G.R. No.

120105 March 27, 1998

BF CORPORATION, Petitioner, vs. COURT OF APPEALS, SHANGRI-LA
PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G.
LICAUCO III and BENJAMIN C. RAMOS, Respondents.
ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the contract for the
construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la
Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in
the implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby
the latter engaged the former to construct the main structure of the "EDSA Plaza Project," a
shopping mall complex in the City of Mandaluyong. The construction work was in progress
when SPI decided to expand the project by engaging the services of petitioner again. Thus, the
parties entered into an agreement for the main contract works after which construction work
began.
However, petitioner incurred delay in the construction work that SPI considered as "serious and
substantial." 1 On the other hand, according to petitioner, the construction works "progressed in
faithful compliance with the First Agreement until a fire broke out on November 30, 1990
damaging Phase I" of the Project. 2 Hence, SPI proposed the re-negotiation of the agreement
between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement
denominated as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project."
Said agreement would cover the construction work on said project as of May 1, 1991 until its
eventual completion.
According to SPI, petitioner "failed to complete the construction works and abandoned the
project." 3 This resulted in disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective
representatives met in conference but they failed to come to an agreement. 4
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of
Pasig a complaint for collection of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of directors namely, Alfredo C. Ramos,
Rufo B. Calayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of
filing an answer. The motion was anchored on defendants' allegation that the formal trade
contract for the construction of the project provided for a clause requiring prior resort to
arbitration before judicial intervention could be invoked in any dispute arising from the
contract. The following day, SPI submitted a copy of the conditions of the contract containing
the arbitration clause that it failed to append to its motion to suspend proceedings.

Petitioner opposed said motion claiming that there was no formal contract between the parties
although they entered into an agreement defining their rights and obligations in undertaking the
project. It emphasized that the agreement did not provide for arbitration and therefore the court
could not be deprived of jurisdiction conferred by law by the mere allegation of the existence
of an arbitration clause in the agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing
contract between petitioner and SPI. It alleged that suspension of proceedings would not
necessarily deprive the court of its jurisdiction over the case and that arbitration would expedite
rather than delay the settlement of the parties' respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the
contract between the parties. It averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer proper. It added that defendants
should be declared in default for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due
execution of the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B.
Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page D/7
shows that the agreement is a public document duly notarized on November 15, 1991 by
Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of
1991 of his notarial register. 5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court 6 denied the
motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C,
Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and
conditions of the Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject
to the execution by the parties of a formal trade contract. Defendants have submitted a copy of
the alleged trade contract, which is entitled "Contract Documents For Builder's Work Trade
Contractor" dated 01 May 1991, page 2 of which is entitled "Contents of Contract Documents"
with a list of the documents therein contained, and Section A thereof consists of the
abovementioned Letter-Agreement dated May 30, 1991. Section C of the said Contract
Documents is entitled "Articles of Agreement and Conditions of Contract" which, per its Index,
consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said Articles of
Agreement appears to have been duly signed by President Rufo B. Colayco of Shangri-La
Properties, Inc. and President Bayani F. Fernando of BF and their witnesses, and was thereafter
acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila on
November 15, 1991. The said Articles of Agreement also provides that the "Contract
Documents" therein listed "shall be deemed an integral part of this Agreement", and one of the
said documents is the "Conditions of Contract" which contains the Arbitration Clause relied
upon by the defendants in their Motion to Suspend Proceedings.
This Court notes, however, that the 'Conditions of Contract' referred to, contains the following
provisions:
3. Contract Document.

Three copies of the Contract Documents referred to in the Articles of

Agreement shall be signed by the parties to the contract and distributed to
the Owner and the Contractor for their safe keeping." (emphasis
supplied).
And it is significant to note further that the said "Conditions of Contract" is not duly
signed by the parties on any page thereof - although it bears the initials of BF's
representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the
initials thereon of any representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was
not duly executed or signed by the parties, and the failure of the defendants to
submit any signed copy of the said document, this Court entertains serious doubt
whether or not the arbitration clause found in the said Conditions of Contract is
binding upon the parties to the Articles of Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the arbitration clause was valid and binding,
still, it was "too late in the day for defendants to invoke arbitration." It quoted the following
provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to
the contract and a copy filed with the Project Manager. The demand for arbitration shall be
made within a reasonable time after the dispute has arisen and attempts to settle amicably have
failed; in no case, however, shall the demand he made be later than the time of final payment
except as otherwise expressly stipulated in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the
project was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000
for each day of delay counted from November 1, 1991 with "liquified (sic) damages up to a
maximum of 5% of the total contract price."
The lower court also found that after the project was completed in accordance with the
agreement that contained a provision on "progress payment billing," SPI "took possession and
started operations thereof by opening the same to the public in November, 1991." SPI, having
failed to pay for the works, petitioner billed SPI in the total amount of P110,883,101.52,
contained in a demand letter sent by it to SPI on February 17, 1993. Instead of paying the
amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference on
that claim for July 12, 1993. The conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is
required that "Notice of the demand for arbitration of a dispute shall be filed in writing with the
other party . . . . in no case . . . . later than the time of final payment . . . "which apparently, had
elapsed, not only because defendants had taken possession of the finished works and the
plaintiff's billings for the payment thereof had remained pending since November, 1991 up to
the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file
any written notice of any demand for arbitration during the said long period of one year and

eight months, this Court finds that it cannot stay the proceedings in this case as required by Sec.
7 of Republic Act No. 876, because defendants are in default in proceeding with such
arbitration.
The lower court denied SPI's motion for reconsideration for lack of merit and directed it and
the other defendants to file their responsive pleading or answer within fifteen (15) days from
notice.
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of
the Rules of Court before the Court of Appeals. Said appellate court granted the petition,
annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling, the
Court of Appeals held:
The reasons given by the respondent Court in denying petitioners' motion to suspend
proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners'
reply dated August 26, 1993, has been submitted by them to the respondent Court
(Annex G, petition). It bears the signature of petitioner Rufo B. Colayco, president
of petitioner Shangri-La Properties, Inc., and of Bayani Fernando, president of
respondent Corporation (Annex G-1, petition). At page D/4 of said articles of
agreement it is expressly provided that the conditions of contract are "deemed an
integral part" thereof (page 188, rollo). And it is at pages D/42 to D/44 of the
conditions of contract that the provisions for arbitration are found (Annexes G-3 to
G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall arise between
the Owner or the Project Manager on his behalf and the Contractor, either
during the progress or after the completion or abandonment of the Works
as to the construction of this Contract or as to any matter or thing of
whatsoever nature arising thereunder or in connection therewith
(including any matter or being 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.
The fact that said conditions of contract containing the arbitration clause bear only
the initials of respondent Corporation's representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La
Properties, Inc. does not militate against its effectivity. Said petitioner having

categorically admitted that the document, Annex A to its reply dated August 26,
1993 (Annex G, petition), is the agreement between the parties, the initial or
signature of said petitioner's representative to signify conformity to arbitration is no
longer necessary. The parties, therefore, should be allowed to submit their dispute to
arbitration in accordance with their agreement.
2. The respondent Court held that petitioners "are in default in proceeding with such
arbitration." It took note of "the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that "Notice of the demand for arbitration of a
dispute shall be filed in writing with the other party . . . in no case . . . later than the
time of final payment," which apparently, had elapsed, not only because defendants
had taken possession of the finished works and the plaintiff's billings for the
payment thereof had remained pending since November, 1991 up to the filing of this
case on July 14, 1993, but also for the reason that defendants have failed to file any
written notice of any demand for arbitration during the said long period of one year
and eight months, . . . ."
Respondent
clause -

Court

has

overlooked

the

fact

that

under

the

arbitration

Notice of the demand for arbitration dispute shall be filed in writing with
the other party to the contract and a copy filed with the Project
Manager. The demand for arbitration shall be made within a reasonable
time after the dispute has arisen and attempts to settle amicably had
failed; in no case, however, shall the demand be made later than the time
of final payment except as otherwise expressly stipulated in the contract
(emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the
final demand to pay the amount of P110,883,101.52, instead of paying, petitioners
set up its own claim against respondent Corporation in the amount of
P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference
proved futile. The next day, July 14, 1993, respondent Corporation filed its
complaint against petitioners. On August 13, 1993, petitioners wrote to respondent
Corporation requesting arbitration. Under the circumstances, it cannot be said that
petitioners' resort to arbitration was made beyond reasonable time. Neither can they
be considered in default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:
A
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY
WRIT OF CERTIORARI ALTHOUGH THE REMEDY OF APPEAL WAS
AVAILABLE TO RESPONDENTS.

B
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF
DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:
(i) THE PARTIES DID NOT
AGREEMENT TO ARBITRATE.

ENTER

INTO

AN

(ii) ASSUMING THAT THE PARTIES DID ENTER INTO

THE AGREEMENT TO ARBITRATE, RESPONDENTS
ARE ALREADY IN DEFAULT IN INVOKING THE
AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower court denying the
motion to suspend proceedings "is a resolution of an incident on the merits." As such, upon the
continuation of the proceedings, the lower court would appreciate the evidence adduced in their
totality and thereafter render a decision on the merits that may or may not sustain the existence
of an arbitration clause. A decision containing a finding that the contract has no arbitration
clause can then be elevated to a higher court "in an ordinary appeal" where an adequate remedy
could be obtained. Hence, to petitioner, the Court of Appeals should have dismissed the petition
for certiorari because the remedy of appeal would still be available to private respondents at the
proper time. 7
The above contention is without merit.
The rule that the special civil action of certiorari may not be invoked as a substitute for the
remedy of appeal is succinctly reiterated in Ongsitco v. Court of Appeals 8 as follows:
. . . . Countless times in the past, this Court has held that "where appeal is the proper
remedy, certiorariwill not lie." The writs of certiorari and prohibition are remedies to correct
lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of jurisdiction
committed by a lower court. "Where the proper remedy is appeal, the action for certiorari will
not be entertained. . . . Certiorari is not a remedy for errors of judgment. Errors of judgment are
correctible by appeal, errors of jurisdiction are reviewable bycertiorari."
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition
and mandamus are available only when "there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law . . . ." That is why they are referred to
as "extraordinary." . . . .
The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or
correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any
alleged errors committed in the exercise of its jurisdiction will amount to nothing more than
errors of judgment which are reviewable by timely appeal and not by a special civil action
of certiorari." 9
This is not exactly so in the instant case. While this Court does not deny the eventual

jurisdiction of the lower court over the controversy, the issue posed basically is whether the
lower court prematurely assumed jurisdiction over it. If the lower court indeed prematurely
assumed jurisdiction over the case, then it becomes an error of jurisdiction which is a proper
subject of a petition for certiorari before the Court of Appeals. And if the lower court does not
have jurisdiction over the controversy, then any decision or order it may render may be
annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question of law depends on the determination
of the existence of the arbitration clause, which is a question of fact. In the instant case, the
lower court found that there exists an arbitration clause. However, it ruled that in contemplation
of law, said arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the
Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is not
proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said
question of fact, the Court of Appeals interpreted the construction of the subject contract
documents containing the Arbitration Clause in accordance with Republic Act No. 876
(Arbitration Law) and existing jurisprudence which will be extensively discussed hereunder. In
effect, the issue posed before the Court of Appeals was likewise a question of law. Being a
question of law, the private respondents rightfully invoked the special civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is being
questioned by the petitioners before this Court. But at the heart of said issue is the question of
whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether private respondents took the proper
mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of
whether there exists an Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal
will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court
which are technical rules may be relaxed. 10 As we shall show hereunder, had the Court of
Appeals dismissed the petition for certiorari, the issue of whether or not an arbitration clause
exists in the contract would not have been resolved in accordance with evidence extant in the
record of the case. Consequently, this would have resulted in a judicial rejection of a
contractual provision agreed by the parties to the contract.
In the same vein, this Court holds that the question of the existence of the arbitration clause in
the contract between petitioner and private respondents is a legal issue that must be determined
in this petition for review on certiorari.
Petitioner, while not denying that there exists an arbitration clause in the contract in question,
asserts that in contemplation of law there could not have been one considering the following
points. First, the trial court found that the "conditions of contract" embodying the arbitration
clause is not duly signed by the parties. Second, private respondents misrepresented before the
Court of Appeals that they produced in the trial court a notarized duplicate original copy of the
construction agreement because what were submitted were mere photocopies thereof. The

contract(s) introduced in court by private respondents were therefore "of dubious authenticity"
because: (a) the Agreement for the Execution of Builder's Work for the EDSA Plaza Project
does not contain an arbitration clause, (b) private respondents "surreptitiously attached as
Annexes "G-3" to "G-5" to their petition before the Court of Appeals but these documents are
not parts of the Agreement of the parties as "there was no formal trade contract executed," (c) if
the entire compilation of documents "is indeed a formal trade contract," then it should have
been duly notarized, (d) the certification from the Records Management and Archives Office
dated August 26, 1993 merely states that "the notarial record of Nilberto Briones . . . is
available in the files of (said) office as Notarial Registry Entry only," (e) the same certification
attests that the document entered in the notarial registry pertains to the Articles of Agreement
only without any other accompanying documents, and therefore, it is not a formal trade
contract, and (f) the compilation submitted by respondents are a "mere hodge-podge of
documents and do not constitute a single intelligible agreement."
In other words, petitioner denies the existence of the arbitration clause primarily on the ground
that the representatives of the contracting corporations did not sign the "Conditions of
Contract" that contained the said clause. Its other contentions, specifically that insinuating
fraud as regards the alleged insertion of the arbitration clause, are questions of fact that should
have been threshed out below.
This Court may as well proceed to determine whether the arbitration clause does exist in the
parties' contract. Republic Act No. 876 provides for the formal requisites of an arbitration
agreement as follows:
Sec. 4. Form of arbitration agreement. - A contract to arbitrate a controversy thereafter arising
between the parties, as well as a submission to arbitrate an existing controversy, shall be in
writing and subscribed by the party sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section two
hereof, providing for arbitration of any controversy, shall be deemed a consent of the
parties of the province or city where any of the parties resides, to enforce such
contract of submission. (Emphasis supplied.).
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be
in writing and (b) it must be subscribed by the parties or their representatives. There is no
denying that the parties entered into a written contract that was submitted in evidence before
the lower court. To "subscribe" means to write underneath, as one's name; to sign at the end of
a document. 11 That word may sometimes be construed to mean to give consent to or to
attest. 12
The Court finds that, upon a scrutiny of the records of this case, these requisites were complied
with in the contract in question. The Articles of Agreement, which incorporates all the other
contracts and agreements between the parties, was signed by representatives of both parties and
duly notarized. The failure of the private respondent's representative to initial the "Conditions
of Contract" would therefor not affect compliance with the formal requirements for arbitration
agreements because that particular portion of the covenants between the parties was included
by reference in the Articles of Agreement.

Petitioner's contention that there was no arbitration clause because the contract incorporating
said provision is part of a "hodge-podge" document, is therefore untenable. A contract need not
be contained in a single writing. It may be collected from several different writings which do
not conflict with each other and which, when connected, show the parties, subject matter, terms
and consideration, as in contracts entered into by correspondence. 13 A contract may be
encompassed in several instruments even though every instrument is not signed by the parties,
since it is sufficient if the unsigned instruments are clearly identified or referred to and made
part of the signed instrument or instruments. Similarly, a written agreement of which there are
two copies, one signed by each of the parties, is binding on both to the same extent as though
there had been only one copy of the agreement and both had signed it. 14
The flaw in petitioner's contentions therefore lies in its having segmented the various
components of the whole contract between the parties into several parts. This notwithstanding,
petitioner ironically admits the execution of the Articles of Agreement. Notably, too, the lower
court found that the said Articles of Agreement "also provides that the 'Contract Documents'
therein listed 'shall be deemed an integral part of this Agreement,' and one of the said
documents is the 'Conditions of Contract' which contains the Arbitration Clause.'" It is this
Articles of Agreement that was duly signed by Rufo B. Colayco, president of private
respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The same
agreement was duly subscribed before notary public Nilberto R. Briones. In other words, the
subscription of the principal agreement effectively covered the other documents incorporated
by reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling that private
respondents were not in default in invoking the provisions of the arbitration clause which states
that "(t)he demand for arbitration shall be made within a reasonable time after the dispute has
arisen and attempts to settle amicably had failed." Under the factual milieu, private respondent
SPI should have paid its liabilities tinder the contract in accordance with its terms. However,
misunderstandings appeared to have cropped up between the parties ostensibly brought about
by either delay in the completion of the construction work or by force majeure or the fire that
partially gutted the project. The almost two-year delay in paying its liabilities may not therefore
be wholly ascribed to private respondent SPI.
Besides, private respondent SPI's initiative in calling for a conference between the parties was a
step towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint
before the lower court. Thus, while private respondent SPI's request for arbitration on August
13, 1993 might appear an afterthought as it was made after it had filed the motion to suspend
proceedings, it was because petitioner also appeared to act hastily in order to resolve the
controversy through the courts.
The arbitration clause provides for a "reasonable time" within which the parties may avail of
the relief under that clause. "Reasonableness" is a relative term and the question of whether the
time within which an act has to be done is reasonable depends on attendant
circumstances. 15 This Court finds that under the circumstances obtaining in this case, a onemonth period from the time the parties held a conference on July 12, 1993 until private
respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it

under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.
In this connection, it bears stressing that the lower court has not lost its jurisdiction over the
case. Section 7 of Republic Act No. 876 provides that proceedings therein have only been
stayed. After the special proceeding of arbitration 16 has been pursued and completed, then the
lower court may confirm the award 17 made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional.
Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. 18Republic Act No. 876 was
adopted to supplement the New Civil Code's provisions on arbitration. 19 Its potentials as one
of the alternative dispute resolution methods that are now rightfully vaunted as "the wave of the
future" in international relations, is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties would therefore
be a step backward.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the
petition for certiorari DENIED. This Decision is immediately executory. Costs against
petitioner.
[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, v. 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 Order 1 of Branch 85 of the Regional Trial
Court of Lipa City 2 dismissing petitioners complaint 3 for rescission of several sale
transactions involving land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on the
ground
that
they
failed
to
first
resort
to
arbitration.cralawnad
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning
1,484,354
square
meters.

On May 15, 1987, he entered into an Owner-Contractor Agreement 4 (hereinafter referred to as

the Agreement) with respondent Laperal Realty Corporation (hereinafter referred to as Laperal
Realty) to render and provide complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent
Laperal Realty to exercise general control, supervision and management of the sale of his land,
for
cash
or
on
installment
basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He
never
returned.chanrobles.com
:
virtual
law
library
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a
verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had
then been missing for more than seven (7) years. It was granted on December 12, 1996. 5
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided
portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village,
Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June
27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan
on June 4, 1996 (all of whom are hereinafter referred to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa
City a Complaint 6 for declaration of nullity of sale, reconveyance, cancellation of contract,
accounting and damages against herein respondents which was docketed as Civil Case No. 980047.chanrobles
law
library
:
red
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss 7 on the ground that
petitioners failed to submit their grievance to arbitration as required under Article VI of the
Agreement
which
provides:jgc:chanrobles.com.ph
"ARTICLE

VI.

ARBITRATION.

All cases of dispute between CONTRACTOR and OWNERS representative shall be referred
to
the
committee
represented
by:chanrob1es
virtual
1aw
library
a.

One

b.
c.

One
One

representative

representative

of

representative
acceptable

of
to

both

the
the

OWNER

and

OWNER;
CONTRACTOR;

CONTRACTOR."

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

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

this

petition.chanrobles.com

Petitioners

virtual

argue,

law

library

thus:jgc:chanrobles.com.ph

"The petitioners causes of action did not emanate from the Owner-Contractor
Agreement."cralaw
virtua1aw
library
"The petitioners causes of action for cancellation of contract and accounting are covered by the
exception
under
the
Arbitration
Law."cralaw
virtua1aw
library
"Failure

to

arbitrate

is

not

ground

for

dismissal."

10

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

we

grant

the

petition.cralawnad

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

on arbitration, binds the parties thereto, as well as their assigns and heirs. 17 But only they.
Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the
Agreement. If respondent Laperal Realty had assigned its rights under the Agreement to a third
party, making the former, the assignor, and the latter, the assignee, such assignee would also be
bound by the arbitration provision since assignment involves such transfer of rights as to vest
in the assignee the power to enforce them to the same extent as the assignor could have
enforced them against the debtor 18 or in this case, against the heirs of the original party to the
Agreement. However, respondents Rockway Real Estate Corporation, South Ridge Village,
Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo,
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the rights
of respondent Laperal Realty under the Agreement to develop Salas, Jr.s land and sell the
same. They are, rather, buyers of the land that respondent Laperal Realty was given the
authority to develop and sell under the Agreement. As such, they are not "assigns"
contemplated in Art. 1311 of the New Civil Code which provides that "contracts take effect
only
between
the
parties,
their
assigns
and
heirs"
.
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas,

Jr.s land when respondent Laperal Realty subdivided it and sold portions thereof to respondent
lot buyers. Thus, they instituted action 19 against both respondent Laperal Realty and
respondent lot buyers for rescission of the sale transactions and reconveyance to them of the
subdivided lots. They argue that rescission, being their cause of action, falls under the
exception clause in Sec. 2 of Republic Act No. 876 which provides that "such submission [to]
or contract [of arbitration] shall be valid, enforceable and irrevocable, save, upon such grounds
as
exist
at
law
for
the
revocation
of
any
contract"
.
The petitioners contention is without merit. For while rescission, as a general rule, is an
arbitrable issue, 20 they impleaded in the suit for rescission the respondent lot buyers who are
neither parties to the Agreement nor the latters assigns or heirs. Consequently, the right to
arbitrate as provided in Article VI of the Agreement was never vested in respondent lot
buyers.chanroblesvirtual|awlibrary
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.chanrobles.com.ph : virtual law library
G.R. No. 132848-49 - June 26, 2001
PHILROCK, INC., petitioner, v. CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION and Spouses VICENTE and NELIA CID, Respondents.
PANGANIBAN, J.:
Courts encourage the use of alternative methods of dispute resolution. When parties agree to
settle their disputes arising from or connected with construction contracts, the Construction
Industry Arbitration Commission (CIAC) acquires primary jurisdiction. It may resolve not only
the merits of such controversies; when appropriate, it may also award damages, interests,
attorney's fees and expenses of litigation.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court. The Petition seeks the
reversal of the July 9, 1997 Decision1 and the February 24, 1998 Resolution of the Court of
Appeals (CA) in the consolidated cases docketed as CA-GR SP Nos. 39781 and 42443. The

assailed Decision disposed as follows:

"WHEREFORE,
judgment
is
hereby
rendered DENYING the
petitions
accordingly, AFFIRMING in toto the CIAC's decision. Costs against petitioner."2

and,

The assailed Resolution ruled in this wise:

"Considering that the matters raised and discussed in the motion for reconsideration filed by
appellant's counsel are substantially the same arguments which the Court had passed upon and
resolved in the decision sought to be reconsidered, and there being no new issue raised, the
subject motion is herebyDENIED."3
The Facts
The undisputed facts of the consolidated cases are summarized by the CA as follows:
"On September 14, 1992, the Cid spouses, herein private respondents, filed a Complaint for
damages against Philrock and seven of its officers and engineers with the Regional Trial Court
of Quezon City, Branch 82.
"On December 7, 1993, the initial trial date, the trial court issued an Order
dismissing the case and referring the same to the CIAC because the Cid spouses and
Philrock had filed an Agreement to Arbitrate with the CIAC.
"Thereafter, preliminary conferences were held among the parties and their
appointed arbitrators. At these conferences, disagreements arose as to whether moral
and exemplary damages and tort should be included as an issue along with breach of
contract, and whether the seven officers and engineers of Philrock who are not
parties to the Agreement to Arbitrate should be included in the arbitration
proceedings. No common ground could be reached by the parties, hence, on April 2,
1994, both the Cid spouses and Philrock requested that the case be remanded to the
trial court. On April 13, 1994, the CIAC issued an Order stating, thus:
'x x x the Arbitral Tribunal hereby formally dismisses the abovecaptioned case for referral to Branch 82 of the Regional Trial Court,
Quezon City where it first originated.
SO ORDERED.'
"The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon
City a Motion To Set Case for Hearing which motion was opposed by Philrock.
"On June 13, 1995, the trial court declared that it no longer had jurisdiction over the
case and ordered the records of the case to be remanded anew to the CIAC for
arbitral proceedings.
"Pursuant to the aforementioned Order of the Regional Trial C[o]urt of Quezon City,

the CIAC resumed conducting preliminary conferences. On August 21, 1995, herein
[P]etitioner Philrock requested to suspend the proceedings until the court clarified its
ruling in the Order dated June 13, 1995. Philrock argued that said Order was based
on a mistaken premise that 'the proceedings in the CIAC fell through because of the
refusal of [Petitioner] Philrock to include the issue of damages therein,' whereas the
true reason for the withdrawal of the case from the CIAC was due to Philrock's
opposition to the inclusion of its seven officers and engineers, who did not give their
consent to arbitration, as party defendants. On the other hand, private respondent
Nelia Cid manifested that she was willing to exclude the seven officers and
engineers of Philrock as parties to the case so as to facilitate or expedite the
proceedings. With such manifestation from the Cid spouses, the Arbitral Tribunal
denied Philrock's request for the suspension of the proceedings. Philrock's counsel
agreed to the continuation of the proceedings but reserved the right to file a pleading
elucidating the position he [had] raised regarding the Court's Order dated June 13,
1995. The parties then proceeded to finalize, approve and sign the Terms of
Reference. Philrock's counsel and representative, Atty. Pericles C. Consunji affixed
his signature to said Terms of Reference which stated that 'the parties agree that their
differences be settled by an Arbitral Tribunal x x x x' (p. 9, Terms of Reference, p.
200, Rollo).
"On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging
therein that the CIAC had lost jurisdiction to hear the arbitration case due to the
parties' withdrawal of their consent to arbitrate. The motion was denied by x x x
CIAC per Order dated September 22, 1995. On November 8, public respondent
ordered the parties to appear before it on November 28, 1995 for the continuation of
the arbitral proceedings, and on February 7, 1996, public respondent directed
[P]etitioner Philrock to set two hearing dates in the month of February to present its
evidence and to pay all fees assessed by it, otherwise x x x Philrock would be
deemed to have waived its right to present evidence.
"Hence, petitioner instituted the petition for certiorari but while said petition was
pending, the CIAC rendered its Decision dated September 24, 1996, the dispositive
portion of which reads, as follows:
'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing
Respondent to pay Claimant as follows:
1. P23,276.25 representing the excess cash payment for materials ordered
by the Claimants, (No. 7 of admitted facts) plus interests thereon at the
rate of 6% per annum from September 26, 1995 to the date payment is
made.
2. P65,000.00 representing retrofitting costs.
3. P13,404.54 representing refund of the value of delivered but

unworkable concrete mix that was laid to waste.

4. P50,000.00 representing moral damages.
5. P50,000.00 representing nominal damages.
6. P50,000.00 representing attorney's fees and expenses of litigation.
7. P144,756.80 representing arbitration fees, minus such amount that may
already have been paid to CIAC by respondent.
"Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera,
presiding judge, Branch 82 of Regional Trial Court of Quezon City who referred this
case to the Construction Industry Arbitration Commission for arbitration and proper
disposition.' (pp. 44-45, Rollo, CA-G.R. SP No. 42443) "4
Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No. 42443,
contesting the jurisdiction of the CIAC and assailing the propriety of the monetary awards in
favor of respondent spouses. This Petition was consolidated by the CA with CA-GR SP No.
39781, a Petition for Certiorari earlier elevated by petitioner questioning the jurisdiction of the
CIAC.
Ruling of the Court of Appeals
The CA upheld the jurisdiction of the CIAC5 over the dispute between petitioner and private
respondent. Under Executive Order No. 1008, the CIAC acquires jurisdiction when the parties
agree to submit their dispute to voluntary arbitration. Thus, in the present case, its jurisdiction
continued despite its April 13, 1994 Order referring the case back to the Regional Trial Court
(RTC) of Quezon City, Branch 82, the court of origin. The CIAC's action was based on the
principle that once acquired, jurisdiction remains "until the full termination of the case unless a
law provides the contrary." No such "full termination" of the case was evident in the said
Order; nor did the CIAC or private respondents intend to put an end to the case.
Besides, according to Section 3 of the Rules of Procedure Governing Construction Arbitration,
technical rules of law or procedure are not applicable in a single arbitration or arbitral tribunal.
Thus, the "dismissal" could not have divested the CIAC of jurisdiction to ascertain the facts of
the case, arrive at a judicious resolution of the dispute and enforce its award or decision.
Since the issues concerning the monetary awards were questions of fact, the CA held that those
awards were inappropriate in a petition for certiorari. Such questions are final and not
appealable according to Section 19 of EO 1008, which provides that "arbitral awards shall be x
x x final and [u]nappealable except on questions of law which shall be appealable to the
Supreme Court x x x." Nevertheless, the CA reviewed the records and found that the awards
were supported by substantial evidence. In matters falling under the field of expertise of quasijudicial bodies, their findings of fact are accorded great respect when supported by substantial
evidence.
Hence, this Petition.6

Issues
The petitioner, in its Memorandum, raises the following issues:
"A.
Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses
against Petitioner Philrock after the case had been dismissed by both the RTC and the CIAC.
"B.
Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.
"C.
Whether or not the awarding of the amount of P23,276.75 for materials ordered by Respondent
Spouses Cid plus interest thereon at the rate of 6% from 26 September 1995 is proper.
"D.
Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is proper.
"E.
Whether or not the awarding of the amount of P1,340,454 for the value of the delivered but the
allegedly unworkable concrete which was wasted is proper.
"F.
Whether or not the awarding o[f] moral and nominal damages and attorney's fees and expenses
of litigation in favor of respondents is proper.
"G.
Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees."7
In sum, petitioner imputes reversible error to the CA (1) for upholding the jurisdiction of the
CIAC after the latter had dismissed the case and referred it to the regular court, (2) for ruling
that respondent spouses had a cause of action against petitioner, and (3) for sustaining the
award of damages.
This Court's Ruling
The Petition has no merit.
First Issue:
Jurisdiction
Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties had
withdrawn their consent to arbitrate. The June 13, 1995 RTC Order remanding the case to the
CIAC for arbitration was allegedly an invalid mode of referring a case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and
exclusive jurisdiction over disputes arising from or connected with construction contracts
entered into by parties that have agreed to submit their dispute to voluntary arbitration.8
It is undisputed that the parties submitted themselves to the jurisdiction of the Commission by

virtue of their Agreement to Arbitrate dated November 24, 1993. Signatories to the Agreement
were Atty. Ismael J. Andres and Perry Y. Uy (president of Philippine Rock Products, Inc.) for
petitioner, and Nelia G. Cid and Atty. Esteban A. Bautista for respondent spouses.9
Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents on
April 8, 1994, because of the exclusion of the seven engineers of petitioners in the arbitration
case. This withdrawal became the basis for the April 13, 1994 CIAC Order dismissing the
arbitration case and referring the dispute back to the RTC. Consequently, the CIAC was
divested of its jurisdiction to hear and decide the case.
This contention is untenable. First, private respondents removed the obstacle to the
continuation of the arbitration, precisely by withdrawing their objection to the exclusion of the
seven engineers. Second, petitioner continued participating in the arbitration even after the
CIAC Order had been issued. It even concluded and signed the Terms of Reference 10 on
August 21, 1995, in which the parties stipulated the circumstances leading to the dispute;
summarized their respective positions, issues, and claims; and identified the composition of the
tribunal of arbitrators. The document clearly confirms both parties' intention and agreement to
submit the dispute to voluntary arbitration. In view of this fact, we fail to see how the CIAC
could have been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTC's final
resolution of the dispute by arguing that the regular court also lost jurisdiction after the arbitral
tribunal's April 13, 1994 Order referring the case back to the RTC. In so doing, petitioner
conceded and estopped itself from further questioning the jurisdiction of the CIAC. The Court
will not countenance the effort of any party to subvert or defeat the objective of voluntary
arbitration for its own private motives. After submitting itself to arbitration proceedings and
actively participating therein, petitioner is estopped from assailing the jurisdiction of the CIAC,
merely because the latter rendered an adverse decision.11
Second Issue:
Cause of Action
Petitioner contends that respondent spouses were negligent in not engaging the services of an
engineer or architect who should oversee their construction, in violation of Section 308 of the
National Building Code. It adds that even if the concrete it delivered was defective, respondent
spouses should bear the loss arising from their illegal operation. In short, it alleges that they
had no cause of action against it.
We disagree. Cause of action is defined as an act or omission by which a party violates the right
of another.12 A complaint is deemed to have stated a cause of action provided it has indicated
the following: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant,
and (3) the act or the omission of the defendant in violation of the said legal right. 13 The cause
of action against petitioner was clearly established. Respondents were purchasers of ready-mix
concrete from petitioner. The concrete delivered by the latter turned out to be of substandard
quality. As a result, respondents sustained damages when the structures they built using such
cement developed cracks and honeycombs. Consequently, the construction of their residence
had to be stopped.

Further, the CIAC Decision clearly spelled out respondents' cause of action against petitioner,
as follows:
"Accordingly, this Tribunal finds that the mix was of the right proportions at the time it left the
plant. This, however, does not necessarily mean that all of the concrete mix delivered had
remained workable when it reached the jobsite. It should be noted that there is no evidence to
show that all the transit mixers arrived at the site within the allowable time that would ensure
the workability of the concrete mix delivered.
"On the other hand, there is sufficiently strong evidence to show that difficulties
were encountered in the pouring of concrete mix from certain transit mixers
necessitating the [addition] of water and physically pushing the mix, obviously
because the same [was] no longer workable. This Tribunal holds that the
unworkability of said concrete mix has been firmly established.
"There is no dispute, however, to the fact that there are defects in some areas of the
poured structures. In this regard, this Tribunal holds that the only logical reason is
that the unworkable concrete was the one that was poured in the defective
sections."14
Third Issue:
Monetary Awards
Petitioner assails the monetary awards given by the arbitral tribunal for alleged lack of basis in
fact and in law. The solicitor general counters that the basis for petitioner's assigned errors with
regard to the monetary awards is purely factual and beyond the review of this Court. Besides,
Section 19, EO 1008, expressly provides that monetary awards by the CIAC are final and
unappealable.
We disagree with the solicitor general. As pointed out earlier, factual findings of quasi-judicial
bodies that have acquired expertise are generally accorded great respect and even finality, if
they are supported by substantial evidence.15 The Court, however, has consistently held that
despite statutory provisions making the decisions of certain administrative agencies "final," it
still takes cognizance of petitions showing want of jurisdiction, grave abuse of discretion,
violation of due process, denial of substantial justice or erroneous interpretation of the
law.16 Voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity,
such that their decisions are within the scope of judicial review.17
Petitioner protests the award to respondent spouses of P23,276.25 as excess payment with six
percent interest beginning September 26, 1995. It alleges that this item was neither raised as an
issue by the parties during the arbitration case, nor was its justification discussed in the CIAC
Decision. It further contends that it could not be held liable for interest, because it had earlier
tendered a check in the same amount to respondent spouses, who refused to receive it.
Petitioner's contentions are completely untenable. Respondent Nelia G. Cid had already raised
the issue of overpayment even prior to the formal arbitration. In paragraph 9 of the Terms of
Reference, she stated:

"9. Claimants were assured that the problem and her demands had been the subject of several
staff meetings and that Arteche was very much aware of it, a memorandum having been
submitted citing all the demands of [c]laimants. This assurance was made on July 31, 1992
when Respondents Secillano, Martillano and Lomibao came to see Claimant Nelia Cid and
offered to refund P23,276.25, [t]he difference between the billing by Philrock's Marketing
Department in the amount of P125,586.25 and the amount charged by Philrock's Batching Plant
Department in the amount of only P102,586.25, which [c]laimant refused to accept by saying,
'Saka na lang'."18
The same issue was discussed during the hearing before the arbitration tribunal on December
19, 1995.19 It was also mentioned in that tribunal's Decision dated September 24, 1996.20
The payment of interest is based on Article 2209 of the Civil Code, which provides that if the
obligation consists of the payment of a sum of money, and the debtor incurs delay, the
indemnity for damages shall be the payment of legal interest which is six per cent per annum,
in the absence of a stipulation of the rate.
Awards
for
Retrofitting
But Delivered Concrete, and Arbitration Fees

Costs,

Wasted

Unworkable

Petitioner maintains that the defects in the concrete structure were due to respondent spouses'
failure to secure the services of an engineer or architect to supervise their project. Hence, it
claims that the award for retrofitting cost was without legal basis. It also denies liability for the
wasted unworkable but delivered concrete, for which the arbitral court awarded P13,404.54.
Finally, it complains against the award of litigation expenses, inasmuch as the case should not
have been instituted at all had respondents complied with the requirements of the National
Building Code.
We are unconvinced. Not only did respondents disprove the contention of petitioner; they also
showed that they sustained damages due to the defective concrete it had delivered. These were
items of actual damages they sustained due to its breach of contract.
Moral and Nominal Damages, Attorney's Fees and Costs
Petitioner assails the award of moral damages, claiming no malice or bad faith on its part.
We disagree. Respondents were deprived of the comfort and the safety of a house and were
exposed to the agony of witnessing the wastage and the decay of the structure for more than
seven years. In her Memorandum, Respondent Nelia G. Cid describes her family's sufferings
arising from the unreasonable delay in the construction of their residence, as follows: "The
family lives separately for lack of space to stay in. Mrs. Cid is staying in a small dingy bodega,
while her son occupies another makeshift room. Their only daughter stayed with her aunt from
1992 until she got married in 1996. x x x." 21 The Court also notes that during the pendency of
the case, Respondent Vicente Cid died without seeing the completion of their home. 22 Under
the circumstances, the award of moral damages is proper.
Petitioner also contends that nominal damages should not have been granted, because it did not
breach its obligation to respondent spouses.
Nominal damages are recoverable only if no actual or substantial damages resulted from the

breach, or no damage was or can be shown. 23 Since actual damages have been proven by
private respondents for which they were amply compensated, they are no longer entitled to
nominal damages.
Petitioner protests the grant of attorney's fees, arguing that respondent spouses did not engage
the services of legal counsel. Also, it contends that attorney's fees and litigation expenses are
awarded only if the opposing party acted in gross and evident bad faith in refusing to satisfy
plaintiff's valid, just and demandable claim.
We disagree. The award is not only for attorney's fees, but also for expenses of litigation.
Hence, it does not matter if respondents represented themselves in court, because it is obvious
that they incurred expenses in pursuing their action before the CIAC, as well as the regular and
the appellate courts. We find no reason to disturb this award.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED; however, the
award of nominal damages isDELETED for lack of legal basis. Costs against petitioner.
SO ORDERED.
[G.R.

No.

126212.

March

2,

2000.]

SEA-LAND SERVICE, INC., Petitioner, v. COURT OF APPEALS, A.P.

MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY
(FILIPINAS),
INC., Respondents.chanroblesvirtuallawlibrary
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set aside the decision of the Court of
Appeals dated September 29, 1995 in CA-G.R. SP No. 35777, 1 dismissing the petition
for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court
of
Quezon
City,
Branch
216,
in
Civil
Case
No.
Q-92-12593.
The

facts

are

as

follows:chanrobles.com

virtuallawlibrary

On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P.
Moller/Maersk Line (hereinafter referred to as "AMML"), both carriers of cargo in
containerships as well as common carriers, entered into a contract entitled, "Co-operation in the
Pacific" 2 (hereinafter referred to as the "Agreement"), a vessel sharing agreement whereby
they mutually agreed to purchase, share and exchange needed space for cargo in their
respective containerships. Under the Agreement, they could be, depending on the occasion,
either a principal carrier (with a negotiable bill of lading or other contract of carriage with
respect to cargo) or a containership operator (owner, operator or charterer of containership on
which
the
cargo
is
carried).

During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc.
(hereinafter referred to as "Florex") delivered to private respondent AMML cargo of various
foodstuffs, with Oakland, California as port of discharge and San Francisco as place of
delivery. The corresponding Bill of Lading No. MAEU MNL110263 was issued to Florex by
respondent AMML. Pursuant to the Agreement, respondent AMML loaded the subject cargo on
MS Sealand Pacer, a vessel owned by petitioner. Under this arrangement, therefore, respondent
AMML was the principal carrier while petitioner was the containership operator.
The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, on
June 26, 1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping
Agency (Filipinas), Inc. for reimbursement of the value of the cargo and other charges. 3
According to Florex, the cargo was received by the consignee only on June 28, 1991, since it
was discharged in Long Beach, California, instead of in Oakland, California on June 5, 1991 as
stipulated.chanrobles.com.ph
:
red
Respondent AMML filed its Answer 4 alleging that even on the assumption that Florex was
entitled to reimbursement, it was petitioner who should be liable. Accordingly, respondent
AMML filed a Third Party Complaint 5 against petitioner on November 10, 1992, averring that
whatever damages sustained by Florex were caused by petitioner, which actually received and
transported
Florexs
cargo
on
its
vessels
and
unloaded
them.
On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint 6 on the
ground of failure to state a cause of action and lack of jurisdiction, the amount of damages not
having been specified therein. Petitioner also prayed either for dismissal or suspension of the
Third Party Complaint on the ground that there exists an arbitration agreement between it and
respondent AMML. On September 27, 1993, the lower court issued an Order denying
petitioners Motion to Dismiss. Petitioners Motion for Reconsideration was likewise denied by
the lower court in its August 22, 1994 Order.chanrobles.com : virtuallawlibrary
Undaunted, petitioner filed a petition for certiorari 7 with the Court of Appeals on November
23, 1994. Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial
court.
On September 29, 1995, respondent Court of Appeals rendered the assailed Decision
dismissing the petition for certiorari. With the denial of its Motion for Reconsideration,
petitioner filed the instant petition for review, raising the following issues
I
THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN
VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING THAT
ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN
AGREEMENT TO ARBITRATE EXISTS.

II
THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH
JURISPRUDENCE WHEN IT REFUSED TO HAVE THE THIRD-PARTY COMPLAINT
DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION AND FOR RULING THAT
THE FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY REFERENCE
TO
ITS
ATTACHMENTS.
8
Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did
not err in reading the Complaint of Florex and respondent AMMLs Answer together with the
Third Party Complaint to determine whether a cause of action is properly alleged. In Fil-Estate
Golf and Development, Inc. v. Court of Appeals, 9 this Court ruled that in the determination of
whether or not the complaint states a cause of action, the annexes attached to the complaint
may be considered, they being parts of the complaint.chanroblesvirtuallawlibrary
Coming now to the main issue of arbitration, the pertinent clauses of the "Co-operation in the
Pacific" contract entered into by the parties provide:chanrob1es virtual 1aw library
16.2 For the purposes of this agreement the Containership Operator shall be deemed to have
issued to the Principal Carrier for good consideration and for both loaded and empty containers
its non-negotiable memo bills of lading in the form attached hereto as Appendix 6, consigned
only to the Principal Carrier or its agents, provisions of which shall govern the liability between
the Principal Carrier and the Containership Operator and that for the purpose of determining
the liability in accordance with either Lines memo bill of lading, the number of packages or
customary freight units shown on the bill of lading issued by the Principal Carrier to its
shippers
shall
be
controlling.chanrobles.com
:
red
16.3 The Principal Carrier shall use all reasonable endeavours to defend all in personam and in
rem suits for loss of or damage to cargo carried pursuant to bills of lading issued by it, or to
settle such suits for as low a figure as reasonably possible. The Principal Carrier shall have the
right to seek damages and/or an indemnity from the Containership Operator by arbitration
pursuant to Clause 32 hereof . Notwithstanding the provisions of the Lines memo bills of
lading or any statutory rules incorporated therein or applicable thereto, the Principal Carrier
shall be entitled to commence such arbitration at any time until one year after its liability has
been finally determined by agreement, arbitration award or judgment, such award or judgment
not being the subject of appeal, provided that the Containership Operator has been given notice
of the said claim in writing by the Principal Carrier within three months of the Principal Carrier
receiving notice in writing of the claim. Further the Principal Carrier shall have the right to
grant extensions of time for the commencement of suit to any third party interested in the cargo
without prior reference to the Containership Operator provided that notice of any extension so
granted is given to the Containership Operator within 30 days of any such extension being
granted.chanrobles virtual lawlibrary
x

32. ARBITRATION

32.1 If at any time a dispute or claim arises out of or in connection with the Agreement
the Lines shall endeavour to settle such amicably, failing which it shall be referred to
arbitration by a single arbitrator in London, such arbitrator to be appointed by agreement
between the Lines within 14 days after service by one Line upon the other of a notice
specifying the nature of the dispute or claim and requiring reference of such dispute or
claim
to
arbitration
pursuant
to
this
Article.
32.2 Failing agreement upon an arbitrator within such period of 14 days, the dispute
shall be settled by three Arbitrators, each party appointing one Arbitrator, the third being
appointed by the President of the London Maritime Arbitrators Association.
32.3 If either of the appointed Arbitrators refuses or is incapable of acting, the party who
appointed
him
shall
appoint
a
new
Arbitrator
in
his
place.
32.4 If one of the parties fails to appoint an Arbitrator either originally or by way of
substitution for two weeks after the other party having appointed his Arbitrator has
sent the party making default notice by mail, fax or telex to make the appointment, the
party appointing the third Arbitrator shall, after application from the party having
appointed his Arbitrator, also appoint an Arbitrator in behalf of the party making default.
32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as
amended by the Arbitration Act 1979 or any other subsequent legislation and the
arbitrators award shall be final and binding upon Lines. To the extent permitted by the
Arbitration Act 1979 the Lines hereto exclude pursuant to S 3(1) of that Act the
jurisdiction of the English High Court of Justice to entertain any appeal or application
under
Section
1
and
2
of
the
Arbitration
Act
1979.
10
From the foregoing, the following matters are clear: First, disputes between the Principal
Carrier and the Containership Operator arising from contracts of carriage shall be
governed by the provisions of the bills of lading issued to the Principal Carrier by the
Containership Operator. Second, the Principal Carrier shall use its best efforts to defend
or settle all suits against it for loss of or damage to cargo pursuant to bills of lading
issued by it. Third, the Principal Carrier shall have the right to seek damages and/or
indemnity from the Containership Operator by arbitration, pursuant to Clause 32 of the
agreement. Fourth, the Principal Carrier shall have the right to commence such
arbitration any time until one year after its liability has been finally determined by
agreement, arbitration award or judgment, provided that the Containership Operator was
given notice in writing by the Principal Carrier within three months of the Principal
Carrier receiving notice in writing of said claim.chanrobles.com.ph : red
Prescinding from the foregoing matters, we find that both the trial court and the Court of
Appeals
erred
in
denying
petitioners
prayer
for
arbitration.

To begin with, allowing respondent AMMLs Third Party Claim against petitioner to
proceed would be in violation of Clause 16.2 of the Agreement. As summarized, the
clause provides that whatever dispute there may be between the Principal Carrier and the
Containership Operator arising from contracts of carriage shall be governed by the
provisions of the bills of lading deemed issued to the Principal Carrier by the
Containership Operator. On the other hand, to sustain the Third Party Complaint would
be to allow private respondent to hold petitioner liable under the provisions of the bill of
lading issued by the Principal Carrier to Florex, under which the latter is suing in its
Complaint, not under the bill of lading petitioner, as containership operator, issued to
respondent AMML, as Principal Carrier, contrary to what is contemplated in Clause
16.2.
The Court of Appeals ruled that the terms of the Agreement "explicitly required that the
principal carriers claim against the containership operator first be finally determined by,
among others, a court judgment, before the right to arbitration accrues." However, the
Court of Appeals failed to consider that, precisely, arbitration is the mode by which the
liability of the Containership Operator may be finally determined. This is clear from the
mandate of Clause 16.3 that" (T)he Principal Carrier shall have the right to seek
damages and/or an indemnity from the Containership Operator by arbitration" and that it
"shall be entitled to commence such arbitration at any time until one year after its
liability has been finally determined by agreement, arbitration award or judgment" .
For respondent Court of Appeals to say that the terms of the contract do not require
arbitration as a condition precedent to judicial action is erroneous. In the light of the
Agreement clauses aforequoted, it is clear that arbitration is the mode provided by which
respondent AMML as Principal Carrier can seek damages and/or indemnity from
petitioner, as Containership Operator. Stated differently, respondent AMML is barred
from taking judicial action against petitioner by the clear terms of their
Agreement.chanrobles.com
:
virtual
law
library
As the Principal Carrier with which Florex directly dealt with, respondent AMML can
and should be held accountable by Florex in the event that it has a valid claim against
the former. Pursuant to Clause 16.3 of the Agreement, respondent AMML, when faced
with such a suit "shall use all reasonable endeavours to defend" itself or "settle such
suits for as low a figure as reasonably possible." In turn, respondent AMML can seek
damages and/or indemnity from petitioner as Containership Operator for whatever final
judgment may be adjudged against it under the Complaint of Florex. The crucial point is
that collection of said damages and/or indemnity from petitioner should be by
arbitration.
All told, when the text of a contract is explicit and leaves no doubt as to its intention, the
court may not read into it any other intention that would contradict its plain import. 11
Arbitration being the mode of settlement between the parties expressly provided for by
their Agreement, the Third Party Complaint should have been dismissed.

This Court has previously held that arbitration is one of the alternative methods of
dispute resolution that is now rightfully vaunted as "the wave of the future" in
international relations, and is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties would
therefore
be
a
step
backward.
12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is
GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 35777 is
REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 77, is
ordered to DISMISS Respondent AMMLs Third Party Complaint in Civil Case No. Q92-12593.
No
pronouncement
as
to
costs.chanrobles
virtuallawlibrary
SO ORDERED.
[G.R. No. 136154July 18, 2001]
DEL MONTE CORP.-USA et. al. vs. CA et al.
SECOND DIVISION
Gentleman :
Quoted hereunder, for your information, is a resolution of this Court dated JUL 18 2001.
G.R. No. 136154(Del Monte Corporation-USA, Paul E. Derby, Daniel Collins and Luis
Hidalgo vs. Court of Appeals, Judge Bienvenido L. Reyes in his capacity as Presiding Judge,
RTC-Br. 74, Malabon, Metro Manila, Montebueno Marketing, Inc., Liong Liong C. Sy and
Sabrosa Foods, Inc.)
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA
(DMC-USA) appointed private respondent Montebueno Marketing, Inc. (MMI) as the sole and
exclusive distributor of its Del Monte products in the Philippines. The Agreement provided for
an arbitration clause.
On 3 October 1996 private respondents filed a complaint against petitioners for violation of
Arts. 20, 21 and 23 of the Civil Code. Petitioners filed a Motion to Suspend
Proceedings invoking the arbitration clause in their Distributorship Agreement with private
respondent MMI.
In a Resolution dated 23 December 1996 the trial court deferred consideration of
petitioners' Motion to Suspend Proceedings as the grounds alleged therein did not warrant
suspension of the proceedings considering that the action was for damages with prayer for the
issuance of a Writ of Preliminary Attachment and not on the Distributorship Agreement. On 11
November 1997 the Motion to Suspend Proceedings was denied by the trial court on the
ground that it "will not serve the ends of justice and to allow said suspension will only delay
the determination of the issues, frustrate the quest of the parties for a judicious determination of
their respective claims, and/or deprive and delay their rights to seek redress."
On appeal, the Court of Appeals affirmed the decision of the trial court. The appellate court

held that the alleged damaging acts recited in the complaint, constituting petitioners' causes of
action, required the interpretation of Art. 21 of the Civil Code, and that in determining whether
petitioners had violated it"would require a full blown trial" thus making arbitration "out of the
question." Petitioners filed a Motion for Reconsideration but the motion was denied.
Petitioners came to this Court on a petition for certiorari. On 7 February 2001 the Court denied
the petition, affirmed the Decision of the Court of Appeals and directed the trial court to
proceed with the hearing of the case. This Court ruled that the arbitration clause in
the Arbitration Agreement only applied to the parties thereto, ratiocinating that
The object of arbitration is to allow the expeditious determination of a dispute. 1 Decision
citing Coquia, Jorge R., Annotation, Arbitration as a Means of Reducing Court Congestion, 29
July 1977, 78 SCRA 121.Clearly, the issue before us could be speedily and efficiently resolved
in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial
pending arbitration. Accordingly, the interest of justice would only be served if the trial court
hears and adjudicates the case in a single and complete proceeding. 2 Ibid, citing Heirs of Au
gusto L. Salas, Jr. v. Laperal Realty Corporation, G.R. No. 135362, 13 December 1999, 320
SCRA 610.
On 23 March 2001 petitioners filed the instant Motion for Reconsideration primarily alleging
that if the decision was not reconsidered, it would set a dangerous precedent where a party to
an arbitration clause can effectively defeat the arbitration clause by the simple expedient of
commencing court proceedings with the inclusion of third parties as additional parties to the
case. On 29 June 2001 respondent MMI filed its Comment/Opposition to the Motion for
Reconsideration.
We deny the motion of petitioners. The inclusion of third parties to defeat the arbitration clause
presupposes bad faith; and bad faith is never presumed. In the instant case, it is not alleged nor
even hinted at that the inclusion of third parties was specifically and intentionally done to
negate the effect of the arbitration clause. Consequently, the pronouncement of the Court in
the Salas case that only parties to the agreement, their assigns or heirs have the right to
arbitrate, or could be compelled to arbitrate, must be adopted. This is in accord with the object
of arbitration to allow the expeditious determination of disputes by preventing multiplicity of
suits, duplicitous procedure and unnecessary delay.
IN VIEW WHEREOF, the Court DENIES the Motion for Reconsideration WITH FINALITY
for lack of substantial argument to justify reconsideration of its Decision of 7 February 2001,
and reiterates its directive therein to the trial court to proceed with the hearing of this case
without further delay.
SO ORDERED.
[G.R.

No.

110434.

December

13,

1993.]

HI-PRECISION STEEL CENTER, INC., Petitioner, v. LIM KIM STEEL BUILDERS,

INC.,
and
CONSTRUCTION
INDUSTRY
ARBITRATION
COMMISSION, Respondents.

Felix Q. Vinluan and Siguion Reyna, Montecillo & Ongsiako for Petitioner.
De Castro & Cagampang Law Offices for Lim Kim Steel Builders, Inc.
SYLLABUS
1. LABOR LAWS AND OTHER SOCIAL LEGISLATIONS; VOLUNTARY ARBITRATION;
OBJECTIVE. Voluntary arbitration involves the reference of a dispute to an impartial body,
the members of which are chosen by the parties themselves, which parties freely consent in
advance to abide by the arbitral award issued after proceedings where both parties had the
opportunity to be heard. The basic objective is to provide a speedy and inexpensive method of
settling disputes by allowing the parties to avoid the formalities, delay, expense and
aggravation which commonly accompany ordinary litigation, especially litigation which goes
through
the
entire
hierarchy
of
courts.
2. ID.; ID.; EXECUTIVE ORDER NO. 1008; PURPOSE. Executive Order No. 1008
created an arbitration facility to which the construction industry in the Philippines can have
recourse. The Executive Order was enacted to encourage the early and expeditious settlement
of disputes in the construction industry, a public policy the implementation of which is
necessary
and
important
for
the
realization
of
national
goals.
3. ID.; ID.; ID.; FINDINGS OF FACTS OF THE ARBITRAL TRIBUNAL; FINAL AND
UNAPPEALABLE. Executive Order No. 1008, as amended, provides, in its Section 19, as
follows: "Sec. 19. Finality of Awards. The arbitral award shall be binding upon the parties. It
shall be final and unappealable except on questions of law which shall be appealable to the
Supreme Court." Section 19 makes it crystal clear that questions of fact cannot be raised in
proceedings before the Supreme Court which is not a trier of facts in respect of an
arbitral award rendered under the aegis of the CIAC. Consideration of the animating purpose of
voluntary arbitration in general, and arbitration under the aegis of the CIAC in particular,
requires us to apply rigorously the above principle embodied in Section 19 that the Arbitral
Tribunals findings of fact shall be final and unappealable. Aware of the objective of voluntary
arbitration in the labor field, in the construction industry, and in any other area for that matter,
the Court will not assist one or the other or even both parties in any effort to subvert or defeat
that objective for their private purposes. The Court will not review the factual findings of an
arbitral tribunal upon the artful allegation that such body had "misapprehended the facts" and
will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised
they might be as "legal questions." The parties here had recourse to arbitration and chose the
arbitrators themselves; they must have had confidence in such arbitrators. The Court will not,
therefore, permit the parties to relitigate before it the issues of facts previously presented and
argued before the Arbitral Tribunal, save only where a very clear showing is made that, in
reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and
hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction. Prototypical examples would be factual conclusions of the Tribunal which resulted

in deprivation of one or the other party of a fair opportunity to present its position before the
Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators. Any
other, more relaxed, rule would result in setting at naught the basic objective of a voluntary
arbitration and would reduce arbitration to a largely inutile institution.
4. REMEDIAL LAW; CIVIL PROCEDURE; FINDINGS OF FACTS OF THE ARBITRAL
TRIBUNAL; WHEN NOT TO BE REVIEWED; CASE AT BAR. Examination of the
Petition at bar reveals that it is essentially an attempt to re-assert and re-litigate before this
Court the detailed or itemized factual claims made before the Arbitral Tribunal under a general
averment that the Arbitral Tribunal under a general averment that the Arbitral Tribunal had
"misapprehended the facts" submitted to it. In the present Petition, too, Hi-Precision claims that
the Arbitral Tribunal had committed grave abuse of discretion amounting to lack of jurisdiction
in reaching its factual and legal conclusions. The first "legal issue" submitted by the Petition is
the claimed misapplication by the Arbitral Tribunal of the first and second paragraphs of Article
1191 of the Civil Code. Article 1191 reads: "Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible. The court shall
decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This
is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law." Hi-Precision contends
energetically that it is the injured party and that Steel Builders was the obligor who did not
comply with what was incumbent upon it, such that Steel Builders was the party in default and
the entity guilty of negligence and delay. As the injured party, Hi-Precision maintains that it
may choose between the fulfillment or rescission of the obligation in accordance with Article
1191, and is entitled to damages in either case. Thus, Hi-Precision continues, when the
contractor Steel Builders defaulted on the 153rd day of the original contract period, HiPrecision opted for specific performance and gave Steel Builders a 30-day extension period
with which to complete the project. What petitioner Hi-Precision, in its above argument,
disregards is that the determination of whether Hi-Precision or Steel Builders was the "injured
party" is not to be resolved by an application of Article 1191. That determination is eminently a
question of fact, for it requires ascertainment and identification of which of the two (2)
contending parties had first failed to comply with what was incumbent upon it. In other words,
the supposed misapplication of Article 1191, while ostensibly a "legal issue," is ultimately a
question of fact, i.e., the determination of the existence or non-existence of a fact or set of facts
in respect of which Article 1191 may be properly applied. Thus, to ask this Court to correct a
claimed misapplication or non-application of Article 1191 is to compel this Court to determine
which of the two (2) contending parties was the "injured party" or the "first infractor." As noted
earlier, the Arbitral Tribunal after the prolonged arbitration proceeding, was unable to make
that factual determination and instead concluded that both parties had committed breaches of
their respective obligations. We will not review, and much less reverse, that basic factual
finding
of
the
Arbitral
Tribunal.
5. ID.; ID.; DOCTRINE OF ESTOPPEL AND WAIVER; NOT APPLICABLE IN CASE AT

BAR. A second "legal issue" sought to be raised by petitioner Hi-Precision relates to the
supposed failure of the Arbitral Tribunal to apply the doctrines of estoppel and waiver as
against Steel Builders. The Arbitral Tribunal, after declaring that the parties were mutually at
fault, proceeded to enumerate the faults of each of the parties. One of the faults attributed to
petitioner Hi-Precision is that it had failed to give the contractor Steel Builders the required 15day notice for termination of the contract. This was clearly a finding of fact on the part of the
Tribunal, supported by the circumstance that per the record, petitioner had offered no proof that
it had complied with such 15-day notice required under Article 28.01 of the General Conditions
of Contract forming part of the Contract Documents. Petitioner Hi-Precisions argument is that
a written Agreement dated 16 November 1990 with Steel Builders concerning the take over of
the project by Hi-Precision, constituted waiver on the part of the latter of its right to a 15-day
notice of contract termination. Whether or not that Agreement dated 16 November 1990 (a
document not submitted to this Court) is properly characterized as constituting waiver on the
part of Steel Builders, may be conceded to be prima facie a question of law; but, if it is, and
assuming arguendo that the Arbitral Tribunal had erred in resolving it, that error clearly did not
constitute a grave abuse of discretion resulting in lack or loss of jurisdiction on the part of the
Tribunal.
6. ID.; ID.; TECHNICAL SPECIFICATIONS OF THE PROJECT; CONSTITUTED
FACTUAL FINDINGS IN CASE AT BAR. A third "legal issue" posed by Hi-Precision
relates to the supposed failure on the part of the Arbitral Tribunal "to uphold the supremacy of
`the law between the parties and enforce it against private respondent [Steel Builders]." The
"law between that parties" here involved is the "Technical Specifications" forming part of the
Contract Documents. Hi-Precision asserts that the Arbitral Tribunal did not uphold the "law
between the parties," but instead substituted the same with "its [own] absurd inference and
opinion on mud." Here again, petitioner is merely disguising a factual question as a "legal
issue," since petitioner is in reality asking this "legal issue," since petitioner is in reality asking
this Court to review the physical operations relating, e.g., to site preparation carried out by the
contractor Steel Builders and to determine whether such operations were in accordance with the
Technical Specifications of the project. The Arbitral Tribunal resolved Hi-Precisions claim by
finding that Steel Builders had complied substantially with the Technical Specifications. This
Court will not pretend that it has the technical and engineering capability to review the
resolution
of
that
factual
issue
by
the
Arbitral
Tribunal.
7. ID.; APPEAL; FACTUAL FINDINGS; REVIEW, NOT ALLOWED BY THE SUPREME
COURT IN CASE AT BAR. Finally, the Petition asks this Court to "review serious errors in
the findings of fact of the [Arbitral Tribunal]." In this section of its Petition, Hi-Precision asks
us to examine each item of its own claims which the Arbitral Tribunal had rejected in its Award,
and each claim of the contractor Steel Builders which the Tribunal had granted. In respect of
each item of the owners claims and each item of the contractors claims, Hi-Precision sets out
its arguments. to all appearances the same arguments it had raised before the Tribunal. We
consider that in asking this Court to go over each individual claim submitted by it and each
individual countering claim submitted by Steel Builders to the Arbitral Tribunal, petitioner HiPrecision is asking this Court to pass upon claims which are either clearly and directly factual
in nature or require previous determination of factual issues. This upon the one hand. Upon the

other hand, the Court considers that petitioner Hi-Precision has failed to show any serious
errors of law amounting to grave abuse of discretion resulting in lack of jurisdiction on the part
of the Arbitral Tribunal, in either the methods employed or the results reached by the Arbitral
Tribunal, in disposing of the detailed claims of the respective parties.
DECISION
FELICIANO, J.:
On 18 June 1993, a "Petition for Extension to File Petition for Review" 1 was filed before the
Court, petitioner Hi-Precision Steel Center, Inc. ("Hi-Precision") stating that it intended to file a
Petition for Review on Certiorari in respect of the 13 November 1992 Award 2 and 13 May
1993 Order 3 of public respondent Construction Industry Arbitration Commission ("CIAC") in
Arbitration Case No. 13-90. The Petition (really a Motion) prayed for an extension of thirty
(30) days or until 21 July 1993 within which to file a Petition for Review.
An Opposition 4 to the Motion was filed by private respondent Lim Kim Steel Builders, Inc.
("Steel Builders") on 5 July 1993. On the same day, however, the Court issued a Resolution 5
granting the Motion with a warning that no further extension would be given.chanrobles virtual
lawlibrary
The Opposition, the subsequent Reply 6 of petitioner filed on 20 July 1993 and the Petition for
Review 7 dated 21 July 1993, were noted by the Court in its Resolution 8 of 28 July 1993. The
Court also required private respondent Steel Builders to file a Comment on the Petition for
Review
and
Steel
Builders
complied.
The Petition prays for issuance of a temporary restraining order 9 to stay the execution of the
assailed Order and Award in favor of Steel Builders, which application the Court merely noted,
as it did subsequent Urgent Motions for a temporary restraining order. 10
Petitioner Hi-Precision entered into a contract with private respondent Steel Builders under
which the latter as Contractor was to complete a P21 Million construction project owned by the
former within a period of 153 days, i.e. from 8 May 1990 to 8 October 1990. The project
completion date was first moved to 4 November 1990. On that date, however, only 75.8674%
of the project was actually completed. Petitioner attributed this non-completion to Steel
Builders which allegedly had frequently incurred delays during the original contract period and
the extension period. Upon the other hand, Steel Builders insisted that the delays in the project
were either excusable or due to Hi-Precisions own fault and issuance of change orders. The
project was taken over on 7 November 1990, and eventually completed on February 1991, by
Hi-Precision.
Steel Builders filed a "Request for Adjudication" with public respondent CIAC. In its

Complaint filed with the CIAC, Steel Builders sought payment of its unpaid progress billings,
alleged unearned profits and other receivables. Hi-Precision, upon the other hand, in its Answer
and Amended Answer, claimed actual and liquidated damages, reimbursement of alleged
additional costs it had incurred in order to complete the project and attorneys fees.chanrobles
virtual
lawlibrary
The CIAC formed an Arbitral Tribunal with three (3) members, two (2) being appointed upon
nomination of Hi-Precision and Steel Builders, respectively; the third member (the Chairman)
was appointed by the CIAC as a common nominee of the two (2) parties. Only the Chairman
was a lawyer. After the arbitration proceeding, the Arbitral Tribunal rendered a unanimous
Award dated 13 November 1992, the dispositive portion of which reads as
follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, the Owner [petitioner Hi-Precision] is ordered to pay the
Contractor [private respondent Steel Builders] the amount of P6,400,717.83 and all other
claims of the parties against each other are deemed compensated and offset. No pronouncement
as
to
costs.
The

Parties

are

enjoined

to

abide

by

the

award."

11

Upon motions for reconsideration filed, respectively, by Hi-Precision and Steel Builders, the
Arbitral Tribunal issued an Order dated 13 May 1993 which reduced the net amount due to
contractor
Steel
Builders
to
P6,115,285.83.
12
In its Award, the Arbitral Tribunal stated that it was guided by Articles 1169, 1192 and 2215 of
the Civil Code. With such guidance, the arbitrators concluded that (a) both parties were at fault,
though the Tribunal could not point out which of the parties was the first infractor; and (b) the
breaches by one party affected the discharge of the reciprocal obligations of the other party.
With mutual fault as a principal premise, the Arbitral Tribunal denied (a) petitioners claims for
the additional costs allegedly incurred to complete the project; and (b) private respondents
claim for profit it had failed to earn because of petitioners take over of the project.chanrobles
virtual
lawlibrary
The Tribunal then proceeded to resolve the remaining specific claims of the parties. In
disposing of these multiple, detailed claims, the Arbitral Tribunal, in respect of one or more of
the respective claims of the parties: (a) averaged out the conflicting amounts and percentages
claimed by the parties; 13 (b) found neither basis nor justification for a particular claims; 14 (c)
found the evidence submitted in support of particular claims either weak or non-existent; 15 (d)
took account of the admissions of liability in respect of particular claims; 16 (e) relied on its
own expertise in resolving particular claims; 17 and (f) applied a "principle of equity" in
requiring each party to bear its own loss resulting or arising from mutual fault or delay
(compensatio
morae).
18
Petitioner Hi-Precision now asks this Court to set aside the Award, contending basically that it
was the contractor Steel Builders who had defaulted on its contractual undertakings and so

could not be the injured party and should not be allowed to recover any losses it may have
incurred in the project. Petitioner Hi-Precision insists it is entitled to damages, and claims that
the Arbitral Tribunal committed grave abuse of discretion when it allowed certain claims by
Steel
Builders
and
offset
them
against
claims
of
Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral Tribunal has not been
impleaded as a respondent in the Petition at bar. The CIAC has indeed been impleaded;
however, the Arbitral Award was not rendered by the CIAC, but rather by the Arbitral Tribunal.
Moreover, under Section 20 of Executive Order No. 1008, dated 4 February 1985, as amended,
it is the Arbitral Tribunal, or the single Arbitrator, with the concurrence of the CIAC, which
issues the writ of execution requiring any sheriff or other proper officer to execute the award.
We consider that the Arbitral Tribunal which rendered the Award sought to be reviewed and set
aside, should be impleaded even though the defense of its Award would presumably have to be
carried
by
the
prevailing
party.chanrobles
law
library
Petitioner Hi-Precision apparently seeks review both under Rule 45 and Rule 65 of the Rules of
Court. 19 We do not find it necessary to rule which of the two: a petition for review under Rule
45 or a petition forcertiorari under Rule 65 is necessary under Executive Order No. 1008, as
amended; this issue was, in any case, not squarely raised by either party and has not been
properly
and
adequately
litigated.
In its Petition, Hi-Precision purports to raise "legal issues," and in presenting these issues,
prefaced
each
with
a
creative
formula:chanrob1es
virtual
1aw
library
(1)
"The public respondent [should be the Arbitral Tribunal] committed serious error in law, if
not grave abuse of discretion, when it failed to strictly apply Article 1191, New Civil Code,
against
the
contractor
.
.
."
;
(2)
"The public respondent committed serious error in law, if not grave abuse of discretion, when it
failed to rule in favor of the owner, now petitioner herein, all the awards it claimed on
arbitration, and when it nonetheless persisted in its awards of damages in favor of
the Respondent.
.
.
.;"
(3)
"The public respondent committed serious error in law, if not grave abuse of discretion, for its
abject failure to apply the doctrine of waiver, or estoppel against the contractor, the private
respondent herein, when it agreed on November 16, 1990 to award termination of the contract
and the owners takeover of the project . . .;" chanrobles virtual lawlibrary
(4)

"The public respondent committed serious error in law, if not grave abuse of discretion, when it
did not enforce the law between the parties, the `technical specification[s] which is one of the
contract documents, particularly to par. (a), sub-part 3.01, part 3, Sec. 2b, which expressly
requires that major site work activities like stripping, removal and stockpiling of top soil shall
be done prior to the start of regular excavation or backfilling work, the principal issue in
arbitration
being
non-compliance
with
the
contract
documents;"
(5)
"The public respondent committed serious error in law, if not grave abuse of discretion, when it
found, in the May 13, 1993 Order, the petitioner `guilty of estoppel although it is claimed that
the legal doctrine of estoppel does not apply with respect to the required written formalities in
the
issuance
of
a
change
order
.
.
.;"
(6)
"The exceptional circumstances in Remalante v. Tibe, 158 SCRA 138, where the Honorable
Supreme Court may review findings of facts, are present in the instant case, namely; (a) when
the inference made is manifestly absurd, mistaken or impossible (Luna v. Linatoc, 74 Phil. 15);
(2) where there is grave abuse of discretion in the appreciation of facts (Buyco v. People, 95
Phil. 253); (3) when the judgment is premised on a misapprehension of facts (De la Cruz v.
Sosing, 94 Phil. 26, and Castillo v. CA, 124 SCRA 808); (4) when the findings of fact are
conflicting (Casica v. Villaseca, 101 Phil. 1205); (5) when the findings are contrary to the
admissions of the parties (Evangelista v. Alto Surety, 103 Phil. 401), and therefore, the findings
of facts of the public respondent in the instant case may be reviewed by the Honorable
Supreme Court." 20 (Italics partly supplied and partly in the original).chanrobles virtual
lawlibrary
From the foregoing, petitioner Hi-Precision may be seen to be making two (2) basic
arguments:chanrob1es
virtual
1aw
library
(a) Petitioner asks this Court to correct legal errors committed by the Arbitral Tribunal, which
at the same time constitute grave abuse of discretion amounting to lack of jurisdiction on the
part
of
the
Arbitral
Tribunal;
and
(b) Should the supposed errors petitioner asks us to correct be characterized as errors of fact,
such factual errors should nonetheless be reviewed because there was "grave abuse of
discretion" in the appreciation of facts and because there was misapprehension of facts on the
part
of
the
Arbitral
Tribunal.
Executive Order No. 1008,
follows:jgc:chanrobles.com.ph

as

amended,

provides,

in

its

Section

19,

as

"Sec. 19. Finality of Awards. The arbitral award shall be binding upon the parties. It shall be

final and inappealable except on questions of law which shall be appealable to the Supreme
Court."cralaw
virtua1aw
library
Section 19 makes it crystal clear that questions of fact cannot be raised in proceedings before
the Supreme Court which is not a trier of facts - in respect of an arbitral award rendered
under the aegis of the CIAC. Consideration of the animating purpose of voluntary arbitration in
general, and arbitration under the aegis of the CIAC in particular, requires us to apply
rigorously the above principle embodied in Section 19 that the Arbitral Tribunals findings of
fact
shall
be
final
and
unappealable.chanrobles
lawlibrary
:
rednad
Voluntary arbitration involves the reference of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which parties freely consent in advance to abide by
the arbitral award issued after proceedings where both parties had the opportunity to be heard.
The basic objective is to provide a speedy and inexpensive method of settling disputes by
allowing the parties to avoid the formalities, delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which goes through the entire hierarchy of
courts. Executive Order No. 1008 created an arbitration facility to which the construction
industry in the Philippines can have recourse. The Executive Order was enacted to encourage
the early and expeditious settlement of disputes in the construction industry, a public policy the
implementation of which is necessary and important for the realization of national development
goals.
21
Aware of the objective of voluntary arbitration in the labor field, in the construction industry,
and in any other area for that matter, the Court will not assist one or the other or even both
parties in any effort to subvert or defeat that objective for their private purposes. The Court will
not review the factual findings of an arbitral tribunal upon the artful allegation that such body
had "misapprehended the facts" and will not pass upon issues which are, at bottom, issues of
fact, no matter how cleverly disguised they might be as "legal questions." The parties here had
recourse to arbitration and chose the arbitrators themselves; they must have had confidence in
such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues
of facts previously presented and argued before the Arbitral Tribunal, save only where a very
clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed
an error so egregious and hurtful to one party as to constitute a grave abuse of discretion
resulting in lack or loss of jurisdiction. 22 Prototypical examples would be factual conclusions
of the Tribunal which resulted in deprivation of one or the other party of a fair opportunity to
present its position before the Arbitral Tribunal, and an award obtained through fraud or the
corruption of arbitrators. 23 Any other, more relaxed, rule would result in setting at naught the
basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile
institution.chanrobles.com.ph
:
virtual
law
library
Examination of the Petition at bar reveals that it is essentially an attempt to re-assert and relitigate before this Court the detailed or itemized factual claims made before the Arbitral
Tribunal under a general averment that the Arbitral Tribunal under a general averment that the
Arbitral Tribunal had "misapprehended the facts" submitted to it. In the present Petition, too,
Hi-Precision claims that the Arbitral Tribunal had committed grave abuse of discretion

amounting to lack of jurisdiction in reaching its factual and legal conclusions.

The first "legal issue" submitted by the Petition is the claimed misapplication by the Arbitral
Tribunal of the first and second paragraphs of Article 1191 of the Civil Code. 24 Article 1191
reads:jgc:chanrobles.com.ph
"Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors
should
not
comply
with
what
is
incumbent
upon
him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment,
if
the
latter
should
become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of
a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law." chanrobles virtual
lawlibrary
Hi-Precision contends energetically that it is the injured party and that Steel Builders was the
obligor who did not comply with what was incumbent upon it, such that Steel Builders was the
party in default and the entity guilty of negligence and delay. As the injured party, Hi-Precision
maintains that it may choose between the fulfillment or rescission of the obligation in
accordance with Article 1191, and is entitled to damages in either case. Thus, Hi-Precision
continues, when the contractor Steel Builders defaulted on the 153rd day of the original
contract period, Hi-Precision opted for specific performance and gave Steel Builders a 30-day
extension
period
with
which
to
complete
the
project.
What petitioner Hi-Precision, in its above argument, disregards is that the determination of
whether Hi-Precision or Steel Builders was the "injured party" is not to be resolved by an
application of Article 1191. That determination is eminently a question of fact, for it requires
ascertainment and identification of which of the two (2) contending parties had first failed to
comply with what was incumbent upon it. In other words, the supposed misapplication of
Article 1191, while ostensibly a "legal issue," is ultimately a question of fact, i.e., the
determination of the existence or non-existence of a fact or set of facts in respect of which
Article 1191 may be properly applied. Thus, to ask this Court to correct a claimed
misapplication or non-application of Article 1191 is to compel this Court to determine which of
the two (2) contending parties was the "injured party" or the "first infractor." As noted earlier,
the Arbitral Tribunal after the prolonged arbitration proceeding, was unable to make that factual
determination and instead concluded that both parties had committed breaches of their
respective obligations. We will not review, and much less reverse, that basic factual finding of
the
Arbitral
Tribunal.chanrobles
virtual
lawlibrary
A second "legal issue" sought to be raised by petitioner Hi-Precision relates to the supposed

failure of the Arbitral Tribunal to apply the doctrines of estoppel and waiver as against Steel
Builders. 25 The Arbitral Tribunal, after declaring that the parties were mutually at fault,
proceeded to enumerate the faults of each of the parties. One of the faults attributed to
petitioner Hi-Precision is that it had failed to give the contractor Steel Builders the required 15day notice for termination of the contract. 26 This was clearly a finding of fact on the part of
the Tribunal, supported by the circumstance that per the record, petitioner had offered no proof
that it had complied with such 15-day notice required under Article 28.01 of the General
Conditions of Contract forming part of the Contract Documents. Petitioner Hi-Precisions
argument is that a written Agreement dated 16 November 1990 with Steel Builders concerning
the take over of the project by Hi-Precision, constituted waiver on the part of the latter of its
right to a 15-day notice of contract termination. Whether or not that Agreement dated 16
November 1990 (a document not submitted to this Court) is properly characterized as
constituting waiver on the part of Steel Builders, may be conceded to be prima facie a question
of law; but, if it is, and assuming arguendo that the Arbitral Tribunal had erred in resolving it,
that error clearly did not constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction
on
the
part
of
the
Tribunal.
A third "legal issue" posed by Hi-Precision relates to the supposed failure on the part of the
Arbitral Tribunal "to uphold the supremacy of `the law between the parties and enforce it
against private respondent [Steel Builders]." 27 The "law between that parties" here involved is
the "Technical Specifications" forming part of the Contract Documents. Hi-Precision asserts
that the Arbitral Tribunal did not uphold the "law between the parties," but instead substituted
the same with "its [own] absurd inference and opinion on mud." Here again, petitioner is
merely disguising a factual question as a "legal issue," since petitioner is in reality asking this
"legal issue," since petitioner is in reality asking this Court to review the physical operations
relating, e.g., to site preparation carried out by the contractor Steel Builders and to determine
whether such operations were in accordance with the Technical Specifications of the project.
The Arbitral Tribunal resolved Hi-Precisions claim by finding that Steel Builders had complied
substantially with the Technical Specifications. This Court will not pretend that it has the
technical and engineering capability to review the resolution of that factual issue by the Arbitral
Tribunal.chanrobles
virtual
lawlibrary
Finally, the Petition asks this Court to "review serious errors in the findings of fact of the
[Arbitral Tribunal]." 28 In this section of its Petition, Hi-Precision asks us to examine each item
of its own claims which the Arbitral Tribunal had rejected in its Award, and each claim of the
contractor Steel Builders which the Tribunal had granted. In respect of each item of the owners
claims and each item of the contractors claims, Hi-Precision sets out its arguments. to all
appearances the same arguments it had raised before the Tribunal. As summarized in the
Arbitral
Award,
Contractors
Claims
were
as
follows:jgc:chanrobles.com.ph
"12.1.

Unpaid

12.2.
22.3.

Progress

Change
-

Billing

Order
do

1
2

1,812,706.95
0.00
10,014.00

12.4.

do

320,000.00

12.5.

do

112,300.70

12.6.

do

398,398.00

12.7.

do

353,050.38

12.8.

do

12.9.

do

216,138.75

101,621.40

12.10.

do

12.11.

do

12.12.

do

03,836.53

10
-

7,200.00
11

12

0.00

12.13.

do

12.14.

do

12.15.

do

14

167,952.00

12.16.

do

15

445,600.00

12.17.

do

12.18.

do

13

16
17

7,800.00
49,250.00

92,457.30
1,500.00

12.19.

20,240.00

12.20.

63,518.00

12.21.

0.00

12.22.

0.00

12.23.

0.00

12.24.

0.00

12.25.

0.00

12.26.

730,201.57

12.27.

1,130,722.70

12.28.

0.00

12.29.

273,991.00

12.30.

0.00

____________
12.31.

7,318,499.28

========="

29

Upon the other hand, the petitioners claims we are asked to review and grant are summarized
as
follows:jgc:chanrobles.com.ph
"1.

Actual

Advance

Damages.

Downpayment

signing

of

subject

Contract

to

progress

[at]
which

40%

billing

deduction
(40%

of

Price)
Billings

Advances

b)
Civil

every
Contract
P8,406,000.00

Progress

a)

is

made
prior

5,582,585.55
to

to
after

Lim
take-over
the

Works

Kim.
392,781.45
take-over.
1,158,513.88

Materials

4,213,318.72

Labor

2,155,774.79

Equipment

Rental

1,448,208.90

___________
P

8,974,816.45

Total

Amount

Paid

Less:

for

Construction

Contract

IA

Excess

23,650,183.00

Price
of

(21,000,000.00)

amount

contract

paid

price

IB

Other

2,650,163.29

items

due

Kim

from

Steel

a.

Amount

from

yet

Downpayment

deducted

due

to

of

Project

(P24.1326%)

2,027,138.40

b.

Due

used

to

for

IC

in

b.

Cost

of

ID

I[E]
a.

money

Installation

Cost

expenses

since

Oct.

5,272,096.81

of

(a)

873,535.49

of
exchange

of

money

machinery
loss

11,565,048.37
(a)

Raw
Foreign

51,110.40

construction
prices

Foreign

Commercial

Project

Additional
Increase

b.

Huey

HSCI

a.

a.

Lim
Builders.

not

non-completion

over

exchange

2,871,987.01
materials.

loss

4,155,982.18

b.

Cost

c.

Additional

d.

Cost

e.

Cost

deposition
IF

of

Cost

money
import

of

Total
2.
3.

levy

of

money

(a)
of
(c)

money

Actual
Liquidated
Attorneys

holding

Credit
to

CRC

Damages

821,242.72
886,513.33
170,284.44

on

of
on

5%

money

of
Letter

of

marginal
561,195.25

INTY.

3,319,609.63
35,295,927.32

Damages

2,436,000.00

Fees

500,000.00

______________
P38,231,927.32"

30

=============
We consider that in asking this Court to go over each individual claim submitted by it and each
individual countering claim submitted by Steel Builders to the Arbitral Tribunal, petitioner HiPrecision is asking this Court to pass upon claims which are either clearly and directly factual
in nature or require previous determination of factual issues. This upon the one hand. Upon the
other hand, the Court considers that petitioner Hi-Precision has failed to show any serious
errors of law amounting to grave abuse of discretion resulting in lack of jurisdiction on the part
of the Arbitral Tribunal, in either the methods employed or the results reached by the Arbitral
Tribunal, in disposing of the detailed claims of the respective parties.cralawnad
WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED for lack of merit.
Costs
against
petitioner.
SO ORDERED.
[G.R. No. 141833. March 26, 2003.]
LM POWER ENGINEERING CORPORATION, Petitioner, v. CAPITOL INDUSTRIAL
CONSTRUCTION GROUPS, INC., Respondent.

DECISION
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs like arbitration, mediation, negotiation and
conciliation are encouraged by the Supreme Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationships. 1
The Case
Before us is a Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court, seeking
to set aside the January 28, 2000 Decision of the Court of Appeals 3 (CA) in CA-GR CV No.
54232. The dispositive portion of the Decision reads as follows:chanrob1es virtua1 1aw 1ibrary
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are
ORDERED to present their dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is [d]ischarged." 4
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol
Industrial Construction Groups Inc. entered into a "Subcontract Agreement" involving
electrical
work
at
the
Third
Port
of
Zamboanga.
5
On April 25, 1985, respondent took over some of the work contracted to petitioner. 6 Allegedly,
the latter had failed to finish it because of its inability to procure materials. 7
Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90. 8 Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took refuge in
the termination clause of the Agreement. 9 That clause allowed it to set off the cost of the work
that petitioner had failed to undertake due to termination or take-over against the amount
it
owed
the
latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch
141) a Complaint 10 for the collection of the amount representing the alleged balance due it
under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss,
11 alleging that the Complaint was premature, because there was no prior recourse to
arbitration.

In its Order 12 dated September 15, 1987, the RTC denied the Motion on the ground that the
dispute did not involve the interpretation or the implementation of the Agreement and was,
therefore,
not
covered
by
the
arbitral
clause.
13
After trial on the merits, the RTC 14 ruled that the take-over of some work items by respondent
was not equivalent to a termination, but a mere modification, of the Subcontract. The latter was
ordered to give full payment for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The
appellate court held as arbitrable the issue of whether respondents take-over of some work
items had been intended to be a termination of the original contract under Letter "K" of the
Subcontract. It ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse respondent for the work the
latter
had
taken
over.
15
Hence, this Petition. 16
The Issues
In its Memorandum, petitioner
consideration:jgc:chanrobles.com.ph

raises

the

following

issues

for

the

Courts

"A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent
regarding the interpretation and implementation of the Sub-Contract Agreement dated February
22,
1983
that
requires
prior
recourse
to
voluntary
arbitration;
"B
In the affirmative, whether or not the requirements provided in Article III [1] of CIAC
Arbitration Rules regarding request for arbitration ha[ve] been complied with[.] "17
The Courts Ruling
The
First
Whether

Petition
Issue:chanrob1es
Dispute

is

unmeritorious.

virtual

1aw
Is

library
Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the implementation of
the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect the
value of the services it rendered through an ordinary action for the collection of a sum of
money from Respondent. On the other hand, the latter contends that there is a need for prior
arbitration as provided in the Agreement. This is because there are some disparities between the
parties positions regarding the extent of the work done, the amount of advances and billable
accomplishments, and the set off of expenses incurred by respondent in its take-over of
petitioners
work.chanrob1es
virtua1
1aw
1ibrary
We side with Respondent. Essentially, the dispute arose from the parties incongruent positions
on whether certain provisions of their Agreement could be applied to the facts. The instant case
involves technical discrepancies that are better left to an arbitral body that has expertise in
those areas. In any event, the inclusion of an arbitration clause in a contract does not ipso facto
divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards
are
still
judicially
reviewable
under
certain
conditions.
18
In the case before us, the Subcontract has the following arbitral clause:jgc:chanrobles.com.ph
"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration . . .." 19
Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are discrepancies as to
the amount of advances and billable accomplishments, the application of the provision on
termination,
and
the
consequent
set-off
of
expenses.
A review of the factual allegations of the parties reveals that they differ on the following
questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by respondent
in the take-over be set off against the amounts it owed petitioner? (3) How much were the
advances
and
billable
accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the provision in the Agreement as to time
schedule:jgc:chanrobles.com.ph
"G.

TIME

SCHEDULE

" [Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be granted by
[respondent] to [petitioner] unless a corresponding time extension is granted by [the Ministry of
Public
Works
and
Highways]
to
the
CONSORTIUM."
20

Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:jgc:chanrobles.com.ph
"K.

TERMINATION

OF

AGREEMENT

" [Respondent] has the right to terminate and/or take over this Agreement for any of the
following causes:chanrob1es virtual 1aw library
x

6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in
accordance with this Agreement, or persistently or flagrantly neglects to carry out [its]
obligations
under
this
Agreement."
21
Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the
contracted price. It sought to set off those expenses against the amount claimed by petitioner
for
the
work
the
latter
accomplished,
pursuant
to
the
following
provision:jgc:chanrobles.com.ph
"If the total direct and indirect cost of completing the remaining part of the WORK exceed the
sum which would have been payable to [petitioner] had it completed the WORK, the amount of
such excess [may be] claimed by [respondent] from either of the following:chanrob1es virtual
1aw
library
1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement."
22
The issue as to the correct amount of petitioners advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent to
which they did it, and the expenses each of them incurred in connection therewith. Arbitrators
also need to look into the computation of foreign and local costs of materials, foreign and local
advances, retention fees and letters of credit, and taxes and duties as set forth in the Agreement.
These data can be gathered from a review of the Agreement, pertinent portions of which are
reproduced
hereunder:jgc:chanrobles.com.ph
"C. CONTRACT PRICE AND TERMS OF PAYMENT
x

"All progress payments to be made by [respondent] to [petitioner] shall be subject to a retention

sum of ten percent (10%) of the value of the approved quantities. Any claims by [respondent]
on [petitioner] may be deducted by [respondent] from the progress payments and/or retained
amount. Any excess from the retained amount after deducting [respondents] claims shall be

released by [respondent] to [petitioner] after the issuance of [the Ministry of Public Works and
Highways] of the Certificate of Completion and final acceptance of the WORK by [the
Ministry of Public Works and Highways].
x

"D.

IMPORTED

MATERIALS

AND

EQUIPMENT

" [Respondent shall open the letters of credit for the importation of equipment and materials
listed in Annex E hereof after the drawings, brochures, and other technical data of each items in
the list have been formally approved by [the Ministry of Public Works and Highways].
However, petitioner will still be fully responsible for all imported materials and equipment.
"All expenses incurred by [respondent], both in foreign and local currencies in connection with
the opening of the letters of credit shall be deducted from the Contract Prices.
x

"N. OTHER CONDITIONS

x

"2. All customs duties, import duties, contractors taxes, income taxes, and other taxes that may
be required by any government agencies in connection with this Agreement shall be for the sole
account
of
[petitioner]."
23
Being an inexpensive, speedy and amicable method of settling disputes, 24 arbitration along
with mediation, conciliation and negotiation is encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially
of the commercial kind. 25 It is thus regarded as the "wave of the future" in international civil
and commercial disputes. 26 Brushing aside a contractual agreement calling for arbitration
between
the
parties
would
be
a
step
backward.
27
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be
granted. 28 Any doubt should be resolved in favor of arbitration. 29
Second
Prior

Issue:chanrob1es
Request

virtual

1aw
for

library
Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a
formal request for arbitration with the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the question. To bolster its position,
petitioner even cites our ruling in Tesco Services Incorporated v. Vera. 30 We are not
persuaded.chanrob1es
virtua1
1aw
1ibrary
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed
required the submission of a request for arbitration, as follows:jgc:chanrobles.com.ph
"SECTION 1. Submission to Arbitration Any party to a construction contract wishing to
have recourse to arbitration by the Construction Industry Arbitration Commission (CIAC) shall
submit its Request for Arbitration in sufficient copies to the Secretariat of the CIAC;
PROVIDED, that in the case of government construction contracts, all administrative remedies
available to the parties must have been exhausted within 90 days from the time the dispute
arose."cralaw
virtua1aw
library
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC may
now be availed of whenever a contract "contains a clause for the submission of a future
controversy
to
arbitration,"
in
this
wise:jgc:chanrobles.com.ph
"SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a construction
contract or a submission to arbitration of a construction dispute shall be deemed an agreement
to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference
to a different arbitration institution or arbitral body in such contract or submission. When a
contract contains a clause for the submission of a future controversy to arbitration, it is not
necessary for the parties to enter into a submission agreement before the claimant may invoke
the
jurisdiction
of
CIAC."cralaw
virtua1aw
library
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 393.
31
The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders Et. Al. 32 (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals, 33 from
which
we
quote
thus:jgc:chanrobles.com.ph
"Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary
arbitration Unlike in the original version of Section 1, as applied in the Tesco case, the law as it
now stands does not provide that the parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather,
it is plain and clear that as long as the parties agree to submit to voluntary arbitration,

regardless of what forum they may choose, their agreement will fall within the jurisdiction of
the CIAC, such that, even if they specifically choose another forum, the parties will not be
precluded from electing to submit their dispute before the CIAC because this right has been
vested
upon
each
party
by
law,
i.e.,
E.O.
No.
1008."
34
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction
to
decide
a
construction
dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because that clause is binding, they are expected to
abide by it in good faith. 35 And because it covers the dispute between the parties in the present
case,
either
of
them
may
compel
the
other
to
arbitrate.
36
Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the
stay or suspension of such action, as provided under RA 876 [the Arbitration Law]. 37
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.cha
[G.R.

No.

152878.

May

5,

2003.]

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, v. MAGWIN

MARKETING CORPORATION, NELSON TIU, BENITO SY and ANDERSON
UY, Respondents.
DECISION
BELLOSILLO, J.:
WE ARE PERTURBED that this case should drag this Court in the banal attempts to decipher
the hazy and confused intent of the trial court in proceeding with what would have been a
simple, straightforward and hardly arguable collection case. Whether the dismissal without
prejudice for failure to prosecute was unconditionally reconsidered, reversed and set aside to
reinstate the civil case and have it ready for pre-trial are matters which should have been
clarified and resolved in the first instance by the court a quo. Unfortunately, this feckless
imprecision of the trial court became the soup stock of the parties and their lawyers to further
delay the case below when they could have otherwise put things in proper order efficiently and
effectively.chanrob1es
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On 4 March 1999 petitioner Rizal Commercial Banking Corporation (RCBC) filed a complaint
for recovery of a sum of money with prayer for a writ of preliminary attachment against

respondents Magwin Marketing Corporation, Nelson Tiu, Benito Sy and Anderson Uy. 1 On 26
April 1999, the trial court issued a writ of attachment. 2 On 4 June 1999 the writ was returned
partially satisfied since only a parcel of land purportedly owned by defendant Benito Sy was
attached. 3 In the meantime, summons was served on each of the defendants, respondents
herein, who filed their respective answers, except for defendant Gabriel Cheng who was
dropped without prejudice as party-defendant as his whereabouts could not be located. 4 On 21
September 1999 petitioner moved for an alias writ of attachment which on 18 January 2000 the
court
a
quo
denied.
5
Petitioner did not cause the case to be set for pre-trial. 6 For about six (6) months thereafter,
discussions between petitioner and respondents Magwin Marketing Corporation, Nelson Tiu,
Benito Sy and Anderson Uy, as parties in Civil Case No. 99-518, were undertaken to
restructure the indebtedness of respondent Magwin Marketing Corporation. 7 On 9 May 2000
petitioner approved a debt payment scheme for the corporation which on 15 May 2000 was
communicated to the latter by means of a letter dated 10 May 2000 for the conformity of its
officers, i.e., respondent Nelson Tiu as President/General Manager of Magwin Marketing
Corporation and respondent Benito Sy as Director thereof. 8 Only respondent Nelson Tiu
affixed his signature on the letter to signify his agreement to the terms and conditions of the
restructuring.
9
On 20 July 2000 the RTC of Makati City, on its own initiative, issued an Order dismissing
without prejudice Civil Case No. 99-518 for failure of petitioner as plaintiff therein to
"prosecute its action for an unreasonable length of time . . .." 10 On 31 July 2000 petitioner
moved for reconsideration of the Order by informing the trial court of respondents unremitting
desire to settle the case amicably through a loan restructuring program. 11 On 22 August 2000
petitioner notified the trial court of the acquiescence thereto of respondent Nelson Tiu as an
officer of Magwin Marketing Corporation and defendant in the civil case. 12
On 8 September 2000 the court a quo issued an Order reconsidering the dismissal without
prejudice
of
Civil
Case
No.
99-518

Acting on plaintiffs "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing
this case for failure to prosecute, it appearing that there was already conformity to the
restructuring of defendants indebtedness with plaintiff by defendant Nelson Tiu, President of
defendant corporation per "Manifestation and Motion" filed by plaintiff on 22 August 2000,
there being probability of settlement among the parties, as prayed for, the Order dated 20 July
2000
is
hereby
set
aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof.
Failure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case. 13
On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and Motion to Set
Case for Pre-Trial Conference alleging that" [t]o date, only defendant Nelson Tiu had affixed
his signature on the May 10, 2000 letter which informed the defendants that plaintiff [herein

petitioner] already approved defendant Magwin Marketing Corporations request for

restructuring of its loan obligations to plaintiff but subject to the terms and conditions specified
in said letter." 14 This motion was followed on 5 October 2000 by petitioners Supplemental
Motion to Plaintiffs Manifestation and Motion to Set Case for Pre-Trial Conference affirming
that petitioner "could not submit a compromise agreement because only defendant Nelson Tiu
had affixed his signature on the May 10, 2000 letter . . .." 15 Respondent Anderson Uy opposed
the foregoing submissions of petitioner while respondents Magwin Marketing Corporation,
Nelson Tiu and Benito Sy neither contested nor supported them. 16
The trial court, in an undated Order (although a date was later inserted in the Order), denied
petitioners motion to calendar Civil Case No. 99-518 for pre-trial stating that
Acting on plaintiffs [herein petitioner] "Manifestation and Motion to Set Case for Pre-Trial
Conference," the "Opposition" filed by defendant Uy and the subsequent "Supplemental
Motion" filed by plaintiff; defendant Uys "Opposition," and plaintiffs "Reply;" for failure of
the plaintiff to submit a compromise agreement pursuant to the Order dated 8 September 2000
plaintiffs motion to set case for pre-trial conference is hereby denied. 17
On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September 2000 Order
of the trial court as well as its undated Order in Civil Case No. 99-518. On 16 November 2000
the trial court issued two (2) Orders, one of which inserted the date "6 November 2000" in the
undated Order rejecting petitioners motion for pre-trial in the civil case, and the other denying
due course to the Notice of Appeal on the ground that the "Orders dated 8 September 2000 and
6 November 2000 are interlocutory orders and therefore, no appeal may be taken . . .." 18
On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6 November 2000
and 16 November 2000 of the trial court to the Court of Appeals in a petition
for certiorari under Rule 65 of the Rules of Civil Procedure. 19 In the main, petitioner argued
that the court a quo had no authority to compel the parties in Civil Case No. 99-518 to enter
into an amicable settlement nor to deny the holding of a pre-trial conference on the ground that
no compromise agreement was turned over to the court a quo. 20
On 28 September 2001 the appellate court promulgated its Decision dismissing the petition for
lack of merit and affirming the assailed Orders of the trial court 21 holding that chanrob1es
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. . . although the language of the September 8, 2000 Order may not be clear, yet, a careful
reading of the same would clearly show that the setting aside of the Order dated July 20, 2000
which dismissed petitioners complaint . . . for failure to prosecute its action for an
unreasonable length of time is dependent on the following conditions, to wit: a) The submission
of the compromise agreement by petitioner within fifteen (15) days from notice; and b) Failure
of petitioner to submit the said compromise agreement shall cause the imposition of the
payment of the required docket fees for the re-filing of the case; so much so that the noncompliance by petitioner of condition no. 1 would make condition no. 2 effective, especially
that petitioners manifestation and motion to set case for pre-trial conference and supplemental

motion . . . [were] denied by the respondent judge in his Order dated November 6, 2000, which
in effect means that the Order dated July 20, 2000 was ultimately not set aside considering that
a party need not pay docket fees for the re-filing of a case if the original case has been revived
and
reinstated.
22
On 2 April 2002 reconsideration of the Decision was denied; hence, this petition.
In the instant case, petitioner maintains that the trial court cannot coerce the parties in Civil
Case No. 99-518 to execute a compromise agreement and penalize their failure to do so by
refusing to go forward with the pre-trial conference. To hold otherwise, so petitioner avers,
would violate Art. 2029 of the Civil Code which provides that" [t]he court shall endeavor to
persuade the litigants in a civil case to agree upon some fair compromise," and this Courts
ruling in Goldloop Properties, Inc. v. Court of Appeals 23 where it was held that the trial court
cannot dismiss a complaint for failure of the parties to submit a compromise agreement.
On the other hand, respondent Anderson Uy filed his comment after several extensions
asserting that there are no special and important reasons for undertaking this review. He also
alleges that petitioners attack is limited to the Order dated 8 September 2000 as to whether it is
conditional as the Court of Appeals so found and the applicability to this case of the ruling in
Goldloop Properties, Inc. v. Court of Appeals. Respondent Uy claims that the Order
reconsidering the dismissal of Civil Case No. 99-518 without prejudice is on its face contingent
upon the submission of the compromise agreement which in the first place was the principal
reason of petitioner to justify the withdrawal of the Order declaring his failure to prosecute the
civil case. He further contends that the trial court did not force the parties in the civil case to
execute a compromise agreement, the truth being that it dismissed the complaint therein for
petitioners
dereliction.chanrob1es
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Finally, respondent Uy contests the relevance of Goldloop Properties, Inc. v. Court of Appeals,
and refers to its incongruence with the instant case, i.e., that the complaint of petitioner was
dismissed for failure to prosecute and not for its reckless disregard to present an amicable
settlement as was the situation in Goldloop Properties, Inc., and that the dismissal was without
prejudice, in contrast with the dismissal with prejudice ordered in the cited case. For their part,
respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy waived their right to
file a comment on the instant petition and submitted the same for resolution of this Court. 24
The petition of Rizal Commercial Banking Corporation is meritorious. It directs our attention
to questions of substance decided by the courts a quo plainly in a way not in accord with
applicable precedents as well as the accepted and usual course of judicial proceedings; it offers
special and important reasons that demand the exercise of our power of supervision and review.
Furthermore, petitioners objections to the proceedings below encompass not only the Order of
8 September 2000 but include the cognate Orders of the trial court of 6 and 16 November 2000.
This is evident from the prayer of the instant petition which seeks to reverse and set aside the
Decision of the appellate court and to direct the trial court to proceed with the pre-trial
conference in Civil Case No. 99-518. Evidently, the substantive issue involved herein is
whether the proceedings in the civil case should progress, a question which at bottom embroils

all

the

Orders

affirmed

by

the

Court

of

Appeals.

On the task at hand, we see no reason why RTC-Br. 135 of Makati City should stop short of
hearing the civil case on the merits. There is no substantial policy worth pursuing by requiring
petitioner to pay again the docket fees when it has already discharged this obligation
simultaneously with the filing of the complaint for collection of a sum of money. The procedure
for dismissed cases when re-filed is the same as though it was initially lodged, i.e., the filing of
answer, reply, answer to counter-claim, including other foot-dragging maneuvers, except for the
rigmarole of raffling cases which is dispensed with since the re-filed complaint is automatically
assigned to the branch to which the original case pertained. 25 A complaint that is re-filed leads
to the re-enactment of past proceedings with the concomitant full attention of the same trial
court exercising an immaculate slew of jurisdiction and control over the case that was
previously dismissed, 26 which in the context of the instant case is a waste of judicial time,
capital
and
energy.
What judicial benefit do we derive from starting the civil case all over again, especially where
three (3) of the four (4) defendants, i.e., Magwin Marketing Corporation, Nelson Tiu and
Benito Sy, have not contested petitioners plea before this Court and the courts a quo to
advance to pre-trial conference? Indeed, to continue hereafter with the resolution of petitioners
complaint without the usual procedure for the re-filing thereof, we will save the court a quo
invaluable time and other resources far outweighing the docket fees that petitioner would be
forfeiting
should
we
rule
otherwise.chanrob1es
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Going over the specifics of this petition and the arguments of respondent Anderson Uy, we rule
that the Order of 8 September 2000 did not reserve conditions on the reconsideration and
reversal of the Order dismissing without prejudice Civil Case No. 99-518. This is quite evident
from its text which does not use words to signal an intent to impose riders on the dispositive
portion

Acting on plaintiffs "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing
this case for failure to prosecute, it appearing that there was already conformity to the
restructuring of defendants indebtedness with plaintiff by defendant Nelson Tiu, President of
defendant corporation per "Manifestation and Motion" filed by plaintiff on 22 August 2000,
there being probability of settlement among the parties, as prayed for, the Order dated 20 July
2000
is
hereby
set
aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof.
Failure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case. 27
Contrary to respondent Uys asseverations, the impact of the second paragraph upon the first is
simply to illustrate what the trial court would do after setting aside the dismissal without
prejudice: submission of the compromise agreement for the consideration of the trial court.
Nothing in the second paragraph do we read that the reconsideration is subject to two (2)
qualifications. Certainly far from it, for in Goldloop Properties, Inc. v. Court of Appeals 28 a

similar directive, i.e.," [t]he parties are given a period of fifteen (15) days from today within
which to submit a Compromise Agreement," was held to mean that "should the parties fail in
their negotiations the proceedings would continue from where they left off." Goldloop
Properties, Inc. further said that its order, or a specie of it, did not constitute an agreement or
even an expectation of the parties that should they fail to settle their differences within the
stipulated
number
of
days
their
case
would
be
dismissed.
The addition of the second sentence in the second paragraph does not change the absolute
nullification of the dismissal without prejudice decreed in the first paragraph. The sentence"
[f]ailure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case" is not a directive to pay docket
fees but only a statement of the event that may result in its imposition. The reason for this is
that the trial court could not have possibly made such payment obligatory in the same civil
case, i.e., Civil Case No. 99-518, since docket fees are defrayed only after the dismissal
becomes
final
and
executory
and
when
the
civil
case
is
re-filed.
It must be emphasized however that once the dismissal attains the attribute of finality, the trial
court cannot impose legal fees anew because a final and executory dismissal although without
prejudice divests the trial court of jurisdiction over the civil case as well as any residual power
to order anything relative to the dismissed case; it would have to wait until the complaint is
docketed once again. 29 On the other hand, if we are to concede that the trial court retains
jurisdiction over Civil Case No. 99-518 for it to issue the assailed Orders, a continuation of the
hearing thereon would not trigger a disbursement for docket fees on the part of petitioner as
this would obviously imply the setting aside of the order of dismissal and the reinstatement of
the
complaint.
Indubitably, it is speculative to reckon the effectivity of the Order of dismissal without
prejudice to the presentation of the compromise agreement. If we are to admit that the efficacy
of the invalidation of the Order of dismissal is dependent upon this condition, then we must
inquire: from what date do we count the fifteen (15)-day reglementary period within which the
alleged revival of the order of dismissal began to run? Did it commence from the lapse of the
fifteen (15) days provided for in the Order of 8 September 2000? Or do we count it from the 6
November 2000 Order when the trial court denied the holding of a pre-trial conference? Or
must it be upon petitioners receipt of the 16 November 2000 Order denying due course to its
Notice of Appeal? The court a quo could not have instituted an Order that marked the
proceedings before it with a shadow of instability and chaos rather than a semblance of
constancy
and
firmness.chanrob1es
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The subsequent actions of the trial court also belie an intention to revive the Order of dismissal
without prejudice in the event that petitioner fails to submit a compromise agreement. The
Orders of 6 and 16 November 2000 plainly manifest that it was retaining jurisdiction over the
civil case, a fact which would not have been possible had the dismissal without prejudice been
resuscitated. Surely, the court a quo could not have denied on 6 November 2000 petitioners
motion to calendar Civil Case No. 99-518 for pre-trial if the dismissal had been restored to life
in the meantime. By then the dismissal without prejudice would have already become final and

executory so as to effectively remove the civil case from the docket of the trial court.
The same is true with the Order of 16 November 2000 denying due course to petitioners
Notice of Appeal. There would have been no basis for such exercise of discretion because the
jurisdiction of the court a quo over the civil case would have been discharged and terminated
by the presumed dismissal thereof. Moreover, we note the ground for denying due course to the
appeal: the "Orders dated 8 September 2000 and 6 November 2000 are interlocutory orders and
therefore, no appeal may be taken from . . .." 30 This declaration strongly suggests that
something more was to be accomplished in the civil case, thus negating the claim that the Order
of dismissal without prejudice was resurrected upon the parties failure to yield a compromise
agreement. A "final order" issued by a court has been defined as one which disposes of the
subject matter in its entirety or terminates a particular proceeding or action, leaving nothing
else to be done but to enforce by execution what has been determined by the court, while an
"interlocutory order" is one which does not dispose of a case completely but leaves something
more
to
be
decided
upon.
31chanrob1es
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Besides the semantic and consequential improbabilities of respondent Uys argument, our
ruling in Goldloop Properties, Inc., is decisive of the instant case. In Goldloop Properties, Inc.,
we reversed the action of the trial court in dismissing the complaint for failure of the plaintiff to
prosecute its case, which was in turn based on its inability to forge a compromise with the other
parties within fifteen (15) days from notice of the order to do so and held
Since there is nothing in the Rules that imposes the sanction of dismissal for failing to submit a
compromise agreement, then it is obvious that the dismissal of the complaint on the basis
thereof amounts no less to a gross procedural infirmity assailable by certiorari. For such
submission could at most be directory and could not result in throwing out the case for failure
to effect a compromise. While a compromise is encouraged, very strongly in fact, failure to
consummate one does not warrant any procedural sanction, much less an authority to jettison a
civil complaint worth P4,000,000.00 . . . Plainly, submission of a compromise agreement is
never
mandatory,
nor
is
it
required
by
any
rule.
32
As also explained therein, the proper course of action that should have been taken by the court
a quo, upon manifestation of the parties of their willingness to discuss a settlement, was to
suspend the proceedings and allow them reasonable time to come to terms (a) If willingness to
discuss a possible compromise is expressed by one or both parties; or (b) If it appears that one
of the parties, before the commencement of the action or proceeding, offered to discuss a
possible compromise but the other party refused the offer, pursuant to Art. 2030 of the Civil
Code. If despite efforts exerted by the trial court and the parties the negotiations still fail, only
then should the action continue as if no suspension had taken place. 33
Ostensibly, while the rules allow the trial court to suspend its proceedings consistent with the
policy to encourage the use of alternative mechanisms of dispute resolution, in the instant case,
the trial court only gave the parties fifteen (15) days to conclude a deal. This was, to say the
least, a passive and paltry attempt of the court a quo in its task of persuading litigants to agree
upon a reasonable concession. 34 Hence, if only to inspire confidence in the pursuit of a middle

ground between petitioner and respondents, we must not interpret the trial courts Orders as
dismissing the action on its own motion because the parties, specifically petitioner, were
anxious to litigate their case as exhibited in their several manifestations and motions.
We reject respondent Uys contention that Goldloop Properties, Inc. v. Court of Appeals is
irrelevant to the case at bar on the dubious reasoning that the complaint of petitioner was
dismissed for failure to prosecute and not for the non-submission of a compromise agreement
which was the bone of contention in that case, and that the dismissal imposed in the instant
case was without prejudice, in contrast to the dismissal with prejudice decreed in the cited case.
To begin with, whether the dismissal is with or without prejudice if grievously erroneous is
detrimental to the cause of the affected party; Goldloop Properties, Inc. does not tolerate a
wrongful dismissal just because it was without prejudice. More importantly, the facts in
Goldloop Properties, Inc. involve, as in the instant case, a dismissal for failure to prosecute on
the ground of the parties inability to come up with a compromise agreement within fifteen (15)
days from notice of the courts order therein. All told, the parallelism between them is
unmistakable.
Even if we are to accept on face value respondents understanding of Goldloop Properties, Inc.
as solely about the failure to submit a compromise agreement, it is apparent that the present
case confronts a similar problem. Perhaps initially the issue was one of failure to prosecute, as
can be observed from the Order dated 20 July 2000, although later reversed and set aside. But
thereafter, in the Order of 6 November 2000, the trial court refused to proceed to pre-trial
owing to the "failure of the plaintiff to submit a compromise agreement pursuant to the Order
dated 8 September 2000." When the civil case was stalled on account of the trial courts refusal
to call the parties to a pre-trial conference, the reason or basis therefor was the absence of a
negotiated settlement a circumstance that takes the case at bar within the plain ambit of
Goldloop Properties, Inc. In any event, given that the instant case merely revolves around the
search for a reasonable interpretation of the several Orders of the trial court, i.e., as to whether
the dismissal without prejudice was revived upon petitioners helplessness to perfect an out-ofcourt arrangement, with more reason must we employ the ruling in Goldloop Properties, Inc. to
resolve
the
parties
differences
of
opinion.
We also find nothing in the record to support respondent Uys conclusion that petitioner has
been mercilessly delaying the prosecution of Civil Case No. 99-518 to warrant its dismissal. A
complaint may be dismissed due to plaintiffs fault: (a) if he fails to appear during a scheduled
trial, especially on the date for the presentation of his evidence in chief, or when so required at
the pre-trial; (b) if he neglects to prosecute his action for an unreasonable length of time; or (c)
if he does not comply with the rules or any order of the court. None of these was obtaining in
the
civil
case.
While there was a lull of about six (6) months in the prosecution of Civil Case No. 99-518, it
must be remembered that respondents themselves contributed largely to this delay. They
repeatedly asked petitioner to consider re-structuring the debt of respondent Magwin Marketing
Corporation to which petitioner graciously acceded. Petitioner approved a new debt payment
scheme that was sought by respondents, which it then communicated to respondent Corporation

through a letter for the conformity of the latters officers, i.e., respondent Nelson Tiu as
President/General Manager and respondent Benito Sy as Director thereof. Regrettably, only
respondent Nelson Tiu affixed his signature on the letter to signify his concurrence with the
terms and conditions of the arrangement. The momentary lag in the civil case was aggravated
when respondent Benito Sy for unknown and unexplained reasons paid no heed to the
adjustments in the indebtedness although curiously he has not opposed before this Court or the
courts a quo petitioners desire to go ahead with the pre-trial conference.chanrob1es virtua1
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Admittedly, delay took place in this case but it was not an interruption that should have entailed
the dismissal of the complaint even if such was designated as without prejudice. To constitute a
sufficient ground for dismissal, the inattention of plaintiff to pursue his cause must not only be
prolonged but also be unnecessary and dilatory resulting in the trifling of judicial processes. In
the instant case, the adjournment was not only fleeting as it lasted less than six (6) months but
was also done in good faith to accommodate respondents incessant pleas to negotiate.
Although the dismissal of a case for failure to prosecute is a matter addressed to the sound
discretion of the court, that judgment however must not be abused. The availability of this
recourse must be determined according to the procedural history of each case, the situation at
the time of the dismissal, and the diligence of plaintiff to proceed therein. 35 Stress must also
be laid upon the official directive that courts must endeavor to convince parties in a civil case
to consummate a fair settlement 36 and to mitigate damages to be paid by the losing party who
has shown a sincere desire for such give-and-take. 37 All things considered, we see no
compelling circumstances to uphold the dismissal of petitioners complaint regardless of its
characterization
as
being
without
prejudice.
In fine, petitioner cannot be said to have lost interest in fighting the civil case to the end. A
court may dismiss a case on the ground of non prosequitur but the real test of the judicious
exercise of such power is whether under the circumstances plaintiff is chargeable with want of
fitting assiduousness in not acting on his complaint with reasonable promptitude. Unless a
partys conduct is so indifferent, irresponsible, contumacious or slothful as to provide
substantial grounds for dismissal, i.e., equivalent to default or non-appearance in the case, the
courts should consider lesser sanctions which would still amount to achieving the desired end.
38 In the absence of a pattern or scheme to delay the disposition of the case or of a wanton
failure to observe the mandatory requirement of the rules on the part of the plaintiff, as in the
case at bar, courts should decide to dispense rather than wield their authority to dismiss. 39
Clearly, another creative remedy was available to the court a quo to attain a speedy disposition
of Civil Case No. 99-518 without sacrificing the course of justice. Since the failure of petitioner
to submit a compromise agreement was the refusal of just one of herein respondents, i.e.,
Benito Sy, to sign his name on the conforme of the loan restructure documents, and the
common concern of the courts a quo was dispatch in the proceedings, the holding of a pre-trial
conference was the best-suited solution to the problem as this stage in a civil action is where
issues are simplified and the dispute quickly and genuinely reconciled. By means of pre-trial,
the trial court is fully empowered to sway the litigants to agree upon some fair compromise.

Dismissing the civil case and compelling petitioner to re-file its complaint is a dangerous,
costly and circuitous route that may end up aggravating, not resolving, the disagreement. This
case management strategy is frighteningly deceptive because it does so at the expense of
petitioner whose cause of action, perhaps, may have already been admitted by its adverse
parties as shown by three (3) of four (4) defendants not willing to contest petitioners
allegations, and more critically, since this approach promotes the useless and thankless
duplication of hard work already undertaken by the trial court. As we have aptly observed,"
[i]nconsiderate dismissals, even if without prejudice, do not constitute a panacea nor a solution
to the congestion of court dockets. While they lend a deceptive aura of efficiency to records of
individual judges, they merely postpone the ultimate reckoning between the parties. In the
absence of clear lack of merit or intention to delay, justice is better served by a brief
continuance, trial on the merits, and final disposition of the cases before the court." 40
WHEREFORE, the Petition for Review is GRANTED. The Decision dated 28 September 2001
and Resolution dated 2 April 2002 of the Court of Appeals in CA-G.R. SP No. 62102 are
REVERSED
and
SET
ASIDE.
The Orders dated 8 September 2000, 6 November 2000 and 16 November 2000 of the Regional
Trial Court, Branch 135, of Makati City, docketed as Civil Case No. 99-518, are also
REVERSED and SET ASIDE insofar as these Orders are interpreted to impose upon and
collect anew from petitioner RIZAL COMMERCIAL BANKING CORPORATION docket or
legal fees for its complaint, or to dismiss without prejudice Civil Case No. 99-518, or to
preclude the trial court from calling the parties therein to pre-trial conference, or from
proceeding
thereafter
with
dispatch
to
resolve
the
civil
case.
Civil Case No. 99-518 is deemed REINSTATED in, as it was never taken out from, the dockets
of the Regional Trial Court, Branch 135, of Makati City. The trial court is ORDERED to
exercise its jurisdiction over Civil Case No. 99-518, to CONDUCT the pre-trial conference
therein with dispatch, and to UNDERTAKE thereafter such other proceedings as may be
relevant, without petitioner being charged anew docket or other legal fees in connection with its
reinstatement. Costs against respondents.
[G.R. No. 141897. September 24, 2001]
METRO
CONSTRUCTION,
INC., respondent.

INC., petitioner, vs. CHATHAM

PROPERTIES,

DECISION
DAVIDE, JR., C.J.:
The core issue in this case is whether under existing law and rules the Court of Appeals can
also review findings of facts of the Construction Industry Arbitration Commission (CIAC).

Respondent Chatham Properties, Inc. (CHATHAM) and petitioner Metro Construction,

Inc. (MCI) entered into a contract for the construction of a multi-storey building known as the
Chatham House located at the corner of Herrera and Valero Streets, Salcedo Village, Makati
City, Metro Manila. In April 1998, MCI sought to collect from CHATHAM a sum of money
for unpaid progress billings and other charges and instituted a request for adjudication of its
claims with the CIAC. The case was docketed as CIAC Case No. 10-98. The arbitral tribunal
was composed of Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C. Aquino as
members.
The preliminary conference before the CIAC started in June 1998 and was concluded a
month after with the signing of the Terms of Reference (TOR) of the Case.[1] The hearings
immediately started with the presentation of MCIs witnesses, namely: Ms. Ma. Suzette S.
Nucum, Chief Accountant; Ms. Isabela Redito, Office Engineer; Mr. John Romulo, Field
Manager; and Dr. John Y. Lai, President. CHATHAMs witnesses were: Engr. Ruperto
Kapunan III, Managing Director of RK Development and Construction Co., Inc. (RKDCCI),
which was the Construction Manager firm hired by CHATHAM to oversee the construction
work of the Chatham House; Engr. Alex Bautista, Area Manager of RKDCCI; Mr. Avelino M.
Mercado, CHATHAMs Project Manager; and Engr. Jose T. Infante.
In the meantime, the TOR was amended and finalized on 19 August 1998.[2]
The facts, as admitted by the parties before the CIAC and incorporated in the original TOR,
are as follows:
1. On 21 April 1994, the parties formally entered into a xxx contract for the
construction of the Chatham House xxx for the contract price of P50,000,000.00
inclusive of value-added tax, subject to adjustments in accordance with Article 9 of
the contract. Construction of the project, however, commenced on 15 April 1994
upon the release by CHATHAM of the downpayment.
2. On 12 July 1994, a Supplemental Contract was executed by and between the parties
whereby CHATHAM authorized MCI to procure in behalf of the former materials,
equipment, tools, fixtures, refurbishing, furniture, and accessories necessary for the
completion of the project.
3. Under Section 1.04 of the Supplemental Contract, the total amount of procurement
and transportation cost[s] and expenses which may be reimbursed by MCI from
CHATHAM shall not exceed the amount of P75,000,000.00.
4. In the course of the construction, Change Orders No. 1, 4, 8A, 11, 12 and 13 were
implemented, payment of which were recommended by xxx RKDCCI and approved
by one of CHATHAMs Project Managers, Romulo F. Sugay.
5. On 15 September 1995, CHATHAM through its Project Manager, Romulo F. Sugay,
agreed to give P20,000 per floor for five (5) floors, or a total of P100,000.00

as bonus/incentive pay to MCIs construction workers for the completion of each

floor on schedule. CHATHAM reimbursed MCI the amount of P60,000.00
corresponding to bonuses advanced to its workers by the latter for the 14 th, 16th, and
17th floors.
6. CHATHAMs payments to MCI totaled P104,875,792.37, representing payments
for portions of MCIs progress billings and xxx additional charges.
The parties then stipulated on the following issues, again, as set forth in the TOR:
1. Is MCI entitled to its claims for unpaid progress billings amounting to
P21,062,339.76?
2. Were the approved Change Orders 1, 4, 8a, 11, 12 and 13 fully paid by
CHATHAM? If not, is MCI entitled to its claim for the unpaid balance?
3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15, 16, 17, 19 and 20?
4. Were the CHB works from the 8th to the 31st floors part of the original contract or in
the nature of extra/additional works? Is CHATHAM liable for the same? If so, how
much?
5. Is MCI entitled to an additional reimbursement of P40,000.00 for bonuses granted
to workers as an incentive for the early completion of each floor?
6. Were the deductions in the amount of P1,393,458.84 made by CHATHAM in MCIs
progress billing reasonable?
7. Is MCIs claim of P1,646,502.00 for labor escalation valid?
8. Is MCI entitled to payment of attendance fee? To what extent and how much?
9. Did MCI fail to complete and/or deliver the project within the approved completion
period? If so, is MCI liable for liquidated damages and how much?
10.
Whether or not CHATHAM is entitled to claim x x actual damages? If so,
to what extent and how much?
11.
Whether or not CHATHAM is entitled to x x x additional counterclaims as
follows:
11.1

Core testing expenses and penalty for concrete strength failure P3,630,587.38

11.2. Expenses to rectify structural steel works for the foundation P1,331,139.74.
11.3. Cost of additional materials (concrete & rebars) supplied by CPI P5,761,457.91

12. Are the parties entitled to their respective claims for attorneys fees and cost of
litigation? If so, how much?[3]
In the resolution of these issues, the CIAC discovered significant data, which were not
evident or explicit in the documents and records but otherwise revealed or elicited during the
hearings, which the CIAC deemed material and relevant to the complete adjudication of the
case. In its decision of 19 October 1998,[4] the CIAC made the following findings and
conclusions:
It was established during the hearing that the contract was awarded to MCI through negotiation
as no bidding was conducted. xxx It was also revealed that two agreements were entered into,
one is labeled Construction Contract for the total fixed amount of P50,000,000.00 and the other
a Supplemental Contract for an amount not to exceed P75,000,000.00. The latter is supposed
to cover the procurement of materials for the project. The Construction Contract provides for
monthly progress billings and payments based on actual accomplishments of the various phases
of work. The Supplemental Contract provides for reimbursement of [the] total amount of
procurement and transportation costs and expenses, upon MCIs presentation of suppliers
invoices/receipts.
However, from testimonies of witnesses from both parties, it was revealed that the two distinct
manner(s) of payment to MCI was set aside. The earlier attempt by CHATHAM to prove that
MCI was remiss in submitting suppliers invoices and/or receipts in support of its billings
against the Supplemental Contract was in fact later on abandoned when CHATHAMs witness
Mercado admitted that the matter of adherence to the payment provision of the Supplemental
Contract is a non-issue. This was borne out by the fact that progress billings and payments
under both contracts were made on the basis of percentage of project completion.
Both documentary and testimonial evidence prove that, effectively, the construction contract
and supplemental contract is but one agreement for a lump sum contract amount of
P125,000,000.00.
xxx
There was also the admitted fact that the contract was negotiated and awarded in the absence of
a complete construction plan. In any case, in support of the total contract amount of P125
MILLION, is a Cost Breakdown (Exh. 17-L), where the estimated quantities of owner
furnished materials (OFM) are indicated. It is however, understood that these quantities are
estimates, based on (an) incomplete set of construction plans. It is likewise understood that
except for the OFM, all the other costs in the Cost Breakdown form the basis for the lump-sum
agreement under the contract, subject to adjustment only if there are any significant changes in
the contract plans.
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4), informed MCI that it was confirming
the agreement allegedly accepted by Dr. Lai that the Building Committee will take over the
management of the construction operations (of the project) albeit under certain
conditions. Specifically, the take over was for an interim period and will extend only after
concreting of up to basement level 5 or up to 30 May 1995 whichever is later. The letter also
stated that the Building Committee xxx will be responsible for management and direction

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

It is with the above attendant circumstances that this Tribunal will be guided in the resolution
of issues brought before it for adjudication. From what this Tribunal finds as peculiar
circumstances surrounding the contracting and implementation of the CHATHAM House
Project, it arrived at the following fundamental conclusions:
1. That indeed special friendly relations were present between the parties in this case,
although decisions by either party on any particular issue were made not purely on
the basis of such special relations. For example, this Tribunal believes that, contrary
to the allegation of (CHATHAMs) witnesses, the decision not to terminate the
contract was not due to the admitted special relations only, but also due to the
greater problems the project would be faced with by terminating the MCI contract
and mobilizing another contractor.
2. That while there was no official termination of the contract, the manner by which
CHATHAM had taken upon themselves the procurement of materials, the fielding
of labor, the control over MCIs engineers, and the subcontracting of various phases
of work on its own, is considered by this Tribunal as implied termination of the
contract. The idea of allowing MCI to remain on the project in spite of what
CHATHAM claims (to be) MCIs shortcomings, and MCIs agreement to stay on the
project under conditions set by CHATHAM, is believed a matter of mutual benefit
to both parties.
3. That CHATHAMs invoking its rights under the provisions of Article 27 of the
construction contract is believed out of place, as it failed to observe the required
antecedent acts before it can exercise its prerogative under the said contract
provision.
4. That there is no reason to believe, either party was in any way guilty of bad faith in
acting as it did on certain relevant matters. However, this Tribunal is of the belief
that due perhaps to the eagerness on the part particularly of CHATHAMs
representatives to take such steps it considered necessary to insure completion of the
project within the period desired by CHATHAM, it deviated from some generally
accepted procedures in the construction industry in dealing with MCI. One example
was not giving MCI the opportunity to rectify some of what CHATHAM considered
as construction deficiencies and instead engaging the services of other parties to
undertake the corrective works and later on charging the costs thereof to MCI.
In addition to the above conclusions resulting from what this Tribunal considered peculiar of
circumstances surrounding the implementation of the project that were revealed during the
proceedings of this case, this Tribunal finds the necessity of establishing a cut-off date with
regard to the fiscal liability of one party towards the other.
Mr. Avelino Mercado of CHATHAM presented a list of what he claims as its Payments to MCI
(Exhibit 7) summarized as follows:
a. Down payment (Paid in two equal trances)

P20,000,000.00

b. Cash Advance for Mobilization

800,000.00

c. Payments of Progress Billings up to Billing No. 19

d. Other Payments (Mar 1994 to Apr 1996)

71,081,183.44
5,474,419.67

e. Advances on MCI Payrolls (April 1996 to March 1997) 8,196,755.51

Total

P104,752,358.42

The records of this case show that the last progress payment to MCI was in January 1996
representing payment of Progress Billing No. 19 for the period ending 31 December 1995. The
percentage of completion claimed then by MCI was 80.02%, the amount evaluated and
eventually paid to MCI was the equivalent of 77.15% work accomplishment. No further
progress payments were made thereafter, other than for advances to cover MCI payrolls from
April 1996 to March 1997 in the amount of P8,196,755.51 and for various advances and
payments of approved change orders in the amount of P5,474,419.67.
In the meantime, up to Billing No. 23 for the period ending 30 April 1996, MCI billed
CHATHAM a total accomplishment of 95.29%. This billing was however, evaluated by
CHATHAM, and in its letter to MCI dated 27 May 1996 (Exhibit E) it confirmed that MCIs
remaining balance of work stands at P7,374,201.15 as of 23 May 1996. This amount,
percentage-wise, equals roughly 5.88% of the contract amount as testified to by Engr. Jose
Infante. (Exhibit 22-B). Therefore, what was computed as MCIs work accomplishment as of
23 May 1996 was 94.12% and it is this evaluation which this Tribunal believes MCI is entitled
to as of said date.
Applying this percentage of completion of 94.12% to the P125,000,000.00 contract amount
gives a total accomplishment equivalent to P117,650,000.00 as of 23 May 1996. Add to this
amount the sum of P5,353,091.08 representing the total of approved Change Orders as of 31
December 1995 gives a total MCI accomplishment of P123,003,091.08, as CHATHAM saw
it. Of this amount, CHATHAM admitted having paid MCI the total sum of P104,752,358.42
only (Exhibit 7) up to March 15, 1997, leaving a balance of P18,250,732.66. It should be noted
that of the total payment of P104,752,358.42, the sum of P5,750,000.00 was paid after May
1996 so that as of 23 May 1996, CHATHAMs total payment to MCI was P99,002,358.42.
Effectively, therefore, the amount due MCI as of 23 May 1996 amounted to P24,005,732.66
computed as follows:
Total accomplishment as of 23 May 1996 at 94.12% P117,655,000.00
Add approved change orders
Total
Less payments up to 23 May 1996
Balance due MCI as of 23 May 1996

5,353,091.08
P123,008,091.08
99,002,358.42
P24,005,732.66

Of the above balance of P24,005,732.66 as of 23 May 1996, the only payments made by
CHATHAM to MCI is the sum of P5,750,000.00 from June 1996 onwards, allegedly to cover

MCI payrolls. It is of course noted that CHATHAMs suspension of further payments to MCI
was because it had been undertaking on its own, the further procurement of materials and subcontracting of various phases of works on the project.
In consideration of the above facts, this Tribunals conclusion that there was in fact an implied
take over of the project is further confirmed. Furthermore, this Tribunal additionally concludes
that the cut-off date for purposes of delineating the financial obligations of the parties between
them should be 23 May 1996, the date when CHATHAM evaluated MCIs accomplishment at
94.10% but nevertheless suspended all further progress payments to MCI.
MCI presented further documentary evidence (Exhibit E-6) the subject of which is
PUNCHLISTING-CIVIL STRUCTURAL. In this particular document which bears the
signatures of representatives of both MCI and RKDCCI, MCI tried to prove that as of 30
August 1996 it had actually attained 99.16% work accomplishment. While it may be true that
as of that date the project had reached 99.16% completion, there is no incontrovertible evidence
showing that MCI was responsible for such accomplishment. This was in fact actually testified
to by Engr. Alex Bautista of RKDCCI, when he said that it was an evaluation of the projects
completion stage, not necessarily MCIs work accomplishment. This Tribunal therefore stands
firm on its conclusion that MCIs accomplishment is only up to the extent of 94.10%.[5]
With those findings, the CIAC disposed of the specific money claims by either granting or
reducing them. On Issue No. 9, i.e., whether CHATHAM failed to complete and/or deliver the
project within the approved completion period and, if so, whether CHATHAM is liable for
liquidated damages and how much, the CIAC ruled in this wise:
This Tribunal holds that the provision of the contract insofar as the Overall Schedule is
concerned cannot justifiably be applied in the instant case in view of the implied take-over of
the Chatham House project by CHATHAM. Accordingly, this Tribunal finds no necessity to
resolve whether or not MCI complete[d] and/or deliver[ed] the project within the approved
completion period. In fact, Mr. Mercado testified that it was CHATHAM who ultimately
completed the project, with assistance of the construction managers.
In any case, this Tribunal finds merit in RKDCCIs claim that MCI was in delay in the
concreting milestone and that [it] is liable for liquidated damages therefor. This,
notwithstanding MCIs invoking that Chatham is estopped from claiming liquidated damages
after it failed to deduct the alleged liquidated damages from MCIs progress billings. This
Tribunal holds that such failure to deduct, which CHATHAM claims it did in order not to
hamper progress of work in the project, is an option which [it] may or may not exercise.
However, this Tribunal finds that CHATHAMs Exh. 11-A where the liquidated damages on
delays in concreting milestone was applied is not consistent with [its] own Exhibit 3-I. This
Tribunal notes that in Exh. 11-A, CHATHAM included a projected delay of 85 days for the
Helipad Concreting works, while no such projected delay was included in Exh. 3-I as it should
be.
This Tribunal holds that Exh. 3-I showing a delay of 294 days in concreting milestones should
rightfully be used in computing liquidated damages. Accordingly, this Tribunal holds that MCI
is liable for liquidated damages in the amount of P3,062,498.78 as follows:

1/4x1/3[(1/10xP125,000,000.00)1%]x294=P3,062,498.78.[6]
The CIAC then decreed:
Accordingly, as presented below, all the amounts due MCI are first listed and added up and the
total payment is deducted therefrom. The admitted total payment figure as reflected in the
Terms of Reference is the amount applied instead of the total reflected in CHATHAMs
Summary of Payments which incidentally reflected a lesser amount. From the Balance Due
MCI the Amounts CPI is Held Entitled To is deducted and the Net Amount Due MCI is
arrived at.
A.
AMOUNTS HELD MCI IS ENTITLED TO:
A.1. From the original contract: 94.12% of P125,000,000.00

P117,650,000.00

A.2 Approved Change Orders

5,353,091.08

A.3 Pending Change Orders

1,648,560.46

A.4 CHB Works

1,248,654.71

A.5 Workers Bonus

-0-

A.6 Disputed Deductions

909,484.70

A.7 Labor Escalation

1,076,256.00

A.8 Attendance Fee

508,162.73

Total
Less: Total payments-Item II-6 of TOR
Balance Due MCI

P128,394,209.68
104,875,792.37
P 23,518,417.31

B. AMOUNTS HELD CPI IS ENTITLED TO:

B.1. Liquidated Damages
B.2. Actual Damages
B.3. Penalties
B.4 Cash Payments in Behalf of MCI
Total Amount Due CPI
C. NET AMOUNT DUE MCI (A minus B)

P 3,062,498.78
335,994.50
1,778,285.44
2,214,715.68
P 7,391,494.40
P16,126,922.91

WHEREFORE, judgment is hereby rendered in favor of the Claimant [MCI] directing

Respondent [CHATHAM] to pay Claimant [MCI] the net sum of SIXTEEN MILLION ONE
HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY TWO & 91/100
(16,126,922.91) PESOS.
SO ORDERED.[7]
Impugning the decision of the CIAC, CHATHAM instituted a petition for review with the
Court of Appeals, which was docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM
alleged that:

The Arbitral Tribunal grossly erred in failing to indicate specific reference to the evidence
presented or to the transcript of stenographic notes in arriving at its questioned Decision, in
violation of the cardinal rule under Section 1, Rule 36 of the Revised Rules of Civil Procedure
that a judgment must state clearly and definitely the facts and the law on which it is based.
The Tribunals conclusions are grounded entirely on speculations, surmises and conjectures.
The Arbitral Tribunal grossly erred in failing to consider the evidence presented by CHATHAM
and the testimony of its witnesses.
The Arbitral Tribunal gravely abused its discretion in considering arbitrarily that there was an
implied takeover contrary to the facts and evidence submitted.
The Arbitral Tribunal committed grave error and gross misapprehension of facts in holding that
CHATHAM is not entitled to liquidated damages despite failure of MCI to meet the over-all
schedule of completion.
The Arbitral Tribunal manifestly erred in holding that MCI is entitled to its claim for unpaid
progress billings.
The Arbitral Tribunal committed gross and reversible error in equating the percentage of MCIs
work accomplishment with the entire work in place, despite evidence to the contrary.
The Arbitral Tribunal gravely erred in making 23 May 1996 as the cut-off date for purposes of
delineating the financial obligations of the parties.
The Arbitral Tribunal erred in denying CHATHAM its claim for actual damages pursuant to
Article 27.8 of the Construction Contract.
The facts set forth in CHATHAMs Answer with Compulsory Counterclaim as well as its
documentary and testamentary evidence were not overturned or controverted by any contrary
evidence.[8]
In its decision of 30 September 1999,[9] the Court of Appeals simplified the assigned
errors into one core issue, namely, the propriety of the CIACs factual findings and
conclusions. In upholding the decision of the CIAC, the Court of Appeals confirmed the
jurisprudential principle that absent any showing of arbitrariness, the CIACs findings as an
administrative agency and quasi-judicial body should not only be accorded great respect but
also given the stamp of finality. However, the Court of Appeals found exception in the CIACs
disquisition of Issue No. 9 on the matter of liquidated damages.
The Court of Appeals disagreed with the CIACs finding that there was an implied takeover
by CHATHAM of the project and that it was unnecessary for the CIAC to rule on whether MCI
completed and/or delivered the project within the approved completion schedule of the project
since CHATHAM failed to observe the antecedent acts required for the termination of the
contract, as set forth in the Construction Agreement.
The Court of Appeals ascertained that the evidence overwhelmingly proved that there was
no takeover by CHATHAM and that MCI exercised complete control, authority and
responsibility over the construction. In support of this conclusion, the appellate court pointed

to the following evidentiary bases:[10]

1. Testimony of CHATHAMs Engr. Kapunan that the interim takeover for the works on the
basement was triggered by lack of manpower and delays as early as February 1995, as
evidenced by their assessment[11] and that the interim takeover was only with respect to the
direction or management of the field operations and was limited only to works on the basement
and intended to assist MCI to catch up with the schedule of completion, since at that time the
project was very much delayed; thereafter, the MCI was back in full control of the project.[12]
2. Testimony of Engr. Bautista that the takeover was only partial and temporary and limited to
the management portion on the basement only and that MCI was always in control of the
project.[13]
3. Testimony of Engr. Infante that MCI personnel were constantly present in the project and the
intervention (not takeover) by CHATHAM was justified to ensure completion of the project
on time.[14]
4. Documentary exhibits evincing the nature and extent of MCIs work during the takeover
period which belied its claims that it was not in control of the project because of the takeover
thus:
Exhibit 4 Letter dated 15 February 1995 of Engr. Kapunan of RKDCCI to John Lai of MCI
stating that the takeover of directions or management of the field operations is interim, i.e.
while the takeover is effective immediately it will extend only after concreting Level B-1 or
approximately until 30 May 1995 which ever is later.
Exhibit 4-A Letter dated 17 February 1995 written by Dr. Lai of MCI to Engr. Kapunan in
response to the latters 15 February 1995 letter stating that [A]lso we were assured that we
will not be responsible for any errors or accidents that may occur during this INTERIM
period, indicating that Dr. Lai was very much aware of the interim period.
Exhibit 4-C - Letter dated 18 February 1995 written by Engr. Ben C. Ruiz of RKDCCI to Dr.
Lai containing the reasons for the takeover.
Exhibit 8A Letter dated 5 September 1995 written by Dr. E.G. Tabujara to Dr. Lai/Romy
Laron (Project Manager of MCI) requesting for an engineer of MCI to accompany the inspector
of RKDCCI to witness batching procedures. By so doing, Dr. E.G. Tabujara acknowledged
that Dr. Lai was in control of the project.
Exhibit 8 Letter dated 4 September 1995 by Engr. Romulo R. Sugay to Dr. Lai offering an
incentive to the workers of MCI to exert (their) best effort for topping off by the end of
December; another clear indication that Dr. Lai was in control of the project.
Exhibit 4-D Letter dated 4 January 1996 indicating that Mr. H.T. Go offered Dr Lai an
incentive of P1,800,000 on the condition that MCI meets the new schedule/milestones. MCIs
acceptance of the incentive offer likewise shows that MCI was in control of the Project.
Exhibits 3, 3-I, 3-M, 3-N, 3-W-1, 3-X, 3-Y, and 3-Z among others
containing reminders to MCI of its duties and shortcomings, likewise attest to the fact that MCI
was in control (of) and responsible for the Project, although markedly deficient.
Exhibits 5, 5-A, 5-B, 5-C, 5-D, 5-E, 5-F, 5-O, C-7, and E-9 evidencing

that MCI continued to manage other works on the project even during the time of the interim
takeover of the basement works, as seen in the series of communications between CHATHAM
or RKDCCI and MCI within the period beginning February 1995 to 30 May 1995.
5. Respondents Request for Adjudication, Annex G, Records, Folder No. 6 - which
incorporated Change Order No. 12, among others, dated 28 August 1995, recommended by the
RKDCCI and accepted by Dr. Lai, and which request for an extension of 25 days readily
showed that even after 30 May 1995, after the close of the supposed takeover period, MCI was
still the contractor in complete control of the project for it would not have otherwise accepted
the said change order if it (were) no longer the Contractor of the project due to the termination
of the Construction agreement as of said date on account of the alleged takeover.
6. Exhibits 3-J, 3-M, 3-Q, 3-R, 3-V, 3-W-1, 3-W-2, 5-F, 5-1, 6, 12-II,
12-JJ, 12-MM, and 12-NN tending to prove that RKDCCI monitored the work from
start to finish and had zealously pointed out to MCI the defects or improper execution of the
construction works, and gave MCI all the opportunity to rectify the construction deficiencies
and complete the works of the project.
The Court of Appeals concluded that the interim takeover was necessitated by
CHATHAMs insistence to meet its own turnover dates with the buyers of the projects
units. Thus, CHATHAM was constrained to hire subcontractors with sufficient manpower and
supervision and incur various expenses to facilitate the completion of the project and/or assist
MCI in making up for its delay.
The Court of Appeals then considered it imperative to determine whether MCI failed to
complete the project on time for which it may be held liable for liquidated damages based on
the delays in the overall schedule of completion pursuant to Art. 13.5 of the Construction
Agreement, to wit:
13.5. Over-All Schedule For not meeting the final completion date of the PROJECT, the
OWNER will deduct from the Contract Sum or amounts due the CONTRACTOR, the amount
equivalent to 1/10 of 1% of the Contract Sum for every calendar day of delay, provided,
however, that the maximum penalty should not exceed 25% of the fee payable to the
CONTRACTOR as stipulated in the Bill of Quantities. Penalties from concreting milestones
shall be deducted from the penalty of Over-All Schedule.[15]
The Court of Appeals disposed of the controversy in this wise:
As is extant from the records, the completion date of the Project under the Construction
Contract or under the revised construction schedule was never met by reason of [MCIs] lack of
manpower, necessary equipment, qualified engineers and inefficient management of the
construction works on the Project. Thus, under the Contract (Exhibit 1), [MCI] had 780 days,
or until 22 January 1996, from starting date, or April 12, 1994, to finish the project. The
completion date, however, was not followed and was revised as early as December 17, 1994,
extending the milestone dates up to March 15, 1996 (Exhibits 3-G and 3-H). As of
December 25, 1995, the number of days delayed was already 294 days. Thus, on February 22,
1996, the contract milestones were again revised, inclusive of 53 days extension, to May 23,

1996 (Exhibits 3-I and 3-O). The May 23, 1996 turnover milestone nor the July 22, 1996
turnover of the whole project were neither met (Exhibits 3-P, 3-R, 3-S and 3-T but
[CHATHAM] was again constrained to allow [MCI] to continue working on the Project to
complete the balance of the works (Exhibit M). And all throughout the construction of the
Project, [CHATHAM] had to assist [MCI] along the way to expedite the execution and
completion of the Project (Exhibits 3-K and 3-V).
From the foregoing disquisitions, it is clear that [MCI] is liable for liquidated damages, as per
Article 13.5 of the Construction Contract, for its failure to complete the project within the
period stipulated in the Construction Contract and even despite an extension of 53 days from
the original schedule or of the overall schedule of completion. [MCI] should therefore pay
[CHATHAM] the amount of liquidated damages equivalent to P24,125,000.00 for 193 days of
delay in the overall schedule of completion counted from overall completion date on July 22,
1996 up to the date of completion on February 15, 1997, as stated in the Certificate of
Occupancy, computed as follows, to wit:
1/10[1%(P125,000,000.00)] per day x 193 days
=[1/10 (P1,250,000.00)] per day x 193 days
=P125,000.00 per day x 193 days
=P24,125,000.00
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered partially granting
[CHATHAMs] claim for liquidated damages. The Tribunals Decision dated 19 October 1998
is hereby AFFIRMED with the modification on [MCIs] liability for liquidated damages in the
amount of P24,125,000.00. Thus,
A. AMOUNTS [MCI] IS ENTITLED TO:
A.1. From the original contract: 94.12% of P125,000,000.00 P117,650,000.00
A.2 Approved Change Orders

5,353,091.08

A.3 Pending Change Orders

1,648,560.46

A.4 CHB Works

1,248,654.71

A.5 Workers Bonus

A.6 Disputed Deductions
A.7 Labor Escalation
A.8 Attendance Fee
Total
Less: Total payments-Item ll-6 of TOR
Balance Due Respondent

-0909,484.70
1,076,256.00
508,162.73
P128,394,209.68
104,875,792.37
P 23,518,417.31

B. AMOUNTS [CHATHAM] IS ENTITLED TO:

B.1. Liquidated Damages

P 24,125,000.00

B.2. Actual Damages

B.3. Penalties
B.4 Cash Payments in Behalf of MCI
Total Amount Due CPI
C. NET AMOUNT DUE [CHATHAM] (B minus A)

335,994.50
1,778,285.44
2,214,715.68
P 28,453,995.62
P 4,935,578.31

Correspondingly, Respondent [MCI] is hereby directed to pay the Petitioner [CHATHAM] the
net sum of FOUR MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE
HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31) PESOS.[16]
MCI promptly filed on 25 October 1999 a motion for reconsideration. In its Resolution of
4 February 2000, the Court of Appeals denied MCIs motion for reconsideration for lack of
merit, as well as CHATHAMs Motion to Lift Garnishment and Levy Pending Appeal, filed on
13 October 1999, for being premature.[17]
Thus, MCI filed the instant petition for review to challenge the decision of the Court of
Appeals. MCI alleges that the Court of Appeals erred in reviewing and reversing the CIACs
factual findings, that there was an implied takeover by CHATHAM of the project, and that MCI
was not in delay in the overall schedule. In so doing, the Court of Appeals contravened Section
19 of Executive Order (E.O.) No. 1008,[18] which limits the review of an Arbitral Award to
only questions of law, thus:
Section 19. Finality of Awards The arbitral award shall be binding upon the parties. It shall
be final and inappealable (sic) except on questions of law which shall be appealable to the
Supreme Court.
MCI then asserts that as signatories to the contract, it and CHATHAM complied with this
legal provision when they included as part of their TOR the stipulation that [t]he decision of
the Arbitral Tribunal shall be final and non-appealable except on questions of
law. Accordingly, the binding character of this provision upon the parties is conclusive and
final.
MCI also contends that while it may be argued that recent (1) issuances by the Supreme
Court, specifically, Circular No. 1-91, which eventually became Revised Administrative
Circular No. 1-95; (2) legislation, in particular, Republic Act No. 7902, which amended Batas
Pambansa Blg. 129; and (3) amendments to the Rules on Civil Procedure, modifying E.O. No.
1008 in the sense that questions of facts, of law, or mixed questions of facts and law may be
the subject of an appeal of the CIACs decision to the Court of Appeals, it is still E.O. No.
1008 which remains to be the fundamental and substantive law that endows parties to an
arbitral controversy the right to appeal. Hence, the provisions on appeal of E.O. No. 1008
should be controlling, i.e., only questions of law should be entertained. Therefore, the only
effect of these rules on E.O. No. 1008 is the transfer of the appeal forum from the Supreme
Court to the Court of Appeals.
MCI further asserts that, even assuming that the CIACs findings of facts are reviewable on

appeal, the Court of Appeals gravely abused its discretion when it accepted hook, line and
sinker CHATHAMs contention that MCI was in delay, and ignored competent, clear and
substantial evidence that prove the contrary, and that CHATHAM is not entitled to liquidated
damages.
For its part, CHATHAM avers that the evolution on the rules governing appeals from
judgments, decisions, resolutions, orders or awards of the CIAC convincingly discloses that
E.O. No. 1008 has already been superseded. With the power of the Supreme Court to
promulgate rules concerning the protection and enforcement of constitutional rights, pleadings,
practice, and procedure in all courts, its issuances and amendments to the Rules on Civil
Procedure, not to mention R.A. No. 7902, as enacted by Congress, effectively modified E.O.
No. 1008. Accordingly, the judgments, awards, decisions, resolutions, orders or awards of the
CIAC are now appealable to the Court of Appeals on questions of facts, mixed questions of
facts and law, and questions of law, and no longer with the Supreme Court on exclusively
questions of law. Further, the TOR cannot limit the expanded jurisdiction of the Court of
Appeals based on the latest rules. Thus, the Court of Appeals did not err in reviewing the
factual findings of the CIAC.
CHATHAM also contends that, even if the Court of Appeals can only review questions of
law, said court did not err in rendering the questioned decision as the conclusions therein,
drawn as they were from factual determinations, can be considered questions of law.
Finally, CHATHAM asseverates that the Court of Appeals did not commit grave abuse of
discretion in reversing the CIACs ascertainment on the implied take-over and liquidated
damages.
This Court shall now resolve the primary issue raised in this case.
E.O. No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the completion of the contract, or after
the abandonment or breach thereof.[19] By express provision of Section 19 thereof, the arbitral
award of the CIAC is final and unappealable, except on questions of law, which are appealable
to the Supreme Court.
The parties, however, disagree on whether the subsequent Supreme Court issuances on
appellate procedure and R.A. No. 7902 removed from the Supreme Court its appellate
jurisdiction in Section 19 of E.O. No. 1008 and vested the same in the Court of Appeals, and
whether appeals from CIAC awards are no longer confined to questions of law.
On 27 February 1991, this Court issued Circular No. 1-91, which prescribes the Rules
Governing Appeals to the Court of Appeals from Final Orders or Decisions of the Court of Tax
Appeals and Quasi-Judicial Agencies. Pertinent portions thereof read as follows:
1. Scope -- These rules shall apply to appeals from final orders or decisions of the Court of Tax
Appeals. They shall also apply to appeals from final orders or decisions of any quasi-judicial

agency from which an appeal is now allowed by statute to the Court of Appeals or the Supreme
Court. Among these agencies are the Securities and Exchange Commission, Land Registration
Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification Administration, Energy
Regulatory Board, National Telecommunications Commission, Secretary of Agrarian Reform
and Special Agrarian Courts under R.A. No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission
and Philippine Atomic Energy Commission.
2. Cases not Covered. -- These rules shall not apply to decisions and interlocutory orders of the
National Labor Relations Commission or the Secretary of Labor and Employment under the
Labor Code of the Philippines, the Central Board of Assessment Appeals, and other quasijudicial agencies from which no appeal to the courts is prescribed or allowed by statute.
3. Who may appeal and where to appeal. -- The appeal of a party affected by a final order,
decision, or judgment of the Court of Tax Appeals or a quasi-judicial agency shall be taken to
the Court of Appeals within the period and in the manner herein provided, whether the appeal
involves questions of fact or of law or mixed questions of fact and law. From final judgments
or decisions of the Court of Appeals, the aggrieved party may appeal by certiorari to the
Supreme Court as provided in Rule 45 of the Rules of Court.
Subsequently, on 23 February 1995, R.A. No. 7902 was enacted. It expanded the
jurisdiction of the Court of Appeals and amended for that purpose Section 9 of B.P. Blg. 129,
otherwise known as the Judiciary Reorganization Act of 1980.[20]
Section 9(3) thereof reads:
Section 9. Jurisdiction. -- The Court of Appeals shall exercise:
xxx
(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or
awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or
commissions, including the Securities and Exchange Commission, the Social Security
Commission, the Employees Compensation Commission and the Civil Service Commission,
except those falling within the appellate jurisdiction of the Supreme Court in accordance with
the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence
and perform any and all acts necessary to resolve factual issues raised in cases falling within its
original and appellate jurisdiction, including the power to grant and conduct new trials or
further proceedings. x x x
Then this Court issued Administrative Circular No. 1-95,[21] which revised Circular No. 191. Relevant portions of the former reads as follows:
1. Scope. --These rules shall apply to appeals from judgments or final orders of the Court of

Tax Appeals and from awards, judgments, final orders or resolutions of any quasi-judicial
agency from which an appeal is authorized to be taken to the Court of Appeals or the Supreme
Court. Among these agencies are the Securities and Exchange Commission, Land Registration
Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification Administration, Energy
Regulatory Board, National Telecommunication Commission, Department of Agrarian Reform
under Republic Act No. 6657, Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine
Atomic Energy Commission, Board of Investments, and Construction Industry Arbitration
Commission.
Section 2. Cases Not Covered. These rules shall not apply to judgments or final orders issued
under the Labor Code of the Philippines, Central Board of Assessment Appeals, and by other
quasi-judicial agencies from which no appeal to the court is prescribed or allowed.
Section 3. Where to Appeal. -- An appeal under these rules may be taken to the Court of
Appeals within the period and in the manner herein provided, whether the appeal involves
questions of fact, of law, or mixed questions of fact and law.
Thereafter, this Court promulgated the 1997 Rules on Civil Procedure. Sections 1, 2 and 3
of Rule 43 thereof provides:
Section 1. Scope. -- This Rule shall apply to appeals from judgments or final orders of the
Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized
by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among these
agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities
and Exchange Commission, Office of the President, Land Registration Authority, Social
Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology
Transfer, National Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian Reform under Republic Act No.
6657, Government Service Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy Commission,
Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators
authorized by law.
Section 2. Cases Not Covered. This Rule shall not apply to judgments or final orders issued
under the Labor Code of the Philippines.
Section 3. Where to Appeal. -- An appeal under this Rule may be taken to the Court of Appeals
within the period and in the manner herein provided, whether the appeal involves question of
fact, of law, or mixed questions of fact and law.
Through Circular No. 1-91, the Supreme Court intended to establish a uniform procedure
for the review of the final orders or decisions of the Court of Tax Appeals and other quasijudicial agencies provided that an appeal therefrom is then allowed under existing statutes to
either the Court of Appeals or the Supreme Court. The Circular designated the Court of
Appeals as the reviewing body to resolve questions of fact or of law or mixed questions of fact
and law.

It is clear that Circular No. 1-91 covers the CIAC. In the first place, it is a quasi-judicial
agency. A quasi-judicial agency or body has been defined as an organ of government other
than a court and other than a legislature, which affects the rights of private parties through
either adjudication or rule-making.[22] The very definition of an administrative agency
includes its being vested with quasi-judicial powers. The ever increasing variety of powers and
functions given to administrative agencies recognizes the need for the active intervention of
administrative agencies in matters calling for technical knowledge and speed in countless
controversies which cannot possibly be handled by regular courts.[23] The CIACs primary
function is that of a quasi-judicial agency, which is to adjudicate claims and/or determine rights
in accordance with procedures set forth in E.O. No. 1008.
In the second place, the language of Section 1 of Circular No. 1-91 emphasizes the obvious
inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial
agencies. The introductory words [a]mong these agencies are preceding the enumeration of
specific quasi-judicial agencies only highlight the fact that the list is not exclusive or
conclusive. Further, the overture stresses and acknowledges the existence of other quasijudicial agencies not included in the enumeration but should be deemed included. In addition,
the CIAC is obviously excluded in the catalogue of cases not covered by the Circular and
mentioned in Section 2 thereof for the reason that at the time the Circular took effect, E.O. No.
1008 allows appeals to the Supreme Court on questions of law.
In sum, under Circular No. 1-91, appeals from the arbitral awards of the CIAC may be
brought to the Court of Appeals, and not to the Supreme Court alone. The grounds for the
appeal are likewise broadened to include appeals on questions of facts and appeals involving
mixed questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final orders or decisions of the
CIAC is further fortified by the amendments to B.P. Blg.129, as introduced by R.A. No.
7902. With the amendments, the Court of Appeals is vested with appellate jurisdiction over all
final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasijudicial agencies, instrumentalities, boards or commissions, except those within the appellate
jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the
Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of
subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section
17 of the Judiciary Act of 1948.
While, again, the CIAC was not specifically named in said provision, its inclusion therein
is irrefutable. The CIAC was not expressly covered in the exclusion. Further, it is a quasijudicial agency or instrumentality. The decision in Luzon Development Bank v. Luzon
Development Bank Employees[24] sheds light on the matter, thus:
Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not
strictly be considered as a quasi-judicial agency, board or commission, still both he and the
panel are comprehended within the concept of a quasi-judicial instrumentality. It may even
be stated that it was to meet the very situation presented by the quasi-judicial functions of the
voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal operating under

the Construction Industry Arbitration Commission, that the broader term instrumentalities was
purposely included in [Section 9 of B.P. Blg. 129 as amended by R.A. No. 7902].
An instrumentality is anything used as a means or agency. Thus, the terms governmental
agency or instrumentality are synonymous in the sense that either of them is a means by
which a government acts, or by which a certain government act or function is performed. The
word instrumentality, with respect to a state, contemplates an authority to which the state
delegates governmental power for the performance of a state function.
Any remaining doubt on the procedural mutation of the provisions on appeal in E.O. No.
1008, vis--vis Circular No. 1-91 and R.A. No. 7902, was completely removed with the
issuance by the Supreme Court of Revised Administrative Circular No. 1-95 and the 1997
Rules of Civil Procedure. Both categorically include the CIAC in the enumeration of quasijudicial agencies comprehended therein. Section 3 of the former and Section 3, Rule 43 of the
latter, explicitly expand the issues that may be raised in an appeal from quasi-judicial agencies
or instrumentalities to the Court of Appeals within the period and in the manner therein
provided. Indisputably, the review of the CIAC award may involve either questions of fact, of
law, or of fact and law.
In view of all the foregoing, we reject MCIs submission that Circular No. 1-91, B.P. Blg.
129, as amended by R.A. 7902, Revised Administrative Circular 1-95, and Rule 43 of the 1997
Rules of Civil Procedure failed to efficaciously modify the provision on appeals in E.O. No.
1008. We further discard MCIs claim that these amendments have the effect of merely
changing the forum for appeal from the Supreme Court to the Court of Appeals.
There is no controversy on the principle that the right to appeal is statutory. However, the
mode or manner by which this right may be exercised is a question of procedure which may be
altered and modified provided that vested rights are not impaired. The Supreme Court is
bestowed by the Constitution with the power and prerogative, inter alia, to promulgate rules
concerning pleadings, practice and procedure in all courts, as well as to review rules of
procedure of special courts and quasi-judicial bodies, which, however, shall remain in force
until disapproved by the Supreme Court.[25] This power is constitutionally enshrined to
enhance the independence of the Supreme Court.[26]
The right to appeal from judgments, awards, or final orders of the CIAC is granted in E.O.
No. 1008. The procedure for the exercise or application of this right was initially outlined in
E.O. No. 1008. While R. A. No. 7902 and circulars subsequently issued by the Supreme Court
and its amendments to the 1997 Rules on Procedure effectively modified the manner by which
the right to appeal ought to be exercised, nothing in these changes impaired vested rights. The
new rules do not take away the right to appeal allowed in E.O. No. 1008. They only prescribe a
new procedure to enforce the right. [27] No litigant has a vested right in a particular remedy,
which may be changed by substitution without impairing vested rights; hence, he can have
none in rules of procedure which relate to remedy.[28]
The foregoing discussion renders academic MCIs assertion on the binding effect of its
stipulation with CHATHAM in the TOR that the decision of the CIAC shall be final and non-

appealable except on questions of law. The agreement merely adopted Section 19 of E.O. No.
1008, which, as shown above, had been modified.
The TOR, any contract or agreement of the parties cannot amend, modify, limit, restrict or
circumscribe legal remedies or the jurisdiction of courts. Rules of procedure are matters of
public order and interest and unless the rules themselves so allow, they cannot be altered,
changed or regulated by agreements between or stipulations of the parties for their singular
convenience.[29]
Having resolved the existence of the authority of the Court of Appeals to review the
decisions, awards, or final orders of the CIAC, the Court shall now determine whether the
Court of Appeals erred in rendering the questioned decision of 30 September 1999.
Settled is the general rule that the findings of facts of the Court of Appeals are binding on
us. There are recognized exceptions to the rule, such as when the findings are contrary to those
of the trial court,[30] as in this case. Hence, we have to take a closer reexamination of this
case.
The CIAC is certain that the evidence overwhelmingly tended to prove that the manner by
which CHATHAM took charge in the procurement of materials, fielding of labor, control of
MCI engineers and the subcontracting of various phases of the work, constituted an implied
takeover of the project. The CIAC then concludes that the cut-off date for delineating the fiscal
liabilities of the parties is 23 May 1996 when CHATHAM evaluated MCIs work
accomplishment at 94.12% and then suspended all further progress payments to MCI. For
these reasons, the CIAC found it trifling to determine whether MCI was in delay based on the
Overall Schedule. However, the CIAC discovered that MCI was in delay for 294 days in the
concreting milestone and held the latter liable for liquidated damages in the amount of
P3,062,498.78.
The Court of Appeals made a contrary conclusion and declared that MCI was in delay for
193 days based on the overall schedule of completion of the project and should incur liquidated
damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals found MCI liable for liquidated
damages but on different premises. Based on the CIACs assessment, MCIs responsibility was
anchored on its delay in the concreting milestone, while the Court of Appeals evaluation
concentrated on MCIs delay in completing the project based on the overall schedule of
work. The variance in the evaluation spells a staggering difference in the party who should
ultimately be held liable and the net amount involved.
A study of the final computation of the net amount due in both the final disquisitions of the
CIAC and the Court of Appeals shows that all the other figures therein are constant, save for
the amount of liquidated damages for which MCI should be accountable. If this Court concurs
with the CIACs conclusions, MCIs responsibility for liquidated damages is, as already stated,
P3,062,498.78. Setting this off against CHATHAMs overall fiscal accountability would bring

the latters total liability to MCI to P16,126,922.91. If the Court of Appeals is correct, MCI
would be held liable for a much higher P24,125,000 liquidated damages. Setting this off
against CHATHAMs monetary responsibilities, MCI would still have to pay CHATHAM
P4,935,578.31.
After painstakingly combing through the voluminous records, we affirm the findings of the
CIAC. The evidence taken as a whole or in their totality reveals that there was an implied
takeover by CHATHAM on the completion of the project. The evidence that appears to
accentuate the Court of Appeals decision ironically bolstered the CIACs conclusion. The
testimonies of Engr. Kapunan, Engr. Bautista, Dr. Lai, and the letter of Engr. Ruiz,
[31] acknowledging the temporary takeover by CHATHAM of the project, underscore the
palpable fact that there was indeed a takeover. We confer particular credit to Dr. Lais
testimony that as of 15 February 1995, MCI was relieved of full control of the construction
operations, that it was relegated to a mere supplier of labor, materials and equipment, and that
the alleged interim takeover actually extended through the completion of the project. Even
CHATHAM admits the takeover but sugarcoated the same with words like interim and
charging the costs to MCI. With these glaring admissions, we can even consider that the
takeover was not implied but blatant.
Exhibits 4, 4-A, 4-C, 8A, 8, 4-D, 3, 3-I, 3-M, 3-N, 3-W-1, 3-X,
3-Y, 3-Z, 5,5-A, 5-B, 5-C 5-D, 5-E, 5-F, 5-O, C-7, E-9, etc.,
[32] relied upon by the Court of Appeals when considered by themselves and singly, seemingly
and initially evince MCIs control over the project. However, they eventually lose evidentiary
puissance to support the Court of Appeals conclusion when reckoned against the totality of the
evidence that CHATHAM took charge of the completion of the project, particularly, the fact
that CHATHAM suspended all progress billing payments to MCI. The continued presence and
participation of MCI in the project was, as found by the CIAC, a matter of mutual benefit to
and convenience of the parties.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30 September 1999
decision of the Court of Appeals in CA-G.R. SP No. 49429 is hereby PARTIALLY MODIFIED
by setting aside the order directing Metro Construction, Inc. to pay Chatham Properties, Inc.
the amount of P4,935,578.31. The arbitral award of the Construction Industry Arbitration
Commission in CIAC Case 10-98, promulgated on 19 October 1998, directing Chatham
Properties, Inc. to pay Metro Construction, Inc. the sum of SIXTEEN MILLION ONE
HUNDRED TWENTY-SIX THOUSAND NINE HUNDRED TWENTY-TWO & 91/100
(P16,126,922.91) PESOS, is accordingly REINSTATED.
No pronouncement as to costs.