THIRD DIVISION

[G.R. No. 120105. March 27, 1998]

BF

CORPORATION, petitioner, vs.

COURT OF APPEALS,
SHANGRI-LA
PROPERTIES, COLAYCO, ALFREDO C.
RAMOS, INC., RUFO B.
MAXIMO G. LICAUCO IIIand BENJAMIN C.
RAMOS, respondents.
DECISION

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 Builders Work for the EDSA Plaza Project. Said
agreement would cover the construction work on said project as
of May 1, 1991 until its eventual completion.
According to SPI, petitioner failed to complete the
construction works and abandoned the project. [3] This resulted in
disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPIs
initiative, the parties respective representatives met in
conference but they failed to come to an agreement. [4]
Barely two days later or on July 14, 1993, petitioner filed
with the Regional Trial Court of Pasig a complaint for collection
of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of
directors namely, Alfredo C. Ramos, Rufo B. Colayco, Antonio
B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion
to suspend proceedings instead of filing an answer. The motion
was anchored on defendants allegation that the formalTRADE
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 SPIs reply, petitioner reiterated that there
was no arbitration clause in the contract between the parties. It
averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer
proper. It added that defendants should be declared in default
for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of
petitioners 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 formalTRADE
CONTRACT . Defendants have submitted a copy
of the alleged trade contract, which is entitled
`Contract Documents For Builders Work Trade
Contractor dated 01 May 1991, page 2 of which is
entitled `Contents of Contract Documents with a
list of the documents therein contained, and
Section A thereof consists of the abovementioned
Letter-Agreement dated May 30, 1991. Section C
of the said Contract Documents is entitled
`Articles of Agreement and Conditions of Contract
which, per its Index, consists of Part A (Articles of
Agreement) and B (Conditions of Contract). The
said Articles of Agreement appears to have been
duly signed by President Rufo B. Colayco of
Shangri-La Properties, Inc. and President Bayani
F. Fernando of BF and their witnesses, and was

thereafter acknowledged before Notary Public

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.
(underscoring 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 BFs representatives (Bayani F.
Fernando and Reynaldo M. de la Cruz) without

the initials thereon of any representative of

Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the
said Conditions of Contract was not duly executed
or signed by the parties, and the failure of the
defendants to submit any signed copy of the said
document, this Court entertains serious doubt
whether or not the arbitration clause found in the
said Conditions of Contract is binding upon the
parties to the Articles of Agreement.
(Underscoring 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 x x x x in no case x x x x later than the time
of final payment x x x x which apparently, had
elapsed, not only because defendants had taken
possession of the finished works and the plaintiffs
billings for the payment thereof had remained
pending 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 SPIs motion for reconsideration for
lack of merit and directed it and the other defendants to file their
responsive pleading or answer within fifteen (15) days from
notice.
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
Corporations representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of
petitioner Shangri-La Properties, Inc. does not militate
against its effectivity. Said petitioner having categorically
admitted that the document, Annex A to its reply dated

August 26, 1993 (Annex G, petition), is the agreement

between the parties, the initial or signature of said
petitioners representative to signify conformity to
arbitration is no longer necessary. The parties, therefore,
should be allowed to submit their dispute to arbitration in
accordance with their agreement.
2. The respondent Court held that petitioners `are in
default in proceeding with such arbitration. It took note of
`the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that Notice of the
demand for arbitration of a dispute shall be filed in writing
with the other party x x x in no case x x x later than the
time of final payment, which apparently, had elapsed, not
only because defendants had taken possession of the
finished works and the plaintiffs billings for the payment
thereof had remained pending since November, 1991 up
to the filing of this case on July 14, 1993, but also for the
reason 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, x x x.
Respondent Court has overlooked the fact that under the
arbitration clause
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
(underscoring 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 ENTER
INTO AN AGREEMENT TO
ARBITRATE.
(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:

x x x. Countless times in the past, this Court has held

that `where appeal is the proper remedy, certiorari will
not lie. The writs of certiorari and prohibition are
remedies to correct lack or excess of jurisdiction or grave
abuse of discretion equivalent to lack of jurisdiction
committed by a lower court. `Where the proper remedy is
appeal, the action for certiorari will not be entertained. x
x x. Certiorariis not a remedy for errors of judgment.
Errors of judgment are correctible by appeal, errors of
jurisdiction are reviewable by certiorari.
Rule 65 is very clear. The extraordinary remedies
of certiorari, prohibition and mandamus are available
only when `there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law x x x.
That is why they are referred to as `extraordinary. x x x.

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 forcertiorari before the Court of Appeals. And if the lower
court does not have jurisdiction over the controversy, then any
decision or order it may render may be annulled and set aside
by the appellate court.
However, the question of jurisdiction, which is a question of
law depends on the determination of the existence of the
arbitration clause, which is a question of fact. In the instant
case, the lower court found that there exists an arbitration
clause. However, it ruled that in contemplation of law, said
arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a
petition for certiorari is whether the Arbitration Clause does not
in fact exist. On its face, the question is one of fact which is not
proper in a petition for certiorari.

The Court 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]v. Court of Appeals, 327 Phil. 1, 41-42 (1996).9

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.

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

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 Builders Work for the EDSA Plaza Project does
not contain an arbitration clause, (b) private respondents
surreptitiously attached as Annexes `G-3 to `G-5 to their petition
before the Court of Appeals but these documents are not parts
of the Agreement of the parties as there was no formalTRADE
CONTRACT executed, (c) if the entire compilation of
documents is indeed a formalTRADE CONTRACT , then it
should have been duly notarized, (d) the certification from the
Records Management and Archives Office dated August 26,
1993 merely states that the notarial record of Nilberto Briones x
x x is available in the files of (said) office as Notarial Registry
Entry only, (e) the same certification attests that the document
entered in the notarial registry pertains to the Articles of
Agreement only without any other accompanying documents,
and therefore, it is not a formal trade contract, and (f) the
compilation submitted by respondents are a mere hodge-podge
of documents and do not constitute a single intelligible
agreement.
In other words, petitioner denies the existence of the
arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign the
Conditions of Contract that contained the said clause. Its other
contentions, specifically that insinuating fraud as regards the
alleged insertion of the arbitration clause, are questions of fact
that should have been threshed out below.
This Court may as well proceed to determine whether the
arbitration clause does exist in the parties contract. Republic Act

No. 876 provides for the formal requisites of an arbitration

agreement as follows:

Section 4. Form of arbitration agreement. A contract to

arbitrate a controversy thereafter arising between the
parties, as well as a submission to arbitrate an existing
controversy, shall be in writing and subscribed by the
party sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration
described in section two hereof, providing for arbitration
of any controversy, shall be deemed a consent of the
parties of the province or city where any of the parties
resides, to enforce such contract of submission.
(Underscoring 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 ones name; to sign at the end of
a document.[11] That word may sometimes be construed to mean
to give consent to or to attest.[12]
The Court finds that, upon a scrutiny of the records of this
case, these requisites were complied with in the contract in
question. The Articles of Agreement, which incorporates all the
other contracts and agreements between the parties, was
signed by representatives of both parties and duly
notarized. The failure of the private respondents representative
to initial the `Conditions of Contract would therefor not affect
compliance with the formal requirements for arbitration

agreements because that particular portion of the covenants

between the parties was included by reference in the Articles of
Agreement.
Petitioners contention that there was no arbitration clause
because the contract incorporating said provision is part of a
hodge-podge document, is therefore untenable. A contract need
not be contained in a single writing. It may be collected from
several different writings which do not conflict with each other
and which, when connected, show the parties, subject matter,
terms and consideration, as in contracts entered into by
correspondence.[13] A contract may be encompassed in several
instruments even though every instrument is not signed by the
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 petitioners contentions therefore lies in its
having segmented the various components of the whole
contract between the parties into several parts. This
notwithstanding, petitioner ironically admits the execution of the
Articles of Agreement. Notably, too, the lower court found that
the said Articles of Agreement also provides that the `Contract
Documents therein listed `shall be deemed an integral part of
this Agreement, and one of the said documents is the
`Conditions of Contract which contains the Arbitration Clause. It
is this Articles of Agreement that was duly signed by Rufo B.
Colayco, president of private respondent SPI, and Bayani F.
Fernando, president of petitioner corporation. The same
agreement was duly subscribed before notary public Nilberto R.
Briones. In other words, the subscription of the principal

agreement effectively covered

incorporated by reference therein.

the

other

documents

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 under the contract
in accordance with its terms. However, misunderstandings
appeared to have cropped up between the parties ostensibly
brought about by either delay in the completion of the
construction work or by force majeure or the fire that partially
gutted the project. The almost two-year delay in paying its
liabilities may not therefore be wholly ascribed to private
respondent SPI.
Besides, private respondent SPIs initiative in calling for a
conference between the parties was a step towards the agreed
resort to arbitration. However, petitioner posthaste filed the
complaint before the lower court. Thus, while private respondent
SPIs request for arbitration on August 13, 1993 might appear an
afterthought as it was made after it had filed the motion to
suspend proceedings, it was because petitioner also appeared
to act hastily in order to resolve the controversy through the
courts.
The arbitration clause provides for a reasonable time within
which the parties may avail of the relief under that
clause. Reasonableness is a relative term and the question of
whether the time within which an act has to be done is
reasonable depends on attendant circumstances. [15] This Court
finds that under the circumstances obtaining in this case, a one-

month period from the time the parties held a conference on

July 12, 1993 until private respondent SPI notified petitioner that
it was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the court to
claim what was due it under the contract. However, we find its
denial of the existence of the arbitration clause as an attempt to
cover up its misstep in hurriedly filing the complaint before the
lower court.
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.
[18]
Republic Act No. 876 was adopted to supplement the New
Civil Codes provisions on arbitration. [19] Its potentials as one of
the alternative dispute resolution methods that are now rightfully
vaunted as the wave of the future in international relations, is
recognized worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement between the
parties would therefore be a step backward.
WHEREFORE, the questioned Decision of the Court of
Appeals
is
hereby
AFFIRMED
and
the
petition
for certiorari DENIED.
This
Decision
is
immediately
executory. Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 110434 December 13, 1993

HI-PRECISION STEEL CENTER, INC., petitioner,
vs.
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 teel Builders, Inc.
RESOLUTION

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 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.
4

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 firstMOVED 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-Precision's own fault and issuance of change
orders. The project was taken over on 7 November 1990, and eventually
completed on February 1991, by Hi-Precision.
Steel Builders filed a "Request for Adjudication" with public respondent
CIAC. In its Complaint filed with the CIAC, Steel Builders sought payment
of its unpaid progress buildings, alleged unearned profits and other
receivables. Hi-Precision, upon the other hand, in its Answer and
Amended Answer, claimed actual and liquidated damages,
reimbursement of alleged additional costs it had incurred in order to
complete the project and attorney's fees.
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. On 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:
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 HiPrecision 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) petitioner's claims for the additional costs
allegedly incurred to complete the project; and (b) private respondent's
claim for profit it had failed to earn because of petitioner's take over of the
project.
The Tribunal then proceeded to resolve the remaining specific claims of
the parties. In disposing of these multiple, detailed claims the Arbitral
Tribunal, in respect of one or more of the respective claims of the parties:
(a) averaged out the conflicting amounts and percentages claimed by the
parties; 13 (b) found neither basis nor justification for a particular claim; 14 (c)
found the evidence submitted in support of particular claims either weak or
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 (compensation
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 still entitled to
damages, and claims that the Arbitral Tribunal committed grave abuse of
discretion when it allowed certain claims by Steel Builders and offset
them against claims of Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral Tribunal
has not been impleaded as a respondent in the Petition at bar. The CIAC
has indeed been impleaded; however, the Arbitral Award was not
rendered by the CIAC, but rather by the Arbitral Tribunal. Moreover,
under Section 20 of Executive Order No. 1008, dated 4 February 1985,
as amended, it is the Arbitral Tribunal, or the single Arbitrator, with the
concurrence of the CIAC, which issues the writ of execution requiring any
sheriff or other proper officer to execute the award. We consider that the
Arbitral Tribunal which rendered the Award sought to be reviewed and set
aside, should be impleaded even though the defense of its Award would
presumably have to be carried by the prevailing party.
Petitioner Hi-Precision apparently seeks review of both under Rule 45
and Rule 65 of the Rules of Court. 19 We do not find it necessary to rule
which of the two: a petition for review under Rule 45 or a petition
for certiorari under Rule 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:
(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 committee 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, estoppel against the contractor, the
private respondent herein, when it agreed on November
16, 1990 to award termination of the contract and the
owner's takeover of the project . . .;
(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 backfiling 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 change order . . .;
(6)
The exceptional circumstances in Remalante vs.
Tibe, 158 SCRA 138, where the Honorable Supreme
Court may review findings of facts, are present in the
instant case, namely; (a) when the inference made is
manifestly absurd, mistaken or impossible (Luna vs.
Linatoc, 74 Phil. 15); (2) when there is grave abuse of
discretion in the appreciation of facts (Buyco vs. People,
95 Phil. 253); (3) when the judgment is premised on a
misapprehension of facts (De la Cruz v. Sosing, 94 Phil.
26 and Castillo vs. CA, 124 SCRA 808); (4) when the
findings of fact are conflicting (Casica v. 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 (Emphasis partly applied and
partly in the original)
From the foregoing, petitioner Hi-Precision may be seen to be making
two (2) basic arguments:
(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 misapprehension of
facts on the part of the Arbitral Tribunal.

Executive Order No. 1008, as amended, provides, in its Section 19, as

follows:
Sec. 19. Finality of Awards. The arbitral award shall be
binding upon the parties. It shall be final and inappealable
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 Tribunal's
findings of fact shall be final and inappealable.
Voluntary arbitration involves the reference of a dispute to an impartial
body, the members of which are chosen by the parties themselves, which
parties freely consent in advance to abide by the arbitral award issued
after proceedings where both parties had the opportunity to be heard.
The basic objective is to provide a speedy and inexpensive method of
settling disputes by allowing the parties to avoid the formalities, delay,
expense and aggravation which commonly accompany ordinary litigation,
especially litigation which goes through the entire hierarchy of courts.
Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive
Order was enacted to encourage the early and expeditious settlement of
disputes in the construction industry, a public policy the implementation of
which is necessary and important for the realization of national
development goals. 21
Aware of the objective of voluntary arbitration in the labor field, in the
construction industry, and in any other area for that matter, the Court will
not assist one or the other or even both parties in any effort to subvert or
defeat that objective for their private purposes. The Court 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.
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 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 1911 of the Civil Code. 24 Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless

there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
Hi-Precision contends energetically that it is the injured party and that
Steel Builders was the obligor who did not comply with what was
incumbent upon it, such that Steel Builders was the party in default and
the entity guilty of negligence and delay. As the injured party, 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 30day extension period with which to complete the project.

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 15-day notice for termination of the contract. 26 This was clearly
a finding of fact on the part of the Tribunal, supported by the circumstance
that per the record, petitioner had offered no proof that it had complied with
such 15-day notice required under Article 28.01 of the General Conditions of
Contract forming part of the Contract Documents. Petitioner Hi-Precision's
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 assumingarguendo 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.

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 the two (2) contending parties had first failed to
comply with what is incumbent upon it. In other words, the supposed
misapplication of Article 1191, while ostensibly a "legal issue," is
ultimately a question of fact, i.e., the determination of the existence or
non-existence of a fact or set of facts in respect of which Article 1191 may
be properly applied. Thus, to ask this Court to correct a claimed
misapplication or non-application of Article 1191 is to compel this Court to
determine which of the two (2) contending parties was the "injured party"
or the "first infractor." As noted earlier, the Arbitral Tribunal after the
prolonged arbitration proceeding, was unable to make that factual
determination and instead concluded that both parties had committed
breaches of their respective obligations. We will not review, and much
less reverse, that basic factual finding of the Arbitral Tribunal.

A 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 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-Precision's 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.

A second "legal issue" sought to be raised by petitioner Hi-Precision

relates to the supposed failure of the Arbitral Tribunal to apply the

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
owner's claims and each item of the contractor's 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, Contractor's Claims were
as follows:

12.1. Unpaid Progress Billing 1,812,706.95

12.2. Change Order 1 0.00
12.3. -do- 2 10,014.00
12.4. -do- 3 320,000.00
12.5. -do- 4 112,300.70
12.6. -do- 5 398,398.00
12.7. -do- 6 353,050.38
12.8. -do- 7 503,836.53
12.9. -do- 8 216,138.75
12.10. -do- 9 101,621.40
12.11. -do- 10 7,200.00
12.12. -do- 11 0.00
12.13. -do- 12 7,800.00
12.14. -do- 13 49,250.00
12.15. -do- 14 167,952.00
12.16. -do- 15 445,600.00
12.17. -do- 16 92,457.30
12.18. -do- 17 1,500.00
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 petitioner's claims we are asked to review and
grant are summarized as follows:
1. Actual Damages
Advance Downpayment
[at] signing of Contract
which is subject to 40%
deduction every progress
billing (40% of Contract Price) P8,406,000.00
Progress Billings 5,582,585.55
Advances made to Lim Kim
a) prior to take-over 392,781.45
b) after the take-over
Civil Works 1,158,513.88
Materials 4,213,318.72
Labor 2,155,774.79
Equipment Rental 1,448,208.90

P8,974,816.45
Total Amount Paid for Construction 23,650,183.00
Less: Contract Price (21,000,000.00)
IA Excess of amount paid
over contract price 2,650,163.29

IB Other items due from Lim

Kim Steel Builders

3. Attorney's Fees 500,000.00

a. Amount not yet deducted

from Downpayment due
to non-completion of Project
(P24.1326%) 2,027,138.40
b. Due to Huey Commercial
used for HSCI Project 51,110.40
IC Additional construction expenses
a. Increases in prices since Oct. 5,272,096.81
b. Cost of money of (a) 873,535.49
ID Installation of machinery

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 Hi-Precision is asking this
Court to pass upon claims which are either clearly and directly factual in
nature or require previous determination of factual issues. This upon the
one hand. Upon the other hand, the Court considers that petitioner HiPrecision 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.

a. Foreign exchange loss 11,565,048.37

b. Cost of money (a) 2,871,987.01

WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED

for lack of merit. Costs against petitioner.

I[E] Raw Materials

SO ORDERED.

a. Foreign exchange loss 4,155,982.18

b. Cost of money (a) 821,242.72
c. Additional import levy of 5% 886,513.33
d. Cost of money (c) 170,284.44
e. Cost of money on marginal
deposit on Letter of Credit 561,195.25
IF Cost of money on holding to CRC INTY 3,319,609.63
Total Actual Damages 35,295,927.32
2. Liquidated Damages 2,436,000.00

PHILIPPINE ARBITRATION UPDATES: The case of Korea

Technologies Co., Ltd. v. Hon. Alberto A. Lerma1 and Pacific
General Steel Manufacturing Corporation, G.R. No. 143581,
Jan. 7, 2008. The Facts: Korea Technologies Co., Ltd. [Korea
Tech], a Korean corporation, entered into a contract with
Pacific General Steel Manufacturing Corporation [Pacific
General], a domestic corporation, whereby Korea Tech
undertook to ship and install in Pacific Generals site in
Carmona, Cavite the machinery and facilities necessary for
manufacturing LPG cylinders, and to initially operate the
plant after it is installed. The plant, after completion of
installation, could not be operated by Pacific General due to
its financial difficulties affecting the supply of materials. The
last payments made by Pacific General to Korea Tech
consisted of postdated checks which were dishonored upon
presentment. According to Pacific General, it stopped
payment because Korea Tech had delivered a hydraulic press
which was different in kind and of lower quality than that
agreed upon. Korea Tech also failed to deliver equipment
parts already paid for by it. It threatened to cancel the
contract with Korea Tech and dismantle the Carmona plant.
Korea Tech initiated arbitration before the Korea Commercial
Arbitration Board [KCAB] in Seoul, Korea and, at the same
time, commenced a civil action before the Regional Trial
Court [the trial court] where it prayed that Pacific General
be restrained from dismantling the plant and equipment.
Pacific General opposed the application and argued that the
arbitration clause was null and void, being contrary to public
policy as it ousts the local court of jurisdiction. It also alleged
that Korea Tech was not entitled to the payment of the
amount covered by the two checks, and that Korea Tech was
liable for damages. The trial court denied the application for
preliminary injunction and declared the arbitration
agreement null and void. Korea Tech moved to dismiss the
counterclaims for damages. Meanwhile, Pacific General filed
a motion for inspection of things to determine whether
there was indeed alteration of the quantity and lowering of
quality of the machineries and equipment and whether these
were properly installed. Korea Tech opposed the motion
arguing that these issues were proper for determination in
the arbitration proceeding. The court denied the motion to
dismiss and granted the motion for inspection of things. The

court also directed the Branch Sheriff to proceed with the

inspection of the machineries and equipment in the plant.
The Branch Sheriff later reported his finding that the
enumerated machineries and equipment were not fully and 1
RTC Muntinlupa. Br. 256 2 properly installed. Korea Tech filed
a petition for certiorari before the Court of Appeals [CA]. The
court dismissed the petition and held that an arbitration
clause which provided for a final determination of the legal
rights of the parties to the contract by arbitration was against
public policy. Further appeal was made to the Supreme Court
by way of a petition for review. The Supreme Court (the
Court) held: 1. Re: The trial courts order directing the
Branch Sheriff to inspect the plant, equipment and facilities.
The sheriff lacked the competence to conduct an inspection
of the Carmona plant, equipment and facilities. The trial
courts order directing the sheriff to do so is evidently flawed
and devoid of legal basis. There was a real and imminent
threat of irreparable destruction or substantial damage to the
Korea Tech equipment and machineries. The trial court
gravely abused its discretion. A resort to certiorari is proper.
2. Re: The validity of the arbitration clause. The arbitration
clause is valid.2 It has not been shown to be contrary to any
law, or against morals, good customs, public order or public
policy3 . The arbitration clause stipulates that the arbitration
must be done in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the KCAB, and that the
award is final and binding. This is not contrary to public
policy. 4 We find no reason why the arbitration clause should
not be respected and complied with by both parties. This
ruling, the Court said, is consonant with the declared policy in
Section 2 of the ADR Act that the State (shall) actively
promote party autonomy in the resolution of disputes or the
freedom of the parties to make their own arrangements to
resolve their disputes. Citing Section 24 of the ADR Act5 ,
the Court said the trial court does not have jurisdiction over
disputes that are properly the subject of arbitration pursuant
to an arbitration clause. In the earlier case of BF Corporation
v. Court of Appeals and Shangri-la Properties, Inc.,6 where
the trial court refused to refer the parties to arbitration
notwithstanding the existence 2 Gonzales v. Climax Mining
Ltd. G.R. No. 161957 and G.R. No. 167994m Jan. 22, 2007,
512 SCRA 148 citing Manila Electric Co. v. Pasay

Transporation Co., 57 Phil. 600 (1932); Del Monte

Corporation-USA v. Court of Appeals, G.R. No. 136154, Feb. 7,
2001; 351 SCRA 373, 381 3 Citing Arts. 2044 in relation to
Art. 2038, 2039 and 2040, Civil Code 4 . Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1
(1957); BF Corporation v. Court of Appeals, G.R. No. 120105,
March 27, 1298; 288 SCRA 267, 286; LM Power Engineering
Corporation v. Capitol Industrial Construction Groups, Inc.,
G.R. No. 141833, March 26, 2003; 399 SCRA 562, 569-570. 5
Sec. 24. Referral to Arbitration. A court before which an
action is brought in a manner which is the subject matter of
an arbitration agreement shall, if at least one party so
requests not later than the pre-trial conference, upon the
request of both parties thereafter, refer the parties to
arbitration unless it finds that the agreement is null and void,
inoperative or incapable of being performed. 6 G.R. No.
120105, March 28, 1998; 288 SCRA 267 3 of an arbitration
agreement between them, the Supreme Court said the trial
court had prematurely exercised its jurisdiction over the
case. The Court further emphasized that a submission to
arbitration is a contract7 . As a rule, contracts are respected
as the law between the contracting parties and produce
effect between them, their assigns and heirs.8 Courts should
liberally review arbitration clauses. Any doubt should be
resolved in favor of arbitration. 9 3. Re: Termination of
contract with arbitration clause A party may not unilaterally
rescind or terminate the contract (that contains an arbitration
clause) for whatever cause without first resorting to
arbitration. The rule allowing extrajudicial rescission of a
contract in case of breach10does not apply when the
contract contains a valid arbitration clause as the issues
arising from such alleged breaches of the contract by a party
must be brought first and resolved by arbitration. Thus, the
issues arising from the contract between Korea Tech and
Pacific General on whether the equipment and machineries
delivered and installed were properly installed and
operational in Carmona and other issues related thereto are
proper for arbitration. 4. Re: Pacific Generals counterclaim
for damages Where the issue of validity of the arbitration
clause or of its proper scope is submitted to a trial court in a
petition to compel arbitration, the Arbitration Law confines
the courts authority to pass upon issue such in a summary

proceeding. The trial court must refrain from taking up the

claim of the contending parties for damages which may be
ventilated in a separate proceeding at the appropriate time
and venue.11 5. Re: the grant of interim relief: While the
issue of the proper installation of the equipment and
machineries might well be under the primary jurisdiction of
the arbitral body, the trial court, under the ADR Act, has the
jurisdiction to hear and grant interim measures to protect
vested rights of the parties.12 Considering that the
equipment and machineries are in the possession of Pacific
General, it has the right to protect and preserve the
equipment in the best way it can. Pacific General has the
right to dismantle and transfer the equipment and
machineries either for protection or preservation 7 Gonzales
v. Climax Mining Ltd. G.R. No. 167994, January 22, 2007; 527
SCRA 148 8 Citing Del Monte Corporation-USA v. CA, 404 Phil.
192 (2001) 9 LM Power Engineering Corp. v. Capitol Industrial
Construction Groups, Inc., G.R. No. 141833, March 26, 2003
10 The rescission, however, is valid provisionally only
because whether or not there was a breach of contract that
justified its rescission is not issue for later judicial
determination. University of the Philippines v. De los Angeles
G.R. No. L-28602, September 29, 1970; 35 SCRA 102, and
reiterated in succeeding cases, vide: San Lorenzo Shipping
Corp. v. BJ Marthel International. Inc., G.R. No. 14583, Nov.
19, 2004; 443 SCRA 163, etc. 11 La Naval Drug Corp. v. CA,
G.R. No. 103200, August 31, 1994; 236 SCRA 78 12 Citing
Section 28, RA 9285; Article 17, Model Law, and Transfield
Philippines, Inc. v. Luzon Hydro Corporation, G.R. No. 146717,
May 19, 2006; 490 SCRA 14, 20-21 4 or for the better way to
make good use of them. It must therefore preserve and
maintain them with the diligence of a good father of a family
until final resolution of the dispute and the enforcement of
the award, if any. 6. Re: Enforcement of award in a domestic
or international arbitration An arbitral award in a domestic or
international arbitration is subject to enforcement by a court
upon application of the prevailing party for the confirmation
or recognition and enforcement of an award.13 Under Section
42 of the ADR Act, The recognition and enforcement of such
(foreign) arbitral awards shall be filed with the Regional Trial
Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. An arbitral award is

immediately executory upon the lapse of the period provided

by law. For an award rendered in domestic or noninternational arbitration, unless a petition to vacate the
award is filed within thirty (30) days from the date of serve
upon the latter,14 the award is subject to confirmation by the
court.15 For an award rendered in a domestic, international
arbitration, the period for filing an application to set it aside
is not later than three (3) months from the date the applicant
received the award,16 otherwise the court shall recognize
and enforce it.17 7. Re: Enforcement of foreign arbitral award
In an attempt to allay the fear by Pacific General of
submitting its dispute to arbitration in Seoul, South Korea
under the rules of the Korea Commercial Arbitration Board,
the Supreme Court said in obiter dictum: In case a foreign
arbitral body is chosen by the parties, the arbitral rules of our
domestic arbitration bodies would not be applied. As
signatory to the Arbitration Rules of the UNCITRAL Model Law
on International Commercial Arbitration of the United Nations
Commission on International Trade Law [UNCITRAL] in the
New York Convention on June 21, 1985, the Philippine
committed itself to be bound by the Model Law. We have
even incorporated the Model Law in Republic Act No. 9285,
otherwise known as the Alternative Dispute Resolution Act of
2004. x x x x x x Thus, while the RTC does not have
jurisdiction over disputes governed by arbitration mutually
agreed upon by the parties, still the foreign arbitral award is
subject to judicial review by the 13 Section 23, RA 876;
Article 35, Model Law 14 Section 26, RA 876 15 Section 23,
RA 876 16 Model Law Article 34(3) 17 Model Law Article 35 5
RTC which can set aside, reject or vacate it.. Chapter 7 of
RA 9285 has made it clear that all arbitral awards, whether
domestic or foreign, are subject to judicial review on specific
grounds provided for. There is obviously a confusion
between or among the following: (a) The 1958 New York
Convention; (b) The UNCITRAL Model Law on International
Commercial Arbitration; and (c) The UNCITRAL Arbitration
Rules. The 1958 New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards is, as the name itself
implies, a multi-lateral treaty signed in New York City on June
10, 1958. The Philippines was among the original signers of
the 1958 New York Convention18, although, as a treaty, it
was subject to ratification by the Senate. This ratification was

given on May 10, 1965 under Resolution No. 71 of the

Philippine Senate.19 The Philippines deposited its ratification
of the Convention on July 6, 1967. The UNCITRAL Model Law
on International Commercial Arbitration was approved by the
United Nations Commission on International Law on June 21,
1985 at the close of the Commissions 18th annual session.
In Resolution No. 40/72 approved on December 11, 1985, the
General Assembly requested member States to give due
consideration to the Model Law on International Commercial
Arbitration, in view of the desirability of uniformity of the law
of arbitral procedures and the specific needs of international
arbitration practice. The Model Law was therefore given as a
model that member States can adopt with or without
modification as their law to govern international commercial
arbitration. By itself, it is not a statute. It becomes one when
it is enacted into law by a State. Until the Philippine Congress
adopted it as part of the ADR Act of 2004, the Model Law on
International Commercial Arbitration was not part of our law.
The UNCITRAL Arbitration Rules were likewise the product of
UNCITRAL adopted during its 9th session after extensive
consultations with arbitral institutions and centers of
international commercial arbitration. The United Nations
General Assembly approved Resolution No. 31/98 on
December 15, 1976 recommending the use of the Arbitration
Rules in the settlement of disputes 18 The Philippine
delegation signed ad referendum with reservation that it will
apply the Convention, on the basis of reciprocity, to the
recognition and enforcement of awards made only in the
territory of another Contracting State and only to differences
arising out of legal relationships, whether contractual or not,
which are considered as commercial under the national law
of the State making such declaration. 19 See National Union
Fire Insurance Company of Pittsburgh v. Stolt-Nielsen
Philippines, Inc., G.R. No. 87958, April 26, 1990; 184 SCRA
682 6 arising in the context of international commercial
relations, particularly by reference to the Arbitration Rules in
commercial contracts. These rules have been used widely in
ad hoc arbitrations although arbitral institutions have been
known to have adopted the UNCITRAL Arbitration Rules as
part of their own rules of procedure. The Philippine Dispute
Resolution Center, Inc., for example, uses the UNCITRAL
Arbitration Rules as its arbitration rules, subject to certain

modifications. The Model Law or the UNCITRAL Arbitration

Rules, unlike the 1958 New York Convention, was not opened
for signature by member States as they are not treaties.
For the same reason, they were not submitted to the Senate
for ratification. The 1958 New York Convention provides that
recognition and enforcement of an award may be refused by
a court upon specific grounds.20 This is clear from Sections
42 and 45 of the ADR Act ,21 that the most a Philippine court
can do is 20 Article V provides that: 1. Recognition and
enforcement of the award may be refused, at the request of
the party against whom it is invoked, only if that party
furnishes to the competent authority where recognition and
enforcement is sought, proof that: (a) The parties to the
agreement referred to in Article II were, under the law
applicable to them, under some incapacity, or the said
agreement is not valid under the law to which the parties
have subjected it, or failing any indication thereon, under the
law of the country where the award was made; or (b) The
party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present
his case; or (c) The award deals with a difference not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters
beyond the scope of the submission to arbitration, provided
that, if the decision on matters submitted to arbitration can
be separated from those not so submitted, that part of the
award which contains decisions on matters submitted to
arbitration may be recognized or enforced; or (d) The
composition of the arbitral authority or the arbitral procedure
was not in accordance with the agreement of the parties, or,
failing such agreement, was not in accordance with the law
of the country where the arbitration took place; (e) The
award has not yet become binding on the parties, or has
been set aside, or suspended by competent authority of the
country in which, or under the laws of which, that award was
made. 2. Recognition and enforcement of an arbitral award
may also be refused if the competent authority in the country
where recognition and enforcement is sought finds that: (a)
The subject matter of the difference is not capable of
settlement by arbitration under the law of that country; or (b)
The recognition or enforcement of the award would be

contrary to the public policy of that country. 21 Section 42.

Application of the New York Convention. - The New York
Convention shall govern the recognition and enforcement of
arbitral awards covered by the said Convention. The
recognition and enforcement of such arbitral awards shall be
filed with the regional trial court in accordance with the rules
of procedure to be promulgated by the Supreme Court. Said
procedural rules shall provide that the party relying on the
award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the
arbitration agreement. If the award or agreement is not made
in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages. The
applicant shall establish that the country in which the foreign
arbitration award has been made is a party to the New York
Convention. If the application for rejection or suspension of
enforcement of an award has been made, the regional trial
court may, if it considers it proper, vacate its decision and
may also, on the application of the party claiming recognition
or enforcement of the award, order the party to provide
appropriate security. Section 45. Rejection of a Foreign
Arbitral Award. - A party to a foreign arbitration proceeding
may oppose an application for recognition and enforcement
of an arbitral award in accordance with the procedural rules
to be promulgated by the Supreme Court only on those
grounds raised under Article V of the New York Convention.
Any other 7 to refuse recognition of a foreign arbitral award.
The Supreme Court further held: The differences between a
final arbitral award from an international or foreign arbitral
tribunal and an award given by a local arbitral tribunal are
the specific grounds or conditions that vest jurisdiction over
our courts to review the awards. For foreign or international
arbitral awards which must first be confirmed by the RTC, the
grounds for setting aside, rejecting or vacating the award by
the RTC are provided under Article 34(2) of the UNCITRAL
Model Law. For final domestic arbitral awards, which also
need confirmation by the RTC pursuant to Sec. 23 of RA 876
and shall be recognized as final and executory decisions of
the RTC, they may also be assailed before the RTC and
vacated on the grounds provided under Sec. 25 of RA 876.
Perhaps the following distinctions need to be made. When
the place of arbitration is outside the Philippines, its foreign

origin would be clear from the arbitral award itself. At the end
portion of the award, the arbitrator will state the jurisdiction
or country where the award is made, thus: Made in Hong
Kong, February 27, 2008, or Made in Singapore, February 27,
2008 An arbitral award made in Hong Kong or Singapore or
any other place outside the Philippines will be, in the
Philippines, a foreign arbitral award. An international
commercial arbitration that is governed by the Philippine
Model Law on International Commercial Arbitration is a
domestic arbitration. This is obvious from the fact that our
model law can only govern an international commercial
arbitration in the Philippines.22 If the place of arbitration is
another country, such as, for example, Hong Kong or
Singapore, it will be governed by the arbitration law of Hong
Kong or Singapore as the case may be. The decision in Korea
Tech confused foreign arbitration with international
commercial arbitration. An arbitration is international if the
conditions provided in Article 1(3) of the Model Law are
satisfied. (3) An arbitration is international if: ground raised
shall be disregarded by the regional trial court. 22 See Article
1(2), Model Law 8 (a) the parties to an arbitration agreement
have, at the time of the conclusion of that agreement, have
their places of business in different states; or (b) one of the
following places is situated outside the State in which the
parties have their places of business: (i) the place of
arbitration if determined in, or pursuant to, the arbitration
agreement; (ii) any place where a substantial part of the
obligations of the commercial relationship is to be performed
or the place where the subject-matter of the dispute is most
closely connected; or (c) the parties have expressed agreed
that the subject matter of the arbitration agreement relates
to more than one country. If the dispute between Korea Tech
and Pacific General will be submitted to arbitration in the
Philippines, the arbitration will be international because
Korea Tech has its place of business in Korea or outside the
Philippines. It will nevertheless be domestic because the
Philippines is the place of arbitration. In other words, an
arbitration can be both domestic (as opposed to foreign) and
international. An arbitration is domestic if it is not
international. If the arbitration does not include a foreign
element, e.g., it does not fall under Article 1(3) of the Model
Law, the arbitration will be domestic. To avoid confusion

arising from the use of words having more than one meaning,
it is well to make this clarification by classifying arbitration
into domestic or foreign. As earlier mentioned, a foreign
arbitration is an arbitration where the agreed place of
arbitration is outside the Philippines. A domestic arbitration is
an arbitration where the agreed place of arbitration is the
Philippines. A domestic arbitration is further classified into:
international or non-international. It is international where
one of the elements of internationality enumerated in Article
1(3) of the Model Law is present; otherwise, the arbitration
would be non-international. A foreign arbitral award, unlike
an award in a domestic international or noninternational
arbitration, cannot be set aside by a court. RA 9285
recognizes that an award rendered in a domestic, noninternational arbitration which is governed by RA 876, may
be vacated by a court upon any of the grounds enumerated
in Section 24 of the law. The Model Law likewise provides that
an award made in a domestic, international commercial
arbitration may be set aside by a court upon any of the
grounds enumerated in Article 34 thereof. Article V of the
1958 New York Convention enumerates the grounds upon
which the court of a foreign jurisdiction may refuse
recognition and enforcement of a foreign arbitral award.
Section 42 of the ADR Act provides that: The New York
Convention shall govern the recognition and enforcement of
arbitral awards covered by the said Convention. In the
exercise of judicial review, a Philippine court cannot set aside
9 a foreign arbitral award. It can only refuse it recognition by
rejecting an application for recognition and enforcement of a
foreign arbitral award. The Supreme Court finally held: While
it (Pacific General) may have misgivings on the foreign
arbitration done in Korea by the KCAB, it has available
remedies under RA 9285. Its interests are duly protected by
the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before
it can be enforced. The Korea Commercial Arbitration Board
is a center or institution for arbitration in South Korea. A
stipulation in the arbitration agreement to submit a dispute
under the rules of an institution means that the institution
administers the arbitration but the dispute is submitted, not
to the institution, but to the arbitrator or arbitral panel
appointed for the dispute. KCAB, therefore, does not make or

render an award. _______________ This article was prepared by

Custodio O. Parlade, of-counsel of the Parlade Hildawa
Parlade Eco & Panga and president emeritus of the Philippine
Dispute Resolution Center, Inc. For further information on this
topic, please contact Custodio O. Parlade at (632) 687 5362;
by mail at 26th Floor, The Orient Square, F. Ortigas, Jr.,
Ortigas Center, Pasig City 1605 Philippines, or by e-mail at:
coparlade@phpeplaw.com or gingparlade@yahoo.com

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 154048

November 27, 2009

STANFILCO EMPLOYEES AGRARIAN REFORM BENEFICIARIES

MULTI-PURPOSE COOPERATIVE,Petitioner,
vs.
DOLE PHILIPPINES, INC. (STANFILCO DIVISION), ORIBANEX
SERVICES, INC. and SPOUSES ELLY AND MYRNA
ABUJOS, Respondents.
DECISION
BRION, J.:
Before this Court is the petition for review on certiorari1 filed by petitioner
Stanfilco Employees Agrarian Reform Beneficiaries Multi-Purpose
Cooperative (SEARBEMCO). It assails:
(a) the decision2 of the Court of Appeals (CA) in CA-G.R. SP No.
66148 dated November 27, 2001; and
(b) the CAs resolution of June 13, 2002 in the same case,
denying SEARBEMCOs motion for reconsideration.
3

THE FACTUAL ANTECEDENTS

On January 29, 1998, SEARBEMCO, as seller, and respondent DOLE
Philippines, Inc. (Stanfilco Division) (DOLE), as buyer, entered into a
Banana Production and Purchase Agreement4 (BPPA). The BPPA
provided that SEARBEMCO shall sell exclusively to DOLE, and the latter
shall buy from the former, all Cavendish bananas of required
specifications to be planted on the land owned by SEARBEMCO. The
BPPA states:

The SELLER agrees to sell exclusively to the BUYER, and the BUYER
agrees to buy all Cavendish Banana of the Specifications and Quality
described in EXHIBIT "A" hereof produced on the SELLERS plantation
covering an area of 351.6367 hectares, more or less, and which is
planted and authorized under letter of instruction no. 790 as amended on
November 6, 1999 under the terms and conditions herein stipulated. The
SELLER shall not increase or decrease the area(s) stated above without
the prior written approval of the BUYER. However, the SELLER may
reduce said area(s) provided that if the SELLER replaces the reduction
by planting bananas on an equivalent area(s) elsewhere, it is agreed that
such replacement area(s) shall be deemed covered by the Agreement. If
the SELLER plants an area(s) in excess of said 351.6367 hectares, the
parties may enter into a separate agreement regarding the production of
said additional acreage. SELLER will produce banana to the maximum
capacity of the plantation, as much as practicable, consistent with good
agricultural practices designed to produce banana of quality having the
standards hereinafter set forth for the duration of this Banana Production
and Purchase Agreement.
SEARBEMCO bound and obliged itself, inter alia, to do the following:
V. SPECIFIC OBLIGATIONS OF THE SELLER
xxx
p.) Sell exclusively to the BUYER all bananas produced from the subject
plantation, except those rejected by the BUYER for failure to meet the
specifications and conditions contained in Exhibit "A" hereof. In the case
of any such rejected bananas, the SELLER shall have the right to
sell such rejected bananas to third parties, for domestic non-export
consumption. The SELLER shall only sell bananas produced from the
plantation and not from any other source. [Emphasis supplied.]
Any dispute arising from or in connection with the BPPA between the
parties shall be finally settled through arbitration. To quote the BPPA:
IX. ARBITRATION OF DISPUTE

All disputes arising in connection with this Agreement shall be finally

settled under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce by three (3) Arbitrators appointed in accordance
with said Rules. The Arbitration shall be held in a venue to be agreed by
the parties. Judgment upon the award rendered may be entered in any
Philippine Court having jurisdiction or application may be made to such
court for judicial acceptance of the award and as order of enforcement,
as the case may be.
On December 11, 2000, DOLE filed a complaint with the Regional Trial
Court5 (RTC) against SEARBEMCO, the spouses Elly and Myrna Abujos
(spouses Abujos), and Oribanex Services, Inc. (Oribanex) for specific
performance and damages, with a prayer for the issuance of a writ of
preliminary injunction and of a temporary restraining order. DOLE alleged
that SEARBEMCO sold and delivered to Oribanex, through the spouses
Abujos, the bananas rejected by DOLE, in violation of paragraph 5(p),
Article V of the BPPA which limited the sale of rejected bananas for
"domestic non-export consumption." DOLE further alleged that Oribanex
is likewise an exporter of bananas and is its direct competitor.
DOLE narrated in its complaint how SEARBEMCO sold and delivered the
rejected bananas to Oribanex through the spouses Abujos:
9.) That, however, on April 12, 2000 at about 5:00 oclock in the
afternoon, [DOLE] through its authorized security personnel
discovered that defendant SEARBEMCO, in violation of Section
5(p) Article V of the Banana Production and Purchase Agreement,
packed the bananas rejected by [DOLE] in boxes marked
"CONSUL" in Packing Plant 32 in DAPCO Panabo and sold and
delivered them to defendant Abujos;
10.) That about 373 "CONSUL" marked boxes were packed and
knowingly sold by defendant SEARBEMCO to ORIBANEX
SERVICES, INC. through defendants Abujos who carried and
loaded the same on board a blue Isuzu Canter bearing plate no.
LDM 976 and delivered to defendant ORIBANEX for export at the
TEFASCO Wharf covered by Abujos Delivery Receipt, a copy of
which is hereto attached as Annex "B";

11.) That the following day, April 13, 2000, again the same
security found that defendant SEARBEMCO continued to pack
the bananas rejected by plaintiff in boxes marked as "CONSUL"
and, in violation of paragraph 5(p) Article V of the Banana
Production and Purchase Agreement, sold and delivered them to
defendant ORIBANEX SERVICES, INC., for export, through
defendants Abujos;
12.) That about 648 "CONSUL" marked boxes were packed and
knowingly sold by defendant SEARBEMCO to ORIBANEX
SERVICES, INC., through defendants Abujos who carried and
loaded the same on board a red Isuzu Forwarder, bearing plate
no. LCV 918, and delivered to defendant ORIBANEX for export at
the TEFASCO Wharf covered by Abujos Delivery Receipt, a copy
of which is hereto attached and marked as Annex "C";
13.) That the sale of a total of 712 boxes of rejected bananas
covering April 12 and 13, 2000, or any other dates prior thereto or
made thereafter by defendant SEARBEMCO to defendant
ORIBANEX SERVICES, INC. through defendant Abujos is in utter
violation of the Agreement between plaintiff [DOLE] and
defendant SEARBEMCO that SEARBEMCO may sell bananas
rejected by plaintiff to parties for domestic non-export
consumption only.
SEARBEMCO responded with a motion to dismiss on the grounds of lack
of jurisdiction over the subject matter of the claim, lack of cause of action,
failure to submit to arbitration which is a condition precedent to the filing
of a complaint, and the complaints defective verification and certification
of non-forum shopping.6 SEARBEMCO argued that:
1) the Department of Agrarian Reform Adjudication Board
(DARAB) has exclusive jurisdiction over the action filed by DOLE,
pursuant to Sections 1 and 3(e) of Administrative Order No. 09,
Series of 19987 (AO No. 9-98) and Section 5(a) and (c) of
Administrative Order No. 02, Series of 19998 (AO No. 2-99) of the
Department of Agrarian Reform (DAR), since the dispute between

the parties is an agrarian dispute within the exclusive competence

of the DARAB to resolve;
2) the filing of the complaint is premature, as the dispute between
DOLE and SEARBEMCO has not been referred to and resolved
by arbitration, contrary to Article IX of the BPPA and Article V,
Sec. 30(g)9 of AO No. 9-98 of the DAR;

The RTC denied SEARBEMCOs motion to dismiss in an Order dated

May 16, 2001.13 The trial court stated that the case does not involve an
agrarian conflict and is a judicial matter that it can resolve.
SEARBEMCO moved for the reconsideration of the RTC Order.14 The
RTC denied the motion for lack of merit in its Order of July 12, 2001.15
THE CA RULING

3) it did not violate Section 5(p), Article V of the BPPA, since the
rejected bananas were sold to the spouses Abujos who were
third-party buyers and not exporters of bananas; and
4) the complaint is fatally defective as the Board of Directors of
DOLE did not approve any resolution authorizing Atty. Reynaldo
Echavez to execute the requisite Verification and Certification
Against Forum Shopping and, therefore, the same is fatally
defective.
DOLE opposed SEARBEMCOs motion to dismiss alleging, among
others, that:
1) the dispute between the parties is not an agrarian dispute
within the exclusive jurisdiction of the DARAB under Republic Act
No. 665710 (RA No. 6657); and
2) the Arbitration Clause of the BPPA is not applicable as, aside
from SEARBEMCO, DOLE impleaded other parties (i.e., the
spouses Abujos and Oribanex who are not parties to the BPPA)
as defendants.11
Subsequently, DOLE filed on February 2, 2001 an amended
complaint,12 the amendment consisting of the Verification and Certification
against forum shopping for DOLE executed by Danilo C. Quinto, DOLEs
Zone Manager.
THE RTC RULING

On July 26, 2001, SEARBEMCO filed a special civil action

for certiorari16 with the CA alleging grave abuse of discretion on the part
of the RTC for denying its motion to dismiss and the subsequent motion
for reconsideration.
SEARBEMCO argued that the BPPA the parties executed is an agribusiness venture agreement contemplated by DARs AO No. 9-98. Thus,
any dispute arising from the interpretation and implementation of the
BPPA is an agrarian dispute within the exclusive jurisdiction of the
DARAB.
In a decision dated November 27, 2001,17 the CA found that the RTC did
not gravely abuse its discretion in denying SEARBEMCOs motion to
dismiss and motion for reconsideration.
1avvphi1

The CA ruled that "the [DAR] has no jurisdiction, under said [AO No. 998], over actions between [SEARBEMCO] and [DOLE] for enforcement of
the said Agreement when one commits a breach thereof and for redress
by way of specific performance and damages inclusive of injunctive
relief."18 It held that the case is not an agrarian dispute within the purview
of Section 3(d) of RA No. 6657,19 but is an action to compel
SEARBEMCO to comply with its obligations under the BPPA; it called for
the application of the provisions of the Civil Code, not RA No. 6657.
The CA likewise disregarded SEARBEMCOs emphatic argument that
DOLEs complaint was prematurely filed because of its failure to first
resort to arbitration. The arbitration clause under the BPPA, said the CA,
applies only when the parties involved are parties to the agreement; in its
complaint, DOLE included the spouses Abujos and Oribanex as

defendants. According to the CA, "if [DOLE] referred its dispute with
[SEARBEMCO] to a Panel of Arbitrators, any judgment rendered by the
latter, whether for or against [DOLE] will not be binding on the [spouses
Abujos] and [Oribanex], as case law has it that only the parties to a suit,
as well as their successors-in-interest, are bound by the judgment of the
Court or quasi-judicial bodies."20
On SEARBEMCOs argument that the Verification and Certification
Against Forum Shopping under DOLEs amended complaint is defective
for failure to state that this was based on "personal knowledge," the CA
ruled that the omission of the word "personal" did not render the
Verification and Certification defective.
SEARBEMCO moved for reconsideration of the decision, but the CA
denied the motion for lack of merit in its resolution of June 13, 2002. 21
ASSIGNMENT OF ERRORS
In the present petition, SEARBEMCO submits that the CA erred in ruling
that:
1.) the RTC has jurisdiction over the subject matter of the
complaint of DOLE, considering that the case involves an
agrarian dispute within the exclusive jurisdiction of the DARAB;
2.) the complaint of DOLE states a cause of action, despite the
fact that SEARBEMCO has not violated any provision of the
BPPA; and
3.) the filing of the complaint is not premature, despite DOLEs
failure to submit its claim to arbitration a condition precedent to
any juridical recourse.
THE COURTS RULING
We do not find the petition meritorious.

DOLEs complaint falls within the jurisdiction of the regular courts,

not the DARAB.
SEARBEMCO mainly relies on Section 5022 of RA No. 6657 and the
characterization of the controversy as an agrarian dispute or as an
agrarian reform matter in contending that the present controversy falls
within the competence of the DARAB and not of the regular courts. The
BPPA, SEARBEMCO claims, is a joint venture and a production,
processing and marketing agreement, as defined under Section 5 (c) (i)
and (ii) of DAR AO No. 2-99;23 hence, any dispute arising from the BPPA
is within the exclusive jurisdiction of the DARAB. SEARBEMCO also
asserts that the parties relationship in the present case is not only that of
buyer and seller, but also that of supplier of land covered by the CARP
and of manpower on the part of SEARBEMCO, and supplier of
agricultural inputs, financing and technological expertise on the part of
DOLE. Therefore, SEARBEMCO concludes that the BPPA is not an
ordinary contract, but one that involves an agrarian element and, as
such, is imbued with public interest.
We clarify at the outset that what we are reviewing in this petition is
the legal question of whether the CA correctly ruled that the RTC
committed no grave abuse discretion in denying SEARBEMCOs motion
to dismiss. In ruling for legal correctness, we have to view the CA
decision in the same context that the petition for certiorari it ruled upon
was presented to the appellate court; we have to examine the CA
decision from the prism of whether it correctly determined the presence
or absence of grave abuse of discretion in the RTC ruling before it, not on
the basis of whether the RTC ruling on the merits of the case was correct.
In other words, we have to be keenly aware that the CA undertook a Rule
65 review, not a review on appeal, of the challenged RTC ruling. A court
acts with grave abuse of discretion amounting to lack or excess of
jurisdiction when its action was performed in a capricious and whimsical
exercise of judgment equivalent to lack of discretion. The abuse of
discretion must be so patent and gross as to amount to an evasion of a
positive duty or to a virtual refusal to perform a duty enjoined by law, or to
act at all in contemplation of the law, as where the power is exercised in
an arbitrary and despotic manner by reason or passion or personal
hostility.24

As the CA found, the RTCs action was not attended by any grave
abuse of discretion and the RTC correctly ruled in denying
SEARBEMCOs motion to dismiss. We fully agree with the CA.
Section 3(d) of RA No. 6657 is clear in defining an agrarian dispute: "any
controversy relating to tenurial arrangements, whether leasehold,
tenancy, stewardship or otherwise, over lands devoted to agriculture,
including dispute concerning farm-workers associations or
representations of persons in negotiating, fixing, maintaining, changing or
seeking to arrange terms or conditions of such tenurial arrangements. It
includes any controversy relating to compensation of lands acquired
under this Act and other terms and conditions of transfer of ownership
from landowners to farmworkers, tenants and other agrarian reform
beneficiaries, whether the disputants stand in the proximate relation of
farm operator and beneficiary, landowner and tenant, or lessor and
lessee."25
RA No. 6657 is procedurally implemented through the 2003 DARAB
Rules of Procedure where Section 1, Rule II26 enumerates the instances
where the DARAB shall have primary and exclusive jurisdiction. A notable
feature of RA No. 6657 and its implementing rules is the focus
on agricultural lands and the relationship over this landthat serves as the
basis in the determination of whether a matter falls under DARAB
jurisdiction.
In Heirs of the Late Hernan Rey Santos v. Court of Appeals,27 we held
that:
For DARAB to have jurisdiction over a case, there must exist a tenancy
relationship between the parties. x x x. In Vda. De Tangub v. Court of
Appeals (191 SCRA 885), we held that the jurisdiction of the Department
of Agrarian Reform is limited to the following: a.) adjudication of all
matters involving implementation of agrarian reform; b.) resolution of
agrarian conflicts and land tenure related problems; and c.) approval and
disapproval of the conversion, restructuring or readjustment of
agricultural lands into residential, commercial, industrial, and other nonagricultural uses. [Emphasis supplied].

The case of Pasong Bayabas Farmers Association, Inc. v. Court of

Appeals28 lists down the indispensable elements for a tenancy
relationship to exist: "(1) the parties are the landowner and the tenant or
agricultural lessee; (2) the subject matter of the relationship is an
agricultural land; (3) there is consent between the parties to the
relationship; (4) the purpose of the relationship is to bring about
agricultural production; (5) there is personal cultivation on the part of the
tenant or agricultural lessee; and (6) the harvest is shared between the
landowner and the tenant or the agricultural lessee."
The parties in the present case have no tenurial, leasehold, or any other
agrarian relationship that could bring their controversy within the ambit of
agrarian reform laws and within the jurisdiction of the DARAB. In fact,
SEARBEMCO has no allegation whatsoever in its motion to dismiss
regarding any tenancy relationship between it and DOLE that gave the
present dispute the character of an agrarian dispute.
We have always held that tenancy relations cannot be presumed. The
elements of tenancy must first be proved by substantial evidence which
can be shown through records, documents, and written agreements
between the parties. A principal factor, too, to consider in determining
whether a tenancy relationship exists is the intent of the parties.29
SEARBEMCO has not shown that the above-mentioned indispensable
elements of tenancy relations are present between it and DOLE. It also
cannot be gleaned from the intention of the parties that they intended to
form a tenancy relationship between them. In the absence of any such
intent and resulting relationship, the DARAB cannot have jurisdiction.
Instead, the present petition is properly cognizable by the regular courts,
as the CA and the RTC correctly ruled.
Notably, the requirement of the existence of tenurial relationship has
been relaxed in the cases of Islanders CARP-Farmers Beneficiaries MutiPurpose Cooperative, Inc. v. Lapanday Agricultural and Devt.
Corporation30and Cubero v. Laguna West Multi-Purpose Cooperative,
Inc.31 The Court, speaking through former Chief Justice Panganiban,
declared in Islanders that:

[The definition of agrarian dispute in RA No. 6657 is] broad enough to

include disputes arising from any tenurial arrangement beyond the
traditional landowner-tenant or lessor-lessee relationship. xxx [A]grarian
reform extends beyond the mere acquisition and redistribution of land,
the law acknowledges other modes of tenurial arrangements to effect the
implementation of CARP.32
While Islanders and Cubero may seem to serve as precedents to the
present case, a close analysis of these cases, however, leads us to
conclude that significant differences exist in the factual circumstances
between those cases and the present case, thus rendering the rulings in
these cited cases inapplicable.
Islanders questioned (through a petition for declaration of nullity filed
before the RTC of Tagum City) the lack of authority of the farmerbeneficiaries alleged representative to enter into a Joint Production
Agreement with Lapanday. The farmers-beneficiaries assailed the validity
of the agreement by additionally claiming that its terms contravened RA
No. 6657.
Cubero likewise involved a petition to declare the nullity of a Joint
Venture Agreement between the farmer-beneficiaries and Laguna West
Multi-Purpose Cooporative, Inc. The successors of the farmerbeneficiaries assailed the agreement before the RTC of Tanauan,
Batangas for having been executed within the 10-year prohibitory period
under Section 27 of RA No. 6657.
In both cases, the Court ruled that the RTC lacked jurisdiction to hear the
complaint and declared the DARAB as the competent body to resolve the
dispute. The Court declared that when the question involves the rights
and obligations of persons engaged in the management, cultivation, and
use of an agricultural land covered by CARP, the case falls squarely
within the jurisdictional ambit of the DAR.
Carefully analyzed, the principal issue raised in Islanders and Cubero
referred to the management, cultivation, and use of the CARP-covered
agricultural land; the issue of the nullity of the joint economic enterprise
agreements in Islanders and Cubero would directly affect the agricultural

land covered by CARP. Those cases significantly did not pertain to postharvest transactions involving the produce from CARP-covered
agricultural lands, as the case before us does now.
Moreover, the resolution of the issue raised in Islanders and Cubero
required the interpretation and application of the provisions of RA No.
6657, considering that the farmer-beneficiaries claimed that the
agreements contravened specific provisions of that law. In the present
case, DOLEs complaint for specific performance and damages before
the RTC did not question the validity of the BPPA that would require the
application of the provisions of RA No. 6657; neither did SEARBEMCOs
motion to dismiss nor its other pleadings assail the validity of the BPPA
on the ground that its provisions violate RA No. 6657. The resolution of
the present case would therefore involve, more than anything else, the
application of civil law provisions on breaches of contract, rather than
agrarian reform principles. Indeed, in support of their arguments, the
parties have capitalized and focused on their relationship as buyer and
seller. DOLE, the buyer, filed a complaint against SEARBEMCO, the
seller, to enforce the BPPA between them and to compel the latter to
comply with its obligations. The CA is thus legally correct in its declaration
that "the action before the RTC does not involve an agrarian dispute, nor
does it call for the application of Agrarian Reform laws. x x x. The action
of [DOLE] involves and calls for the application of the New Civil Code, in
tandem with the terms and conditions of the [BPPA] of [SEARBEMCO]
and [DOLE]."33
We find SEARBEMCOs reliance on DAR AO No. 9-98 and AO No. 2-99
as bases for DARABs alleged expanded jurisdiction over all disputes
arising from the interpretation of agribusiness ventures to be misplaced.
DARABs jurisdiction under Section 50 of RA No. 6657 should be read in
conjunction with the coverage of agrarian reform laws; administrative
issuances like DAR AO Nos. 9-98 and 2-99 cannot validly extend the
scope of the jurisdiction set by law. In so ruling, however, we do not pass
upon the validity of these administrative issuances. We do recognize the
possibility that disputes may exist between parties to joint economic
enterprises that directly pertain to the management, cultivation, and use
of CARP-covered agricultural land. Based on our above discussion,
these disputes will fall within DARABs jurisdiction.

Even assuming that the present case can be classified as an agrarian

dispute involving the interpretation or implementation of agribusiness
venture agreements, DARAB still cannot validly acquire jurisdiction, at
least insofar as DOLEs cause of action against the third parties the
spouses Abujos and Oribanex is concerned. To prevent multiple
actions, we hold that the present case is best resolved by the trial court.

To sustain a motion to dismiss, the movant needs to show that the

plaintiffs claim for relief does not exist at all. On the contrary, the
complaint is sufficient "if it contains sufficient notice of the cause of action
even though the allegations may be vague or indefinite, in which event,
the proper recourse would be, not a motion to dismiss, but a motion for a
bill of particulars.35

DOLEs complaint validly states a cause of action

In applying this authoritative test, we must hypothetically assume the

truth of DOLEs allegations, and determine whether the RTC can render a
valid judgment in accordance with its prayer.

SEARBEMCO asserts that the pleading containing DOLEs claim against

it states no cause of action. It contends that it did not violate any of the
provisions of the BPPA, since the bananas rejected by DOLE were sold
to the spouses Abujos who are third-party buyers and are not exporters
of bananas transactions that the BPPA allows. Since the sole basis of
DOLEs complaint was SEARBEMCOs alleged violation of the BPPA,
which SEARBEMCO insists did not take place, the complaint therefore
did not state a cause of action.
Due consideration of the basic rules on "lack of cause of action" as a
ground for a motion to dismiss weighs against SEARBEMCOs argument.
In the case of Jimenez, Jr. v. Jordana,34 this Court had the opportunity to
discuss the sufficiency of the allegations of the complaint to uphold a
valid cause of action, as follows:
In a motion to dismiss, a defendant hypothetically admits the truth of the
material allegations of the plaintiffs complaint. This hypothetical
admission extends to the relevant and material facts pleaded in, and the
inferences fairly deductible from, the complaint. Hence, to determine
whether the sufficiency of the facts alleged in the complaint constitutes a
cause of action, the test is as follows: admitting the truth of the facts
alleged, can the court render a valid judgment in accordance with the
prayer?

We find the allegations in DOLEs complaint to be sufficient basis for the

judgment prayed for. Hypothetically admitting the allegations in DOLEs
complaint that SEARBEMCO sold the rejected bananas to Oribanex, a
competitor of DOLE and also an exporter of bananas, through the
spouses Abujos, a valid judgment may be rendered by the RTC holding
SEARBEMCO liable for breach of contract. That the sale had been to the
spouses Abujos who are not exporters is essentially a denial of DOLEs
allegations and is not therefore a material consideration in weighing the
merits of the alleged "lack of cause of action." What SEARBEMCO stated
is a counter-statement of fact and conclusion, and is a defense that it will
have to prove at the trial. At this point, the material consideration is
merely what the complaint expressly alleged. Hypothetically assuming
DOLEs allegations of ultimate sale to Oribanex, through the spouses
Abujos, to be true, we hold following the test of sufficiency in Jordana
that DOLEs prayer for specific performance and damages may be validly
granted; hence, a cause of action exists.
The filing of the complaint is not premature since arbitration
proceedings are not necessary in the present case
SEARBEMCO argues that DOLE failed to comply with a condition
precedent before the filing of its complaint with the RTC, i.e., DOLE did
not attempt to settle their controversy through arbitration proceedings.
SEARBEMCO relies on Article V, Section 30(g) of DAR AO No. 99836 and Section 10 of DAR AO No. 2-9937 which provide that "as a rule,
voluntary methods such as mediation or conciliation, shall be preferred in
resolving disputes involving joint economic enterprises." SEARBEMCO

also cites Section IX of the BPPA which provides that all disputes arising
out of or in connection with their agreement shall be finally settled
through arbitration.
Following our conclusion that agrarian laws find no application in the
present case, we find as the CA did that SEARBEMCOs arguments
anchored on these laws are completely baseless. Furthermore, the cited
DAR AO No. 2-99, on its face, only mentions a "preference," not a strict
requirement of referral to arbitration. The BPPA-based argument
deserves more and closer consideration.
We agree with the CA ruling that the BPPA arbitration clause does not
apply to the present case since third parties are involved. Any judgment
or ruling to be rendered by the panel of arbitrators will be useless if third
parties are included in the case, since the arbitral ruling will not bind
them; they are not parties to the arbitration agreement. In the present
case, DOLE included as parties the spouses Abujos and Oribanex since
they arenecessary parties, i.e., they were directly involved in the BPPA
violation DOLE alleged, and their participation are indispensable for a
complete resolution of the dispute. To require the spouses Abujos and
Oribanex to submit themselves to arbitration and to abide by whatever
judgment or ruling the panel of arbitrators shall make is legally untenable;
no law and no agreement made with their participation can compel them
to submit to arbitration.
In support of its position, SEARBEMCO cites the case of Toyota Motor
Philippines Corp. v. Court of Appeals38which holds that, "the contention
that the arbitration clause has become dysfunctional because of the
presence of third parties is untenable. Contracts are respected as the law
between the contracting parties. As such, the parties are thereby
expected to abide with good faith in their contractual commitments."
SEARBEMCO argues that the presence of third parties in the complaint
does not affect the validity of the provisions on arbitration.
Unfortunately, the ruling in the Toyota case has been superseded by the
more recent cases of Heirs of Augusto L. Salas, Jr. v. Laperal Realty
Corporation39 and Del Monte Corporation-USA v. Court of Appeals.40

Heirs of Salas involved the same issue now before us: whether or not the
complaint of petitioners-heirs in that case should be dismissed for their
failure to submit the matter to arbitration before filing their complaint. The
petitioners-heirs included as respondents third persons who were not
parties to the original agreement between the petitioners-heirs and
respondent Laperal Realty. In ruling that prior resort to arbitration is not
necessary, this Court held:
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.41
The case of Del Monte is more direct in stating that the doctrine held in
the Toyota case has already been abandoned:
The Agreement between petitioner DMC-USA and private respondent
MMI is a contract. The provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part of that contract
and is itself a contract. As a rule, contracts are respected as the law
between the contracting parties and produce effect as between them,
their assigns and heirs. Clearly, only parties to the Agreement, i.e.,
petitioners DMC-USA and its Managing Director for Export Sales Paul E.
Derby, and private respondents MMI and its Managing Director Lily Sy
are bound by the Agreement and its arbitration clause as they are the
only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and
private respondent SFI, not parties to the Agreement and cannot even be
considered assigns or heirs of the parties, are not bound by the
Agreement and the arbitration clause therein. Consequently, referral to
arbitration in the State of California pursuant to the arbitration clause and
the suspension of the proceedings in Civil Case No. 2637-MN pending
the return of the arbitral award could be called for but only as to

petitioners DMC-USA and Paul E. Derby, Jr., and private respondents

MMI and Lily Sy, and not as to other parties in this case, in accordance
with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty
Corporation, which superseded that of [sic] Toyota Motor Philippines
Corp. v. Court of Appeals.
xxxx
The object of arbitration is to allow the expeditious determination of a
dispute. Clearly, the issue before us could not be speedily and efficiently
resolved in its entirety if we allow simultaneous arbitration proceedings
and trial, or suspension of trial pending 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. 42
Following these precedents, the CA was therefore correct in its
conclusion that the parties agreement to refer their dispute to arbitration
applies only where the parties to the BPPA are solely the disputing
parties.

Additionally, the inclusion of third parties in the complaint supports our

declaration that the present case does not fall under DARABs
jurisdiction. DARABs quasi-judicial powers under Section 50 of RA No.
6657 may be invoked only when there is prior certification from
the Barangay Agrarian Reform Committee (or BARC) that the dispute
has been submitted to it for mediation and conciliation, without any
success of settlement.43 Since the present dispute need not be referred to
arbitration (including mediation or conciliation) because of the inclusion of
third parties, neither SEARBEMCO nor DOLE will be able to present the
requisite BARC certification that is necessary to invoke DARABs
jurisdiction; hence, there will be no compliance with Section 53 of RA No.
6657.
WHEREFORE, premises considered, we hereby DENY the petition
for certiorari for lack of merit. The Regional Trial Court, Branch 34,
Panabo City, is hereby directed to proceed with the case in accordance
with this Decision. Costs against petitioner SEARBEMCO.
SO ORDERED.