responsibilities. They differ from those of remedial law.
Preventive lawyering is concerned with minimizing the risks of legal trouble and
maximizing legal rights for such legal entities at that time when transactional or similar
facts are being considered and made.
Managerial Jurisprudence. This is the framework within which are undertaken those
activities of the firm to which legal consequences attach. It needs to be directly
supportive of this nation's evolving economic and organizational fabric as firms change
to stay competitive in a global, interdependent environment. The practice and theory of
"law" is not adequate today to facilitate the relationships needed in trying to make a
global economy work.

Organization and Functioning of the Corporate Counsel's Office. The general counsel
has emerged in the last decade as one of the most vibrant subsets of the legal profession.
The corporate counsel hear responsibility for key aspects of the firm's strategic issues,
including structuring its global operations, managing improved relationships with an
increasingly diversified body of employees, managing expanded liability exposure,
creating new and varied interactions with public decision-makers, coping internally with
more complex make or by decisions.

This whole exercise drives home the thesis that knowing corporate law is not enough to
make one a good general corporate counsel nor to give him a full sense of how the legal
system shapes corporate activities. And even if the corporate lawyer's aim is not the
understand all of the law's effects on corporate activities, he must, at the very least, also
gain a working knowledge of the management issues if only to be able to grasp not only
the basic legal "constitution' or makeup of the modem corporation. "Business Star", "The
Corporate Counsel," April 10, 1991, p. 4).

The challenge for lawyers (both of the bar and the bench) is to have more than a passing
knowledge of financial law affecting each aspect of their work. Yet, many would admit to
ignorance of vast tracts of the financial law territory. What transpires next is a dilemma
of professional security: Will the lawyer admit ignorance and risk opprobrium?; or will
he feign understanding and risk exposure? (Business Star, "Corporate Finance law," Jan.
11, 1989, p. 4).

Respondent Christian Monsod was nominated by President Corazon C. Aquino to the position of
Chairman of the COMELEC in a letter received by the Secretariat of the Commission on
Appointments on April 25, 1991. Petitioner opposed the nomination because allegedly Monsod
does not possess the required qualification of having been engaged in the practice of law for at
least ten years.

On June 5, 1991, the Commission on Appointments confirmed the nomination of Monsod as


Chairman of the COMELEC. On June 18, 1991, he took his oath of office. On the same day, he
assumed office as Chairman of the COMELEC.

Challenging the validity of the confirmation by the Commission on Appointments of Monsod's


nomination, petitioner as a citizen and taxpayer, filed the instant petition for certiorari and
Prohibition praying that said confirmation and the consequent appointment of Monsod as
Chairman of the Commission on Elections be declared null and void.
Atty. Christian Monsod is a member of the Philippine Bar, having passed the bar examinations
of 1960 with a grade of 86-55%. He has been a dues paying member of the Integrated Bar of the
Philippines since its inception in 1972-73. He has also been paying his professional license fees
as lawyer for more than ten years. (p. 124, Rollo)

After graduating from the College of Law (U.P.) and having hurdled the bar, Atty. Monsod
worked in the law office of his father. During his stint in the World Bank Group (1963-1970),
Monsod worked as an operations officer for about two years in Costa Rica and Panama, which
involved getting acquainted with the laws of member-countries negotiating loans and
coordinating legal, economic, and project work of the Bank. Upon returning to the Philippines in
1970, he worked with the Meralco Group, served as chief executive officer of an investment bank
and subsequently of a business conglomerate, and since 1986, has rendered services to various
companies as a legal and economic consultant or chief executive officer. As former Secretary-
General (1986) and National Chairman (1987) of NAMFREL. Monsod's work involved being
knowledgeable in election law. He appeared for NAMFREL in its accreditation hearings before
the Comelec. In the field of advocacy, Monsod, in his personal capacity and as former Co-
Chairman of the Bishops Businessmen's Conference for Human Development, has worked with
the under privileged sectors, such as the farmer and urban poor groups, in initiating, lobbying
for and engaging in affirmative action for the agrarian reform law and lately the urban land
reform bill. Monsod also made use of his legal knowledge as a member of the Davide
Commission, a quast judicial body, which conducted numerous hearings (1990) and as a
member of the Constitutional Commission (1986-1987), and Chairman of its Committee on
Accountability of Public Officers, for which he was cited by the President of the Commission,
Justice Cecilia Muñoz-Palma for "innumerable amendments to reconcile government functions
with individual freedoms and public accountability and the party-list system for the House of
Representative. (pp. 128-129 Rollo) ( Emphasis supplied)

Just a word about the work of a negotiating team of which Atty. Monsod used to be a member.

In a loan agreement, for instance, a negotiating panel acts as a team, and which is
adequately constituted to meet the various contingencies that arise during a negotiation.
Besides top officials of the Borrower concerned, there are the legal officer (such as the
legal counsel), the finance manager, and an operations officer (such as an official
involved in negotiating the contracts) who comprise the members of the team. (Guillermo
V. Soliven, "Loan Negotiating Strategies for Developing Country Borrowers," Staff
Paper No. 2, Central Bank of the Philippines, Manila, 1982, p. 11). (Emphasis supplied)

After a fashion, the loan agreement is like a country's Constitution; it lays down the law
as far as the loan transaction is concerned. Thus, the meat of any Loan Agreement can be
compartmentalized into five (5) fundamental parts: (1) business terms; (2) borrower's
representation; (3) conditions of closing; (4) covenants; and (5) events of default. (Ibid.,
p. 13).

In the same vein, lawyers play an important role in any debt restructuring program. For
aside from performing the tasks of legislative drafting and legal advising, they score
national development policies as key factors in maintaining their countries' sovereignty.
(Condensed from the work paper, entitled "Wanted: Development Lawyers for
Developing Nations," submitted by L. Michael Hager, regional legal adviser of the
United States Agency for International Development, during the Session on Law for the
Development of Nations at the Abidjan World Conference in Ivory Coast, sponsored by
the World Peace Through Law Center on August 26-31, 1973). ( Emphasis supplied)

Loan concessions and compromises, perhaps even more so than purely renegotiation
policies, demand expertise in the law of contracts, in legislation and agreement drafting
and in renegotiation. Necessarily, a sovereign lawyer may work with an international
business specialist or an economist in the formulation of a model loan agreement. Debt
restructuring contract agreements contain such a mixture of technical language that they
should be carefully drafted and signed only with the advise of competent counsel in
conjunction with the guidance of adequate technical support personnel. (See International
Law Aspects of the Philippine External Debts, an unpublished dissertation, U.S.T.
Graduate School of Law, 1987, p. 321). ( Emphasis supplied)

A critical aspect of sovereign debt restructuring/contract construction is the set of terms


and conditions which determines the contractual remedies for a failure to perform one or
more elements of the contract. A good agreement must not only define the
responsibilities of both parties, but must also state the recourse open to either party when
the other fails to discharge an obligation. For a compleat debt restructuring represents a
devotion to that principle which in the ultimate analysis is sine qua non for foreign loan
agreements-an adherence to the rule of law in domestic and international affairs of whose
kind U.S. Supreme Court Justice Oliver Wendell Holmes, Jr. once said: "They carry no
banners, they beat no drums; but where they are, men learn that bustle and bush are not
the equal of quiet genius and serene mastery." (See Ricardo J. Romulo, "The Role of
Lawyers in Foreign Investments," Integrated Bar of the Philippine Journal, Vol. 15, Nos.
3 and 4, Third and Fourth Quarters, 1977, p. 265).

Interpreted in the light of the various definitions of the term Practice of law". particularly the
modern concept of law practice, and taking into consideration the liberal construction intended
by the framers of the Constitution, Atty. Monsod's past work experiences as a lawyer-economist,
a lawyer-manager, a lawyer-entrepreneur of industry, a lawyer-negotiator of contracts, and a
lawyer-legislator of both the rich and the poor — verily more than satisfy the constitutional
requirement — that he has been engaged in the practice of law for at least ten years.

Besides in the leading case of Luego v. Civil Service Commission, 143 SCRA 327, the Court
said:

Appointment is an essentially discretionary power and must be performed by the officer


in which it is vested according to his best lights, the only condition being that the
appointee should possess the qualifications required by law. If he does, then the
appointment cannot be faulted on the ground that there are others better qualified who
should have been preferred. This is a political question involving considerations of
wisdom which only the appointing authority can decide. (emphasis supplied)
No less emphatic was the Court in the case of (Central Bank v. Civil Service Commission, 171
SCRA 744) where it stated:

It is well-settled that when the appointee is qualified, as in this case, and all the other
legal requirements are satisfied, the Commission has no alternative but to attest to the
appointment in accordance with the Civil Service Law. The Commission has no authority
to revoke an appointment on the ground that another person is more qualified for a
particular position. It also has no authority to direct the appointment of a substitute of its
choice. To do so would be an encroachment on the discretion vested upon the appointing
authority. An appointment is essentially within the discretionary power of whomsoever it
is vested, subject to the only condition that the appointee should possess the
qualifications required by law. ( Emphasis supplied)

The appointing process in a regular appointment as in the case at bar, consists of four (4) stages:
(1) nomination; (2) confirmation by the Commission on Appointments; (3) issuance of a
commission (in the Philippines, upon submission by the Commission on Appointments of its
certificate of confirmation, the President issues the permanent appointment; and (4) acceptance
e.g., oath-taking, posting of bond, etc. . . . (Lacson v. Romero, No. L-3081, October 14, 1949;
Gonzales, Law on Public Officers, p. 200)

The power of the Commission on Appointments to give its consent to the nomination of Monsod
as Chairman of the Commission on Elections is mandated by Section 1(2) Sub-Article C, Article
IX of the Constitution which provides:

The Chairman and the Commisioners shall be appointed by the President with the
consent of the Commission on Appointments for a term of seven years without
reappointment. Of those first appointed, three Members shall hold office for seven years,
two Members for five years, and the last Members for three years, without
reappointment. Appointment to any vacancy shall be only for the unexpired term of the
predecessor. In no case shall any Member be appointed or designated in a temporary or
acting capacity.

Anent Justice Teodoro Padilla's separate opinion, suffice it to say that his definition of the
practice of law is the traditional or stereotyped notion of law practice, as distinguished
from the modern concept of the practice of law, which modern connotation is exactly
what was intended by the eminent framers of the 1987 Constitution. Moreover, Justice
Padilla's definition would require generally a habitual law practice, perhaps practised two
or three times a week and would outlaw say, law practice once or twice a year for ten
consecutive years. Clearly, this is far from the constitutional intent.

Upon the other hand, the separate opinion of Justice Isagani Cruz states that in my written
opinion, I made use of a definition of law practice which really means nothing because the
definition says that law practice " . . . is what people ordinarily mean by the practice of law."
True I cited the definition but only by way of sarcasm as evident from my statement that the
definition of law practice by "traditional areas of law practice is essentially tautologous" or
defining a phrase by means of the phrase itself that is being defined.
Justice Cruz goes on to say in substance that since the law covers almost all situations, most
individuals, in making use of the law, or in advising others on what the law means, are actually
practicing law. In that sense, perhaps, but we should not lose sight of the fact that Mr. Monsod is
a lawyer, a member of the Philippine Bar, who has been practising law for over ten years. This is
different from the acts of persons practising law, without first becoming lawyers.

Justice Cruz also says that the Supreme Court can even disqualify an elected President of the
Philippines, say, on the ground that he lacks one or more qualifications. This matter, I greatly
doubt. For one thing, how can an action or petition be brought against the President? And even
assuming that he is indeed disqualified, how can the action be entertained since he is the
incumbent President?

We now proceed:

The Commission on the basis of evidence submitted doling the public hearings on Monsod's
confirmation, implicitly determined that he possessed the necessary qualifications as required by
law. The judgment rendered by the Commission in the exercise of such an acknowledged power
is beyond judicial interference except only upon a clear showing of a grave abuse of discretion
amounting to lack or excess of jurisdiction. (Art. VIII, Sec. 1 Constitution). Thus, only where
such grave abuse of discretion is clearly shown shall the Court interfere with the Commission's
judgment. In the instant case, there is no occasion for the exercise of the Court's corrective
power, since no abuse, much less a grave abuse of discretion, that would amount to lack or
excess of jurisdiction and would warrant the issuance of the writs prayed, for has been clearly
shown.

Additionally, consider the following:

(1) If the Commission on Appointments rejects a nominee by the President, may the
Supreme Court reverse the Commission, and thus in effect confirm the appointment?
Clearly, the answer is in the negative.

(2) In the same vein, may the Court reject the nominee, whom the Commission has
confirmed? The answer is likewise clear.

(3) If the United States Senate (which is the confirming body in the U.S. Congress)
decides to confirm a Presidential nominee, it would be incredible that the U.S. Supreme
Court would still reverse the U.S. Senate.

Finally, one significant legal maxim is:

We must interpret not by the letter that killeth, but by the spirit that giveth life.

Take this hypothetical case of Samson and Delilah. Once, the procurator of Judea asked Delilah
(who was Samson's beloved) for help in capturing Samson. Delilah agreed on condition that —

No blade shall touch his skin;


No blood shall flow from his veins.

When Samson (his long hair cut by Delilah) was captured, the procurator placed an iron rod
burning white-hot two or three inches away from in front of Samson's eyes. This blinded the
man. Upon hearing of what had happened to her beloved, Delilah was beside herself with anger,
and fuming with righteous fury, accused the procurator of reneging on his word. The procurator
calmly replied: "Did any blade touch his skin? Did any blood flow from his veins?" The
procurator was clearly relying on the letter, not the spirit of the agreement.

In view of the foregoing, this petition is hereby DISMISSED.

SO ORDERED.

JESUS C. GARCIA, Petitioner,


vs.
THE HONORABLE RAY ALAN T. DRILON, Presiding Judge, Regional Trial Court-
Branch 41, Bacolod City, and ROSALIE JAYPE-GARCIA, for herself and in behalf of
minor children, namely: JO-ANN, JOSEPH EDUARD, JESSE ANTHONE, all surnamed
GARCIA, Respondents.

DECISION

PERLAS-BERNABE, J.:

Hailed as the bastion of Christianity in Asia, the Philippines boasts of 86.8 million Filipinos- or
93 percent of a total population of 93.3 million – adhering to the teachings of Jesus Christ.1 Yet,
the admonition for husbands to love their wives as their own bodies just as Christ loved the
church and gave himself up for her2 failed to prevent, or even to curb, the pervasiveness of
violence against Filipino women. The National Commission on the Role of Filipino Women
(NCRFW) reported that, for the years 2000-2003, "female violence comprised more than 90o/o
of all forms of abuse and violence and more than 90% of these reported cases were committed by
the women's intimate partners such as their husbands and live-in partners."3

Thus, on March 8, 2004, after nine (9) years of spirited advocacy by women's groups, Congress
enacted Republic Act (R.A.) No. 9262, entitled "An Act Defining Violence Against Women and
Their Children, Providing for Protective Measures for Victims, Prescribing Penalties Therefor,
and for Other Purposes." It took effect on March 27, 2004.4

R.A. 9262 is a landmark legislation that defines and criminalizes acts of violence against women
and their children (VAWC) perpetrated by women's intimate partners, i.e, husband; former
husband; or any person who has or had a sexual or dating relationship, or with whom the woman
has a common child.5 The law provides for protection orders from the barangay and the courts to
prevent the commission of further acts of VAWC; and outlines the duties and responsibilities of
barangay officials, law enforcers, prosecutors and court personnel, social workers, health care
providers, and other local government officials in responding to complaints of VAWC or
requests for assistance.

A husband is now before the Court assailing the constitutionality of R.A. 9262 as being violative
of the equal protection and due process clauses, and an undue delegation of judicial power to
barangay officials.

The Factual Antecedents

On March 23, 2006, Rosalie Jaype-Garcia (private respondent) filed, for herself and in behalf of
her minor children, a verified petition6 (Civil Case No. 06-797) before the Regional Trial Court
(RTC) of Bacolod City for the issuance of a Temporary Protection Order (TPO) against her
husband, Jesus C. Garcia (petitioner), pursuant to R.A. 9262. She claimed to be a victim of
physical abuse; emotional, psychological, and economic violence as a result of marital infidelity
on the part of petitioner, with threats of deprivation of custody of her children and of financial
support.7

Private respondent's claims

Private respondent married petitioner in 2002 when she was 34 years old and the former was
eleven years her senior. They have three (3) children, namely: Jo-Ann J. Garcia, 17 years old,
who is the natural child of petitioner but whom private respondent adopted; Jessie Anthone J.
Garcia, 6 years old; and Joseph Eduard J. Garcia, 3 years old.8

Private respondent described herself as a dutiful and faithful wife, whose life revolved around
her husband. On the other hand, petitioner, who is of Filipino-Chinese descent, is dominant,
controlling, and demands absolute obedience from his wife and children. He forbade private
respondent to pray, and deliberately isolated her from her friends. When she took up law, and
even when she was already working part time at a law office, petitioner trivialized her ambitions
and prevailed upon her to just stay at home. He was often jealous of the fact that his attractive
wife still catches the eye of some men, at one point threatening that he would have any man
eyeing her killed.9

Things turned for the worse when petitioner took up an affair with a bank manager of Robinson's
Bank, Bacolod City, who is the godmother of one of their sons. Petitioner admitted to the affair
when private respondent confronted him about it in 2004. He even boasted to the household help
about his sexual relations with said bank manager. Petitioner told private respondent, though,
that he was just using the woman because of their accounts with the bank.10

Petitioner's infidelity spawned a series of fights that left private respondent physically and
emotionally wounded. In one of their quarrels, petitioner grabbed private respondent on both
arms and shook her with such force that caused bruises and hematoma. At another time,
petitioner hit private respondent forcefully on the lips that caused some bleeding. Petitioner
sometimes turned his ire on their daughter, Jo-Ann, who had seen the text messages he sent to
his paramour and whom he blamed for squealing on him. He beat Jo-Ann on the chest and
slapped her many times. When private respondent decided to leave petitioner, Jo-Ann begged her
mother to stay for fear that if the latter leaves, petitioner would beat her up. Even the small boys
are aware of private respondent's sufferings. Their 6-year-old son said that when he grows up, he
would beat up his father because of his cruelty to private respondent.11

All the emotional and psychological turmoil drove private respondent to the brink of despair. On
December 17, 2005, while at home, she attempted suicide by cutting her wrist. She was found by
her son bleeding on the floor. Petitioner simply fled the house instead of taking her to the
hospital. Private respondent was hospitalized for about seven (7) days in which time petitioner
never bothered to visit, nor apologized or showed pity on her. Since then, private respondent has
been undergoing therapy almost every week and is taking anti-depressant medications.12

When private respondent informed the management of Robinson's Bank that she intends to file
charges against the bank manager, petitioner got angry with her for jeopardizing the manager's
job. He then packed his things and told private respondent that he was leaving her for good. He
even told private respondent's mother, who lives with them in the family home, that private
respondent should just accept his extramarital affair since he is not cohabiting with his paramour
and has not sired a child with her.13

Private respondent is determined to separate from petitioner but she is afraid that he would take
her children from her and deprive her of financial support. Petitioner had previously warned her
that if she goes on a legal battle with him, she would not get a single centavo.14

Petitioner controls the family businesses involving mostly the construction of deep wells. He is
the President of three corporations – 326 Realty Holdings, Inc., Negros Rotadrill Corporation,
and J-Bros Trading Corporation – of which he and private respondent are both stockholders. In
contrast to the absolute control of petitioner over said corporations, private respondent merely
draws a monthly salary of ₱20,000.00 from one corporation only, the Negros Rotadrill
Corporation. Household expenses amounting to not less than ₱200,000.00 a month are paid for
by private respondent through the use of credit cards, which, in turn, are paid by the same
corporation together with the bills for utilities.15

On the other hand, petitioner receives a monthly salary of ₱60,000.00 from Negros Rotadrill
Corporation, and enjoys unlimited cash advances and other benefits in hundreds of thousands of
pesos from the corporations.16 After private respondent confronted him about the affair,
petitioner forbade her to hold office at JBTC Building, Mandalagan, where all the businesses of
the corporations are conducted, thereby depriving her of access to full information about said
businesses. Until the filing of the petition a quo, petitioner has not given private respondent an
accounting of the businesses the value of which she had helped raise to millions of pesos.17

Action of the RTC of Bacolod City

Finding reasonable ground to believe that an imminent danger of violence against the private
respondent and her children exists or is about to recur, the RTC issued a TPO18 on March 24,
2006 effective for thirty (30) days, which is quoted hereunder:

Respondent (petitioner herein), Jesus Chua Garcia, is hereby:


a) Ordered to remove all his personal belongings from the conjugal dwelling or family
home within 24 hours from receipt of the Temporary Restraining Order and if he refuses,
ordering that he be removed by police officers from the conjugal dwelling; this order is
enforceable notwithstanding that the house is under the name of 236 Realty Holdings Inc.
(Republic Act No. 9262 states "regardless of ownership"), this is to allow the Petitioner
(private respondent herein) to enter the conjugal dwelling without any danger from the
Respondent.

After the Respondent leaves or is removed from the conjugal dwelling, or anytime the
Petitioner decides to return to the conjugal dwelling to remove things, the Petitioner shall
be assisted by police officers when re-entering the family home.

The Chief of Police shall also give the Petitioner police assistance on Sunday, 26 March
2006 because of the danger that the Respondent will attempt to take her children from her
when he arrives from Manila and finds out about this suit.

b) To stay away from the petitioner and her children, mother and all her household help
and driver from a distance of 1,000 meters, and shall not enter the gate of the subdivision
where the Petitioner may be temporarily residing.

c) Not to harass, annoy, telephone, contact or otherwise communicate with the Petitioner,
directly or indirectly, or through other persons, or contact directly or indirectly her
children, mother and household help, nor send gifts, cards, flowers, letters and the like.
Visitation rights to the children may be subject of a modified TPO in the future.

d) To surrender all his firearms including a .9MM caliber firearm and a Walther PPK and
ordering the Philippine National Police Firearms and Explosives Unit and the Provincial
Director of the PNP to cancel all the Respondent's firearm licenses. He should also be
ordered to surrender any unlicensed firearms in his possession or control.

e) To pay full financial support for the Petitioner and the children, including rental of a
house for them, and educational and medical expenses.

f) Not to dissipate the conjugal business.

g) To render an accounting of all advances, benefits, bonuses and other cash he received
from all the corporations from 1 January 2006 up to 31 March 2006, which himself and
as President of the corporations and his Comptroller, must submit to the Court not later
than 2 April 2006. Thereafter, an accounting of all these funds shall be reported to the
court by the Comptroller, copy furnished to the Petitioner, every 15 days of the month,
under pain of Indirect Contempt of Court.

h) To ensure compliance especially with the order granting support pendente lite, and
considering the financial resources of the Respondent and his threat that if the Petitioner
sues she will not get a single centavo, the Respondent is ordered to put up a BOND TO
KEEP THE PEACE in the amount of FIVE MILLION PESOS, in two sufficient sureties.
On April 24, 2006, upon motion19 of private respondent, the trial court issued an
amended TPO,20 effective for thirty (30) days, which included the following additional
provisions:

i) The petitioners (private respondents herein) are given the continued use of the Nissan
Patrol and the Starex Van which they are using in Negros Occidental.

j) The petitioners are given the continued use and occupation of the house in Parañaque,
the continued use of the Starex van in Metro Manila, whenever they go to Manila.

k) Respondent is ordered to immediately post a bond to keep the peace, in two sufficient
sureties.

l) To give monthly support to the petitioner provisionally fixed in the sum of One
Hundred Fifty Thousand Pesos (Php 150,000.00) per month plus rental expenses of Fifty
Thousand Pesos (Php 50,000.00) per month until the matter of support could be finally
resolved.

Two days later, or on April 26, 2006, petitioner filed an Opposition to the Urgent Ex-Parte
Motion for Renewal of the TPO21 seeking the denial of the renewal of the TPO on the grounds
that it did not (1) comply with the three-day notice rule, and (2) contain a notice of hearing. He
further asked that the TPO be modified by (1) removing one vehicle used by private respondent
and returning the same to its rightful owner, the J-Bros Trading Corporation, and (2) cancelling
or reducing the amount of the bond from ₱5,000,000.00 to a more manageable level at
₱100,000.00.

Subsequently, on May 23, 2006, petitioner moved22 for the modification of the TPO to allow him
visitation rights to his children.

On May 24, 2006, the TPO was renewed and extended yet again, but subject only to the
following modifications prayed for by private respondent:

a) That respondent (petitioner herein) return the clothes and other personal belongings of
Rosalie and her children to Judge Jesus Ramos, co-counsel for Petitioner, within 24 hours
from receipt of the Temporary Protection Order by his counsel, otherwise be declared in
Indirect Contempt of Court;

b) Respondent shall make an accounting or list of furniture and equipment in the conjugal
house in Pitimini St., Capitolville Subdivision, Bacolod City within 24 hours from receipt
of the Temporary Protection Order by his counsel;

c) Ordering the Chief of the Women's Desk of the Bacolod City Police Headquarters to
remove Respondent from the conjugal dwelling within eight (8) hours from receipt of the
Temporary Protection Order by his counsel, and that he cannot return until 48 hours after
the petitioners have left, so that the petitioner Rosalie and her representatives can remove
things from the conjugal home and make an inventory of the household furniture,
equipment and other things in the conjugal home, which shall be submitted to the Court.

d) Deliver full financial support of Php200,000.00 and Php50,000.00 for rental and
Php25,000.00 for clothes of the three petitioners (sic) children within 24 hours from
receipt of the Temporary Protection Order by his counsel, otherwise be declared in
indirect contempt of Court;

e) That respondent surrender his two firearms and all unlicensed firearms to the Clerk of
Court within 24 hours from receipt of the Temporary Protection Order by his counsel;

f) That respondent shall pay petitioner educational expenses of the children upon
presentation of proof of payment of such expenses.23

Claiming that petitioner continued to deprive them of financial support; failed to faithfully
comply with the TPO; and committed new acts of harassment against her and their children,
private respondent filed another application24 for the issuance of a TPO ex parte. She alleged
inter

alia that petitioner contrived a replevin suit against himself by J-Bros Trading, Inc., of which the
latter was purportedly no longer president, with the end in view of recovering the Nissan Patrol
and Starex Van used by private respondent and the children. A writ of replevin was served upon
private respondent by a group of six or seven policemen with long firearms that scared the two
small boys, Jessie Anthone and Joseph Eduard.25

While Joseph Eduard, then three years old, was driven to school, two men allegedly attempted to
kidnap him, which incident traumatized the boy resulting in his refusal to go back to school. On
another occasion, petitioner allegedly grabbed their daughter, Jo-Ann, by the arm and threatened
her.26 The incident was reported to the police, and Jo-Ann subsequently filed a criminal
complaint against her father for violation of R.A. 7610, also known as the "Special Protection of
Children Against Child Abuse, Exploitation and Discrimination Act."

Aside from the replevin suit, petitioner's lawyers initiated the filing by the housemaids working
at the conjugal home of a complaint for kidnapping and illegal detention against private
respondent. This came about after private respondent, armed with a TPO, went to said home to
get her and her children's belongings. Finding some of her things inside a housemaid's (Sheryl
Jamola) bag in the maids' room, private respondent filed a case for qualified theft against
Jamola.27

On August 23, 2006, the RTC issued a TPO,28 effective for thirty (30) days, which reads as
follows:

Respondent (petitioner herein), Jesus Chua Garcia, is hereby:

1) Prohibited from threatening to commit or committing, personally or through another,


acts of violence against the offended party;
2) Prohibited from harassing, annoying, telephoning, contacting or otherwise
communicating in any form with the offended party, either directly or indirectly;

3) Required to stay away, personally or through his friends, relatives, employees or


agents, from all the Petitioners Rosalie J. Garcia and her children, Rosalie J. Garcia's
three brothers, her mother Primitiva Jaype, cook Novelita Caranzo, driver Romeo
Hontiveros, laundrywoman Mercedita Bornales, security guard Darwin Gayona and the
petitioner's other household helpers from a distance of 1,000 meters, and shall not enter
the gate of the subdivision where the Petitioners are temporarily residing, as well as from
the schools of the three children; Furthermore, that respondent shall not contact the
schools of the children directly or indirectly in any manner including, ostensibly to pay
for their tuition or other fees directly, otherwise he will have access to the children
through the schools and the TPO will be rendered nugatory;

4) Directed to surrender all his firearms including .9MM caliber firearm and a Walther
PPK to the Court;

5) Directed to deliver in full financial support of Php200,000.00 a month and


Php50,000.00 for rental for the period from August 6 to September 6, 2006; and support
in arrears from March 2006 to August 2006 the total amount of Php1,312,000.00;

6) Directed to deliver educational expenses for 2006-2007 the amount of Php75,000.00


and Php25,000.00;

7) Directed to allow the continued use of a Nissan Patrol with Plate No. FEW 508 and a
Starex van with Plate No. FFD 991 and should the respondent fail to deliver said
vehicles, respondent is ordered to provide the petitioner another vehicle which is the one
taken by J Bros Tading;

8) Ordered not to dissipate, encumber, alienate, sell, lease or otherwise dispose of the
conjugal assets, or those real properties in the name of Jesus Chua Garcia only and those
in which the conjugal partnership of gains of the Petitioner Rosalie J. Garcia and
respondent have an interest in, especially the conjugal home located in No. 14, Pitimini
St., Capitolville Subdivision, Bacolod City, and other properties which are conjugal
assets or those in which the conjugal partnership of gains of Petitioner Rosalie J. Garcia
and the respondent have an interest in and listed in Annexes "I," "I-1," and "I-2,"
including properties covered by TCT Nos. T-186325 and T-168814;

9) Ordered that the Register of Deeds of Bacolod City and E.B. Magalona shall be served
a copy of this TEMPORARY PROTECTION ORDER and are ordered not to allow the
transfer, sale, encumbrance or disposition of these above-cited properties to any person,
entity or corporation without the personal presence of petitioner Rosalie J. Garcia, who
shall affix her signature in the presence of the Register of Deeds, due to the fear of
petitioner Rosalie that her signature will be forged in order to effect the encumbrance or
sale of these properties to defraud her or the conjugal partnership of gains.
In its Order29 dated September 26, 2006, the trial court extended the aforequoted TPO for
another ten (10) days, and gave petitioner a period of five (5) days within which to show cause
why the TPO should not be renewed, extended, or modified. Upon petitioner's manifestation,30
however, that he has not received a copy of private respondent's motion to modify/renew the
TPO, the trial court directed in its Order31 dated October 6, 2006 that petitioner be furnished a
copy of said motion. Nonetheless, an Order32 dated a day earlier, October 5, had already been
issued renewing the TPO dated August 23, 2006. The pertinent portion is quoted hereunder:

xxxx

x x x it appearing further that the hearing could not yet be finally terminated, the Temporary
Protection Order issued on August 23, 2006 is hereby renewed and extended for thirty (30) days
and continuously extended and renewed for thirty (30) days, after each expiration, until further
orders, and subject to such modifications as may be ordered by the court.

After having received a copy of the foregoing Order, petitioner no longer submitted the required
comment to private respondent's motion for renewal of the TPO arguing that it would only be an
"exercise in futility."33

Proceedings before the CA

During the pendency of Civil Case No. 06-797, petitioner filed before the Court of Appeals (CA)
a petition34 for prohibition (CA-G.R. CEB-SP. No. 01698), with prayer for injunction and
temporary restraining order, challenging (1) the constitutionality of R.A. 9262 for being violative
of the due process and the equal protection clauses, and (2) the validity of the modified TPO
issued in the civil case for being "an unwanted product of an invalid law."

On May 26, 2006, the appellate court issued a 60-day Temporary Restraining Order36 (TRO)
against the enforcement of the TPO, the amended TPOs and other orders pursuant thereto.

Subsequently, however, on January 24, 2007, the appellate court dismissed36 the petition for
failure of petitioner to raise the constitutional issue in his pleadings before the trial court in the
civil case, which is clothed with jurisdiction to resolve the same. Secondly, the challenge to the
validity

of R.A. 9262 through a petition for prohibition seeking to annul the protection orders issued by
the trial court constituted a collateral attack on said law.

His motion for reconsideration of the foregoing Decision having been denied in the Resolution37
dated August 14, 2007, petitioner is now before us alleging that –

The Issues

I.
THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON THE THEORY
THAT THE ISSUE OF CONSTITUTIONALITY WAS NOT RAISED AT THE EARLIEST
OPPORTUNITY AND THAT, THE PETITION CONSTITUTES A COLLATERAL ATTACK
ON THE VALIDITY OF THE LAW.

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN FAILING TO CONCLUDE


THAT R.A. 9262 IS DISCRIMINATORY, UNJUST, AND VIOLATIVE OF THE EQUAL
PROTECTION CLAUSE.

III.

THE COURT OF APPEALS COMMITTED GRAVE MISTAKE IN NOT FINDING THAT


R.A. 9262 RUNS COUNTER TO THE DUE PROCESS CLAUSE OF THE CONSTITUTION.

IV.

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LAW DOES VIOLENCE
TO THE POLICY OF THE STATE TO PROTECT THE FAMILY AS A BASIC SOCIAL
INSTITUTION.

V.

THE COURT OF APPEALS SERIOUSLY ERRED IN NOT DECLARING R.A. No. 9262 AS
INVALID AND UNCONSTITUTIONAL BECAUSE IT ALLOWS AN UNDUE
DELEGATION OF JUDICIAL POWER TO THE BARANGAY OFFICIALS.38

The Ruling of the Court

Before delving into the arguments propounded by petitioner against the constitutionality of R.A.
9262, we shall first tackle the propriety of the dismissal by the appellate court of the petition for
prohibition (CA-G.R. CEB-SP. No. 01698) filed by petitioner.

As a general rule, the question of constitutionality must be raised at the earliest opportunity so
that if not raised in the pleadings, ordinarily it may not be raised in the trial, and if not raised in
the trial court, it will not be considered on appeal.39 Courts will not anticipate a question of
constitutional law in advance of the necessity of deciding it.40

In defending his failure to attack the constitutionality of R.A. 9262 before the RTC of Bacolod
City, petitioner argues that the Family Court has limited authority and jurisdiction that is
"inadequate to tackle the complex issue of constitutionality."41

We disagree.

Family Courts have authority and jurisdiction to consider the constitutionality of a statute.
At the outset, it must be stressed that Family Courts are special courts, of the same level as
Regional Trial Courts. Under R.A. 8369, otherwise known as the "Family Courts Act of 1997,"
family courts have exclusive original jurisdiction to hear and decide cases of domestic violence
against women and children.42 In accordance with said law, the Supreme Court designated from
among the branches of the Regional Trial Courts at least one Family Court in each of several key
cities identified.43 To achieve harmony with the first mentioned law, Section 7 of R.A. 9262 now
provides that Regional Trial Courts designated as Family Courts shall have original and
exclusive jurisdiction over cases of VAWC defined under the latter law, viz:

SEC. 7. Venue. – The Regional Trial Court designated as a Family Court shall have original and
exclusive jurisdiction over cases of violence against women and their children under this law. In
the absence of such court in the place where the offense was committed, the case shall be filed in
the Regional Trial Court where the crime or any of its elements was committed at the option of
the complainant. (Emphasis supplied)

Inspite of its designation as a family court, the RTC of Bacolod City remains possessed of
authority as a court of general original jurisdiction to pass upon all kinds of cases whether civil,
criminal, special proceedings, land registration, guardianship, naturalization, admiralty or
insolvency.44 It is settled that RTCs have jurisdiction to resolve the constitutionality of a
statute,45 "this authority being embraced in the general definition of the judicial power to
determine what are the valid and binding laws by the criterion of their conformity to the
fundamental law."46 The Constitution vests the power of judicial review or the power to declare
the constitutionality or validity of a law, treaty, international or executive agreement, presidential
decree, order, instruction, ordinance, or regulation not only in this Court, but in all RTCs.47 We
said in J.M. Tuason and Co., Inc. v. CA48 that, "plainly the Constitution contemplates that the
inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law,
for it speaks of appellate review of final judgments of inferior courts in cases where such
constitutionality happens to be in issue." Section 5, Article VIII of the 1987 Constitution reads in
part as follows:

SEC. 5. The Supreme Court shall have the following powers:

xxx

2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in:

a. All cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is
in question.

xxxx

Thus, contrary to the posturing of petitioner, the issue of constitutionality of R.A. 9262 could
have been raised at the earliest opportunity in his Opposition to the petition for protection order
before the RTC of Bacolod City, which had jurisdiction to determine the same, subject to the
review of this Court.

Section 20 of A.M. No. 04-10-11-SC, the Rule on Violence Against Women and Their Children,
lays down a new kind of procedure requiring the respondent to file an opposition to the petition
and not an answer.49 Thus:

SEC. 20. Opposition to petition. – (a) The respondent may file an opposition to the petition
which he himself shall verify. It must be accompanied by the affidavits of witnesses and shall
show cause why a temporary or permanent protection order should not be issued.

(b) Respondent shall not include in the opposition any counterclaim, cross-claim or third-party
complaint, but any cause of action which could be the subject thereof may be litigated in a
separate civil action. (Emphasis supplied)

We cannot subscribe to the theory espoused by petitioner that, since a counterclaim, cross-claim
and third-party complaint are to be excluded from the opposition, the issue of constitutionality
cannot likewise be raised therein. A counterclaim is defined as any claim for money or other
relief which a defending party may have against an opposing party.50 A cross-claim, on the other
hand, is any claim by one party against a co-party arising out of the transaction or occurrence
that is the subject matter either of the original action or of a counterclaim therein.51 Finally, a
third-party complaint is a claim that a defending party may, with leave of court, file against a
person not a party to the action for contribution, indemnity, subrogation or any other relief, in
respect of his opponent's claim.52 As pointed out by Justice Teresita J. Leonardo-De Castro, the
unconstitutionality of a statute is not a cause of action that could be the subject of a counterclaim,
cross-claim or a third-party complaint. Therefore, it is not prohibited from being raised in the
opposition in view of the familiar maxim expressio unius est exclusio alterius.

Moreover, it cannot be denied that this issue affects the resolution of the case a quo because the
right of private respondent to a protection order is founded solely on the very statute the validity
of which is being attacked53 by petitioner who has sustained, or will sustain, direct injury as a
result of its enforcement. The alleged unconstitutionality of R.A. 9262 is, for all intents and
purposes, a valid cause for the non-issuance of a protection order.

That the proceedings in Civil Case No. 06-797 are summary in nature should not have deterred
petitioner from raising the same in his Opposition. The question relative to the constitutionality
of a statute is one of law which does not need to be supported by evidence.54 Be that as it may,
Section 25 of A.M. No. 04-10-11-SC nonetheless allows the conduct of a hearing to determine
legal issues, among others, viz:

SEC. 25. Order for further hearing. - In case the court determines the need for further hearing, it
may issue an order containing the following:

(a) Facts undisputed and admitted;

(b) Factual and legal issues to be resolved;


(c) Evidence, including objects and documents that have been marked and will be
presented;

(d) Names of witnesses who will be ordered to present their direct testimonies in the form
of affidavits; and

(e) Schedule of the presentation of evidence by both parties which shall be done in one
day, to the extent possible, within the 30-day period of the effectivity of the temporary
protection order issued. (Emphasis supplied)

To obviate potential dangers that may arise concomitant to the conduct of a hearing when
necessary, Section 26 (b) of A.M. No. 04-10-11-SC provides that if a temporary protection order
issued is due to expire, the trial court may extend or renew the said order for a period of thirty
(30) days each time until final judgment is rendered. It may likewise modify the extended or
renewed temporary protection order as may be necessary to meet the needs of the parties. With
the private respondent given ample protection, petitioner could proceed to litigate the
constitutional issues, without necessarily running afoul of the very purpose for the adoption of
the rules on summary procedure.

In view of all the foregoing, the appellate court correctly dismissed the petition for prohibition
with prayer for injunction and temporary restraining order (CA-G.R. CEB - SP. No. 01698).
Petitioner may have proceeded upon an honest belief that if he finds succor in a superior court,
he could be granted an injunctive relief. However, Section 22(j) of A.M. No. 04-10-11-SC
expressly disallows the filing of a petition for certiorari, mandamus or prohibition against any
interlocutory order issued by the trial court. Hence, the 60-day TRO issued by the appellate court
in this case against the enforcement of the TPO, the amended TPOs and other orders pursuant
thereto was improper, and it effectively hindered the case from taking its normal course in an
expeditious and summary manner.

As the rules stand, a review of the case by appeal or certiorari before judgment is prohibited.
Moreover, if the appeal of a judgment granting permanent protection shall not stay its
enforcement,55 with more reason that a TPO, which is valid only for thirty (30) days at a time,56
should not be enjoined.

The mere fact that a statute is alleged to be unconstitutional or invalid, does not of itself entitle a
litigant to have the same enjoined.57 In Younger v. Harris, Jr.,58 the Supreme Court of the United
States declared, thus:

Federal injunctions against state criminal statutes, either in their entirety or with respect to their
separate and distinct prohibitions, are not to be granted as a matter of course, even if such
statutes are unconstitutional. No citizen or member of the community is immune from
prosecution, in good faith, for his alleged criminal acts. The imminence of such a prosecution
even though alleged to be unauthorized and, hence, unlawful is not alone ground for relief in
equity which exerts its extraordinary powers only to prevent irreparable injury to the plaintiff
who seeks its aid. (Citations omitted)
The sole objective of injunctions is to preserve the status quo until the trial court hears fully the
merits of the case. It bears stressing, however, that protection orders are granted ex parte so as to
protect women and their children from acts of violence. To issue an injunction against such
orders will defeat the very purpose of the law against VAWC.

Notwithstanding all these procedural flaws, we shall not shirk from our obligation to determine
novel issues, or issues of first impression, with far-reaching implications. We have, time and
again, discharged our solemn duty as final arbiter of constitutional issues, and with more reason
now, in view of private respondent's plea in her Comment59 to the instant Petition that we should
put the challenge to the constitutionality of R.A. 9262 to rest. And so we shall.

Intent of Congress in enacting R.A. 9262.

Petitioner claims that since R.A. 9262 is intended to prevent and criminalize spousal and child
abuse, which could very well be committed by either the husband or the wife, gender alone is not
enough basis to deprive the husband/father of the remedies under the law.60

A perusal of the deliberations of Congress on Senate Bill No. 2723,61 which became R.A. 9262,
reveals that while the sponsor, Senator Luisa Pimentel-Ejercito (better known as Senator Loi
Estrada), had originally proposed what she called a "synthesized measure"62 – an amalgamation
of two measures, namely, the "Anti-Domestic Violence Act" and the "Anti-Abuse of Women in
Intimate Relationships Act"63 – providing protection to "all family members, leaving no one in
isolation" but at the same time giving special attention to women as the "usual victims" of
violence and abuse,64 nonetheless, it was eventually agreed that men be denied protection under
the same measure. We quote pertinent portions of the deliberations:

Wednesday, December 10, 2003

Senator Pangilinan. I just wanted to place this on record, Mr. President. Some women's groups
have expressed concerns and relayed these concerns to me that if we are to include domestic
violence apart from against women as well as other members of the household, including
children or the husband, they fear that this would weaken the efforts to address domestic
violence of which the main victims or the bulk of the victims really are the wives, the spouses or
the female partners in a relationship. We would like to place that on record. How does the good
Senator respond to this kind of observation?

Senator Estrada. Yes, Mr. President, there is this group of women who call themselves "WIIR"
Women in Intimate Relationship. They do not want to include men in this domestic violence. But
plenty of men are also being abused by women. I am playing safe so I placed here members of
the family, prescribing penalties therefor and providing protective measures for victims. This
includes the men, children, live-in, common-law wives, and those related with the family.65

xxx

Wednesday, January 14, 2004


xxxx

The President Pro Tempore. x x x

Also, may the Chair remind the group that there was the discussion whether to limit this to
women and not to families which was the issue of the AWIR group. The understanding that I
have is that we would be having a broader scope rather than just women, if I remember correctly,
Madam sponsor.

Senator Estrada. Yes, Mr. President.

As a matter of fact, that was brought up by Senator Pangilinan during the interpellation period.

I think Senator Sotto has something to say to that.

Senator Legarda. Mr. President, the reason I am in support of the measure. Do not get me wrong.
However, I believe that there is a need to protect women's rights especially in the domestic
environment.

As I said earlier, there are nameless, countless, voiceless women who have not had the
opportunity to file a case against their spouses, their live-in partners after years, if not decade, of
battery and abuse. If we broaden the scope to include even the men, assuming they can at all be
abused by the women or their spouses, then it would not equalize the already difficult situation
for women, Mr. President.

I think that the sponsor, based on our earlier conversations, concurs with this position. I am sure
that the men in this Chamber who love their women in their lives so dearly will agree with this
representation. Whether we like it or not, it is an unequal world. Whether we like it or not, no
matter how empowered the women are, we are not given equal opportunities especially in the
domestic environment where the macho Filipino man would always feel that he is stronger, more
superior to the Filipino woman.

xxxx

The President Pro Tempore. What does the sponsor say?

Senator Estrada. Mr. President, before accepting this, the committee came up with this bill
because the family members have been included in this proposed measure since the other
members of the family other than women are also possible victims of violence. While women are
most likely the intended victims, one reason incidentally why the measure focuses on women,
the fact remains that in some relatively few cases, men also stand to be victimized and that
children are almost always the helpless victims of violence. I am worried that there may not be
enough protection extended to other family members particularly children who are excluded.
Although Republic Act No. 7610, for instance, more or less, addresses the special needs of
abused children. The same law is inadequate. Protection orders for one are not available in said
law.
I am aware that some groups are apprehensive about granting the same protection to men, fearing
that they may use this law to justify their abusive behavior against women. However, we should
also recognize that there are established procedures and standards in our courts which give
credence to evidentiary support and cannot just arbitrarily and whimsically entertain baseless
complaints.

Mr. President, this measure is intended to harmonize family relations and to protect the family as
the basic social institution. Though I recognize the unequal power relations between men and
women in our society, I believe we have an obligation to uphold inherent rights and dignity of
both husband and wife and their immediate family members, particularly children.

While I prefer to focus mainly on women, I was compelled to include other family members as a
critical input arrived at after a series of consultations/meetings with various NGOs, experts,
sports groups and other affected sectors, Mr. President.

Senator Sotto. Mr. President.

The President Pro Tempore. Yes, with the permission of the other senators.

Senator Sotto. Yes, with the permission of the two ladies on the Floor.

The President Pro Tempore. Yes, Sen. Vicente C. Sotto III is recognized.

Senator Sotto. I presume that the effect of the proposed amendment of Senator Legarda would be
removing the "men and children" in this particular bill and focus specifically on women alone.
That will be the net effect of that proposed amendment. Hearing the rationale mentioned by the
distinguished sponsor, Sen. Luisa "Loi" Ejercito Estrada, I am not sure now whether she is
inclined to accept the proposed amendment of Senator Legarda.

I am willing to wait whether she is accepting this or not because if she is going to accept this, I
will propose an amendment to the amendment rather than object to the amendment, Mr.
President.

xxxx

Senator Estrada. The amendment is accepted, Mr. President.

The President Pro Tempore. Is there any objection?

xxxx

Senator Sotto. x x x May I propose an amendment to the amendment.

The President Pro Tempore. Before we act on the amendment?

Senator Sotto. Yes, Mr. President.


The President Pro Tempore. Yes, please proceed.

Senator Sotto. Mr. President, I am inclined to believe the rationale used by the distinguished
proponent of the amendment. As a matter of fact, I tend to agree. Kung may maaabuso, mas
malamang iyong babae kaysa sa lalake. At saka iyong mga lalake, puwede na talagang magulpi
iyan. Okey lang iyan. But I cannot agree that we remove the children from this particular
measure.

So, if I may propose an amendment –

The President Pro Tempore. To the amendment.

Senator Sotto. – more than the women, the children are very much abused. As a matter of fact, it
is not limited to minors. The abuse is not limited to seven, six, 5-year-old children. I have seen
14, 15-year-old children being abused by their fathers, even by their mothers. And it breaks my
heart to find out about these things.

Because of the inadequate existing law on abuse of children, this particular measure will update
that. It will enhance and hopefully prevent the abuse of children and not only women.

SOTTO-LEGARDA AMENDMENTS

Therefore, may I propose an amendment that, yes, we remove the aspect of the men in the bill
but not the children.

Senator Legarda. I agree, Mr. President, with the Minority Leader.

The President Pro Tempore. Effectively then, it will be women AND CHILDREN.

Senator Sotto. Yes, Mr. President.

Senator Estrada. It is accepted, Mr. President.

The President Pro Tempore. Is there any objection? [Silence] There being none, the amendment,
as amended, is approved.66

It is settled that courts are not concerned with the wisdom, justice, policy, or expediency of a
statute.67 Hence, we dare not venture into the real motivations and wisdom of the members of
Congress in limiting the protection against violence and abuse under R.A. 9262 to women and
children only. No proper challenge on said grounds may be entertained in this proceeding.
Congress has made its choice and it is not our prerogative to supplant this judgment. The choice
may be perceived as erroneous but even then, the remedy against it is to seek its amendment or
repeal by the legislative. By the principle of separation of powers, it is the legislative that
determines the necessity, adequacy, wisdom and expediency of any law.68 We only step in when
there is a violation of the Constitution. However, none was sufficiently shown in this case.
R.A. 9262 does not violate the guaranty of equal protection of the laws.

Equal protection simply requires that all persons or things similarly situated should be treated
alike, both as to rights conferred and responsibilities imposed. The oft-repeated disquisition in
the early case of Victoriano v. Elizalde Rope Workers' Union69 is instructive:

The guaranty of equal protection of the laws is not a guaranty of equality in the application of the
laws upon all citizens of the state. It is not, therefore, a requirement, in order to avoid the
constitutional prohibition against inequality, that every man, woman and child should be affected
alike by a statute. Equality of operation of statutes does not mean indiscriminate operation on
persons merely as such, but on persons according to the circumstances surrounding them. It
guarantees equality, not identity of rights. The Constitution does not require that things which are
different in fact be treated in law as though they were the same. The equal protection clause does
not forbid discrimination as to things that are different. It does not prohibit legislation which is
limited either in the object to which it is directed or by the territory within which it is to operate.

The equal protection of the laws clause of the Constitution allows classification. Classification in
law, as in the other departments of knowledge or practice, is the grouping of things in
speculation or practice because they agree with one another in certain particulars. A law is not
invalid because of simple inequality. The very idea of classification is that of inequality, so that it
goes without saying that the mere fact of inequality in no manner determines the matter of
constitutionality. All that is required of a valid classification is that it be reasonable, which
means that the classification should be based on substantial distinctions which make for real
differences; that it must be germane to the purpose of the law; that it must not be limited to
existing conditions only; and that it must apply equally to each member of the class. This Court
has held that the standard is satisfied if the classification or distinction is based on a reasonable
foundation or rational basis and is not palpably arbitrary. (Emphasis supplied)

Measured against the foregoing jurisprudential yardstick, we find that R.A. 9262 is based on a
valid classification as shall hereinafter be discussed and, as such, did not violate the equal
protection clause by favoring women over men as victims of violence and abuse to whom the
State extends its protection.

I. R.A. 9262 rests on substantial distinctions.

The unequal power relationship between women and men; the fact that women are more likely
than men to be victims of violence; and the widespread gender bias and prejudice against women
all make for real differences justifying the classification under the law. As Justice McIntyre
succinctly states, "the accommodation of differences ... is the essence of true equality."70

A. Unequal power relationship between men and women

According to the Philippine Commission on Women (the National Machinery for Gender
Equality and Women's Empowerment), violence against women (VAW) is deemed to be closely
linked with the unequal power relationship between women and men otherwise known as
"gender-based violence". Societal norms and traditions dictate people to think men are the
leaders, pursuers, providers, and take on dominant roles in society while women are nurturers,
men's companions and supporters, and take on subordinate roles in society. This perception leads
to men gaining more power over women. With power comes the need to control to retain that
power. And VAW is a form of men's expression of controlling women to retain power.71

The United Nations, which has long recognized VAW as a human rights issue, passed its
Resolution 48/104 on the Declaration on Elimination of Violence Against Women on December
20, 1993 stating that "violence against women is a manifestation of historically unequal power
relations between men and women, which have led to domination over and discrimination
against women by men and to the prevention of the full advancement of women, and that
violence against women is one of the crucial social mechanisms by which women are forced into
subordinate positions, compared with men."72

Then Chief Justice Reynato S. Puno traced the historical and social context of gender-based
violence and developments in advocacies to eradicate VAW, in his remarks delivered during the
Joint Launching of R.A. 9262 and its Implementing Rules last October 27, 2004, the pertinent
portions of which are quoted hereunder:

History reveals that most societies sanctioned the use of violence against women. The patriarch
of a family was accorded the right to use force on members of the family under his control. I
quote the early studies:

Traditions subordinating women have a long history rooted in patriarchy – the institutional rule
of men. Women were seen in virtually all societies to be naturally inferior both physically and
intellectually. In ancient Western societies, women whether slave, concubine or wife, were under
the authority of men. In law, they were treated as property.

The Roman concept of patria potestas allowed the husband to beat, or even kill, his wife if she
endangered his property right over her. Judaism, Christianity and other religions oriented
towards the patriarchal family strengthened the male dominated structure of society.

English feudal law reinforced the tradition of male control over women. Even the eminent
Blackstone has been quoted in his commentaries as saying husband and wife were one and that
one was the husband. However, in the late 1500s and through the entire 1600s, English common
law began to limit the right of husbands to chastise their wives. Thus, common law developed
the rule of thumb, which allowed husbands to beat their wives with a rod or stick no thicker than
their thumb.

In the later part of the 19th century, legal recognition of these rights to chastise wives or inflict
corporeal punishment ceased. Even then, the preservation of the family was given more
importance than preventing violence to women.

The metamorphosis of the law on violence in the United States followed that of the English
common law. In 1871, the Supreme Court of Alabama became the first appellate court to strike
down the common law right of a husband to beat his wife:
The privilege, ancient though it may be, to beat one's wife with a stick, to pull her hair, choke
her, spit in her face or kick her about the floor, or to inflict upon her like indignities, is not now
acknowledged by our law... In person, the wife is entitled to the same protection of the law that
the husband can invoke for himself.

As time marched on, the women's advocacy movement became more organized. The temperance
leagues initiated it. These leagues had a simple focus. They considered the evils of alcoholism as
the root cause of wife abuse. Hence, they demonstrated and picketed saloons, bars and their
husbands' other watering holes. Soon, however, their crusade was joined by suffragette
movements, expanding the liberation movement's agenda. They fought for women's right to vote,
to own property, and more. Since then, the feminist movement was on the roll.

The feminist movement exposed the private invisibility of the domestic violence to the public
gaze. They succeeded in transforming the issue into an important public concern. No less than
the United States Supreme Court, in 1992 case Planned Parenthood v. Casey, noted:

In an average 12-month period in this country, approximately two million women are the victims
of severe assaults by their male partners. In a 1985 survey, women reported that nearly one of
every eight husbands had assaulted their wives during the past year. The [American Medical
Association] views these figures as "marked underestimates," because the nature of these
incidents discourages women from reporting them, and because surveys typically exclude the
very poor, those who do not speak English well, and women who are homeless or in institutions
or hospitals when the survey is conducted. According to the AMA, "researchers on family
violence agree that the true incidence of partner violence is probably double the above estimates;
or four million severely assaulted women per year."

Studies on prevalence suggest that from one-fifth to one-third of all women will be physically
assaulted by a partner or ex-partner during their lifetime... Thus on an average day in the United
States, nearly 11,000 women are severely assaulted by their male partners. Many of these
incidents involve sexual assault... In families where wife beating takes place, moreover, child
abuse is often present as well.

Other studies fill in the rest of this troubling picture. Physical violence is only the most visible
form of abuse. Psychological abuse, particularly forced social and economic isolation of women,
is also common.

Many victims of domestic violence remain with their abusers, perhaps because they perceive no
superior alternative...Many abused women who find temporary refuge in shelters return to their
husbands, in large part because they have no other source of income... Returning to one's abuser
can be dangerous. Recent Federal Bureau of Investigation statistics disclose that 8.8 percent of
all homicide victims in the United States are killed by their spouses...Thirty percent of female
homicide victims are killed by their male partners.

Finally in 1994, the United States Congress enacted the Violence Against Women Act.
In the International front, the women's struggle for equality was no less successful. The United
States Charter and the Universal Declaration of Human Rights affirmed the equality of all human
beings. In 1979, the UN General Assembly adopted the landmark Convention on the Elimination
of all Forms of Discrimination Against Women (CEDAW). In 1993, the UN General Assembly
also adopted the Declaration on the Elimination of Violence Against Women. World conferences
on the role and rights of women have been regularly held in Mexico City, Copenhagen, Nairobi
and Beijing. The UN itself established a Commission on the Status of Women.

The Philippines has been in cadence with the half – and full – steps of all these women's
movements. No less than Section 14, Article II of our 1987 Constitution mandates the State to
recognize the role of women in nation building and to ensure the fundamental equality before the
law of women and men. Our Senate has ratified the CEDAW as well as the Convention on the
Rights of the Child and its two protocols. To cap it all, Congress, on March 8, 2004, enacted
Rep. Act No. 9262, entitled "An Act Defining Violence Against Women and Their Children,
Providing for Protective Measures for Victims, Prescribing Penalties therefor and for other
Purposes." (Citations omitted)

B. Women are the "usual" and "most likely"

victims of violence.

At the time of the presentation of Senate Bill No. 2723, official statistics on violence against
women and children show that –

x x x physical injuries had the highest number of cases at 5,058 in 2002 representing 55.63% of
total cases reported (9,903). And for the first semester of 2003, there were 2,381 reported cases
out of 4,354 cases which represent 54.31%. xxx (T)he total number of women in especially
difficult circumstances served by the Department of Social Welfare and Development (DSWD)
for the year 2002, there are 1,417 physically abused/maltreated cases out of the total of 5,608
cases. xxx (T)here are 1,091 DSWD cases out of a total number of 3,471 cases for the first
semester of 2003. Female violence comprised more than 90% of all forms of abuse and violence
and more than 90% of these reported cases were committed by the women's intimate partners
such as their husbands and live-in partners.73

Recently, the Philippine Commission on Women presented comparative statistics on violence


against women across an eight-year period from 2004 to August of 2011 with violations under
R.A. 9262 ranking first among the different VAW categories since its implementation in 2004,74
thus:

Table 1. Annual Comparative Statistics on Violence Against Women, 2004 - 2011*

Reported 200 200 200 200 200 200


2010 2011
Cases 4 5 6 7 8 9
Rape 997 927 659 837 811 770 1,042 832

Incestuous
38 46 26 22 28 27 19 23
Rape

Attempted
194 148 185 147 204 167 268 201
Rape

Acts of
Lasciviousn 580 536 382 358 445 485 745 625
ess

Physical 3,55 2,33 1,89 1,50 1,30 1,49


2,018 1,588
Injuries 3 5 2 5 7 8

Sexual
53 37 38 46 18 54 83 63
Harassment

1,26 2,38 3,59 5,28


RA 9262 218 924 9,974 9,021
9 7 9 5

Threats 319 223 199 182 220 208 374 213

Seduction 62 19 29 30 19 19 25 15

Concubinag
121 102 93 109 109 99 158 128
e

RA 9208 17 11 16 24 34 152 190 62

Abduction
/Kidnapping 16 34 23 28 18 25 22
29

Unjust
90 50 59 59 83 703 183 155
Vexation
6,27 5,37 4,88 5,72 6,90 9,48 15,10 12,94
Total
1 4 1 9 5 5 4 8

*2011 report covers only from January to August

Source: Philippine National Police – Women and Children Protection Center (WCPC)

On the other hand, no reliable estimates may be obtained on domestic abuse and violence against
men in the Philippines because incidents thereof are relatively low and, perhaps, because many
men will not even attempt to report the situation. In the United Kingdom, 32% of women who
had ever experienced domestic violence did so four or five (or more) times, compared with 11%
of the smaller number of men who had ever experienced domestic violence; and women
constituted 89% of all those who had experienced 4 or more incidents of domestic violence.75
Statistics in Canada show that spousal violence by a woman against a man is less likely to cause
injury than the other way around (18 percent versus 44 percent). Men, who experience violence
from their spouses are much less likely to live in fear of violence at the hands of their spouses,
and much less likely to experience sexual assault. In fact, many cases of physical violence by a
woman against a spouse are in self-defense or the result of many years of physical or emotional
abuse.76

While there are, indeed, relatively few cases of violence and abuse perpetrated against men in the
Philippines, the same cannot render R.A. 9262 invalid.

In a 1960 case involving the violation of a city ordinance requiring drivers of animal-drawn
vehicles to pick up, gather and deposit in receptacles the manure emitted or discharged by their
vehicle-drawing animals in any public highways, streets, plazas, parks or alleys, said ordinance
was challenged as violative of the guaranty of equal protection of laws as its application is
limited to owners and drivers of vehicle-drawing animals and not to those animals, although not
utilized, but similarly pass through the same streets.

The ordinance was upheld as a valid classification for the reason that, while there may be non-
vehicle-drawing animals that also traverse the city roads, "but their number must be negligible
and their appearance therein merely occasional, compared to the rig-drawing ones, as not to
constitute a menace to the health of the community."77 The mere fact that the legislative
classification may result in actual inequality is not violative of the right to equal protection, for
every classification of persons or things for regulation by law produces inequality in some
degree, but the law is not thereby rendered invalid.78

C. Gender bias and prejudices

From the initial report to the police through prosecution, trial, and sentencing, crimes against
women are often treated differently and less seriously than other crimes. This was argued by then
United States Senator Joseph R. Biden, Jr., now Vice President, chief sponsor of the Violence
Against Women Act (VAWA), in defending the civil rights remedy as a valid exercise of the
U.S. Congress' authority under the Commerce and Equal Protection Clauses. He stressed that the
widespread gender bias in the U.S. has institutionalized historic prejudices against victims of
rape or domestic violence, subjecting them to "double victimization" – first at the hands of the
offender and then of the legal system.79

Our own Senator Loi Estrada lamented in her Sponsorship Speech for Senate Bill No. 2723 that
"(w)henever violence occurs in the family, the police treat it as a private matter and advise the
parties to settle the conflict themselves. Once the complainant brings the case to the prosecutor,
the latter is hesitant to file the complaint for fear that it might later be withdrawn. This lack of
response or reluctance to be involved by the police and prosecution reinforces the escalating,
recurring and often serious nature of domestic violence."80

Sadly, our own courts, as well, have exhibited prejudices and biases against our women.

In a recent case resolved on March 9, 2011, we fined RTC Judge Venancio J. Amila for Conduct
Unbecoming of a Judge. He used derogatory and irreverent language in reference to the
complainant in a petition for TPO and PPO under R.A. 9262, calling her as "only a live-in
partner" and presenting her as an "opportunist" and a "mistress" in an "illegitimate relationship."
Judge Amila even called her a "prostitute," and accused her of being motivated by "insatiable
greed" and of absconding with the contested property.81 Such remarks betrayed Judge Amila's
prejudices and lack of gender sensitivity.

The enactment of R.A. 9262 aims to address the discrimination brought about by biases and
prejudices against women. As emphasized by the CEDAW Committee on the Elimination of
Discrimination against Women, addressing or correcting discrimination through specific
measures focused on women does not discriminate against men.82 Petitioner's contention,83
therefore, that R.A. 9262 is discriminatory and that it is an "anti-male," "husband-bashing," and
"hate-men" law deserves scant consideration. As a State Party to the CEDAW, the Philippines
bound itself to take all appropriate measures "to modify the social and cultural patterns of
conduct of men and women, with a view to achieving the elimination of prejudices and
customary and all other practices which are based on the idea of the inferiority or the superiority
of either of the sexes or on stereotyped roles for men and women."84 Justice Puno correctly
pointed out that "(t)he paradigm shift changing the character of domestic violence from a private
affair to a public offense will require the development of a distinct mindset on the part of the
police, the prosecution and the judges."85

II. The classification is germane to the purpose of the law.

The distinction between men and women is germane to the purpose of R.A. 9262, which is to
address violence committed against women and children, spelled out in its Declaration of Policy,
as follows:

SEC. 2. Declaration of Policy. – It is hereby declared that the State values the dignity of women
and children and guarantees full respect for human rights. The State also recognizes the need to
protect the family and its members particularly women and children, from violence and threats to
their personal safety and security.
Towards this end, the State shall exert efforts to address violence committed against women and
children in keeping with the fundamental freedoms guaranteed under the Constitution and the
provisions of the Universal Declaration of Human Rights, the Convention on the Elimination of
All Forms of Discrimination Against Women, Convention on the Rights of the Child and other
international human rights instruments of which the Philippines is a party.

In 1979, the U.N. General Assembly adopted the CEDAW, which the Philippines ratified on
August 5, 1981. Subsequently, the Optional Protocol to the CEDAW was also ratified by the
Philippines on October 6, 2003.86 This Convention mandates that State parties shall accord to
women equality with men before the law87 and shall take all appropriate measures to eliminate
discrimination against women in all matters relating to marriage and family relations on the basis
of equality of men and women.88 The Philippines likewise ratified the Convention on the Rights
of the Child and its two protocols.89 It is, thus, bound by said Conventions and their respective
protocols.

III. The classification is not limited to existing

conditions only, and apply equally to all members

Moreover, the application of R.A. 9262 is not limited to the existing conditions when it was
promulgated, but to future conditions as well, for as long as the safety and security of women
and their children are threatened by violence and abuse.

R.A. 9262 applies equally to all women and children who suffer violence and abuse. Section 3
thereof defines VAWC as:

x x x any act or a series of acts committed by any person against a woman who is his wife,
former wife, or against a woman with whom the person has or had a sexual or dating
relationship, or with whom he has a common child, or against her child whether legitimate or
illegitimate, within or without the family abode, which result in or is likely to result in physical,
sexual, psychological harm or suffering, or economic abuse including threats of such acts,
battery, assault, coercion, harassment or arbitrary deprivation of liberty. It includes, but is not
limited to, the following acts:

A. "Physical Violence" refers to acts that include bodily or physical harm;

B. "Sexual violence" refers to an act which is sexual in nature, committed against a woman or
her child. It includes, but is not limited to:

a) rape, sexual harassment, acts of lasciviousness, treating a woman or her child


as a sex object, making demeaning and sexually suggestive remarks, physically
attacking the sexual parts of the victim's body, forcing her/him to watch obscene
publications and indecent shows or forcing the woman or her child to do indecent
acts and/or make films thereof, forcing the wife and mistress/lover to live in the
conjugal home or sleep together in the same room with the abuser;
b) acts causing or attempting to cause the victim to engage in any sexual activity
by force, threat of force, physical or other harm or threat of physical or other harm
or coercion;

c) Prostituting the woman or child.

C. "Psychological violence" refers to acts or omissions causing or likely to cause mental or


emotional suffering of the victim such as but not limited to intimidation, harassment, stalking,
damage to property, public ridicule or humiliation, repeated verbal abuse and marital infidelity. It
includes causing or allowing the victim to witness the physical, sexual or psychological abuse of
a member of the family to which the victim belongs, or to witness pornography in any form or to
witness abusive injury to pets or to unlawful or unwanted deprivation of the right to custody
and/or visitation of common children.

D. "Economic abuse" refers to acts that make or attempt to make a woman financially dependent
which includes, but is not limited to the following:

1. withdrawal of financial support or preventing the victim from engaging in any


legitimate profession, occupation, business or activity, except in cases wherein the
other spouse/partner objects on valid, serious and moral grounds as defined in
Article 73 of the Family Code;

2. deprivation or threat of deprivation of financial resources and the right to the


use and enjoyment of the conjugal, community or property owned in common;

3. destroying household property;

4. controlling the victims' own money or properties or solely controlling the


conjugal money or properties.

It should be stressed that the acts enumerated in the aforequoted provision are attributable to
research that has exposed the dimensions and dynamics of battery. The acts described here are
also found in the U.N. Declaration on the Elimination of Violence Against Women.90 Hence, the
argument advanced by petitioner that the definition of what constitutes abuse removes the
difference between violent action and simple marital tiffs is tenuous.

There is nothing in the definition of VAWC that is vague and ambiguous that will confuse
petitioner in his defense. The acts enumerated above are easily understood and provide adequate
contrast between the innocent and the prohibited acts. They are worded with sufficient
definiteness that persons of ordinary intelligence can understand what conduct is prohibited, and
need not guess at its meaning nor differ in its application.91 Yet, petitioner insists92 that phrases
like "depriving or threatening to deprive the woman or her child of a legal right," "solely
controlling the conjugal or common money or properties," "marital infidelity," and "causing
mental or emotional anguish" are so vague that they make every quarrel a case of spousal abuse.
However, we have stressed that the "vagueness" doctrine merely requires a reasonable degree of
certainty for the statute to be upheld – not absolute precision or mathematical exactitude, as
petitioner seems to suggest. Flexibility, rather than meticulous specificity, is permissible as long
as the metes and bounds of the statute are clearly delineated. An act will not be held invalid
merely because it might have been more explicit in its wordings or detailed in its provisions.93

There is likewise no merit to the contention that R.A. 9262 singles out the husband or father as
the culprit. As defined above, VAWC may likewise be committed "against a woman with whom
the person has or had a sexual or dating relationship." Clearly, the use of the gender-neutral word
"person" who has or had a sexual or dating relationship with the woman encompasses even
lesbian relationships. Moreover, while the law provides that the offender be related or connected
to the victim by marriage, former marriage, or a sexual or dating relationship, it does not
preclude the application of the principle of conspiracy under the Revised Penal Code (RPC).
Thus, in the case of Go-Tan v. Spouses Tan,94 the parents-in-law of Sharica Mari L. Go-Tan, the
victim, were held to be proper respondents in the case filed by the latter upon the allegation that
they and their son (Go-Tan's husband) had community of design and purpose in tormenting her
by giving her insufficient financial support; harassing and pressuring her to be ejected from the
family home; and in repeatedly abusing her verbally, emotionally, mentally and physically.

R.A. 9262 is not violative of the


due process clause of the Constitution.

Petitioner bewails the disregard of R.A. 9262, specifically in the issuance of POs, of all
protections afforded by the due process clause of the Constitution. Says he: "On the basis of
unsubstantiated allegations, and practically no opportunity to respond, the husband is stripped of
family, property, guns, money, children, job, future employment and reputation, all in a matter of
seconds, without an inkling of what happened."95

A protection order is an order issued to prevent further acts of violence against women and their
children, their family or household members, and to grant other necessary reliefs. Its purpose is
to safeguard the offended parties from further harm, minimize any disruption in their daily life
and facilitate the opportunity and ability to regain control of their life.96

"The scope of reliefs in protection orders is broadened to ensure that the victim or offended party
is afforded all the remedies necessary to curtail access by a perpetrator to the victim. This serves
to safeguard the victim from greater risk of violence; to accord the victim and any designated
family or household member safety in the family residence, and to prevent the perpetrator from
committing acts that jeopardize the employment and support of the victim. It also enables the
court to award temporary custody of minor children to protect the children from violence, to
prevent their abduction by the perpetrator and to ensure their financial support."97

The rules require that petitions for protection order be in writing, signed and verified by the
petitioner98 thereby undertaking full responsibility, criminal or civil, for every allegation therein.
Since "time is of the essence in cases of VAWC if further violence is to be prevented,"99 the
court is authorized to issue ex parte a TPO after raffle but before notice and hearing when the
life, limb or property of the victim is in jeopardy and there is reasonable ground to believe that
the order is necessary to protect the victim from the immediate and imminent danger of VAWC
or to prevent such violence, which is about to recur.100
There need not be any fear that the judge may have no rational basis to issue an ex parte order.
The victim is required not only to verify the allegations in the petition, but also to attach her
witnesses' affidavits to the petition.101

The grant of a TPO ex parte cannot, therefore, be challenged as violative of the right to due
process. Just like a writ of preliminary attachment which is issued without notice and hearing
because the time in which the hearing will take could be enough to enable the defendant to
abscond or dispose of his property,102 in the same way, the victim of VAWC may already have
suffered harrowing experiences in the hands of her tormentor, and possibly even death, if notice
and hearing were required before such acts could be prevented. It is a constitutional
commonplace that the ordinary requirements of procedural due process must yield to the
necessities of protecting vital public interests,103 among which is protection of women and
children from violence and threats to their personal safety and security.

It should be pointed out that when the TPO is issued ex parte, the court shall likewise order that
notice be immediately given to the respondent directing him to file an opposition within five (5)
days from service. Moreover, the court shall order that notice, copies of the petition and TPO be
served immediately on the respondent by the court sheriffs. The TPOs are initially effective for
thirty (30) days from service on the respondent.104

Where no TPO is issued ex parte, the court will nonetheless order the immediate issuance and
service of the notice upon the respondent requiring him to file an opposition to the petition
within five (5) days from service. The date of the preliminary conference and hearing on the
merits shall likewise be indicated on the notice.105

The opposition to the petition which the respondent himself shall verify, must be accompanied
by the affidavits of witnesses and shall show cause why a temporary or permanent protection
order should not be issued.106

It is clear from the foregoing rules that the respondent of a petition for protection order should be
apprised of the charges imputed to him and afforded an opportunity to present his side. Thus, the
fear of petitioner of being "stripped of family, property, guns, money, children, job, future
employment and reputation, all in a matter of seconds, without an inkling of what happened" is a
mere product of an overactive imagination. The essence of due process is to be found in the
reasonable opportunity to be heard and submit any evidence one may have in support of one's
defense. "To be heard" does not only mean verbal arguments in court; one may be heard also
through pleadings. Where opportunity to be heard, either through oral arguments or pleadings, is
accorded, there is no denial of procedural due process.107

It should be recalled that petitioner filed on April 26, 2006 an Opposition to the Urgent Ex-Parte
Motion for Renewal of the TPO that was granted only two days earlier on April 24, 2006.
Likewise, on May 23, 2006, petitioner filed a motion for the modification of the TPO to allow
him visitation rights to his children. Still, the trial court in its Order dated September 26, 2006,
gave him five days (5) within which to show cause why the TPO should not be renewed or
extended. Yet, he chose not to file the required comment arguing that it would just be an
"exercise in futility," conveniently forgetting that the renewal of the questioned TPO was only
for a limited period (30 days) each time, and that he could prevent the continued renewal of said
order if he can show sufficient cause therefor. Having failed to do so, petitioner may not now be
heard to complain that he was denied due process of law.

Petitioner next laments that the removal and exclusion of the respondent in the VAWC case from
the residence of the victim, regardless of ownership of the residence, is virtually a "blank check"
issued to the wife to claim any property as her conjugal home.108

The wording of the pertinent rule, however, does not by any stretch of the imagination suggest
that this is so. It states:

SEC. 11. Reliefs available to the offended party. -- The protection order shall include any, some
or all of the following reliefs:

xxxx

(c) Removing and excluding the respondent from the residence of the offended party, regardless
of ownership of the residence, either temporarily for the purpose of protecting the offended
party, or permanently where no property rights are violated. If the respondent must remove
personal effects from the residence, the court shall direct a law enforcement agent to accompany
the respondent to the residence, remain there until the respondent has gathered his things and
escort him from the residence;

xxxx

Indubitably, petitioner may be removed and excluded from private respondent's residence,
regardless of ownership, only temporarily for the purpose of protecting the latter. Such removal
and exclusion may be permanent only where no property rights are violated. How then can the
private respondent just claim any property and appropriate it for herself, as petitioner seems to
suggest?

The non-referral of a VAWC case


to a mediator is justified.

Petitioner argues that "by criminalizing run-of-the-mill arguments, instead of encouraging


mediation and counseling, the law has done violence to the avowed policy of the State to "protect
and strengthen the family as a basic autonomous social institution."109

Under Section 23(c) of A.M. No. 04-10-11-SC, the court shall not refer the case or any issue
thereof to a mediator. The reason behind this provision is well-explained by the Commentary on
Section 311 of the Model Code on Domestic and Family Violence as follows:110

This section prohibits a court from ordering or referring parties to mediation in a proceeding for
an order for protection. Mediation is a process by which parties in equivalent bargaining
positions voluntarily reach consensual agreement about the issue at hand. Violence, however, is
not a subject for compromise. A process which involves parties mediating the issue of violence
implies that the victim is somehow at fault. In addition, mediation of issues in a proceeding for
an order of protection is problematic because the petitioner is frequently unable to participate
equally with the person against whom the protection order has been sought. (Emphasis supplied)

There is no undue delegation of


judicial power to barangay officials.

Petitioner contends that protection orders involve the exercise of judicial power which, under the
Constitution, is placed upon the "Supreme Court and such other lower courts as may be
established by law" and, thus, protests the delegation of power to barangay officials to issue
protection orders.111 The pertinent provision reads, as follows:

SEC. 14. Barangay Protection Orders (BPOs); Who May Issue and How. – Barangay Protection
Orders (BPOs) refer to the protection order issued by the Punong Barangay ordering the
perpetrator to desist from committing acts under Section 5 (a) and (b) of this Act.1âwphi1 A
Punong Barangay who receives applications for a BPO shall issue the protection order to the
applicant on the date of filing after ex parte determination of the basis of the application. If the
Punong Barangay is unavailable to act on the application for a BPO, the application shall be
acted upon by any available Barangay Kagawad. If the BPO is issued by a Barangay Kagawad,
the order must be accompanied by an attestation by the Barangay Kagawad that the Punong
Barangay was unavailable at the time of the issuance of the BPO. BPOs shall be effective for
fifteen (15) days. Immediately after the issuance of an ex parte BPO, the Punong Barangay or
Barangay Kagawad shall personally serve a copy of the same on the respondent, or direct any
barangay official to effect its personal service.

The parties may be accompanied by a non-lawyer advocate in any proceeding before the Punong
Barangay.

Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.112 On the other hand, executive power "is generally
defined as the power to enforce and administer the laws. It is the power of carrying the laws into
practical operation and enforcing their due observance."113

As clearly delimited by the aforequoted provision, the BPO issued by the Punong Barangay or,
in his unavailability, by any available Barangay Kagawad, merely orders the perpetrator to desist
from (a) causing physical harm to the woman or her child; and (2) threatening to cause the
woman or her child physical harm. Such function of the Punong Barangay is, thus, purely
executive in nature, in pursuance of his duty under the Local Government Code to "enforce all
laws and ordinances," and to "maintain public order in the barangay."114

We have held that "(t)he mere fact that an officer is required by law to inquire into the existence
of certain facts and to apply the law thereto in order to determine what his official conduct shall
be and the fact that these acts may affect private rights do not constitute an exercise of judicial
powers."115
In the same manner as the public prosecutor ascertains through a preliminary inquiry or
proceeding "whether there is reasonable ground to believe that an offense has been committed
and the accused is probably guilty thereof," the Punong Barangay must determine reasonable
ground to believe that an imminent danger of violence against the woman and her children exists
or is about to recur that would necessitate the issuance of a BPO. The preliminary investigation
conducted by the prosecutor is, concededly, an executive, not a judicial, function. The same
holds true with the issuance of a BPO.

We need not even belabor the issue raised by petitioner that since barangay officials and other
law enforcement agencies are required to extend assistance to victims of violence and abuse, it
would be very unlikely that they would remain objective and impartial, and that the chances of
acquittal are nil. As already stated, assistance by barangay officials and other law enforcement
agencies is consistent with their duty to enforce the law and to maintain peace and order.

Conclusion

Before a statute or its provisions duly challenged are voided, an unequivocal breach of, or a clear
conflict with the Constitution, not merely a doubtful or argumentative one, must be demonstrated
in such a manner as to leave no doubt in the mind of the Court. In other words, the grounds for
nullity must be beyond reasonable doubt.116 In the instant case, however, no concrete evidence
and convincing arguments were presented by petitioner to warrant a declaration of the
unconstitutionality of R.A. 9262, which is an act of Congress and signed into law by the highest
officer of the co-equal executive department. As we said in Estrada v. Sandiganbayan, 117 courts
must assume that the legislature is ever conscious of the borders and edges of its plenary powers,
and passed laws with full knowledge of the facts and for the purpose of promoting what is right
and advancing the welfare of the majority.

We reiterate here Justice Puno's observation that "the history of the women's movement against
domestic violence shows that one of its most difficult struggles was the fight against the violence
of law itself. If we keep that in mind, law will not again be a hindrance to the struggle of women
for equality but will be its fulfillment."118 Accordingly, the constitutionality of R.A. 9262 is, as it
should be, sustained.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED for lack of merit.

SO ORDERED.

SECOND DIVISION

[G.R. NO. 135362. December 13, 1999]

HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for herself and as legal
guardian of the minor FABRICE CYRILL D. SALAS, MA. CRISTINA S. LESACA, and
KARINA TERESA D. SALAS, petitioners, vs. LAPERAL REALTY CORPORATION,
ROCKWAY REAL ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC.,
MAHARAMI DEVELOPMENT CORPORATION, Spouses THELMA D. ABRAJANO and
GREGORIO ABRAJANO, OSCAR DACILLO, Spouses VIRGINIA D. LAVA and RODEL
LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ, JESUS VICENTE B.
CAPELLAN, and the REGISTER OF DEEDS FOR LIPA CITY, respondents.

DECISION

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Orderi[1] of Branch 85 of the Regional Trial
Court of Lipa Cityii[2] dismissing petitioners complaintiii[3] for rescission of several sale
transactions involving land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on the
ground that they failed to first resort to arbitration.

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

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


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

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

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

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

Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided
portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc.
on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27,
1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on
June 4, 1996 (all of whom are hereinafter referred to as respondent lot buyers).

On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa
City a Complaintvi[6] for declaration of nullity of sale, reconveyance, cancellation of contract,
accounting and damages against herein respondents which was docketed as Civil Case No. 98-
0047.
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismissvii[7]on the ground that
petitioners failed to submit their grievance to arbitration as required under Article VI of the
Agreement which provides:

ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNERS representative shall be referred to
the committee represented by:

a. One representative of the OWNER;

b. One representative of the CONTRACTOR;

c. One representative acceptable to both OWNER and CONTRACTOR.viii[8]

On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo filed a Joint
Answer with Counterclaim and Crossclaimix[9] praying for dismissal of petitioners Complaint
for the same reason.

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

Hence this petition.

Petitioners argue, thus:

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

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

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

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

Nonetheless, we grant the petition.

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


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

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

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

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

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

Costs against private respondents.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,


vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS,
RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS,
Respondents.

DECISION

LEONEN, J.:

Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a


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

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

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

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

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

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


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

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


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

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

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

35. Arbitration

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

xxx xxx xxx

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

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

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

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


compulsory counter claim against BF Corporation and crossclaim against Shangri-La.15 They
alleged that they had resigned as members of Shangri-La’s board of directors as of July 15,
1991.16
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its
November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco
III, and Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17

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

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

Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation
and Shangri-La failed to agree as to the law that should govern the arbitration proceedings.21 On
October 27, 1998, the trial court issued the order directing the parties to conduct the proceedings
in accordance with Republic Act No. 876.22

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both
seeking to clarify the term, "parties," and whether Shangri-La’s directors should be included in
the arbitration proceedings and served with separate demands for arbitration.23

Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they
be excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF
Corporation’s agreement.24

On July 28, 2003, the trial court issued the order directing service of demands for arbitration
upon all defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s
directors were interested parties who "must also be served with a demand for arbitration to give
them the opportunity to ventilate their side of the controversy, safeguard their interest and fend
off their respective positions."26 Petitioners’ motion for reconsideration ofthis order was denied
by the trial court on January 19, 2005.27

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

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

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

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

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

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

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

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

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

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

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

Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to submit to arbitration is against this purpose and
may be tantamount to stipulating for the parties.44

Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III,
Alfredo C.Ramos and Benjamin C. Ramos.45

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

Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should
undergo arbitration "clearly contemplated the inclusion of the directors of the corporation[.]"49
BF Corporation also argued that while petitioners were not parties to the agreement, they were
still impleaded under Section 31 of the Corporation Code.50 Section 31 makes directors
solidarily liable for fraud, gross negligence, and bad faith.51 Petitioners are not really third
parties to the agreement because they are being sued as Shangri-La’s representatives, under
Section 31 of the Corporation Code.52

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

In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral
Tribunal had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied
BF Corporation’s claims against them.56 Petitioners stated that "[they] were included by the
Arbitral Tribunal in the proceedings conducted . . . notwithstanding [their] continuing objection
thereto. . . ."57 They also stated that "[their] unwilling participation in the arbitration case was
done ex abundante ad cautela, as manifested therein on several occasions."58 Petitioners
informed the court that they already manifested with the trial court that "any action taken on [the
Arbitral Tribunal’s decision] should be without prejudice to the resolution of [this] case."59

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

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

BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required


memorandum.

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


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

The petition must fail.

The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on
BF Corporation, have rendered this case moot and academic.

The mootness of the case, however, had not precluded us from resolving issues so that principles
may be established for the guidance of the bench, bar, and the public. In De la Camara v. Hon.
Enage,66 this court disregarded the fact that petitioner in that case already escaped from prison
and ruled on the issue of excessive bails:

While under the circumstances a ruling on the merits of the petition for certiorari is
notwarranted, still, as set forth at the opening of this opinion, the fact that this case is moot and
academic should not preclude this Tribunal from setting forth in language clear and
unmistakable, the obligation of fidelity on the part of lower court judges to the unequivocal
command of the Constitution that excessive bail shall not be required.67

This principle was repeated in subsequent cases when this court deemed it proper to clarify
important matters for guidance.68

Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in
accordance with Shangri-Laand BF Corporation’s agreement, in order to determine if the
distinction between Shangri-La’s personality and their personalities should be disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid
litigation and settle disputes amicably and more expeditiously by themselves and through their
choice of arbitrators.

The policy in favor of arbitration has been affirmed in our Civil Code,69 which was approved as
early as 1949. It was later institutionalized by the approval of Republic Act No. 876,70 which
expressly authorized, made valid, enforceable, and irrevocable parties’ decision to submit their
controversies, including incidental issues, to arbitration. This court recognized this policy in
Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.:71

As a corollary to the question regarding the existence of an arbitration agreement, defendant


raises the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to
arbitration, said agreement is void and without effect for it amounts to removing said dispute
from the jurisdiction of the courts in which the parties are domiciled or where the dispute
occurred. It is true that there are authorities which hold that "a clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitrators and to them alone, is
contrary to public policy and cannot oust the courts of jurisdiction" (Manila Electric Co. vs.
Pasay Transportation Co., 57 Phil., 600, 603), however, there are authorities which favor "the
more intelligent view that arbitration, as an inexpensive, speedy and amicable method of settling
disputes, and as a means of avoiding litigation, should receive every encouragement from the
courts which may be extended without contravening sound public policy or settled law" (3 Am.
Jur., p. 835). Congress has officially adopted the modern view when it reproduced in the new
Civil Code the provisions of the old Code on Arbitration. And only recently it approved Republic
Act No. 876 expressly authorizing arbitration of future disputes.72 (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are
liberally construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc.,73 this court said:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along with
mediation, conciliation and negotiation — is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the future" in international civil and
commercial disputes. Brushing aside a contractual agreement calling for arbitration between the
parties would be a step backward.

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


methods, courts should liberally construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any
doubt should be resolved in favor of arbitration.74 (Emphasis supplied)

A more clear-cut statement of the state policy to encourage arbitration and to favor
interpretations that would render effective an arbitration clause was later expressed in Republic
Act No. 9285:75

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote
party autonomy in the resolution of disputes or the freedom of the party to make their own
arrangements to resolve their disputes. Towards this end, the State shall encourage and actively
promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve
speedy and impartial justice and declog court dockets. As such, the State shall provide means for
the use of ADR as an efficient tool and an alternative procedure for the resolution of appropriate
cases. Likewise, the State shall enlist active private sector participation in the settlement of
disputes through ADR. This Act shall be without prejudice to the adoption by the Supreme Court
of any ADR system, such as mediation, conciliation, arbitration, or any combination thereof as a
means of achieving speedy and efficient means of resolving cases pending before all courts in
the Philippines which shall be governed by such rules as the Supreme Court may approve from
time to time.

....

SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the
policy of the law in favor of arbitration.Where action is commenced by or against multiple
parties, one or more of whomare parties who are bound by the arbitration agreement although the
civil action may continue as to those who are not bound by such arbitration agreement.
(Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for purposes
ofavoiding litigation and expediting resolution of the dispute, that interpretation shall be adopted.
Petitioners’ main argument arises from the separate personality given to juridical persons vis-à-
vis their directors, officers, stockholders, and agents. Since they did not sign the arbitration
agreement in any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration
Tribunal in accordance with the arbitration agreement. Moreover, they had already resigned as
directors of Shangri-Laat the time of the alleged default.

Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and
distinct from Shangri-La.

A corporation is an artificial entity created by fiction of law.76 This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation, in the
legal sense, is an individual with a personality that is distinct and separate from other persons
including its stockholders, officers, directors, representatives,77 and other juridical entities. The
law vests in corporations rights,powers, and attributes as if they were natural persons with
physical existence and capabilities to act on their own.78 For instance, they have the power to
sue and enter into transactions or contracts. Section 36 of the Corporation Code enumerates some
of a corporation’s powers, thus:

Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has
the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal
the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury
stocks in accordance with the provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by law and the
Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and

11. To exercise such other powers asmay be essential or necessary to carry out its
purpose or purposes as stated in its articles of incorporation. (13a)

Because a corporation’s existence is only by fiction of law, it can only exercise its rights and
powers through itsdirectors, officers, or agents, who are all natural persons. A corporation cannot
sue or enter into contracts without them.

A consequence of a corporation’s separate personality is that consent by a corporation through its


representatives is not consent of the representative, personally. Its obligations, incurred through
official acts of its representatives, are its own. A stockholder, director, or representative does not
become a party to a contract just because a corporation executed a contract through that
stockholder, director or representative.

Hence, a corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities incurred
on or in behalf of the corporation.

Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their
disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation79
that an arbitration clause shall not apply to persons who were neither parties to the contract nor
assignees of previous parties, thus:

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on


arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.80
(Citations omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:

The provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law
between the contracting parties and produce effect as between them, their assigns and heirs.
Clearly, only parties to the Agreement . . . are bound by the Agreement and its arbitration clause
as they are the only signatories thereto.82 (Citation omitted)

This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co.,
Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s representative who did not personally bind himself
or herself to an arbitration agreement cannot be forced to participate in arbitration proceedings
made pursuant to an agreement entered into by the corporation. He or she is generally not
considered a party to that agreement.

However, there are instances when the distinction between personalities of directors, officers,and
representatives, and of the corporation, are disregarded. We call this piercing the veil of
corporate fiction.

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used
as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues."85 It is also warranted
in alter ego cases "where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation."86

When corporate veil is pierced, the corporation and persons who are normally treated as distinct
from the corporation are treated as one person, such that when the corporation is adjudged liable,
these persons, too, become liable as if they were the corporation.

Among the persons who may be treatedas the corporation itself under certain circumstances are
its directors and officers. Section 31 of the Corporation Code provides the instances when
directors, trustees, or officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed inhim in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits which otherwise would
have accrued to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation may be made
solidarily liable with it for all damages suffered by the corporation, its stockholders or members,
and other persons in any of the following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently
unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing
corporate affairs; and

c) The director or trustee acquired personal or pecuniary interest in conflict with his or
her duties as director or trustee.

Solidary liability with the corporation will also attach in the following instances:

a) "When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto";87

b) "When a director, trustee or officer has contractually agreed or stipulated to hold


himself personally and solidarily liable with the corporation";88 and

c) "When a director, trustee or officer is made, by specific provision of law, personally


liable for his corporate action."89

When there are allegations of bad faith or malice against corporate directors or representatives, it
becomes the duty of courts or tribunals to determine if these persons and the corporation should
be treated as one. Without a trial, courts and tribunals have no basis for determining whether the
veil of corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge.
Thus, the courts or tribunals must first determine whether circumstances exist towarrant the
courts or tribunals to disregard the distinction between the corporation and the persons
representing it. The determination of these circumstances must be made by one tribunal or court
in a proceeding participated in by all parties involved, including current representatives of the
corporation, and those persons whose personalities are impliedly the sameas the corporation.
This is because when the court or tribunal finds that circumstances exist warranting the piercing
of the corporate veil, the corporate representatives are treated as the corporation itself and should
be held liable for corporate acts. The corporation’s distinct personality is disregarded, and the
corporation is seen as a mere aggregation of persons undertaking a business under the collective
name of the corporation.

Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging
malice orbad faith on their part in directing the affairs of the corporation, complainants are
effectively alleging that the directors and the corporation are not acting as separate entities. They
are alleging that the acts or omissions by the corporation that violated their rights are also the
directors’ acts or omissions.90 They are alleging that contracts executed by the corporation are
contracts executed by the directors. Complainants effectively pray that the corporate veilbe
pierced because the cause of action between the corporation and the directors is the same.

In that case, complainants have no choice but to institute only one proceeding against the
parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a single cause of action is
prohibited. Institution of more than one suit for the same cause of action constitutes splitting the
cause of action, which is a ground for the dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may not institute more than one suit
for a single cause of action. (3a)

Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on the
basis of the same cause of action, the filing of one or a judgment upon the merits in any one is
available as a ground for the dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be found to be
indistinct that we rule that petitioners may be compelled to submit to arbitration.

However, in ruling that petitioners may be compelled to submit to the arbitration proceedings,
we are not overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration
principle that only parties to an arbitration agreement may be compelled to submit to arbitration.
In that case, this court recognizedthat persons other than the main party may be compelled to
submit to arbitration, e.g., assignees and heirs. Assignees and heirs may be considered parties to
an arbitration agreement entered into by their assignor because the assignor’s rights and
obligations are transferred to them upon assignment. In other words, the assignor’s rights and
obligations become their own rights and obligations. In the same way, the corporation’s
obligations are treated as the representative’s obligations when the corporate veil is pierced.
Moreover, in Heirs of Augusto Salas, this court affirmed its policy against multiplicity of suits
and unnecessary delay. This court said that "to split the proceeding into arbitration for some
parties and trial for other parties would "result in multiplicity of suits, duplicitous procedure and
unnecessary delay."91 This court also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding.92 While the facts of that case prompted
this court to direct the trial court to proceed to determine the issues of thatcase, it did not prohibit
courts from allowing the case to proceed to arbitration, when circumstances warrant.

Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the
incidental issue of whether piercing of the corporate veil is warranted, should be determined in a
single proceeding. Such finding would determine if the corporation is merely an aggregation of
persons whose liabilities must be treated as one with the corporation.

However, when the courts disregard the corporation’s distinct and separate personality from its
directors or officers, the courts do not say that the corporation, in all instances and for all
purposes, is the same as its directors, stockholders, officers, and agents. It does not result in an
absolute confusion of personalities of the corporation and the persons composing or representing
it. Courts merely discount the distinction and treat them as one, in relation to a specific act, in
order to extend the terms of the contract and the liabilities for all damages to erring corporate
officials who participated in the corporation’s illegal acts. This is done so that the legal fiction
cannot be used to perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the
corporate veil, parties who are normally treated as distinct individuals should be made to
participate in the arbitration proceedings in order to determine ifsuch distinction should indeed
be disregarded and, if so, to determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to
prove the existence of circumstances that render petitioners and the other directors solidarily
liable. It ruled that petitioners and Shangri-La’s other directors were not liable for the contractual
obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s decision was made with
the participation of petitioners, albeit with their continuing objection. In view of our discussion
above, we rule that petitioners are bound by such decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and
resolution of October 5, 2006 are AFFIRMED.

SO ORDERED.

SECOND DIVISION

[G.R. No. 161957. February 28, 2005]

JORGE GONZALES and PANEL OF ARBITRATORS, petitioners, vs. CLIMAX MINING


LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING
INC., respondents.

DECISION

TINGA, J.:

Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the Addendum Area
of Influence in Didipio, in the provinces of Quirino and Nueva Vizcaya, entered into a co-
production, joint venture and/or production-sharing letter-agreement designated as the May 14,
1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd. Under the agreement, petitioner,
as claimowner, granted to Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive right to
explore and survey the mining claims for a period of thirty-six (36) months within which the
latter could decide to take an operating agreement on the mining claims and/or develop, operate,
mine and otherwise exploit the mining claims and market any and all minerals that may be
derived therefrom.

On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the same into
the February 28, 1989 Agreement whereby the exploration of the mining claims was extended
for another period of three years.

On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc., Inmex
Ltd., and Aumex Philippines, Inc. signed a document designated as the Addendum to the May 14,
1987 Letter of Intent and February 28, 1989 Agreement with Express Adhesion Thereto
(hereafter, the Addendum Contract).[1] Under the Addendum Contract, Arimco Mining
Corporation would apply to the Government of the Philippines for permission to mine the claims
as the Governments contractor under a Financial and Technical Assistance Agreement (FTAA).
On 20 June 1994, Arimco Mining Corporation obtained the FTAA[2] and carried out work under
the FTAA.

Respondents executed the Operating and Financial Accommodation Contract[3] (between


Climax-Arimco Mining Corporation and Climax Mining Ltd., as first parties, and Australasian
Philippines Mining Inc., as second party) dated 23 December 1996 and Assignment, Accession
Agreement[4] (between Climax-Arimco Mining Corporation and Australasian Philippines
Mining Inc.) dated 3 December 1996. Respondent Climax Mining Corporation (Climax) and
respondent Australasian Philippines Mining Inc. (APMI) entered into a Memorandum of
Agreement[5] dated 1 June 1991 whereby the former transferred its FTAA to the latter.

On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region II, Mines
and Geosciences Bureau of the Department of Environment and Natural Resources, against
respondents Climax-Arimco Mining Corporation (Climax-Arimco), Climax, and APMI,[6] a
Complaint[7] seeking the declaration of nullity or termination of the Addendum Contract, the
FTAA, the Operating and Financial Accommodation Contract, the Assignment, Accession
Agreement, and the Memorandum of Agreement. Petitioner Gonzales prayed for an unspecified
amount of actual and exemplary damages plus attorneys fees and for the issuance of a temporary
restraining order and/or writ of preliminary injunction to restrain or enjoin respondents from
further implementing the questioned agreements. He sought said releifs on the grounds of
FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII of the CONSTITUTION
perpetrated by these foreign RESPONDENTS, conspiring and confederating with one another
and with each other.[8]

On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for lack of jurisdiction.
Petitioner moved for reconsideration and this was granted on 18 October 2001, the Panel
believing that the case involved a dispute involving rights to mining areas and a dispute
involving surface owners, occupants and claim owners/concessionaires. According to the Panel,
although the issue raised in the Complaint appeared to be purely civil in nature and should be
within the jurisdiction of the regular courts, a ruling on the validity of the assailed contracts
would result to the grant or denial of mining rights over the properties; therefore, the question on
the validity of the contract amounts to a mining conflict or dispute. Hence, the Panel granted the
Motion for Reconsideration with regard to the issues of nullity, termination, withdrawal or
damages, but with regard to the constitutionality of the Addendum Agreement and FTAA, it held
that it had no jurisdiction.[9]

Respondents filed their motion for reconsideration but this was denied on 25 June 2002. The
Panel of Arbitrators maintained that there was a mining dispute between the parties since the
subject matter of the Complaint arose from contracts between the parties which involve the
exploration and exploitation of minerals over the disputed area.[10]

Respondents assailed the orders of the Panel of Arbitrators via a petition for certiorari before the
Court of Appeals.

On 30 July 2003, the Court of Appeals granted the petition, declaring that the Panel of
Arbitrators did not have jurisdiction over the complaint filed by petitioner.[11] The jurisdiction
of the Panel of Arbitrators, said the Court of Appeals, is limited only to the resolution of mining
disputes, defined as those which raise a question of fact or matter requiring the technical
knowledge and experience of mining authorities. It was found that the complaint alleged fraud,
oppression and violation of the Constitution, which called for the interpretation and application
of laws, and did not involve any mining dispute. The Court of Appeals also observed that there
were no averments relating to particular acts constituting fraud and oppression. It added that
since the Addendum Contract was executed in 1991, the action to annul it should have been
brought not later than 1995, as the prescriptive period for an action for annulment is four years
from the time of the discovery of the fraud.[12] When petitioner filed his complaint before the
Panel in 1999, his action had already prescribed. Also, the Court of Appeals noted that fraud and
duress only make a contract voidable,[13] not inexistent, hence the contract remains valid until
annulled. The Court of Appeals was of the opinion that the petition should have been settled
through arbitration under Republic Act No. 876 (The Arbitration Law) as stated in Clause 19.1
of the Addendum Contract. The Court of Appeals therefore declared as invalid the orders dated
18 October 2001 and 25 June 2002 issued by the Panel of Arbitrators. On 28 January 2004, the
Court of Appeals denied petitioners motion for reconsideration for lack of merit.[14]

Petitioner filed on 22 March 2004 this Petition for Review on Certiorari Under Rule 45 assailing
the decision and resolution of the Court of Appeals. Petitioner raises the following issues:

A.

PROCEDURAL GROUND

THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY DISMISSED


RESPONDENTS PETITION A QUO FOR FAILURE TO COMPLY WITH PROCEDURAL
REQUIREMENTS.

i.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES


AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE PETITION A
QUO DESPITE RESPONDENTS FAILURE TO COMPLY WITH THE RULES ON
DISCLOSURE IN THE VERIFICATION AND CERTIFICATION PORTION OF THEIR
PETITION A QUO.

ii.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES


AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE PETITION A
QUO FILED BY RESPONDENT CLIMAX DESPITE THE LACK OF THE REQUISITE
AUTHORITY TO FILE THE PETITION A QUO.

B.

SUBSTANTIVE GROUND
THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE PETITION A QUO
FILED BY RESPONDENTS AND IN DENYING MOTION FOR RECONSIDERATION
FILED BY PETITIONER FOR UTTER LACK OF BASIS IN FACT AND IN LAW.

i.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES


AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT PETITIONER CEDED
HIS CLAIMS OVER THE MINERAL DEPOSITS LOCATED WITHIN THE ADDENDUM
AREA OF INFLUENCE.

ii.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES


AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE PANEL OF
ARBITRATORS IS BEREFT OF JURISDICTION OVER THE SUBJECT MATTER OF CASE
NO. 058.

iii.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES


AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE COMPLAINT FILED
BY THE PETITIONER FAILED TO ALLEGE ULTIMATE FACTS OR PARTICULARS OF
FRAUD.

iv.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES


AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT PETITIONER AND
RESPONDENTS SHOULD SUBMIT TO ARBITRATION UNDER R.A. 876.

v.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES


AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE ACTION TO
DECLARE THE NULLITY OF THE ADDENDUM CONTRACT, FTAA, OFAC AND AAAA
ON THE GROUND OF FRAUD HAS PRESCRIBED.

The issues for resolution in this petition for review are:

(a) Whether there was forum-shopping on the part of respondents for their failure to
disclose to this Court their filing of a Petition to Compel for Arbitration before the Regional
Trial Court of Makati City, Branch 148, which is currently pending.

(b) Whether counsel for respondent Climax had authority to file the petition for certiorari
before the Court of Appeals considering that the signor of the petition for certioraris
Verification and Certification of Non-forum Shopping was not authorized to sign the same in
behalf of respondent Climax.

(c) Whether the complaint filed by petitioner raises a mining dispute over which the Panel
of Arbitrators has jurisdiction, or a judicial question which should properly be brought before
the regular courts.

(d) Whether the dispute between the parties should be brought for arbitration under Rep.
Act No. 876.

Let us deal first with procedural matters.

Petitioner claims that respondents are guilty of forum-shopping for failing to disclose before this
Court that they had filed a Petition to Compel for Arbitration before the RTC of Makati City.
However, it cannot be determined from petitioners mere allegations in the Petition that the
Petition to Compel for Arbitration instituted by respondent Climax-Arimco, involves related
causes of action and the grant of the same or substantially the same reliefs as those involved in
the instant case. Petitioner did not attach copies of the Petition to Compel for Arbitration or any
order or resolution of the RTC of Makati City related to that case.

Furthermore, it can be gleaned from the nature of the two actions that the issues in the case
before the RTC of Makati City and in the petition for certiorari before the Court of Appeals are
different. A petition for certiorari raises the issue of whether or not there was grave abuse of
discretion, while the Petition to Compel for Arbitration seeks the implementation of the
arbitration clause in the agreement between the parties.

Petitioner next alleges that there was no authority granted by respondent Climax to the law firm
of Sycip Salazar Hernandez & Gatmaitan to file the petition before the Court of Appeals. There
is allegedly no Secretarys Certificate from respondent Climax attached to the petition. The
Verification and Certification only contains a statement made by one Marianne M. Manzanas
that she is also the authorized representative of [respondent Climax] without presenting further
proof of such authority. Hence, it is argued that as to respondent Climax, the petition filed before
the Court of Appeals is an unauthorized act and the assailed orders of the Panel of Arbitrators
have become final.

Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to submit, together with
the petition, a sworn certification of non-forum shopping, and failure to comply with this
requirement is sufficient ground for dismissal of the petition. The requirement that petitioner
should sign the certificate of non-forum shopping applies even to corporations, the Rules of
Court making no distinction between natural and juridical persons. The signatory in the case of
the corporation should be a duly authorized director or officer of the corporation who has
knowledge of the matter being certified.[15] If, as in this case, the petitioner is a corporation, a
board resolution authorizing a corporate officer to execute the certification against forum-
shopping is necessary. A certification not signed by a duly authorized person renders the petition
subject to dismissal.[16]
On this point, we have to agree with petitioner. There appears to be no subsequent compliance
with the requirement to attach a board resolution authorizing the signor Marianne M. Manzanas
to file the petition in behalf of respondent Climax. Respondent also failed to refute this in its
Comment.[17] However, this latter issue becomes irrelevant in the light of our decision to deny
this petition for review for lack of jurisdiction by the Panel of Arbitrators over the complaint
filed by petitioner, as will be discussed below.

We now come to the meat of the case which revolves mainly around the question of jurisdiction
by the Panel of Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint
for declaration of nullity and/or termination of the subject contracts on the ground of fraud,
oppression and violation of the Constitution? This issue may be distilled into the more basic
question of whether the Complaint raises a mining dispute or a judicial question.

A judicial question is a question that is proper for determination by the courts, as opposed to a
moot question or one properly decided by the executive or legislative branch.[18] A judicial
question is raised when the determination of the question involves the exercise of a judicial
function; that is, the question involves the determination of what the law is and what the legal
rights of the parties are with respect to the matter in controversy.[19]

On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral
agreements, FTAAs, or permits, and (c) surface owners, occupants and
claimholders/concessionaires.[20] Under Republic Act No. 7942 (otherwise known as the
Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original jurisdiction
to hear and decide these mining disputes.[21] The Court of Appeals, in its questioned decision,
correctly stated that the Panels jurisdiction is limited only to those mining disputes which raise
questions of fact or matters requiring the application of technological knowledge and
experience.[22]

In Pearson v. Intermediate Appellate Court,[23] this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter.[24] Decisions[25] of the
Supreme Court on mining disputes have recognized a distinction between (1) the primary powers
granted by pertinent provisions of law to the then Secretary of Agriculture and Natural Resources
(and the bureau directors) of an executive or administrative nature, such as granting of license,
permits, lease and contracts, or approving, rejecting, reinstating or canceling applications, or
deciding conflicting applications, and (2) controversies or disagreements of civil or contractual
nature between litigants which are questions of a judicial nature that may be adjudicated only by
the courts of justice. This distinction is carried on even in Rep. Act No. 7942.

The Complaint charged respondents with disregarding and ignoring the provisions of the
Addendum Contract, violating the purpose and spirit of the May 14, 1987 Letter of Intent and
February 28, 1989 Agreement, and acting in a fraudulent and oppressive manner against
petitioner and practicing fraud and deception against the Government.[26] Petitioner alleged in
his Complaint that under the original agreements (the May 14, 1987 Letter of Intent and
February 28, 1989 Agreement) respondent Climax-Arimco had committed to complete the
Bankable Feasibility Study by 28 February 1992, but the same was not accomplished. Instead,
respondent Climax-Arimco, through false and insidious representations and machinations by
alleging technical and financial capacity, induced petitioner to enter into the Addendum Contract
and the FTAA in order to repeatedly extend the option period within which to conduct the
feasibility study. In essence, petitioner alleges that respondents, conspiring and confederating
with one another, misrepresented under the Addendum Contract and FTAA that respondent
Climax-Arimco possessed financial and technical capacity to put the project into commercial
production, when in truth it had no such qualification whatsoever to do so. By so doing,
respondents have allegedly caused damage not only to petitioner but also to the Republic of the
Philippines.[27]

It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed by
petitioner. The basic issue in petitioners Complaint is the presence of fraud or misrepresentation
allegedly attendant to the execution of the Addendum Contract and the other contracts emanating
from it, such that the contracts are rendered invalid and not binding upon the parties. It avers that
petitioner was misled by respondents into agreeing to the Addendum Contract. This constitutes
fraud which vitiated petitioners consent, and under Article 1390 of the Civil Code, is one of the
grounds for the annulment of a voidable contract. Voidable or annullable contracts, before they
are set aside, are existent, valid, and binding, and are effective and obligatory between the
parties.[28] They can be ratified.[29]

Petitioner insists that the Complaint is actually one for the declaration of nullity of void
contracts. He argues that respondents, by their lack of financial and technical competence to
carry out the mining project, do not qualify to enter into a co-production, joint venture or
production sharing agreement with the Government, in circumvention of and in patent violation
of the spirit and purpose of the Constitution, particularly Section 2, Article XII thereof. Petitioner
relies on the Civil Code for support:[30]

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or public policy;

....

(7) Those expressly prohibited or declared void by law.

....

Petitioner asserts that for circumventing and being in patent violation of the Constitution, the
Addendum Contract, the FTAA and the other contracts are void contracts. As such, they do not
produce any effect and cannot be ratified.

However, whether the case involves void or voidable contracts is still a judicial question. It may,
in some instances, involve questions of fact especially with regard to the determination of the
circumstances of the execution of the contracts. But the resolution of the validity or voidness of
the contracts remains a legal or judicial question as it requires the exercise of judicial function. It
requires the ascertainment of what laws are applicable to the dispute, the interpretation and
application of those laws, and the rendering of a judgment based thereon. Clearly, the dispute is
not a mining conflict. It is essentially judicial. The complaint was not merely for the
determination of rights under the mining contracts since the very validity of those contracts is put
in issue.

The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute
involving claimholders or concessionaires. The main question raised was the validity of the
Addendum Contract, the FTAA and the subsequent contracts. The question as to the rights of
petitioner or respondents to the mining area pursuant to these contracts, as well as the question of
whether or not petitioner had ceded his mining claims in favor of respondents by way of
execution of the questioned contracts, is merely corollary to the main issue, and may not be
resolved without first determining the main issue.

The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the dispute
should involve FTAAs. The Complaint is not exclusively within the jurisdiction of the Panel of
Arbitrators just because, or for as long as, the dispute involves an FTAA. The Complaint raised
the issue of the constitutionality of the FTAA, which is definitely a judicial question. The
question of constitutionality is exclusively within the jurisdiction of the courts to resolve as this
would clearly involve the exercise of judicial power. The Panel of Arbitrators does not have
jurisdiction over such an issue since it does not involve the application of technical knowledge
and expertise relating to mining. This the Panel of Arbitrators has even conceded in its Orders
dated 18 October 2001 and 25 June 2002. At this juncture, it is worthy of note that in a case,[31]
which was resolved only on 1 December 2004, this Court upheld the validity of the FTAA
entered into by the Republic of the Philippines and WMC (Philippines), Inc. and constitutionality
of Rep. Act No. 7942 and DENR Administrative Order 96-40.[32] In fact, the Court took the
case on an original petition, recognizing the exceptional character of the situation and the
paramount public interest involved, as well as the necessity for a ruling to put an end to the
uncertainties plaguing the mining industry and the affected communities as a result of doubts
case upon the constitutionality and validity of the Mining Act, the subject FTAA and future
FTAAs, and the need to avert a multiplicity of suits.[33]

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between
the parties as to some provisions of the contract between them, which needs the interpretation
and the application of that particular knowledge and expertise possessed by members of that
Panel. It is not proper when one of the parties repudiates the existence or validity of such
contract or agreement on the ground of fraud or oppression as in this case. The validity of the
contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the
execution of a contract are matters within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.

Petitioner also disagrees with the Court of Appeals ruling that the case should be brought for
arbitration under Rep. Act 876, pursuant to the arbitration clause in the Addendum Contract
which states that [a]ll disputes arising out of or in connection with the Contract, which cannot be
settled amicably among the Parties, shall finally be settled under R.A. 876. He points out that
respondents Climax and APMI are not parties to the Addendum Contract and are thus not bound
by the arbitration clause in said contract.

We agree that the case should not be brought under the ambit of the Arbitration Law, but for a
different reason. The question of validity of the contract containing the agreement to submit to
arbitration will affect the applicability of the arbitration clause itself. A party cannot rely on the
contract and claim rights or obligations under it and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking inconsistent positions. As previously
discussed, the complaint should have been filed before the regular courts as it involved issues
which are judicial in nature.

WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under Rule 45
is DENIED. The Orders dated 18 October 2001 and 25 June 2002 of the Panel of Arbitrators are
SET ASIDE. Costs against petitioner Jorge Gonzales.

SO ORDERED.

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR),


Petitioner,
vs.
UNITED PLANNERS CONSULTANTS , INC. (UPCI), Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated March 26, 2014 of the
Court of Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari
filed by petitioner the Department of Environment and Natural Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an
Agreement for Consultancy Services3 (Consultancy Agreement) with respondent United
Planners Consultants, Inc. (respondent) in connection with the LMB' s Land Resource
Management Master Plan Project (LRMMP).4 Under the Consultancy Agreement, petitioner
committed to pay a total contract price of ₱4,337,141.00, based on a predetermined percentage
corresponding to the particular stage of work accomplished.5

In December 1994, respondent completed the work required, which petitioner formally accepted
on December 27, 1994.6 However, petitioner was able to pay only 47% of the total contract price
in the amount of ₱2,038,456.30.7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office
Report8 (TSO) finding the contract price of the Agreement to be 84.14% excessive.9 This
notwithstanding, petitioner, in a letter dated December 10, 1998, acknowledged its liability to
respondent in the amount of ₱2,239,479.60 and assured payment at the soonest possible time.10

For failure to pay its obligation under the Consultancy Agreement despite repeated demands,
respondent instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon
City, Branch 222 (RTC), docketed as Case No. Q-07-60321.12

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the
arbitration clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a
result, Atty. Alfredo F. Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration
Commission (CIAC) Accredited Arbitrator Engr. Ricardo B. San Juan were appointed as
members of the Arbitral Tribunal. The court-referred arbitration was then docketed as
Arbitration Case No. A-001.15

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules
Governing Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings.17
They further agreed to submit their respective draft decisions in lieu of memoranda of arguments
on or before April 21, 2010, among others.18

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

In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and
deemed its non-submission as a waiver, but declared that it would still consider petitioner’s draft
decision if submitted before May 7, 2010, or the expected date of the final award’s
promulgation.22 Petitioner filed its draft decision23 only on May 7, 2010.

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of
respondent, directing petitioner to pay the latter the amount of (a) ₱2,285,089.89 representing the
unpaid progress billings, with interest at the rate of 12% per annum from the date of finality of
the Arbitral Award upon confirmation by the RTC until fully paid; (b) ₱2,033,034.59 as accrued
interest thereon; (c) ₱500,000.00 as exemplary damages; and (d) ₱150,000.00 as attorney’s
fees.25 It also ordered petitioner to reimburse respondent its proportionate share in the arbitration
costs as agreed upon in the amount of ₱182,119.44.26

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely
noted without any action, claiming that it had already lost jurisdiction over the case after it had
submitted to the RTC its Report together with a copy of the Arbitral Award.28

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19,
2010 (May 19, 2010 Motion for Reconsideration)and a Manifestation and Motion30 dated June
1, 2010 (June 1, 2010 Manifestation and Motion), asserting that it was denied the opportunity to
be heard when the Arbitral Tribunal failed to consider its draft decision and merely noted its
motion for reconsideration.31 It also denied receiving a copy of the Arbitral Award by either
electronic or registered mail.32 For its part, respondent filed an opposition thereto and moved for
the confirmation33 of the Arbitral Award in accordance with the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules).34

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions,
finding that copies of the Arbitral Award appear to have been sent to the parties by the Arbitral
Tribunal, including the OSG, contrary to petitioner’s claim. Onthe other hand, the RTC
confirmed the Arbitral Award pursuant to Rule 11.2 (A)36 of the Special ADR Rules and
ordered petitioner to pay respondent the costs of confirming the award, as prayed for, in the total
amount of ₱50,000.00. From this order, petitioner did not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner despite the RTC’s directive therefor. In an Order37
dated September 12, 2011, the RTC granted respondent’s motion.38

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its
monetary claims. It also claimed that the issuance of said writ was premature since the RTC
should have first resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010
Manifestation and Motion, and not merely noted them, thereby violating its right to due
process.40

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19,
2010 Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the
CIAC Rules. It explained that the available remedy to assail an arbitral award was to file a
motion for correction of final award pursuant to Section 17.143 of the CIAC Rules, and not a
motion for reconsideration of the said award itself.44 On the other hand, the RTC found
petitioner’s June 1, 2010 Manifestation and Motion seeking the resolution of its May 19, 2010
Motion for Reconsideration to be defective for petitioner’s failure to observe the three day notice
rule.45 Having then failed to avail of the remedies attendant to an order of confirmation, the
Arbitral Award had become final and executory.46

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

Dissatisfied, it filed on September 10, 2012a petition for certiorari48 before the CA, docketed as
CA-G.R. SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion
in confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2)
grounds, namely: (a) the petition essentially assailed the merits of the Arbitral Award which is
prohibited under Rule 19.750 of the Special ADR Rules;51 and (b) the petition was filed out of
time, having been filed way beyond 15 days from notice of the RTC’s July 9, 2012 Order, in
violation of Rule 19.2852 in relation to Rule 19.853 of said Rules which provide that a special
civil action for certiorari must be filed before the CA within 15 days from notice of the
judgment, order, or resolution sought to be annulled or set aside (or until July 27, 2012).
Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

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

The Court’s Ruling

The petition lacks merit.

I.

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

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

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

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A
pivotal feature of arbitration as an alternative mode of dispute resolution is that it is a product of
party autonomy or the freedom of the parties to make their own arrangements to resolve their
own disputes.59 Thus, Rule 2.3 of the Special ADR Rules explicitly provides that "parties are
free to agree on the procedure to be followed in the conduct of arbitral proceedings. Failing such
agreement, the arbitral tribunal may conduct arbitration in the manner it considers
appropriate."60

In the case at bar, the Consultancy Agreement contained an arbitration clause.61 Hence,
respondent, after it filed its complaint, moved for its referral to arbitration62 which was not
objected to by petitioner.63 By its referral to arbitration, the case fell within the coverage of the
Special ADR Rules. However, with respect to the arbitration proceedings itself, the parties had
agreed to adopt the CIAC Rules before the Arbitral Tribunal in accordance with Rule 2.3 of the
Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent.
Under Section 17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may
be sought, but any of the parties may file a motion for correction64 of the final award, which
shall interrupt the running of the period for appeal,65 based on any of the following grounds, to
wit: a. an evident miscalculation of figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount, thing or
property referred to in the award;

c. where the arbitrators have awarded upon a matter not submitted to them, not affecting
the merits of the decision upon the matter submitted;

d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the
parties in the Terms of Reference (TOR) and submitted to them for resolution, and

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

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

Moreover, the parties may appeal the final award to the CA through a petition for review under
Rule43 of the Rules of Court.67

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

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

SEC. 40. Confirmation of Award.– The confirmation of a domestic arbitral award shall be
governed by Section 2369 of R.A. 876.70
A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the regional trial court.

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

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

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

II.

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

a. Holding that the arbitration agreement is in existent, invalid or unenforceable;

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

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

d. Granting or refusing an interim relief;

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

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

g. Suspending the proceedings to set aside an international commercial arbitral award and
referring the case back to the arbitral tribunal;

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


i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an
international commercial arbitral award;

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

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

Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a
petition for certiorari questioning the merits of an arbitral award.

If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide
that said certiorari petition should be filed "with the [CA] within fifteen (15) days from notice of
the judgment, order or resolution sought to be annulled or set aside. No extension of time to file
the petition shall be allowed."

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

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

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

No statute can be enacted that can provide all the details involved in its application.1âwphi1
There is always an omission that may not meet a particular situation. What is thought, at the time
of enactment, to be an all embracing legislation may be inadequate to provide for the unfolding
of events of the future. So-called gaps in the law develop as the law is enforced. One of the rules
of statutory construction used to fill in the gap is the doctrine of necessary implication. The
doctrine states that what is implied in a statute is as much a part thereof as that which is
expressed. Every statute is understood, by implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or
jurisdiction which it grants, including all such collateral and subsidiary consequences as may be
fairly and logically inferred from its terms. Ex necessitate legis. And every statutory grant of
power, right or privilege is deemed to include all incidental power, right or privilege. This is so
because the greater includes the lesser, expressed in the maxim, in eo plus sit, simper inest et
minus.75 (Emphases supplied)
As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an
arbitral award. To construe it otherwise would result in an absurd situation whereby the
confirming court previously applying the Special ADR Rules in its confirmation of the arbitral
award would later shift to the regular Rules of Procedure come execution. Irrefragably, a court’s
power to confirm a judgment award under the Special ADR Rules should be deemed to include
the power to order its execution for such is but a collateral and subsidiary consequence that may
be fairly and logically inferred from the statutory grant to regional trial courts of the power to
confirm domestic arbitral awards.

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

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

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

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

III.

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

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show
that it was accorded ample opportunity to ventilate its position. There was clearly nothing out of
line when the Arbitral Tribunal denied petitioner’s motions for extension to file its submissions
having failed to show a valid reason to justify the same or in rendering the Arbitral Award sans
petitioner’s draft decision which was filed only on the day of the scheduled promulgation of final
award on May 7, 2010.83 The touchstone of due process is basically the opportunity to be heard.
Having been given such opportunity, petitioner should only blame itself for its own procedural
blunder.

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

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due
to procedural infirmities, there is a need to explicate the matter of execution of the confirmed
Arbitral Award against the petitioner, a government agency, in the light of Presidential Decree
No. (PD) 144584 otherwise known as the "Government Auditing Code of the Philippines."
Section 26 of PD 1445 expressly provides that execution of money judgment against the
Government or any of its subdivisions, agencies and instrumentalities is within the primary
jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period
of ten years, the examination and inspection of the books, records, and papers relating to those
accounts; and the audit and settlement of the accounts of all persons respecting funds or property
received or held by them in an accountable capacity, as well as the examination, audit, and
settlement of all debts and claims of any sort due from or owing to the Government or any of its
subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-
owned or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-
governmental entities subsidized by the government, those funded by donation through the
government, those required to pay levies or government share, and those for which the
government has put up a counterpart fund or those partly funded by the government. (Emphases
supplied)

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

SO ORDERED.

CALIFORNIA AND HAWAIIAN SUGAR COMPANY; PACIFIC GULF MARINE, INC.;


and C.F. SHARP & COMPANY, petitioners, vs. PIONEER INSURANCE AND SURETY
CORPORATION, respondent.
DECISION

PANGANIBAN, J.:

Under the pre-1997 Rules of Court, a preliminary hearing on affirmative defenses may
be allowed when a motion to dismiss has not been filed or when, having been filed, it
has not been denied unconditionally. Hence, if its resolution has merely been deferred,
the grounds it invokes may still be raised as affirmative defenses, and a preliminary
hearing thereon allowed.
The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the January 21, 1999 Decision of the Court of Appealsii[1] (CA) in CA-GR SP
No. 33723, as well as the July 6, 1999 CA Resolutionii[2] denying reconsideration. The
challenged Decision, which sustained the Ordersii[3]of the Regional Trial Court of Makati
City, disposed as follows:

WHEREFORE, [there being] no grave abuse of discretion on the part of public


respondent, the instant petition is hereby DISMISSED.ii[4] (emphasis in the original)
The Facts

The facts, as summarized by the CA, are as follows:

On November 27, 1990, the vessel MV SUGAR ISLANDER arrived at the port of Manila
carrying a cargo of soybean meal in bulk consigned to several consignees, one of which
was the Metro Manila Feed Millers Association (Metro for [b]revity). Discharging of
cargo from vessel to barges commenced on November 30, 1990. From the barges, the
cargo was allegedly offloaded, rebagged and reloaded on consignees delivery trucks.
Respondent, however, claims that when the cargo [was] weighed on a licensed truck
scale a shortage of 255.051 metric tons valued at P1,621,171.16 was discovered. The
above-mentioned shipment was insured with private respondent against all risk in the
amount of P19,976,404.00. Due to the alleged refusal of petitioners to settle their
respective liabilities, respondent, as insurer, paid the consignee Metro Manila Feed
Millers Association. On March 26, 1992, as alleged subrogee of Metro, private
respondent filed a complaint for damages against herein petitioners. Within the
reglementary period to file an Answer, petitioners filed a Motion to Dismiss the
complaint on the ground that respondents claim is premature, the same being
arbitrable. Private respondent filed its Opposition thereto and petitioners filed their Reply
to Opposition.

On November 11, 1992, [the RTC] issued an Order deferring the hearing on the Motion
to Dismiss until the trial and directing petitioners to file their Answer. Petitioners then
moved to reconsider said Order which was, however, denied by [the RTC] on the
ground that the reason relied upon by herein petitioners in its Motion to Dismiss and
Motion for Reconsideration [was] a matter of defense which they must prove with their
evidence.

On August 20, 1993, petitioners filed their Answer with Counterclaim and Crossclaim
alleging therein that plaintiff, herein respondent, did not comply with the arbitration
clause of the charter party; hence, the complaint was allegedly prematurely filed. The
trial court set the case for pre-trial on November 26, 1993.

On November 15 and 16, 1993, petitioners filed a Motion to Defer Pre-Trial and Motion
to Set for Preliminary Hearing the Affirmative Defense of Lack of Cause of Action for
Failure to comply with Arbitration Clause, respectively. Private respondent did not file an
Opposition to the said Motion to Set for Preliminary Hearing. On December 28, 1993,
[the RTC] issued an Order denying the Motion to Set for Preliminary Hearing. On
February 2, 1994 petitioners filed a Motion for Reconsideration of the Order dated
December 28, 1993. On February 11, 1994, [the RTC] issued an Order denying
petitioners Motion for Reconsideration. Hence, the instant petition.ii[5]
Ruling of the Court of Appeals

Affirming the trial court, the CA held that petitioners cannot rely on Section 5, Rule 16 ii[6]
of the pre-1997 Rules of Court,ii[7] because a Motion to Dismiss had previously been
filed. Further, it ruled that the arbitration clause provided in the charter party did not bind
respondent. It reasoned as follows:

Petitioners argue that [the RTC] committed grave abuse of discretion amounting to lack
or excess of jurisdiction in denying the preliminary hearing of the affirmative defense of
lack of cause of action for failure to comply with the arbitration clause.

Petitioners, in so filing the Motion to Set for Preliminary Hearing the Affirmative Defense
of Lack of Cause of Action for Failure to Comply with Arbitration Clause, premised their
alleged right to a preliminary hearing on the provision of Section 5, Rule 16 of the Old
Rules of Court which provide[s]:

Sec. 5. Pleading grounds as affirmative defenses. Any of the grounds for dismissal
provided for in this rule, except improper venue, may be pleaded as an affirmative
defense and a preliminary hearing may be had thereon as if a motion to dismiss had
been filed.

Petitioners reliance on said provision is misplaced. The above-mentioned provision


contemplates a situation where no motion to dismiss is filed. If a motion to dismiss has
been filed, as in the case at bar, Section 5, Rule 16 of the Old Rules of Court will not
come into play. Furthermore, the same provision gives the judge discretion whether to
set for preliminary hearing the grounds for affirmative defenses. Respondent judge
deferred the hearing and determination of the Motion to Dismiss until the trial since the
ground relied upon by petitioners therein did not appear to be indubitable. Petitioners
then filed their Answer as ordered by the Court again raising as an affirmative defense
lack of cause of action for failure to comply with [the] arbitration clause, praying for the
dismissal of the complaint against them, and filing afterwards a Motion to Set for
Preliminary Hearing the Affirmative Defense of lack of Cause of Action. In effect,
petitioners are asking the trial court to set aside its Order denying the Motion to Dismiss
and Order denying the Motion for Reconsideration thereof.

Petitioners cannot do this.

The remedy of the aggrieved party in a denied motion to dismiss is to file an answer and
interpose as defense or defenses, the objection or objections raised by him in said
motion to dismiss, then proceed to trial and, in case of adverse decision, to elevate the
entire case by appeal in due course. Petitioners could also resort to the extraordinary
legal remedies of certiorari, prohibition and mandamus to question the denial of the
motion to dismiss. As correctly ruled by the trial court in its Order dated June 30, 1993,
denying the Motion for Reconsideration of the Order dated November 11, 1992 (denying
the Motion to Dismiss) the ground relied upon by petitioners is a matter of defense
which petitioners must prove with their evidence at the trial.

Petitioners in asking the lower court to set the case for preliminary hearing further argue
that this would give the court and the parties a shorter time to resolve the matter and the
case without a full blown trial. However, petitioners fail to realize that they themselves
are delaying the determination and resolution of the issues involved by resorting to an
improper remedy.

On the issue raised by petitioners that private respondents claim is premature for failure
to comply with [the] arbitration clause, we hold that the right of the respondent as
subrogee, in filing the complaint against herein petitions is not dependent upon the
charter party relied upon by petitioners; nor does it grow out of any privity contract or
upon written assignment of claim. It accrues simply upon payment of the insurance
claim by respondent as insurer to the insured. This was the pronouncement by the
Supreme Court in the case of Pan Malayan Insurance Corp. vs. Court of Appeals 184
SCRA 54, to wit:

Payment by the insurer to the insured operates as an equitable assignment to the


former of all the remedies which the latter may have against the third party whose
negligence or wrongful (sic) caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.ii[8]

Hence, this recourse.ii[9]


The Issues

In their Memorandum, petitioners submit the following issues for our consideration:ii[10]
1. Whether or not insurer, as subrogee of the consignee, is bound by the charter
party which is incorporated and referred to in the bill of lading.

2. Whether or not the motion to dismiss should be granted on the ground that a
condition precedent has not been complied with, based on the arbitration clause
incorporated in the bill of lading.

3. Whether or not the Court of Appeals erred in holding that the trial court did not
commit grave abuse of discretion in denying petitioners motion for preliminary hearing.

4. Whether or not the trial court can defer the resolution of a motion to dismiss on
the ground that the ground relied upon is indubitable.

5. Whether or not the petitioners have resorted to an improper remedy which makes
them responsible for delaying the case.

In the main, the two principal matters before us are: (1) the denial of petitioners Motion
for Preliminary Hearing and (2) the propriety of the CA ruling regarding the arbitration
clause.
The Courts Ruling

The Petition is meritorious.


First Issue: Preliminary Hearing of Affirmative Defense

At the outset, we must emphasize that the crux of the present controversy is the trial
courts Order denying petitioners Motion to Set for Preliminary Hearing the affirmative
defense of lack of cause of action. Not questioned here is the said courts Order holding
in abeyance the hearing of petitioners Motion to Dismiss.

Affirmative Defense May Be Raised

Still in effect when the case was before the trial court, Section 5, Rule 16 of the pre-
1997 Rules of Court, reads:

Sec. 5. Pleading grounds as affirmative defenses. - Any of the grounds for dismissal
provided for in this Rule, except improper venue, may be pleaded as an affirmative
defense, and a preliminary hearing may be had thereon as if a motion to dismiss had
been filed.

Respondent argues that the above provision cannot be applied, because petitioners
have already filed a Motion to Dismiss.

We disagree. Respondent relies on the amendments introduced in the 1997 Rules on


Civil Procedure ("1997 Rules), but ignores equally relevant provisions thereof, as well
as the clear intendment of the pre-1997 Rules. True, Section 6, Rule 16 of the 1997
Rules,ii[11] specifically provides that a preliminary hearing on the affirmative defenses
may be allowed only when no motion to dismiss has been filed. Section 6, however,
must be viewed in the light of Section 3 of the same Rule,ii[12] which requires courts to
resolve a motion to dismiss and prohibits them from deferring its resolution on the
ground of indubitability. Clearly then, Section 6 disallows a preliminary hearing of
affirmative defenses once a motion to dismiss has been filed because such defense
should have already been resolved. In the present case, however, the trial court did not
categorically resolve petitioners Motion to Dismiss, but merely deferred resolution
thereof.ii[13]

Indeed, the present Rules are consistent with Section 5, Rule 16 of the pre-1997 Rules
of Court, because both presuppose that no motion to dismiss had been filed; or in the
case of the pre-1997 Rules, if one has been filed, it has not been unconditionally
denied.ii[14] Hence, the ground invoked may still be pleaded as an affirmative defense
even if the defendants Motion to Dismiss has been filed but not definitely resolved, or if
it has been deferred as it could be under the pre-1997 Rules.ii[15]

Denial of the Motion for a Preliminary Hearing Was a Grave Abuse of Discretion

The more crucial question that we must settle here is whether the trial court committed
grave abuse of discretion when it denied petitioners Motion for a Preliminary Hearing on
their affirmative defense of lack of cause of action. Undeniably, a preliminary hearing is
not mandatory, but subject to the discretion of the trial court.ii[16] In the light of the
circumstances in this case, though, we find that the lower court committed grave abuse
of discretion in refusing to grant the Motion.

We note that the trial court deferred the resolution of petitioners Motion to Dismiss
because of a single issue. It was apparently unsure whether the charter party that the
bill of lading referred to was indeed the Baltimore Berth Grain Charter Party submitted
by petitioners.

Considering that there was only one question, which may even be deemed to be the
very touchstone of the whole case, the trial court had no cogent reason to deny the
Motion for Preliminary Hearing. Indeed, it committed grave abuse of discretion when it
denied a preliminary hearing on a simple issue of fact that could have possibly settled
the entire case. Verily, where a preliminary hearing appears to suffice, there is no
reason to go on to trial. One reason why dockets of trial courts are clogged is the
unreasonable refusal to use a process or procedure, like a motion to dismiss, which is
designed to abbreviate the resolution of a case.
Second Issue: The Arbitration Clause

The CA also erred when it held that the arbitration clause was not binding on
respondent. We reiterate that the crux of this case is whether the trial court committed
grave abuse of discretion in denying the aforecited Motion. There was neither need nor
reason to rule on the applicability of the arbitration clause.

Be that as it may, we find the CAs reasoning on this point faulty. Citing Pan Malayan
Insurance Corporation v. CA,ii[17] it ruled that the right of respondent insurance company
as subrogee was not based on the charter party or any other contract; rather, it accrued
upon the payment of the insurance claim by private respondent to the insured
consignee. There was nothing in Pan Malayan, however, that prohibited the applicability
of the arbitration clause to the subrogee. That case merely discussed, inter alia, the
accrual of the right of subrogation and the legal basis therefor.ii[18] This issue is
completely different from that of the consequences of such subrogation; that is, the
rights that the insurer acquires from the insured upon payment of the indemnity.

WHEREFORE, the Petition is GRANTED and the appealed Decision is hereby


REVERSED. The case is REMANDED to the trial court for preliminary hearing on
petitioners affirmative defense. No costs.

SO ORDERED.

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S.


CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M.
ANTONIO, as Minority Stock Holders of Marinduque Mining and Industrial Corporation,
respondents.

DECISION

KAPUNAN, J.:

The petition for review on certiorari before us seeks us to reverse and set aside the decision of
the Court of Appeals which denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62,
Makati City. The Makati RTCs order upheld and confirmed the award made by the Arbitration
Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION
(or approximately P4.5 BILLION, including interest).

Ironically, the staggering amount of damages was imposed on the Government for exercising its
legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the
latters failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National
Bank (PNB) and the Development Bank of the Philippines (DBP).
The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No.
2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3,
1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board,
granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation.ii[1] MMIC is a domestic corporation engaged in
mining with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders.

The Philippine Government undertook to support the financing of MMIC by purchase of MMIC
debenture and extension of guarantees. Further, the Philippine Government obtained a firm,
commitment from the DBP and/or other government financing institutions to subscribed in
MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from
the US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100
Million.ii[2]

DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based
on the unutilized portion of the Government commitment. Thereafter, the Government extended
accommodations to MMIC in various amounts.

On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreementii[3] whereby
MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees,
over all MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor,
and additional assets described and identified, including assets of whatever kind, nature or
description, which the mortgagor may acquire whether in substitution of, in replenishment, or in
addition thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly
includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage
Trust Agreement when due.ii[4]

Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the
enumerated events of defaults, circumstances by which the mortgagor may be declared in
default, the procedure therefor, waiver of period to foreclose, authority of Trustee before, during
and after foreclosure, including taking possession of the mortgaged properties.ii[5]

In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings,


Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the loans and accommodations
secured from or guaranteed by both DBP and PNB.

By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached
tremendous proportions, and MMIC was having a difficult time meeting its financial obligations.
MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31,
1984 and in the amount of P8,789,028,249.38 as of July 15, 1984 or a total Government
exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven
Thousand Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine Currency.ii[6]
Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest expense through
debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm.ii[7] On April
30, 1984, the FRP was approved by the Board of Directors of the MMIC.ii[8] However, the
proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.ii[9]

In August and September 1984, as the various loans and advances made by DBP and PNB to
MMIC had become overdue and since any restructuring program relative to the loans was no
longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and
PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose
the mortgages in accordance with the Mortgage Trust Agreement.ii[10]

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly
formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the Asset
Privatization Trust (APT).ii[11]

On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC,
filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for
Annulment of Foreclosures, Specific Performance and Damages.ii[12] The suit, docketed as
Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the foreclosed assets
to MMIC, and require the banks to account for their use and operation in the interim; (2) direct
the banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and
exemplary damages, attorneys fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and
PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a
Compromise and Arbitration Agreement, stipulating, inter alia:

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual
covenants contain herein, the parties agreed as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims
from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court
to issue a Compromise Judgment based on this Compromise and Arbitration Agreement.

In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the
parties have agreed that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC
accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of
the controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral
award/order against either PNB and/or DBP shall be the responsibility of, be discharged by and
be enforceable against APT, the partied having agreed to drop PNB and DBP from the
arbitration.
2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be
submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No.
9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement,
be transferred and reduced to pure pecuniary/money claims with the parties waiving and
foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case
No. 9900.ii[13]

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether
PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the
MMIC or its directors; (b) Whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith.ii[14]

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati
RTC, Branch 62, issued an order, to wit:

WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.

2. Approving the Compromise and Arbitration Agreement dated October 6, 1992,


attached as Annex C of the Omnibus Motion.

3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this
case into pure money claims; and

4. The Complaint is hereby DISMISSED.ii[15]

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento
as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as
Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee
rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the
Committee holds and so declares that the loans of PNB and DBP to MMIC, for the payment and
recovery of which the void foreclosure sales were undertaken, continue to remain outstanding
and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is
therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on
the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may
duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT
may have realized from the sale of the seized assets of MMIC which by agreement should no
longer be returned even if the foreclosure were found to be null and void.
The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100;
and also Exhibit ZZZ) as their exhibits would show that the total outstanding obligation due to
DBP and PNB as of the date of foreclosure is P22,668,537,770.05, more or less.

Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of
MMIC to PNB and DBP amounting to P22,668.537,770.05, more or less, with interest thereon as
stipulated in the loan documents from the date of foreclosure up to the time they are fully paid
less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC
under the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of
MMIC in proportion to its 87% equity in the total capital stock of MMIC.

x x x.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So
pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity
of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net
actual damages of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except
the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%)
per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual damages.
Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans
of the MMIC with DBP and PNB, which have not been converted into equity. Should there be
any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April
22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except
the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages. Payment of these
moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of
MMIC with DBP and PNB, which have not been converted into equity. Should there be any
balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing
the purchase price of the sale of the shares of Island Cement Corporation in the of
P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or
to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of
the Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00,
to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement that would supercede it, pursuant
to paragraph (9) of the Compromise and Arbitration Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.ii[16]

Motions for reconsiderations were filed by both parties, but the same were denied.

On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an
Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an
Opposition and Motion to Vacate Judgment raising the following grounds:

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court,
considering that the said motion is neither a part nor the continuation of the proceedings in Civil
Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants in the
said Civil Case No. 9900 were the Development Bank of the Philippines and the Philippine
National Bank (PNB);

2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be
deemed a special proceedings and a party to the controversy which was arbitrated may apply to
the court having jurisdiction, (not necessarily with this Honorable Court) for an order confirming
the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs
filing the derivative suit and (2) the regularity of the foreclosure proceedings. The arbitration
award sought to be confirmed herein far exceeded the issues submitted and even granted moral
damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where
the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual final and
definite award upon the subject matter submitted to them was not made.ii[17]

Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that
a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the
submission of the controversy to arbitration, and operated simply as a mere suspension of the
proceedings. They denied that the Arbitration Committee had exceeded its powers.

In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration
Committee. The dispositive portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and
Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee
promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally
settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member
Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court
GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION
AWARD, AND JUDGMENT IS HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC,
except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be
partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant
to the Escrow Agreement dated April 22, 1988. The Balance of the award, after the escrow funds
are fully applied, shall be executed against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as
and moral and exemplary damages;

(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for
moral damages; and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of
P1,705,410.22 as arbitration costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the
Compromise and Arbitration Agreement, and the final edict of the Arbitration Committees
decision, and with this Courts Confirmation, the issuance of the Arbitration Committees Award
shall henceforth be final and executory.

SO ORDERED.ii[18]

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated
November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto.

On January 18, 1995, the trial court handed down its order denying APTs motion for
reconsideration for lack of merit and for having been filed out of time. The trial court declared
that considering that the defendant APT through counsel, officially and actually received a copy
of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for
Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of
21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by
law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of
any court in all cases, and by necessary implication for the filling of a motion for reconsideration
thereof.

On February 7, 1995, petitioner received private respondents motion for Execution and
Appointment of Custodian of Proceeds of Execution dated February 6, 1995.

Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with
temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and
declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995
for having been issued without or in excess of jurisdiction and/or with grave abuse of
discretion.ii[19] As ground therefor, petitioner alleged that:

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH


LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD
CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD
PREVIOUSLY BEEN DISMISSED.

II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND


ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED
ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR
RECONSIDERATION OF ORDER OF AWARD.

III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED


WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE
COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM
THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT
FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING
COUNSELS COPY THEREOF.ii[20]

On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and
dismissed the petition for certiorari.

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the
following errors.

ASSIGNMENT OF ERRORS

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI


REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED
CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL
AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE
APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW
CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.

II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER
WAS ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD, WHEN
PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH
62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT


TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE
RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION
AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION
TO VACATE ARBITRAL AWARD.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS


PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER
CONFIRMING THE AWARD

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF


WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR
RECONSIDERATION.ii[21]

The petition is impressed with merit.

I
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the
Order of the trial court dated October 14, 1992 stated in no uncertain terms:

4. The Complaint is hereby DISMISSED.ii[22]

The term dismiss has a precise definition in law. To dispose of an action suit, or motion without
trial on the issues involved. Conclude, discontinue, terminate, quash.ii[23]

Admittedly the correct procedure was for the parties to go back to the court where the case was
pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake
of issuing a final order dismissing the case. While Branch 62 should have merely suspended the
case and not dismissed it,ii[24] neither of the parties questioned said dismissal. Thus, both
parties as well as said court are bound by such error.
It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the
knowledge that the case was merely stayed until arbitration finished, as again, the order of
Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch
62 had lost jurisdiction over the vase. It could not have validly reacquired jurisdiction over the
said case on mere motion of one of the parties. The Rules of Court is specific on how a new case
may be initiated and such is not done by mere motion in a particular branch of the RTC.
Consequently, as there was no pending action to speak of, the petition to confirm the arbitral
award should have been filed as a new case and raffled accordingly to one of the branches of the
Regional Trial Court.

II
Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the
RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that
the arbitral award be vacated.

The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the
nature of the action, the invocation of this defense may de done at any time. It is neither for the
courts nor for the parties to violate or disregard that rule, let alone to confer that jurisdiction, this
matter being legislative in character.ii[25] As a rule the, neither waiver nor estoppel shall apply
to confer jurisdiction upon a court barring highly meritorious and exceptional
circumstances.ii[26] One such exception was enunciated in Tijam vs. Sibonghanoy,ii[27] where
it was held that after voluntarily submitting a cause and encountering an adverse decision on the
merits, it is too late for the loser to question the jurisdiction or power of the court."

Petitioners situation is different because from the outset, it has consistently held the position that
the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be
said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the
setting aside of the arbitral award was not inconsistent with its disavowal of the courts
jurisdiction.

III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of
APTs motion for reconsideration of the trial courts order confirming the arbitral award, on the
ground that said motion was filed beyond the 15-day reglementary period; consequently, the
petition for certiorari could not be resorted to as substitute to the lost right of appeal.

We do not agree.

Section 29 of Republic Act No. 876,ii[28] provides that:


x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to question of law. x x x.

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award
from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court
where, as in this case, the Regional Trial Court to which the award was submitted for
confirmation has acted without jurisdiction, or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law.

Thus, Section 1 of Rule 65 provides:

SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial
functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary
course of law, a person aggrieved thereby may file a verified petition in the proper court alleging
the facts with certainty and praying that judgment be rendered annulling or modifying the
proceedings, as the law requires, of such tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action for certiorari,
it being from the pleadings and the evidence that the trial court lacked jurisdiction and/or
committed grave abuse of discretion in taking cognizance of private respondent motion to
confirm the arbitral award and, worse, in confirming said award which is grossly and patently
not in accord with the arbitration agreement, as will be hereinafter demonstrated.

IV
The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to
the law or as to the facts.ii[29] Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators.ii[30] They will not
review the findings of law and fact contained in an award, and will not undertake to substitute
their judgment for that of the arbitrators, since any other rule would make an award the
commencement, not the end, of litigation.ii[31] Errors of law and fact, or an erroneous decision
of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award
fairly and honestly made.ii[32] Judicial review of an arbitration is, thus, more limited than
judicial review of a trial.ii[33]

Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission agreement.ii[34] The parties to such an
agreement are bound by the arbitrators award only to the extent and in the manner prescribed by
the contract and only if the award is rendered in conformity thereto.ii[35] Thus, Sections 24 and
25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration
award. Where the conditions described in Articles 2038,ii[36] 2039ii[37] and 2040ii[38] of the
Civil Code applicable to compromises and arbitration are attendant, the arbitration award may
also be annulled.

In Chung Fu Industries (Phils.) vs. Court of Appeals,ii[39] we held:

x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators
awards is not absolute and without exceptions. Where the conditions described in Articles 2038,
2039, and 2040 applicable to both compromises and arbitration are obtaining, the arbitrators'
award may be annulled or rescinded. Additionally, under Sections 24 and 25, of the Arbitration
Law, there are grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and
when the factual circumstances referred to in the above-cited provisions are present, judicial
review of the award is properly warranted.

Accordingly, Section 20 of R.A. 876 provides:

SEC. 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.

xxx

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. (Underscoring ours).

xxx.

Section 24 of the same law enumerating the grounds for vacating an award states:

SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an
order vacating the award upon the petition of any party to the controversy when such party
proves affirmatively that in the arbitration proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy;
that one or more of the arbitrators was disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualifications or any other misbehavior by which the
rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual,
final and definite award upon the subject matter submitted to them was not made. (Underscoring
ours).

xxx.

Section 25 which enumerates the grounds for modifying the award provides:

SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court
must make an order modifying or correcting the award, upon the application of any party to the
controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the description
of any person, thing or property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy,
and if it had been a commissioners report, the defect could have been amended or disregarded by
the court.

x x x.

Finally, it should be stressed that while a court is precluded from overturning an award for errors
in determination of factual issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award must be vacated.ii[40] In the
same manner, an award must be vacated if it was made in manifest disregard of the law.ii[41]

Against the backdrop of the foregoing provisions and principles, we find that the arbitrators
came out with an award in excess of their powers and palpably devoid of factual and legal basis.

V
There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the
mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of
the banks and, therefore, could not be the basis of any award of damages. There was no financial
restructuring agreement to speak of that could have constituted an impediment to the exercise of
the banks right to foreclose.

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a
separate opinion:
1. The various loans and advances made by DBP and PNB to MMIC have become overdue and
remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not been
complying with the terms of the loan agreement. Restructuring simply connotes that the
obligations are past due that is why it is restructurable;

2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means
that MMIC had been informed or notified that its obligations were past due and that foreclosure
is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or
proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC
should have insisted on the FRP. Yet Cabarrus himself opposed the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with
honest and sincere belief that foreclosure was the only alternative; a decision further explained
by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move
to save MMIC itself.

Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh.
37-A for the respondent, may I know from you, Dr. Mapa what you meant by that the decision to
foreclose was neither precipitate nor arbitrary?

A : Well, it is not a whimsical decision but rather decision arrived at after weighty
considerations of the information that we have received, and listening to the prospects which
reported to us that we had assumed would be the premises of the financial rehabilitation plan was
not materialized nor expected to materialized.

Q : And this statement that it was premised upon the known fact that means, it was referring
to the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier
approved by the stockholders was no longer feasible, just what is meant by no longer feasible?

A : Because the revenue that they were counting on to make the rehabilitation plan possible,
was not anymore expected to be forthcoming because it will result in a short fall compared to the
prices that were actually taking place in the market.

Q : And I supposed that was you were referring to when you stated that the production
targets and assumed prices of MMICs products, among other projections, used in the financial
reorganization program that will make it viable were not met nor expected to be met?

A : Yes.

xxx

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely
unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in
PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC
adopted a restructuring program for its loan, it only meant that these loans were already due and
unpaid. If these loans were restructurable because they were already due and unpaid, they are
likewise forecloseable. The option is with the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to
foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with
PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in
all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP
must have to validly adopt and ratify such FRP before they can be bound by it; before it can be
implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing
that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine
of promissory estoppel to support its allegation in this regard.ii[42]

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385,
which took effect on January 31, 1974. The decree requires government financial institutions to
foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding
obligations. The pertinent provisions of said decree read as follows:

SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60)
days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan,
credit, accommodations, and/or guarantees granted by them whenever the arrearages on such
account, including accrued interest and other charges, amount to at least twenty percent (20%) of
the total outstanding obligations, including interest and other charges, as appearing in the books
of account and/or related records of the financial institutions concerned. This shall be without
prejudice to the exercise by the government financial institutions of such rights and/or remedies
available to them under their respective contracts with their debtor, including the right to
foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages are less
than twenty percent (20%).

SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court
against any government financial institution in any action taken by such institution in compliance
with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order,
temporary or permanent injunction is sought by the borrower(s) or any third party or parties,
except after due hearing in which it is established by the borrower and admitted by the
government financial institution concerned that twenty percent (20%) of the outstanding
arrearages has been paid after the filing of foreclosure proceedings. (Underscoring supplied.)

Private respondents thesis that the foreclosure proceedings were null and void because of lack of
publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne
out by the evidence. In any case, a disputable presumption exists in favor of petitioner that
official duty has been regularly performed and ordinary course of business has been
followed.ii[43]
VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts
of the case, the arbitrators in making the award went beyond the arbitration agreement.

In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for
judgment in their favor:

1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC
null and void and directing said defendants to restore the foreclosed assets to the possession of
MMIC, to render an accounting of their use and/or operation of said assets and to indemnify
MMIC for the loss occasioned by its dispossession or the deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their commitments under the
financial reorganization plan which was approved at the annual stockholders meeting of MMIC
on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual
damages consisting of the loss of value of their investment amounting to not less than
P80,000,000.00, the damnum emerges and lucrum cessans in such amount as may be establish
during the trial, moral damages in such amount as this Honorable Court may deem just and
equitable in the premises, exemplary damages in such amount as this Honorable Court may
consider appropriate for the purpose of setting an example for the public good, attorneys fees and
litigation expenses in such amounts as may be proven during the trial, and the costs legally
taxable in this litigation.

Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises. ii[44]

Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties
clearly and explicitly defined and limited the issues to the following:

(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit
in behalf of the MMIC or its directors;

(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the
MMIC assets were proper, valid and in good faith.ii[45]

Item No. 8 of the Agreement provides for the period by which the Committee was to render its
decision, as well as the nature thereof:

8. Decision. The committee shall issue a decision on the controversy not later than six (6)
months from the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this suit and
extra-judicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the
PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the
evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall
be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award
in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under
this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all
such remedies being cumulative and not exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to
sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in
favor of APT based on the counterclaims of DBP and PNB in an amount as may be established
or warranted by the evidence. This decision of the arbitration committee in favor of APT shall
likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds
held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of APT.ii[46]

The clear and explicit terms of the submission notwithstanding, the Arbitration Committee
clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid
the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c)
in awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when
it ruled on the validity of, and gave effect to, the proposed FRP.

In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the
validity of the foreclosure and to transform the reliefs prayed for therein into pure money claims.

There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the
proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of the
parties thereto.ii[47] The contract must bind both contracting parties.ii[48] Private respondents
even by their own admission recognized that the FRP had yet not been carried out and that the
loans of MMIC had not yet been converted into equity.ii[49]

However, the arbitration Committee not only declared the FRP valid and effective, but also
converted the loans of MMIC into equity raising the equity of DBP to 87%.ii[50]

The Arbitration Committee ruled that there was a commitment to carry out the FRPii[51] on the
ground of promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case considering as we
observed, the fact that the government (that is Alfredo Velayo) was the FRPs proponent.
Although the plaintiffs are agreed that the government executed no formal agreement, the fact
remains that the DBP itself which made representations that the FRP constituted a way out for
MMIC. The Committee believes that although the DBP did not formally agree (assuming that the
board and stockholders approvals were not formal enough), it is bound nonetheless if only for its
conspicuous representations.
Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that
time) and as MMICs creditor-the DBP can not validly renege on its commitments simply
because at the same time, it held interest against the MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being carried out although
apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to
meet its targets, the DBP-and so this Committee holds-can not, in any event, brook any denial
that it was bound to begin with, and the fact is that adequate or not (the FRP), the government is
still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity
in MMIC to 87%. It is not excuse, however, for the government to deny its commitments.ii[52]

Atty. Sison, however, did not agree and correctly observed that:

But the doctrine of promissory estoppel can hardly find application here. The nearest that there
can be said of any estoppel being present in this case is the fact that the board of MMIC was, at
the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves PNB or DBP. They are individuals
with personalities separate and distinct from the banks they represent. PNB and DBP have
different boards with different members who may have different decisions. It is unfair to impose
upon them the decision of the board of another company and thus pin them down on the
equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not
equitable to apply it in this particular situation. Otherwise the rights of entirely separate, distinct
and autonomous legal entities like PNB and DBP with thousands of stockholders will be
suppressed and rendered nugatory.ii[53]

As a rule, a corporation exercises its powers, including the power to enter into contracts, through
its board of directors. While a corporation may appoint agents to enter into a contract in its
behalf, the agent, should not exceed his authority.ii[54] In the case at bar, there was no showing
that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into
a debt-for-equity swap. And if they had such authority, there was no showing that the banks,
through their board of directors, had ratified the FRP.

Further, how could the MMIC be entitled to a big amount of moral damages when its credit
reputation was not exactly something to be considered sound and wholesome. Under Article
2217 of the Civil Code, moral damages include besmirched reputation which a corporation may
possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached
a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to
brag about. As Atty. Sison in his separate opinion persuasively put it:

Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages.
While the Supreme Court may have awarded moral damages to a corporation for besmirched
reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application in this case.
It must be pointed out that when the supposed wrongful act of foreclosure was done, MMICs
credit reputation was no longer a desirable one. The company then was already suffering from
serious financial crisis which definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a reputation besmirches by the act
of foreclosure.ii[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which was not a party before the
Arbitration Committee, is a complete nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while
the stockholder filing suit for the corporations behalf is only nominal party. The corporation
should be included as a party in the suit.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation


wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of
the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal party, with the corporation as the
real party in interest. x x x.ii[56]

It is a condition sine qua non that the corporation be impleaded as a party because-

x x x. Not only is the corporation an indispensible party, but it is also the present rule that it must
be served with process. The reason given is that the judgment must be made binding upon the
corporation and in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other words the
corporations must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res ajudicata against it.ii[57]

The reasons given for not allowing direct individual suit are:

(1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal
or equitable to the corporate property; that both of these are in the corporation itself for the
benefit of the stockholders. In other words, to allow shareholders to sue separately would conflict
with the separate corporate entity principle;

(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in
the case of Evangelista v. Santos, that the stockholders may not directly claim those damages for
themselves for that would result in the appropriation by, and the distribution among them of part
of the corporate assets before the dissolution of the corporation and the liquidation of its debts
and liabilities, something which cannot be legally done in view of section 16 of the Corporation
Law xxx;

(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on
the damages recoverable by the corporation for the same act.ii[58]

If at all an award was due MMIC, which it was not, the same should have been given sans
deduction, regardless of whether or not the party liable had equity in the corporation, in view of
the doctrine that a corporation has a personality separate and distinct from its individual
stockholders or members. DBPs alleged equity, even if it were indeed 87%, did not give it
ownership over any corporate property, including the monetary award, its right over said
corporate property being a mere expectancy or inchoate right.ii[59]Notably, the stipulation even
had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a
derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC,
and at the same time award moral damages to an individual stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

xxx.

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would
supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for
moral damages; x x xii[60]

The majority decision of the Arbitration Committee sought to justify its award of moral damages
to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government
were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority
stockholder. It then acknowledge that Cabarrus had already recovered said assets in the RTC, but
that he won no more than actual damages. While the Committee cannot possibly speak for the
RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that
specific foreclosure, damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr.,
may be awarded in this proceeding.ii[61]

Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the
majority stockholder, having been ventilated in a complaint he previously filed with the RTC,
from which he obtained actual damages, he was barred res judicata from filing a similar case in
another court, this time asking for moral damages which he failed to get from the earlier
case.ii[62] Worse, private respondents violated the rule against non-forum shopping.

It is a basic postulate that s corporation has a personality separate and distinct from its
stockholders.ii[63] The properties foreclosed belonged to MMIC, not to its stockholders. Hence,
if wrong was committed in the foreclosure, it was done against the corporation. Another reason
is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in
the appropriation by, and the distribution to, him part of the corporations assets before the
dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action
had already been decided in a separate case. It is thus quite patent that the arbitration committee
exceeded the authority granted to it by the parties Compromise and Arbitration Agreement by
awarding moral damages to Jesus S. Cabarrus, Sr.

Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral
damages to Jesus S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties
themselves have agreed that the basic ingredient of the causes of action in this case is the wrong
committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. By
agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of
action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of
MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders
have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur.
165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the
rule has been reiterated that a stockholder is not the co-owner of corporate property. Since the
property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done
against the corporation. There is therefore no direct injury or direct violation of the rights of
Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover
damages in their personal capacities even assuming or just because the foreclosure is improper or
invalid. The Compromise and Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent from the award of moral
damages to Cabarrus.ii[64]

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed
its powers or so imperfectly execute them, but also, its findings and conclusions are palpably
devoid of any factual basis and in manifest disregard of the law.

We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings
and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively
discussed the issues on the merits. Such being the case, there is sufficient basis for us to resolve
the controversy between the parties anchored on the records and the pleadings before us.ii[65]

WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders
of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19,
1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is
hereby VACATED.

SO ORDERED
NATIONAL STEEL CORPORATION, petitioner, vs. THE REGIONAL TRIAL COURT OF
LANAO DEL NORTE, BRANCH 2, ILIGAN CITY and E. WILLKOM ENTERPRISES, INC.,
respondents.

DECISION

PURISIMA, J.:

Before the Court is a Petition for Certiorari with Prayer for Preliminary Injunction & Temporary
Restraining Order under Rule 65 of the Revised Rules of Court assailing the decision of the
Regional Trial Court of Lanao del Norte, Branch 2, Iligan City, on the following consolidated
cases :

(a) Special Proceeding Case No. 2206 entitled National Steel Corporation vs E. Willkom
Enterprise Inc to Vacate Arbitrators Award; and;

(b) Civil Case No. 2198 entitled to E. Willkom Enterprises Inc. vs National Steel Corporation for
Sum of Money with application for Confirmation of Arbitrators Award.

The facts as found below are, as follows:

"xxx On Nov. 18, 1992, petitioner-defendant Edward Wilkom Enterprises Inc. (EWEI for
brevity) together with one Ramiro Construction and respondent-petitioner National Steel
Corporation (NSC for short) executed a contract whereby the former jointly undertook the
Contract for Site Development (Exhs. "3" & "D") for the latter's Integrated Iron and Steel Mills
Complex to be established at Iligan City.

Sometime in the year 1983, the services of Ramiro Construction was terminated and on March 7,
1983, petitioner-defendant EWEI took over Ramiro's contractual obligation. Due to this and to
other causes deemed sufficient by EWEI, extensions of time for the termination of the project,
initially agreed to be finished on July 17, 1983, were granted by NSC.

Differences later arose, Plaintiff-defendant EWEI filed Civil Case No. 1615 before the Regional
Trial Court of Lanao del Norte, Branch 06, (Exhs. "A" and "1") praying essentially for the
payments of P458,381.001 with interest from the time of delay; the price adjustment as provided
by PD 1594; and exemplary damages in the amount of P50,000.00 and attorney's fees.

Defendant-petitioner NSC filed an answer with counterclaim to plaintiff's complaints on May 18,
1990.

On August 21, 1990, the Honorable Court through Presiding Judge Valario M. Salazar upon joint
motion of both parties had issued an order (Exhs. "C" and "3") dismissing the said complaint and
counterclaim x x x in view of the desire of both parties to implement Sec. 19 of the contract,
providing for a resolution of any conflict by arbitration x x x . ( underscoring supplied).
In accordance with the aforesaid order, and pursuant to Sec. 19 of the Contract for Site
Development (id) the herein parties constituted an Arbitration Board composed of the following:

(a) Engr. Pafnucio M. Mejia as Chairman, who was nominated by the two arbitrators
earlier nominated by EWEI and NSC with an Oath of Office (Exh. "E");

(b) Engr. Eutaquio 0. Lagapa, Jr., member, who was nominated by EWEI with an
oath office (Exh. "F")

(c) Engr. Gil A. Aberilia, a member who was nominated by NSC, with an Oath of
Office (Exh. "G").

After series of hearings, the Arbitrators rendered the decision (Exh. "H" & "4") which is the
subject matter of these present causes of action, both initiated separately by the herein
contending parties, substantial portion of which directs NSC to pay EWEI, as follows:

(a) P458,381.00 representing EWEI's last billing No. 16 with interest thereon at the
rate of 1-1/4% per month from January 1, 1985 to actual date of payment;

(b) P1,335,514.20 representing price escalation adjustment under PD No. 1594, with
interest thereon at the rate of 1-1/4 % per month from January 1, 1985 to actual date of
payment;

(c) P50,000 as and for exemplary damages;

(d) P350,000 as and for attorney's fees.; and

(e) P35,000.00 as and for cost of arbitration."ii[1]

The Regional Trial Court of Lanao del Norte Branch 2, Iligan City through Judge Maximo B.
Ratunil, rendered judgment as follows:

(1) In Civil Case No. 11-2198, declaring the award of the Board of Arbitrators, dated April
21, 1992 to be duly AFFIRMED and CONFIRMED "en toto" ; that an entry of judgment be
entered therewith pursuant to Republic Act No. 876 (the Arbitration Law); and costs against
respondent National Steel Corporation.

(2) In Special Proceeding No. 11-2206, ordering the petition to vacate the aforesaid award be
DISMISSED.

SO ORDERED.ii[2] "

With the denial on October 18, 1996 of its Motion for Reconsideration, the National Steel
Corporation (NSC) has come to this court via the present petition.
After deliberating on the petition as well as the comment and reply thereon, the court gave due
course to the petition and considered the case ripe for decision.

The pivot of inquiry here is whether or not the lower court acted with grave abuse of
discretion in not vacating the arbitrator's award.

A stipulation to refer all future disputes or to submit an ongoing dispute to an arbitrator is valid.
Republic Act 876, otherwise known as the Arbitration Law, was enacted by Congress since there
was a growing need for a law regulating arbitration in general.

The parties in the present case, upon entering into a Contract for Site Development, mutually
agreed that any dispute arising from the said contract shall be submitted for arbitration. Explicit
is Paragraph 19 of subject contract, which reads:

"Paragraph 19. ARBITRATION. All disputes questions or differences which may at any time
arise between the parties hereto in connection with or relating to this Agreement or the subject
matter hereof, including questions of interpretation or construction, shall be referred to an
Arbitration Board composed of three (3) arbitrators, one to be appointed by each party, and the
third, to be appointed by the two (2) arbitrators. The appointment of arbitrators and procedure for
arbitration shall be governed by the provisions of the Arbitration Law (Republic Act No. 876).
The Board shall apply Philippine Law in adjudicating the dispute. The decision of a majority of
the members of the Arbitration Board shall be valid, binding, final and conclusive upon the
parties, and from which there will be no appeal, subject to the provisions on vacating, modifying,
or correcting an award under the said Republic Act No. 876.ii[3]

Thereunder, if a dispute should arise from the contract, the Arbitration Board shall assume
jurisdiction and conduct hearings. After the Board comes up with a decision, the parties may
immediately implement the same by treating it as an amicable settlement. However, if one of the
parties refuses to comply or is dissatisfied with the decision, he may file a Petition to Vacate the
Arbitrator's decision before the trial court. On the other hand, the winning party may ask the trial
court's confirmation to have such decision enforced.

It should be stressed that voluntary arbitrators, by the nature of their functions, act in a quasi-
judicial capacity.ii[4] As a rule, findings of facts by quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific matters, are accorded not only respect
but even finality if they are supported by substantial evidence,ii[5] even if not overwhelming or
preponderant.ii[6] As the petitioner has availed of Rule 65, the Court will not review the facts
found nor even of the law as interpreted or applied by the arbitrator unless the supposed errors of
facts or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion
or an excess de pouvoir on the part of the arbitrators.ii[7]

Thus, in a Petition to Vacate Arbitrator's Decision before the trial court, regularity in the
performance of official functions is presumed and the complaining party has the burden of
proving the existence of any of the grounds for vacating the award, as provided for by Sections
24 of the Arbitration Law, to wit:
"Sec. 24 GROUNDS FOR VACATING THE AWARD - In any one of the following cases, the
court must make an order vacating the award upon the petition of any party to the controversy
when such party proves affirmatively that in the arbitration proceedings:

(a) The award was procured by corruption, fraud or other undue means;

(b) That there was evident partiality or corruption in the arbitrators of any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy;
that one or more of the arbitrators was disqualified to act as such under section nine hereof, and
wilfully refrained from disclosing such disqualification or of any other misbehavior by which the
rights of any party have been materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made. xxx"

The grounds relied upon by the petitioner were the following (a) That there was evident partiality
in the assailed decision of the Arbitrators in favor of the respondent; and (b) That there was
mistaken appreciation of the facts and application of the law by the Arbitrators. These were the
very same grounds alleged by NSC before the trial court in their Petition to Vacate the
Arbitration Award and which petitioner is reiterating in this petition under scrutiny.

Petitioner's allegation that there was evident partiality is untenable. It is anemic of evidentiary
support.

In the case of Adamson vs. Court of Appeals, 232 SCRA 602, in upholding the decision of the
Board of Arbitrators, this Court ruled that the fact that a party was disadvantaged by the decision
of the Arbitration Committee does not prove evident partiality. Proofs other than mere inference
are needed to establish evident partiality. Here, petitioner merely averred evident partiality
without any proof to back it up. Petitioner was never deprived of the right to present evidence
nor was there any showing that the Board showed signs of any bias in favor of EWEI. As
correctly found by the trial court:

"Thirdly, this Court cannot find its way to support NSC's contention that there was evident
partiality in the assailed Award of the Arbitrator in favor of the respondent because the
conclusion of the Board, which the Court found to be well-founded, is fully supported by
substantial evidence, as follows:

"xxx The testimonies of witnesses from both parties were heard to clarify facts and to
threash (sic) out the dispute in the hearings. Upon motion by NSC counsel, the hearing
of testimony from witnesses was terminated on 22 January 1992. To end the
testimonies in the hearing both litigant parties upon query by Arbitrator-Chairman
freely declared that there has been no partiality in the manner the Arbitrators conducted
the hearing, that there has been no instance, where Arbitrators refused to postpone
requested or to hear/accept evidence pertinent and material to the dispute. xxx
(underscoring supplied)

Parentethically, and in the light of the record above-mentioned, this Court hereby holds that the
Board of Arbitrators did not commit any 'evident partiality' imputed by petitioner NSC. Above
all, this Court must sustain the said decision for it is a well settled rule that the actual findings of
an administrative body should be affirmed if there is substantial evidence to support them and
the conclusions stated in the decision are not clearly against the law and jurisprudence similar to
the instant case. Henceforth, every reasonable intendment will be indulged to give effect such
proceedings and in favor of the regulatory and integrity of the arbitrators act. (Corpus Juris, Vol.
5, p. 20)"ii[8]

Indeed, the allegation of evident partiality is not well-taken because the petitioner failed to
substantiate the same.

Anent the issue of mistaken appreciation of facts and law of the case, the petitioner theorizes that
the awards made by the Board were unsubstantiated and the same were a plain misapplication of
the law and even contrary to jurisprudence. To have a clearer understanding of the petition, this
Court will try to discuss individually the awards made by the Board, and determine if there was
grave abuse of discretion on the part of the trial court when it adopted such awards in toto.
I. P458,381.00 representing EWEI's last billing No. 16 with interest thereon at the rate of 1 1/4% per month from January 1, 1985 to
actual date of payment;

Petitioner seeks to bar payment of the said amount to EWEI. Since the latter failed to complete
the works as agreed upon, NSC had the right to withhold such amount. The same will be used to
cover the cost differential paid to another contractor who finished the work allegedly left
uncompleted by EWEI. Said work cost NSC P1,225,000, and should be made chargeable to
EWEI's receivables on Final Billing No. 16 issued to NSC.

The query here therefore is whether there was failure on the part of EWEI to complete the work
agreed upon. This will determine whether Final Billing No. 16 can be made chargeable to the
cost differential paid by NSC to another contractor.

After a series of hearings, the Board of Arbitrators concluded that the work was completed by
EWEI. As correctly stated:

"To authenticate the extent of unfinished work, quantity, unit cost differential and amount, NSC
was required to submit copies of payment vouchers and/or job awards extended to the other
contractor engaged to complete the works. The best efforts by NSC despite the multiplicity of
accounting/auditing/engineering records required in a corporate complex failed to produce
documentary proofs from their Iligan or Makati office despite repeated requests. NSC failed to
substantiate such allusion of completion by another contractor three unfinished items of works,
actual quantities accomplished and unit cost differential paid chargeable against EWEI.

xxx xxx xxx


The latest evaluation on record of the items of work completed by EWEI under the contract is
drawn from the NSC report (Exhibit "11-d") dated 12 November 1985 submitted with the EWEI
Billing No. 16-Final in the course of processing claim on items of work accomplished. There is
no such report or mention of unfinished work of 90,000 MT of dumped riprap, 100,000 cu. m. of
site grading and 300,000 cu. m. of spreading common excavated materials in the EWEI contract
alluded to by the NSC as unfinished work otherwise EWEI Billing No. 16-Final would not have
passed processing for payment unless there is really no such unfinished work NSC evaluation
report with no adverse findings of unfinished work consider the contract as completed.

To affirm the work items, quantity, unit cost differential and amount of unfinished work left
behind by EWEI, NSC in serving notice of contract termination to EWEI should have instead
specifically cited these obligations in detail for EWEI to perform/comply within 30 days, such
failure to perform/comply should have constituted as an event in default that would have justified
termination of contract of NSC with EWEI. If at all, this unfinished work may be
additional/extra work awarded in 1984 to another contractor at prices higher than the unit price
tendered by EWEI in 1982 and/or the discrepancy between actual quantities of work
accomplished per plans versus estimated quantities of work covered by separate contract as
expansion of the original project."

xxx xxx xxx

IN VIEW OF THE FOREGOING, THE SO-CALLED UNFINISHED WORKS IN THE


CONTRACT BY EWEI ALLUDED TO BY NSC IS NOT CONSIDERED AN OBLIGATION
TO PERFORM/COMPLY THUS ABSOLVING EWEI OF ANY FAILURE TO
PERFORM/COMPLY AND THEREFORE CANNOT BE AVAILED OF AS A RIGHT OR
REMEDY BY NSC TO RECOVER UNIT DIFFERENTIAL COST FROM EWEI FOR THE
SAME UNSUBSTANTIATED WORK DONE BY ANOTHER CONTRACTOR." (ANNEX
"C" ARBITRATION, page 86-88 of Rollo.)

Furthermore, under the contract sued upon, it is clear that should the Owner feel that the work
agreed upon was not completed by the contractor, it is incumbent upon the OWNER to send to
CONTRACTOR a letter within seven (7) days after completion of the inspection to specify the
objections theretoii[9] NSC failed to comply with such requirement, and therefore it would be
unfair to refuse payment to EWEI, considering that the latter had faithfully submitted Final
Billing No.16 believing that its work had been completed because NSC did not call its attention
to any objectionable aspect of their project.

But, what cannot be upheld is the Board's imposition of a 1-1/4% interest per month from
January 1, 1985 to actual date of payment. There is nothing in the said contract to justify or
authorize such an award. The trial court should have therefore disregarded the same and instead,
applied the legal rate of 6% per annum, from Jan. 1, 1985 until this decision becomes final and
executory. This is so because the legal rate of interest on monetary obligations not arising from
loans or forebearance of credits or goods is 6%ii[10] per annum in the absence of any stipulation
to the contrary.
(II) Price escalation with the interest rate of 1-1/4% per month from 1 January 1985 to actual date of payment.
Petitioner contends that EWEI is not entitled to price escalation absent any stipulation to that
effect in the contract under which, the contract price is fixed, citing Paragraph 2 thereof, which
stipulates:

2. CONTRACT PRICE -

xxx xxx

The applicable unit prices above fixed are based on the assumption that the disposal areas for
cleared, grubbed materials, debris, excess filling materials and other matters that are to be
disposed of or are within the boundary limits of the site, as designated in Annex A hereof. In the
event that disposal areas fixed and designated in Annex A are diverted and transferred to such
other areas as would be outside the limits of the site as would require additional costs to the
contractor, then Owner shall be liable for such additional hauling costs of P1.45/km/m3." (Annex
"A", Contract for Site Development, page 55 of Rollo)

The phrase "prices above fixed" means that the contract price of the work shall be that agreed
upon by the parties at the time of the execution of the contract, which is the law between them
provided it is not contrary to law, morals, good customs, public order, or public policy. (Article
1306, New Civil Code). It cannot be inferred therefrom, however, that the parties are prohibited
from imposing future increases or price escalation. It is a cardinal rule in the interpretation of
contracts that "if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control."ii[11]

But price escalation is expressly allowed under Presidential Decree 1594, which law allows price
escalation in all contracts involving government projects including contracts entered into by
government entities and instrumentalities and Government Owned or Controlled Corporations
(GOCCs). It is a basic rule in contracts that the law is deemed written into the contract between
the parties. And when there is no prohibitory clause on price escalation, the Court will allow
payment therefor. Thus, petitioner cannot rely on the case of Llama Development Corporation
vs. Court of Appeals and National Steel Corporation, GR 88093, Resolution, Third Division, 20
Sept 1989. It is not applicable here since in that case, the contract explicitly provided that the
contract price stipulated was fixed, inclusive of all costs and not subject to escalation,
(emphasis supplied). This, in effect, waived the provisions of PD 1594. The case under scrutiny
is different as the disputed contract does not contain a similar provision.

In a vain attempt to evade said law's application, they would like the Court to believe that it is an
acquired asset corporation and not a government owned or controlled corporation so that they are
not within the coverage of PD 1594. Whether NSC is an asset-acquired corporation or a
government owned or controlled corporation is of no moment. It is not determinative of the pivot
of inquiry. It bears emphasizing that during the hearings conducted by the Board of Arbitrators,
there was presented documentary evidence to show that NSC, despite its being allegedly an asset
acquired corporation, allowed price escalation to another contractor, Geo Transport and
Construction, Inc. (GTCI). As said in the decision of the Board of Arbitrators:
"On the other hand, there was documentary evidence presented that NSC granted Geo Transport
and Construction, Inc. (GTCI), the other favored contractor working side by side with EWEI on
the site development project during the same period the GTCE was granted upon request and
paid by NSC an actual sum of P6.9 million as price adjustment compensation even without the
benefit of escalation provision in the contract but allowed in accordance with PD NO. 1594
enforceable among government controlled or owned corporation. The statement is embodied in
an affidavit (Exhibit "111-h") submitted by affiant Jose M. Mesina, Asst. to the President and
Legal Counsel of GTCI, submitted to the Arbitrators upon solicitation of EWEI, copy to NSC, on
3 October 1991. NSC did not assail the affidavit upon receipt of such document as evidence until
the hearing of 19 December 1991 when the affidavit was branded by NSC counsel as incorrect
and hearsay. Within 7 days reglamentary period after receipt of affidavit in 3 October 1991, the
NSC had the recourse to contest the affidavit even preferably charge the affiant for slander if
NSC could disprove the statements as untrue."ii[12]

If Petitioner seeks to refute such evidence, it should have done so before the Board of
Arbitrators, during the hearings. To raise the issue now is futile.

However, the same line of reasoning with respect to the first award should be used in
disregarding the interest rate of 1-1/4%. The legal rate of 6% per annum should be similarly
applied to the price escalation to be computed from Jan. 1, 1985 until this decision becomes final
and executory.
(III) The award of P50,000 as exemplary damages and P350,000 as attorney's fees;

The exemplary damages and attorneys fees awarded by the Board of Arbitrators should be
deleted in light of the circumstances surrounding the case.

The requirements for an award of exemplary damages, are: (1) they may be imposed by way of
example in addition to compensatory damages, and only after the claimants right to them has
been established; (2) that they cannot be recovered as a matter of right, their determination
depending upon the amount of compensatory damages that may be awarded to the claimant; (3)
the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or
malevolent manner.ii[13]

EWEI cannot claim that NSC acted in bad faith or in a wanton manner when it refused payment
of the Final Billing No. 16. The belief that the work was never completed by EWEI and that it
(NSC) had the right to make it chargeable to the cost differential paid by the latter to another
contractor was neither wanton nor done in evident bad faith. The payment of legal rate of interest
will suffice to compensate EWEI of whatever prejudice it suffered by reason of the delay caused
by NSC.

As regards the award of attorney's fees, award for attorney's fees without justification is a
"conclusion without a premise, its basis being improperly left to speculation and
conjencture.ii[14] The "fixed counsel's fee" of P350,000 should be disallowed. The trial court
acted with grave abuse of discretion when it adopted the same in toto.
WHEREFORE, the awards made by the Board of Arbitrators which the trial court adopted in its
decision of July 31,1996, are modified, thus:

(1) The award of P474,780.23 for Billing No. 16-Final and P1,335,514.20 for price
adjustment shall be paid with legal interest of six (6 %) percent per annum, from January 1, 1985
until this decision shall have become final and executory;

(2) The award of P50,000 for exemplary damages and attorney's fees of P350,000 are
deleted; and

(3) The cost of arbitration of P35,000 to supplement arbitration agreement has to be paid.

No pronouncement as to costs.

SO ORDERED.

MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN CAPITAL


HOLDINGS CORPORATION, petitioners, vs. ROLANDO M. ZOSA and HON. JOSE P.
SOBERANO, JR., in his capacity as Presiding Judge of Branch 58 of the Regional Trial Court
Of Cebu, 7th Judicial Region, respondents.

DECISION

BUENA, J.:

Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings
Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as
manager for the operation of its business and affairs.ii[1] Pursuant thereto, on the same month,
MCHC, MCMC, and private respondent Rolando M. Zosa entered into an "Employment
Agreement" designating Zosa as President and Chief Executive Officer of MCHC.

Under the "Employment Agreement", the term of respondent Zosa's employment shall be co-
terminous with the management agreement, or until March 1996,ii[2] unless sooner terminated
pursuant to the provisions of the Employment Agreement.ii[3] The grounds for termination of
employment are also provided in the Employment Agreement.

On May 10, 1995, the majority of MCHCs Board of Directors decided not to re-elect respondent
Zosa as President and Chief Executive Officer of MCHC on account of loss of trust and
confidenceii[4] arising from alleged violation of the resolution issued by MCHC's board of
directors and of the non-competition clause of the Employment Agreement.ii[5] Nevertheless,
respondent Zosa was elected to a new position as MCHC's Vice-Chairman/Chairman for New
Ventures Development.ii[6]

On September 26, 1995, respondent Zosa communicated his resignation for good reason from
the position of Vice-Chairman under paragraph 7 of the Employment Agreement on the ground
that said position had less responsibility and scope than President and Chief Executive Officer.
He demanded that he be given termination benefits as provided for in Section 8 (c) (i) (ii) and
(iii) of the Employment Agreement.ii[7]

In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent
Zosa's resignation for good reason, but instead informed him that the Employment Agreement is
terminated for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of the
said agreement, on account of his breach of Section 12 thereof. Respondent Zosa was further
advised that he shall have no further rights under the said Agreement or any claims against the
Manager or the Corporation except the right to receive within thirty (30) days from November
19, 1995, the amounts stated in Section 8 (a) (i) (ii) of the Agreement.ii[8]

Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration
Clause of the Employment Agreement, to wit:

23. Arbitration. In the event that any dispute, controversy or claim arises out of or under any
provisions of this Agreement, then the parties hereto agree to submit such dispute, controversy or
claim to arbitration as set forth in this Section and the determination to be made in such
arbitration shall be final and binding. Arbitration shall be effected by a panel of three arbitrators.
The Manager, Employee and Corporation shall designate one (1) arbitrator who shall, in turn,
nominate and elect who among them shall be the chairman of the committee. Any such
arbitration, including the rendering of an arbitration award, shall take place in Metro Manila. The
arbitrators shall interpret this Agreement in accordance with the substantive laws of the Republic
of the Philippines. The arbitrators shall have no power to add to, subtract from or otherwise
modify the terms of Agreement or to grant injunctive relief of any nature. Any judgment upon
the award of the arbitrators may be entered in any court having jurisdiction thereof, with costs of
the arbitration to be borne equally by the parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration.

On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his
representative in the arbitration panelii[9] while MCHC designated Atty. Inigo S. Fojasii[10] and
MCMC nominated Atty. Enrique I. Quiasonii[11] as their respective representatives in the
arbitration panel. However, instead of submitting the dispute to arbitration, respondent Zosa, on
April 17, 1996, filed an action for damages against petitioners before the Regional Trial Court of
Cebuii[12] to enforce his benefits under the Employment Agreement.

On July 3, 1996, petitioners filed a motion to dismissii[13] arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the
venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City
and thus, the venue of this case, granting without admitting that the respondent has a cause of
action against the petitioners cognizable by the RTC, should be limited only to RTC-Pasig
City.ii[14]

Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.


On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners
motion to dismiss upon the findings that (1) the validity and legality of the arbitration provision
can only be determined after trial on the merits; and (2) the amount of damages claimed, which is
over P100,000.00, falls within the jurisdiction of the RTC.ii[15] Petitioners filed a motion for
reconsideration which was denied by the RTC in an order dated September 5, 1996.ii[16]

In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their Answer
Ad Cautelam with counterclaim reiterating their position that the dispute should be settled
through arbitration and the court had no jurisdiction over the nature of the action.ii[17]

On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage
terminated and setting the case for hearing. The order states:

ISSUES:

The Court will only resolve one issue in so far as this case is concerned, to wit:

Whether or not the Arbitration Clause contained in Sec.23 of the Employment Agreement is void
and of no effect: and, if it is void and of no effect, whether or not the plaintiff is entitled to
damages in accordance with his complaint and the defendants in accordance with their
counterclaim.

It is understood, that in the event the arbitration clause is valid and binding between the parties,
the parties shall submit their respective claim to the Arbitration Committee in accordance with
the said arbitration clause, in which event, this case shall be deemed dismissed.ii[18]

On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction, Addition
and Clarification of the Pre-trial Order dated November 15 1996,ii[19] which was denied by the
court in an order dated November 28, 1996.ii[20]

Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file
their Memoranda to support their respective stand on the issue of the validity of the arbitration
clause contained in the Employment Agreement. In an order dated December 13, 1996, the trial
court denied the motion of petitioners MCMC and MCHC.

On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and
prohibition under Rule 65 of the Rules of Court with the Court of Appeals, questioning the trial
court orders dated August 1, 1996, September 5, 1996, and December 13, 1996.ii[21]

On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the petition,
the decretal portion of which reads:

WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to
resolve the issue on the validity or effectivity of the arbitration clause in the Employment
Agreement, and to suspend further proceedings in the trial on the merits until the said issue is
resolved. The questioned orders are set aside insofar as they contravene this Courts resolution of
the issues raised as herein pronounced.

The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5) days
from notice.

SO ORDERED.ii[22]

Petitioners filed a motion for partial reconsideration of the CA decision praying (1) for the
dismissal of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the
parties be directed to submit their dispute to arbitration in accordance with the Employment
Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied the
motion for partial reconsideration for lack of merit.

In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision
declaring the arbitration clause in the Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered partially declaring the


arbitration clause of the Employment Agreement void and of no effect, only insofar as it
concerns the composition of the panel of arbitrators, and directing the parties to proceed to
arbitration in accordance with the Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants, and the third to be chosen by both the
plaintiff and defendants. The other terms, conditions and stipulations in the arbitration clause
remain in force and effect."ii[23]

In view of the trial courts decision, petitioners filed this petition for review on certiorari, under
Rule 45 of the Rules of Court, assigning the following errors for the Courts resolution:

I. The trial court gravely erred when it ruled that the arbitration clause under the employment
agreement is partially void and of no effect, considering that:

A. The arbitration clause in the employment agreement dated March 1994 between respondent
Zosa and defendants MCHC and MCMC is valid and binding upon the parties thereto.

B. In view of the fact that there are three parties to the employment agreement, it is but proper
that each party be represented in the arbitration panel.

C. The trial court grievously erred in its conclusion that petitioners MCMC and MCHC represent
the same interest.

D. Respondent Zosa is estopped from questioning the validity of the arbitration clause, including
the right of petitioner MCMC to nominate its own arbitrator, which he himself has invoked.

II. In any event, the trial court acted without jurisdiction in hearing the case below, considering
that it has no jurisdiction over the nature of the action or suit since controversies in the election
or appointment of officers or managers of a corporation, such as the action brought by
respondent Zosa, fall within the original and exclusive jurisdiction of the Securities and
Exchange Commission.

III. Contrary to respondent Zosas allegation, the issue of the trial courts jurisdiction over the case
below has not yet been resolved with finality considering that petitioners have expressly reserved
their right to raise said issue in the instant petition. Moreover, the principle of the law of the case
is not applicable in the instant case.

IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not guilty of
forum shopping.

V. Contrary to respondent Zosas allegation, the instant petition for review involves only
questions of law and not of fact.ii[24]

We rule against the petitioners.

It is error for the petitioners to claim that the case should fall under the jurisdiction of the
Securities and Exchange Commission [SEC, for brevity]. The controversy does not in anyway
involve the election/appointment of officers of petitioner MCHC, as claimed by petitioners in
their assignment of errors. Respondent Zosas amended complaint focuses heavily on the
illegality of the Employment Agreements Arbitration Clause initially invoked by him in seeking
his termination benefits under Section 8 of the employment contract. And under Republic Act
No. 876, otherwise known as the Arbitration Law, it is the regional trial court which exercises
jurisdiction over questions relating to arbitration. We thus advert to the following discussions
made by the Court of Appeals, speaking thru Justice Minerva P. Gonzaga-Reyes,ii[25] in C.A.-
G.R. S.P. No. 43059, viz:

As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is raised
for the first time in this petition, suffice it to state that the Amended Complaint squarely put in
issue the question whether the Arbitration Clause is valid and effective between the parties.
Although the controversy which spawned the action concerns the validity of the termination of
the service of a corporate officer, the issue on the validity and effectivity of the arbitration clause
is determinable by the regular courts, and do not fall within the exclusive and original
jurisdiction of the SEC.

The determination and validity of the agreement is not a matter intrinsically connected with the
regulation and internal affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales vs.
SEC, 169 SCRA 121); it is rather an ordinary case to be decided in accordance with the general
laws, and do not require any particular expertise or training to interpret and apply (Viray vs. CA,
191 SCRA 308).ii[26]

Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the trial
courts assumption of jurisdiction over the case has become the law of the case which now binds
the petitioners. The law of the case doctrine has been defined as a term applied to an established
rule that when an appellate court passes on a question and remands the cause to the lower court
for further proceedings, the question there settled becomes the law of the case upon subsequent
appeal.ii[27] To note, the CAs decision in CA-G.R. SP No. 43059 has already attained finality as
evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit:

ENTRY OF JUDGMENT

This is to certify that on September 8, 1997 a decision/resolution rendered in the above-entitled


case was filed in this Office, the dispositive part of which reads as follows:

G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of Appeals,
Rolando Zosa, et al.).- Considering the petitioners manifestation dated August 11, 1997 and
withdrawal of intention to file petition for review on certiorari, the Court Resolved to DECLARE
THIS CASE TERMINATED and DIRECT the Clerk of Court to INFORM the parties that the
judgment sought to be reviewed has become final and executory, no appeal therefore having
been timely perfected.

and that the same has, on September 17, 1997, become final and executory and is hereby
recorded in the Book of Entries of Judgments. ii[28]

Petitioners, therefore, are barred from challenging anew, through another remedial measure and
in any other forum, the authority of the regional trial court to resolve the validity of the
arbitration clause, lest they be truly guilty of forum-shopping which the courts consistently
consider as a contumacious practice that derails the orderly administration of justice.

Equally unavailing for the petitioners is the review by this Court, via the instant petition, of the
factual findings made by the trial court that the composition of the panel of arbitrators would, in
all probability, work injustice to respondent Zosa. We have repeatedly stressed that the
jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules
of Court is limited to reviewing only errors of law, not of fact, unless the factual findings
complained of are devoid of support by the evidence on record, or the assailed judgment is based
on misapprehension of facts.ii[29]

Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken,
this Court finds the trial courts observations on why the composition of the panel of arbitrators
should be voided, incisively correct so as to merit our approval. Thus,

From the memoranda of both sides, the Court is of the view that the defendants [petitioner]
MCMC and MCHC represent the same interest. There is no quarrel that both defendants are
entirely two different corporations with personalities distinct and separate from each other and
that a corporation has a personality distinct and separate from those persons composing the
corporation as well as from that of any other legal entity to which it may be related.

But as the defendants [herein petitioner] represent the same interest, it could never be expected,
in the arbitration proceedings, that they would not protect and preserve their own interest, much
less, would both or either favor the interest of the plaintiff. The arbitration law, as all other laws,
is intended for the good and welfare of everybody. In fact, what is being challenged by the
plaintiff herein is not the law itself but the provision of the Employment Agreement based on the
said law, which is the arbitration clause but only as regards the composition of the panel of
arbitrators. The arbitration clause in question provides, thus:

In the event that any dispute, controversy or claim arise out of or under any provisions of this
Agreement, then the parties hereto agree to submit such dispute, controversy or claim to
arbitration as set forth in this Section and the determination to be made in such arbitration shall
be final and binding. Arbitration shall be effected by a panel of three arbitrators. The Manager,
Employee, and Corporation shall designate one (1) arbitrator who shall, in turn, nominate and
elect as who among them shall be the chairman of the committee. Any such arbitration, including
the rendering of an arbitration award, shall take place in Metro Manila. The arbitrators shall
interpret this Agreement in accordance with the substantive laws of the Republic of the
Philippines. The arbitrators shall have no power to add to, subtract from or otherwise modify the
terms of this Agreement or to grant injunctive relief of any nature. Any judgment upon the award
of the arbitrators may be entered in any court having jurisdiction thereof, with costs of the
arbitration to be borne equally by the parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration. (Emphasis supplied).

From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners]
(MCMC and MCHC) have one (1) arbitrator each to compose the panel of three (3) arbitrators.
As the defendant MCMC is the Manager of defendant MCHC, its decision or vote in the
arbitration proceeding would naturally and certainly be in favor of its employer and the
defendant MCHC would have to protect and preserve its own interest; hence, the two (2) votes of
both defendants (MCMC and MCHC) would certainly be against the lone arbitrator for the
plaintiff [herein defendant]. Hence, apparently, plaintiff [defendant] would never get or receive
justice and fairness in the arbitration proceedings from the panel of arbitrators as provided in the
aforequoted arbitration clause. In fairness and justice to the plaintiff [defendant], the two
defendants (MCMC and MCHC)[herein petitioners] which represent the same interest should be
considered as one and should be entitled to only one arbitrator to represent them in the arbitration
proceedings. Accordingly, the arbitration clause, insofar as the composition of the panel of
arbitrators is concerned should be declared void and of no effect, because the law says, Any
clause giving one of the parties power to choose more arbitrators than the other is void and of no
effect (Article 2045, Civil Code).

The dispute or controversy between the defendants (MCMC and MCHC) [herein petitioners] and
the plaintiff [herein defendant] should be settled in the arbitration proceeding in accordance with
the Employment Agreement, but under the panel of three (3) arbitrators, one (1) arbitrator to
represent the plaintiff, one (1) arbitrator to represent both defendants (MCMC and
MCHC)[herein petitioners] and the third arbitrator to be chosen by the plaintiff [defendant Zosa]
and defendants [petitioners].

xxx xxx x x xii[30]

In this connection, petitioners attempt to put respondent in estoppel in assailing the arbitration
clause must be struck down. For one, this issue of estoppel, as likewise noted by the Court of
Appeals, found its way for the first time only on appeal. Well-settled is the rule that issues not
raised below cannot be resolved on review in higher courts.ii[31] Secondly, employment
agreements such as the one at bar are usually contracts of adhesion. Any ambiguity in its
provisions is generally resolved against the party who drafted the document. Thus, in the
relatively recent case of Phil. Federation of Credit Cooperatives, Inc. (PFCCI) and Fr.
Benedicto Jayoma vs. NLRC and Victoria Abril,ii[32] we had the occasion to stress that where a
contract of employment, being a contract of adhesion, is ambiguous, any ambiguity therein
should be construed strictly against the party who prepared it. And, finally, respondent Zosa
never submitted himself to arbitration proceedings (as there was none yet) before bewailing the
composition of the panel of arbitrators. He in fact, lost no time in assailing the arbitration clause
upon realizing the inequities that may mar the arbitration proceedings if the existing line-up of
arbitrators remained unchecked.

We need only to emphasize in closing that arbitration proceedings are designed to level the
playing field among the parties in pursuit of a mutually acceptable solution to their conflicting
claims. Any arrangement or scheme that would give undue advantage to a party in the
negotiating table is anathema to the very purpose of arbitration and should, therefore, be resisted.

WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the
trial court dated July 18, 1997 is AFFIRMED.

SO ORDERED.

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