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G.R. No.

135362 December 13, 1999


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

DE LEON, JR., J.:


Before us is a petition for review on certiorari of the Order 1 of Branch 85 of the Regional Trial Court
of Lipa City 2dismissing petitioners' complaint 3 for rescission of several sale transactions involving
land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on the ground that they failed to
first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354
square meters.
On May 15, 1987, he entered into an Owner-Contractor Agreement 4 (hereinafter referred to as the
Agreement) with respondent Laperal Realty Corporation (hereinafter referred to as Laperal Realty)
to render and provide complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent
Laperal Realty to exercise general control, supervision and management of the sale of his land, for
cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He
never returned.
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a verified
petition for the declaration of presumptive death of her husband, Salas, Jr., who had then been
missing for more than seven (7) years. It was granted on December 12, 1996. 5
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions
thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc. on February
22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27, 1991; and to
respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996 (all
of whom are hereinafter referred to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa City a
Complaint 6for declaration of nullity of sale, reconveyance, cancellation of contract, accounting and
damages against herein respondents which was docketed as Civil Case No. 98-0047.

On April 24, 1998, respondent Laperal Realty filed a Motion to


Dismiss 7 on the ground that petitioners failed to submit their grievance to arbitration as required
under Article VI of the Agreement which provides:
Art. VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNER'S representative shall be
referred to the committee represented by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER
and CONTRACTOR. 8
On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo filed a Joint
Answer with Counterclaim and Crossclaim 9 praying for dismissal of petitioners' Complaint for the
same reason.
On August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners' Complaint
for non-compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners' causes of action did not emanate from the Owner-Contractor
Agreement.
The petitioners' causes of action for cancellation of contract and accounting are
covered by the exception under the Arbitration Law.
Failure to arbitrate is not a ground for dismissal. 10
In a catena of cases 11 inspired by Justice Malcolm's provocative dissent in Vega v. San Carlos
Milling Co. 12, this Court has recognized arbitration agreements as valid, binding, enforceable and
not contrary to public policy so much so that when there obtains a written provision for arbitration
which is not complied with, the trial court should suspend the proceedings and order the parties to
proceed to arbitration in accordance with the terms of their
agreement 13. Arbitration is the "wave of the future" in dispute resolution. 14 To brush aside a
contractual agreement calling for arbitration in case of disagreement between parties would be a
step backward. 15
Nonetheless, we grant the petition.
A submission to arbitration is a contract. 16 As such, the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs. 17 But only they. Petitioners,
as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the Agreement. If
respondent Laperal Realty had assigned its rights under the Agreement to a third party, making the
former, the assignor, and the latter, the assignee, such assignee would also be bound by the

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

G.R. No. 120105 March 27, 1998


BF CORPORATION, petitioner,
vs.
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C.
RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.

ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the contract for the
construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la
Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in the
implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the
latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping
mall complex in the City of Mandaluyong. The construction work was in progress when SPI decided
to expand the project by engaging the services of petitioner again. Thus, the parties entered into an
agreement for the main contract works after which construction work began.
However, petitioner incurred delay in the construction work that SPI considered as "serious and
substantial."1 On the other hand, according to petitioner, the construction works "progressed in
faithful compliance with the First Agreement until a fire broke out on November 30, 1990 damaging
Phase I" of the Project.2 Hence, SPI proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated
as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement
would cover the construction work on said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner "failed to complete the construction works and abandoned the
project."3 This resulted in disagreements between the parties as regards their respective liabilities
under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective representatives
met in conference but they failed to come to an agreement.4
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a
complaint for collection of the balance due under the construction agreement. Named defendants
therein were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco,
Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing
an answer. The motion was anchored on defendants' allegation that the formal trade contract for the
construction of the project provided for a clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the contract. The following day, SPI
submitted a copy of the conditions of the contract containing the arbitration clause that it failed to
append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no formal contract between the parties
although they entered into an agreement defining their rights and obligations in undertaking the
project. It emphasized that the agreement did not provide for arbitration and therefore the court could

not be deprived of jurisdiction conferred by law by the mere allegation of the existence of an
arbitration clause in the agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing
contract between petitioner and SPI. It alleged that suspension of proceedings would not necessarily
deprive the court of its jurisdiction over the case and that arbitration would expedite rather than delay
the settlement of the parties' respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract
between the parties. It averred that granting that such a clause indeed formed part of the contract,
suspension of the proceedings was no longer proper. It added that defendants should be declared in
default for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of
the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI
president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the
agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R.
Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register.5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court6 denied the motion
to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991
(Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed
upon the terms and conditions of the Builders Work for the EDSA Plaza Project
(Phases I, II and Carpark), subject to the execution by the parties of a formal trade
contract. Defendants have submitted a copy of the alleged trade contract, which is
entitled "Contract Documents For Builder's Work Trade Contractor" dated 01 May
1991, page 2 of which is entitled "Contents of Contract Documents" with a list of the
documents therein contained, and Section A thereof consists of the abovementioned
Letter-Agreement dated May 30, 1991. Section C of the said Contract Documents is
entitled "Articles of Agreement and Conditions of Contract" which, per its Index,
consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said
Articles of Agreement appears to have been duly signed by President Rufo B.
Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and
their witnesses, and was thereafter acknowledged before Notary Public Nilberto R.
Briones of Makati, Metro Manila on November 15, 1991. The said Articles of
Agreement also provides that the "Contract Documents" therein listed "shall be
deemed an integral part of this Agreement", and one of the said documents is the
"Conditions of Contract" which contains the Arbitration Clause relied upon by the
defendants in their Motion to Suspend Proceedings.
This Court notes, however, that the 'Conditions of Contract' referred to, contains the following
provisions:
3. Contract Document.
Three copies of the Contract Documents referred to in the Articles of
Agreement shall be signed by the parties to the contract and
distributed to the Owner and the Contractor for their safe keeping."
(emphasis supplied).

And it is significant to note further that the said "Conditions of Contract" is not duly
signed by the parties on any page thereof although it bears the initials of BF's
representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials
thereon of any representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was not
duly executed or signed by the parties, and the failure of the defendants to submit
any signed copy of the said document, this Court entertains serious doubt whether or
not the arbitration clause found in the said Conditions of Contract is binding upon the
parties to the Articles of Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it
was "too late in the day for defendants to invoke arbitration." It quoted the following provision of the
arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other
party to the contract and a copy filed with the Project Manager. The demand for
arbitration shall be made within a reasonable time after the dispute has arisen and
attempts to settle amicably have failed; in no case, however, shall the demand he
made be later than the time of final payment except as otherwise expressly stipulated
in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project
was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each
day of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of
the total contract price."
The lower court also found that after the project was completed in accordance with the agreement
that contained a provision on "progress payment billing," SPI "took possession and started
operations thereof by opening the same to the public in November, 1991." SPI, having failed to pay
for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand
letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its
own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The
conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that "Notice of the demand for arbitration of a dispute shall
be filed in writing with the other party . . . . in no case . . . . later than the time of final
payment . . . "which apparently, had elapsed, not only because defendants had taken
possession of the finished works and the plaintiff's billings for the payment thereof
had remained pending since November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed to file any written notice of
any demand for arbitration during the said long period of one year and eight months,
this Court finds that it cannot stay the proceedings in this case as required by Sec. 7
of Republic Act No. 876, because defendants are in default in proceeding with such
arbitration.
The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other
defendants to file their responsive pleading or answer within fifteen (15) days from notice.

Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the
Rules of Court before the Court of Appeals. Said appellate court granted the petition, annulled and
set aside the orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals
held:
The reasons given by the respondent Court in denying petitioners' motion to suspend
proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners'
reply dated August 26, 1993, has been submitted by them to the respondent Court
(Annex G, petition). It bears the signature of petitioner Rufo B. Colayco, president of
petitioner Shangri-La Properties, Inc., and of Bayani Fernando, president of
respondent Corporation (Annex G-1, petition). At page D/4 of said articles of
agreement it is expressly provided that the conditions of contract are "deemed an
integral part" thereof (page 188, rollo). And it is at pages D/42 to D/44 of the
conditions of contract that the provisions for arbitration are found (Annexes G-3 to G5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall arise
between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or
as to any matter or thing of whatsoever nature arising thereunder or
in connection therewith (including any matter or being left by this
Contract to the discretion of the Project Manager or the withholding
by the Project Manager of any certificate to which the Contractor may
claim to be entitled or the measurement and valuation mentioned in
clause 30 (5) (a) of these Conditions' or the rights and liabilities of the
parties under clauses 25, 26, 32 or 33 of these Conditions), the
Owner and the Contractor hereby agree to exert all efforts to settle
their differences or dispute amicably. Failing these efforts then such
dispute or difference shall be referred to Arbitration in accordance
with the rules and procedures of the Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear only
the initials of respondent Corporation's representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La
Properties, Inc. does not militate against its effectivity. Said petitioner having
categorically admitted that the document, Annex A to its reply dated August 26, 1993
(Annex G, petition), is the agreement between the parties, the initial or signature of
said petitioner's representative to signify conformity to arbitration is no longer
necessary. The parties, therefore, should be allowed to submit their dispute to
arbitration in accordance with their agreement.
2. The respondent Court held that petitioners "are in default in proceeding with such
arbitration." It took note of "the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that "Notice of the demand for arbitration of a
dispute shall be filed in writing with the other party . . . in no case . . . later than the
time of final payment," which apparently, had elapsed, not only because defendants
had taken possession of the finished works and the plaintiff's billings for the payment
thereof had remained pending since November, 1991 up to the filing of this case on
July 14, 1993, but also for the reason that defendants have failed to file any written

notice of any demand for arbitration during the said long period of one year and eight
months, . . . ."
Respondent 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 (emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the
final demand to pay the amount of P110,883,101.52, instead of paying, petitioners
set up its own claim against respondent Corporation in the amount of
P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference
proved futile. The next day, July 14, 1993, respondent Corporation filed its complaint
against petitioners. On August 13, 1993, petitioners wrote to respondent Corporation
requesting arbitration. Under the circumstances, it cannot be said that petitioners'
resort to arbitration was made beyond reasonable time. Neither can they be
considered in default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:
A
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT
OF CERTIORARIALTHOUGH 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 forcertiorari 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 Appeals8 as follows:
. . . . 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. . . . Certiorari is 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 . . . ." That is why they are referred to
as "extraordinary." . . . .
The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special civil action of certiorari."9
This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of
the lower court over the controversy, the issue posed basically is whether the lower court
prematurely assumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction
over the case, then it becomes an error of jurisdiction which is a proper subject of a petition
for certiorari before the Court of Appeals. And if the lower court does not have jurisdiction over the
controversy, then any decision or order it may render may be annulled and set aside by the
appellate court.
However, the question of jurisdiction, which is a question of law depends on the determination of the
existence of the arbitration clause, which is a question of fact. In the instant case, the lower court
found that there exists an arbitration clause. However, it ruled that in contemplation of law, said
arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the
Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is not
proper in a petition forcertiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of
fact, the Court of Appeals interpreted the construction of the subject contract documents containing
the Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing
jurisprudence which will be extensively discussed hereunder. In effect, the issue posed before the
Court of Appeals was likewise a question of law. Being a question of law, the private respondents
rightfully invoked the special civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is being
questioned by the petitioners before this Court. But at the heart of said issue is the question of

whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether private respondents took the proper
mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of
whether there exists an Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will
result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are
technical rules may be relaxed. 10 As we shall show hereunder, had the Court of Appeals dismissed
the petition for certiorari, the issue of whether or not an arbitration clause exists in the contract would
not have been resolved in accordance with evidence extant in the record of the case. Consequently,
this would have resulted in a judicial rejection of a contractual provision agreed by the parties to the
contract.
In the same vein, this Court holds that the question of the existence of the arbitration clause in the
contract between petitioner and private respondents is a legal issue that must be determined in this
petition for review oncertiorari.
Petitioner, while not denying that there exists an arbitration clause in the contract in question,
asserts that in contemplation of law there could not have been one considering the following
points. First, the trial court found that the "conditions of contract" embodying the arbitration clause is
not duly signed by the parties. Second, private respondents misrepresented before the Court of
Appeals that they produced in the trial court a notarized duplicate original copy of the construction
agreement because what were submitted were mere photocopies thereof. The contract(s)
introduced in court by private respondents were therefore "of dubious authenticity" because: (a) the
Agreement for the Execution of Builder's Work for the EDSA Plaza Project does not contain an
arbitration clause, (b) private respondents "surreptitiously attached as Annexes "G-3" to "G-5" to
their petition before the Court of Appeals but these documents are not parts of the Agreement of the
parties as "there was no formal trade contract executed," (c) if the entire compilation of documents
"is indeed a formal trade contract," then it should have been duly notarized, (d) the certification from
the Records Management and Archives Office dated August 26, 1993 merely states that "the notarial
record of Nilberto Briones . . . is available in the files of (said) office as Notarial Registry Entry only,"
(e) the same certification attests that the document entered in the notarial registry pertains to the
Articles of Agreement only without any other accompanying documents, and therefore, it is not a
formal trade contract, and (f) the compilation submitted by respondents are a "mere hodge-podge of
documents and do not constitute a single intelligible agreement."
In other words, petitioner denies the existence of the arbitration clause primarily on the ground that
the representatives of the contracting corporations did not sign the "Conditions of Contract" that
contained the said clause. Its other contentions, specifically that insinuating fraud as regards the
alleged insertion of the arbitration clause, are questions of fact that should have been threshed out
below.
This Court may as well proceed to determine whether the arbitration clause does exist in the parties'
contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as
follows:
Sec. 4. Form of arbitration agreement. A contract to arbitrate a controversy
thereafter arising between the parties, as well as a submission to arbitrate an existing
controversy, shall be in writing and subscribed by the party sought to be charged, or
by his lawful agent.

The making of a contract or submission for arbitration described in section two


hereof, providing for arbitration of any controversy, shall be deemed a consent of the
parties of the province or city where any of the parties resides, to enforce such
contract of submission. (Emphasis supplied.).
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in
writing and (b) it must be subscribed by the parties or their representatives. There is no denying that
the parties entered into a written contract that was submitted in evidence before the lower court. To
"subscribe" means to write underneath, as one's name; to sign at the end of a document. 11 That
word may sometimes be construed to mean to give consent to or to attest.12
The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with
in the contract in question. The Articles of Agreement, which incorporates all the other contracts and
agreements between the parties, was signed by representatives of both parties and duly notarized.
The failure of the private respondent's representative to initial the "Conditions of Contract" would
therefor not affect compliance with the formal requirements for arbitration agreements because that
particular portion of the covenants between the parties was included by reference in the Articles of
Agreement.
Petitioner's contention that there was no arbitration clause because the contract incorporating said
provision is part of a "hodge-podge" document, is therefore untenable. A contract need not be
contained in a single writing. It may be collected from several different writings which do not conflict
with each other and which, when connected, show the parties, subject matter, terms and
consideration, as in contracts entered into by correspondence. 13 A contract may be encompassed in
several instruments even though every instrument is not signed by the parties, since it is sufficient if
the unsigned instruments are clearly identified or referred to and made part of the signed instrument
or instruments. Similarly, a written agreement of which there are two copies, one signed by each of
the parties, is binding on both to the same extent as though there had been only one copy of the
agreement and both had signed it. 14
The flaw in petitioner's contentions therefore lies in its having segmented the various components of
the whole contract between the parties into several parts. This notwithstanding, petitioner ironically
admits the execution of the Articles of Agreement. Notably, too, the lower court found that the said
Articles of Agreement "also provides that the 'Contract Documents' therein listed 'shall be deemed
an integral part of this Agreement,' and one of the said documents is the 'Conditions of Contract'
which contains the Arbitration Clause.'" It is this Articles of Agreement that was duly signed by Rufo
B. Colayco, president of private respondent SPI, and Bayani F. Fernando, president of petitioner
corporation. The same agreement was duly subscribed before notary public Nilberto R. Briones. In
other words, the subscription of the principal agreement effectively covered the other documents
incorporated by reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling that private respondents
were not in default in invoking the provisions of the arbitration clause which states that "(t)he
demand for arbitration shall be made within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed." Under the factual milieu, private respondent SPI should have
paid its liabilities tinder the contract in accordance with its terms. However, misunderstandings
appeared to have cropped up between the parties ostensibly brought about by either delay in the
completion of the construction work or by force majeure or the fire that partially gutted the project.
The almost two-year delay in paying its liabilities may not therefore be wholly ascribed to private
respondent SPI.

Besides, private respondent SPI's initiative in calling for a conference between the parties was a
step towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint
before the lower court. Thus, while private respondent SPI's request for arbitration on August 13,
1993 might appear an afterthought as it was made after it had filed the motion to suspend
proceedings, it was because petitioner also appeared to act hastily in order to resolve the
controversy through the courts.
The arbitration clause provides for a "reasonable time" within which the parties may avail of the relief
under that clause. "Reasonableness" is a relative term and the question of whether the time within
which an act has to be done is reasonable depends on attendant circumstances. 15 This Court finds
that under the circumstances obtaining in this case, a 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 Code's provisions on arbitration. 19 Its potentials as one of the alternative dispute
resolution methods that are now rightfully vaunted as "the wave of the future" in international
relations, is recognized worldwide. To brush aside a contractual agreement calling for arbitration in
case of disagreement between the parties would therefore be a step backward.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the
petition forcertiorari DENIED. This Decision is immediately executory. Costs against petitioner.
SO ORDERED.

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 4 to the Motion was filed by private respondent Lim Kim Steel Builders, Inc. ("Steel
Builders") on 5 July 1993. On the same day, however, the Court issued a Resolution 5 granting the
Motion with a warning that no further extension would be given.
The Opposition, the subsequent Reply 6 of petitioner filed on 20 July 1993 and the Petition for
Review 7 dated 21 July 1993, were noted by the Court in its Resolution 8 of 28 July 1993. The Court
also required private respondent Steel Builders to file a Comment on the Petition for Review and
Steel Builders complied.
The Petition prays for issuance of a temporary restraining order 9 to stay the execution of the
assailed Order and Award in favor of Steel Builders, which application the Court merely noted, as it
did subsequent Urgent Motions for a temporary restraining order. 10
PETITIONER Hi-Precision entered into a contract with PRIVATE RESPONDENT Steel Builders
under which the latter as Contractor was to complete a P21 Million construction project owned by
the former within a period of 153 days,i.e. from 8 May 1990 to 8 October 1990. The project
completion date was first moved to 4 November 1990. On that date, however, only 75.8674% of the
project was actually completed. Petitioner attributed this non-completion to Steel Builders which
allegedly had frequently incurred delays during the
original contract period and the extension period. Upon the other hand, Steel Builders insisted that
the delays in the project were either excusable or due to Hi-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 Hi-Precision and Steel Builders, the
Arbitral Tribunal issued an Order dated 13 May 1993 which reduced the net amount due to
contractor Steel Builders to P6,115,285.83. 12
In its Award, the Arbitral Tribunal stated that it was guided by Articles 1169, 1192 and 2215 of the
Civil Code. With such guidance, the arbitrators concluded that (a) both parties were at fault, though
the Tribunal could not point out which of the parties was the first infractor; and (b) the breaches by
one party affected the discharge of the reciprocal obligations of the other party. With mutual fault
as a principal premise, the Arbitral Tribunal denied (a) 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), subpart 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, Hi-Precision opted for
specific performance and gave Steel Builders a 30-day extension period with which to complete the
project.
What petitioner Hi-Precision, in its above argument, disregards is that the determination of whether
Hi-Precision or Steel Builders was the "injured party" is not to be resolved by an application of Article
1191. That determination is eminently a question of fact, for it requires ascertainment and
identification of which 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 second "legal issue" sought to be raised by petitioner Hi-Precision relates to the supposed failure
of the Arbitral Tribunal to apply the doctrines of estoppel and waiver as against Steel
Builders. 25 The Arbitral Tribunal, after declaring that the parties were mutually at fault, proceeded to
enumerate the faults of each of the parties. One of the faults attributed to petitioner Hi-Precision
is that it had failed to give the contractor Steel Builders the required 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 15day 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.
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.
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
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
a. Foreign exchange loss 11,565,048.37
b. Cost of money (a) 2,871,987.01
I[E] Raw Materials
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

3. Attorney's Fees 500,000.00

P38,231,927.32 30
=============
We consider that in asking this Court to go over each individual claim submitted by it and each
individual countering claim submitted by Steel Builders to the Arbitral Tribunal, petitioner HiPrecision is asking this Court to pass upon claims which are either clearly and directly factual in
nature or require previous determination of factual issues. This upon the one hand. Upon the other
hand, the Court considers that petitioner Hi-Precision has failed to show any serious errors of law
amounting to grave abuse of discretion resulting in lack of jurisdiction on the part of the Arbitral
Tribunal, in either the methods employed or the results reached by the Arbitral Tribunal, in disposing
of the detailed claims of the respective parties.
WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED for lack of merit. Costs
against petitioner.
SO ORDERED.

G.R. No. 115412 November 19, 1999


HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS and FAR EAST BANK & TRUST CO., INC. respondents.

BUENA, J.:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the
decision 1 of the Court of Appeals 2 dated January 21, 1994 in CA-G.R. SP No. 29725, dismissing
the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial
Court of Makati 3 in Civil Case No. 92-145, the first, dated April 30, 1992, denying petitioner's motion
to dismiss and the second, dated October 1, 1992 denying petitioner's motion for reconsideration
thereof.
The pertinent facts may be briefly stated as follows: VICTOR TANCUAN, one of the defendants in
Civil Case No. 92-145, issued Home Bankers Savings and Trust Company (HBSTC) check No.
193498 for P25,250,000.00 while EUGENE ARRIESGADO issued Far East Bank and Trust
Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00
and P8,100,000.00, respectively, the three checks amounting to P25,200,000.00. Tancuan and
Arriesgado exchanged each other's checks and deposited them with their respective banks
for collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored
it for being "Drawn Against Insufficient Funds." On October 15, 1991, HBSTC sent Arriesgado's
three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC
but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received
the notice of dishonor on October 21, 1991 but refused to accept the checks and on October 22,
1991, returned them to FEBTC through the PCHC for the reason "Beyond Reglementary Period,"
implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed the
proceeds thereof to be withdrawn. 4 FEBTC demanded reimbursement for the returned checks and
inquired from HBSTC whether it had permitted any withdrawal of funds against the unfunded checks
and if so, on what date. HBSTC, however, refused to make any reimbursement and to provide
FEBTC with the needed information.
Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC
Arbitration Committee, 5 under the PCHC's Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional clearing operations administered by
the PCHC. 6
On January 17, 1992, WHILE THE ARBITRATION PROCEEDING WAS STILL PENDING, FEBTC
filed an action for sum of money and damages with preliminary attachment 7 against HBSTC,
Robert Young, Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati,
Branch 133. A motion to dismiss was filed by HBSTC claiming that the complaint stated no
cause of action and accordingly ". . . should be dismissed because it seeks to enforce an
arbitral award which as yet does not exist." 8 The trial court issued an omnibus order dated April
30, 1992 denying the motion to dismiss and an order dated October 1, 1992 denying the motion
for reconsideration.
On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of Appeals
contending that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction in
denying the motion to dismiss filed by HBSTC.

In a Decision 9 dated January 21, 1994, the respondent court dismissed the petition for lack of
merit and held that "FEBTC can reiterate its cause of action before the courts which it had
already raised in the arbitration case" 10 after finding that the complaint filed by FEBTC ". . . seeks to
collect a sum of money from HBT [HBSTC] and not to enforce or confirm an arbitral award." 11 The
respondent court observed that "[i]n the Complaint, FEBTC applied for the issuance of a writ of
preliminary attachment over HBT's [HBSTC] property" 12 and citing section 14 of Republic Act No.
876, otherwise known as the Arbitration Law, maintained that "[n]ecessarily, it has to reiterate its
main cause of action for sum of money against HBT [HBSTC]," 13 and that "[t]his prayer for
conservatory relief [writ of preliminary attachment] satisfies the requirement of a cause of action
which FEBTC may pursue in the courts." 14
Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the
cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines,
Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition requiring prior submission to
arbitration before the institution of a court action, the complaint is not to be dismissed but
should be suspended for arbitration." 17 Finding no merit in HBSTC's contention that section 7
of the Arbitration Law ". . . contemplates a situation in which a party to an arbitration agreement has
filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has initiated
arbitration proceedings before filing a court action," the respondent court held that ". . . if the
absence of a prior arbitration may stay court action, so too and with more reason, should an
arbitration already pending as obtains in this case stay the court action. A party to a pending arbitral
proceeding may go to court to obtain conservatory reliefs in connection with his cause of action
although the disposal of that action on the merits cannot as yet be obtained." 18 The respondent
court discarded Puromines, Inc. vs. Court of Appeals, 19 stating that ". . . perhaps Puromines may
have been decided on a different factual basis." 20
In the instant petition, 21 petitioner contends that first, "no party litigant can file a non-existent
complaint," 22 arguing that ". . . one cannot file a complaint in court over a subject that is undergoing
arbitration." 23 Second, petitioner submits that "[s]ince arbitration is a special proceeding by a clear
provision of law, 24 the civil suit filed below is, without a shadow of doubt, barred by litis
pendentia and should be dismissed de plano insofar as HBSTC is concerned." 25 Third, petitioner
insists that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held
and terminated, the case that is filed should be dismissed," 26 citing Associated Bank vs. Court of
Appeals, 27 Puromines, Inc. vs. Court of Appeals,28 as and Ledesma vs. Court of
Appeals. 29 Petitioner demurs that the Puromines ruling was deliberately not followed by the
respondent court which claimed that:
xxx xxx xxx
It would really be much easier for Us to rule to dismiss the complaint as the petitioner
here seeks to do, following Puromines. But with utmost deference to the Honorable
Supreme Court, perhaps Puromines may have been decided on a different factual
basis.
xxx xxx xxx 30
Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse
the rulings inNational Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen
Philippines, Inc., 31 and Bengson vs.Chan, 32 where this Court suspended the action filed
pending arbitration, and argues that "[s]ound policy requires that the conclusion of whether a
Supreme Court decision has or has not reversed or modified [a] previous doctrine, should be
left to the Supreme Court itself; until then, the latest pronouncement should

prevail." 33 Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial
court is void considering that the case filed before it "is a separate action
which cannot exist," 34 and ". . . there is even no need for the attachment as far as HBSTC is
concerned because such automatic debit/credit procedure 35 may be regarded as a security
for the transactions involved and, as jurisprudence confirms, one requirement in the issuance
of an attachment [writ of preliminary attachment] is that the debtor has no sufficient
security." 36 Petitioner asserts further that a writ of preliminary attachment is unwarranted
because no ground exists for its issuance. According to petitioner, ". . . the only allegations
against it [HBSTC] are that it refused to refund the amounts of the checks of FEBTC and that
it knew about the fraud perpetrated by the other defendants," 37 which, at best, constitute
only "incidental fraud" and not causal fraud which justifies the issuance of the writ of
preliminary attachment.
Private respondent FEBTC, on the other hand, contends that ". . . the cause of action for
collection [of a sum of money] can coexist in the civil suit and the arbitration
[proceeding]" 38 citing section 7 of the Arbitration Law which provides for the stay of the civil action
until an arbitration has been had in accordance with the terms of the agreement providing for
arbitration. Private respondent further asserts that following section 4(3), article VIII 39 of the 1987
Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier cases
of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines,
Inc., 40 and Bengson vs. Chan, 41 hence, private respondent concludes that the prevailing doctrine is
that the civil action must be stayed rather than dismissed pending arbitration.
In this petition, the lone issue presented for the consideration of this Court is:
Whether or not private respondent which commenced an arbitration proceeding
under the auspices of the philippine clearing house corporation (pchc) may
subsequently file a separate case in court over the same subject matter of
arbitration despite the pendency of that arbitration, simply to obtain the provisional
remedy of attachment against the bank the adverse party in the arbitration
proceeding. 42
We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the
ARBITRATION LAW, allows any party to the arbitration proceeding to petition the court to
take measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration, thus:
Sec. 14. Subpoena and subpoena duces tecum. Arbitrators shall have the power
to require any person to attend a hearing as a witness. They shall have the power to
subpoena witnesses and documents when the relevancy of the testimony and the
materiality thereof has been demonstrated to the arbitrators. Arbitrators may also
require the retirement of any witness during the testimony of any other witness. All of
the arbitrators appointed in any controversy must attend all the hearings in that
matter and hear all the allegations and proofs of the parties; but an award by the
majority of them is valid unless the concurrence of all of them is expressly required in
the submission or contract to arbitrate. The arbitrator or arbitrators shall have the
power at any time, before rendering the award, without prejudice to the rights of any
party to petition the court to take measures to safeguard and/or conserve any matter
which is the subject of the dispute in arbitration. (emphasis supplied)
Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply
grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before

rendering the award. The exercise of such power is without prejudice to the right of a party to file a
petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case
at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary
attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the
sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in
banking as a "kiting scheme." However, the civil action was not a simple case of a money claim
since private respondent has included a prayer for a writ of preliminary attachment, which is
sanctioned by section 14 of the Arbitration Law.
Petitioner cites the cases of Associated Bank vs. Court of Appeals, 43 Puromines, Inc. vs. Court of
Appeals, 44 andLedesma vs. Court of Appeals 45 in contending that "[w]hen arbitration is agreed
upon and suit is filed without arbitration having been held and terminated, the case that is filed
should be dismissed." 46 However, the said cases are not in point. InAssociated Bank, we affirmed
the dismissal of the third-party complaint filed by Associated Bank against Philippine Commercial
International Bank, Far East Bank & Trust Company, Security Bank and Trust Company, and
Citytrust Banking Corporation for lack of jurisdiction, it being shown that the said parties were bound
by the Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House
Corporation. In Associated Bank, we declared that:
. . . . . .. Under the rules and regulations of the Philippine Clearing House Corporation
(PCHC), the mere act of participation of the parties concerned in its operations in
effect amounts to a manifestation of agreement by the parties to abide by its rules
and regulations. As a consequence of such participation, a party cannot invoke the
jurisdiction of the courts over disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the arbitration processes laid out
by the body. 47 (emphasis supplied)
And thus we concluded:
Clearly therefore, petitioner Associated Bank, by its voluntary participation and its
consent to the arbitration rules cannot go directly to the Regional Trial Court when it
finds it convenient to do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to all the parties in the
third party complaint under their obligation to first seek redress of their disputes and
grievances with the PCHC before going to the trial court. 48 (emphasis supplied)
Simply put, participants in the regional clearing operations of the Philippine Clearing House
Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from
the courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as
required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial
court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the
PCHC rules and regulations.
Likewise, in the case of Puromines, Inc. vs. Court of Appeals, 49 we have ruled that:
In any case, whether the liability of respondent should be based on the sales contract
or that of the bill of lading, the parties are nevertheless obligated to respect the
arbitration provisions on the sales contract and/or bill of lading. Petitioner being a
signatory and party to the sales contract cannot escape from his obligation under the
arbitration clause as stated therein.

In Puromines, we found the arbitration clause stated in the sales contract to be valid and
applicable, thus, we ruled that the parties, being signatories to the sales contract, are
obligated to respect the arbitration provisions on the contract and cannot escape from such
obligation by filing an action for breach of contract in court without resorting first to
arbitration, as agreed upon by the parties.
At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is
encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially
of commercial disputes. 50 The Court looks with favor upon such amicable arrangement and will only
interfere with great reluctance to anticipate or nullify the action of the arbitrator. 51
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the
court a quo is AFFIRMED.
SO ORDERED.

G.R. No. 141833

March 26, 2003

LM POWER ENGINEERING CORPORATION, petitioner,


vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
PANGANIBAN, J.:
ALTERNATIVE DISPUTE RESOLUTION METHODS or ADRs -- like arbitration, mediation,
negotiation and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve
their disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationships.1
The Case
Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, seeking to set
aside the January 28, 2000 Decision of the Court of Appeals3 (CA) in CA-GR CV No. 54232. The
dispositive portion of the Decision reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties
are ORDERED to present their dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is [d]ischarged."4
The Facts
On February 22, 1983, Petitioner LM POWER ENGINEERING CORPORATION and Respondent
CAPITOL INDUSTRIAL CONSTRUCTION Groups Inc. entered into a "Subcontract Agreement"
involving electrical work at the Third Port of Zamboanga.5
On April 25, 1985, respondent took over some of the work contracted to petitioner.6 Allegedly, the
petitioner had failed to finish it because of its inability to procure materials.7
Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90.8Contesting the accuracy of the amount of advances and billable accomplishments
listed by the former, the respondent refused to pay. Respondent also took refuge in the
termination clause of the Agreement.9 That clause allowed it to set off the cost of the work that
petitioner had failed to undertake -- due to termination or take-over -- against the amount it owed the
latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141)
a Complaint10for the collection of the amount representing the alleged balance due it under the
Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss,11 alleging
that the Complaint was premature, because there was no prior recourse to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the
dispute did not involve the interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause.13
After trial on the merits, the RTC14 ruled that the take-over of some work items by respondent was
not equivalent to a termination, but a mere modification, of the Subcontract. The latter was ordered
to give full payment for the work completed by petitioner.

Ruling of the Court of Appeals


On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The
appellate court held as arbitrable the issue of whether respondents take-over of some work items
had been intended to be a termination of the original contract under Letter "K" of the Subcontract. It
ruled likewise on two other issues: whether petitioner was liable under the warranty clause of the
Agreement, and whether it should reimburse respondent for the work the latter had taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
"A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding
the interpretation and implementation of the Sub-Contract Agreement dated February 22, 1983 that
requires prior recourse to voluntary arbitration;
"B
In the affirmative, whether or not the requirements provided in Article III 1 of CIAC Arbitration Rules
regarding request for arbitration ha[ve] been complied with[.]"17
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation of the
Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect the value of the
services it rendered through an ordinary action for the collection of a sum of money from respondent.
On the other hand, the latter contends that there is a need for prior arbitration as provided in the
Agreement. This is because there are some disparities between the parties positions regarding the
extent of the work done, the amount of advances and billable accomplishments, and the set off of
expenses incurred by respondent in its take-over of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties ncongruent positions on
whether certain provisions of their Agreement could be applied to the facts. The instant case
involves technical discrepancies that are better left to an arbitral body that has expertise in those
areas. In any event, the inclusion of an arbitration clause in a contract does not ipso facto divest the
courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards are still
judicially reviewable under certain conditions.18
In the case before us, the Subcontract has the following arbitral clause:

"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x x x."19
Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions
of their Agreement. Within the scope of the arbitration clause are discrepancies as to the amount
of advances and billable accomplishments, the application of the provision on termination, and
the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the following questions:
(1) Did a take-over/termination occur? (2) May the expenses incurred by respondent in the take-over
be set off against the amounts it owed petitioner? (3) How much were the advances and billable
accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement.
According to respondent, the take-over was caused by petitioners delay in completing the work.
Such delay was in violation of the provision in the Agreement as to time schedule:
"G. TIME SCHEDULE
"[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be granted by
[respondent] to [petitioner] unless a corresponding time extension is granted by [the Ministry
of Public Works and Highways] to the CONSORTIUM."20
Because of the delay, respondent alleges that it took over some of the work contracted to petitioner,
pursuant to the following provision in the Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate and/or take over this Agreement for any of the
following causes:
xxx

xxx

xxx

6. If despite previous warnings by [respondent], [petitioner] does not execute the


WORK in accordance with this Agreement, or persistently or flagrantly neglects to
carry out [its] obligations under this Agreement."21
Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the contracted
price. It sought to set off those expenses against the amount claimed by petitioner for the work the
latter accomplished, pursuant to the following provision:
"If the total direct and indirect cost of completing the remaining part of the WORK exceed the
sum which would have been payable to [petitioner] had it completed the WORK, the amount
of such excess [may be] claimed by [respondent] from either of the following:
1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement."22

The issue as to the correct amount of petitioners advances and billable accomplishments involves
an evaluation of the manner in which the parties completed the work, the extent to which they did it,
and the expenses each of them incurred in connection therewith. Arbitrators also need to look into
the computation of foreign and local costs of materials, foreign and local advances, retention fees
and letters of credit, and taxes and duties as set forth in the Agreement. These data can be gathered
from a review of the Agreement, pertinent portions of which are reproduced hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
xxx

xxx

xxx

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


retention sum of ten percent (10%) of the value of the approved quantities. Any claims by
[respondent] on [petitioner] may be deducted by [respondent] from the progress payments
and/or retained amount. Any excess from the retained amount after deducting [respondents]
claims shall be released by [respondent] to [petitioner] after the issuance of [the Ministry of
Public Works and Highways] of the Certificate of Completion and final acceptance of the
WORK by [the Ministry of Public Works and Highways].
xxx

xxx

xxx

"D. IMPORTED MATERIALS AND EQUIPMENT


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

xxx

xxx

"N. OTHER CONDITIONS


xxx

xxx

xxx

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

interpretation that covers the asserted dispute, an order to arbitrate should be granted.28 Any doubt
should be resolved in favor of arbitration.29
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a formal
request for arbitration with the Construction Industry Arbitration Commission (CIAC) precluded
the latter from acquiring jurisdiction over the question. To bolster its position, petitioner even
cites our ruling in Tesco Services Incorporated v. Vera.30 We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed
required the submission of a request for arbitration, as follows:
"SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to
have recourse to arbitration by the Construction Industry Arbitration Commission (CIAC)
shall submit its Request for Arbitration in sufficient copies to the Secretariat of the CIAC;
PROVIDED, that in the case of government construction contracts, all administrative
remedies available to the parties must have been exhausted within 90 days from the time the
dispute arose."
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC may now
be availed of whenever a contract "contains a clause for the submission of a future
controversy to arbitration," in this wise:
"SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a construction
contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding
the reference to a different arbitration institution or arbitral body in such contract or
submission. When a contract contains a clause for the submission of a future controversy to
arbitration, it is not necessary for the parties to enter into a submission agreement
before the claimant may invoke the jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-93.31
The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation
(Philippines) v. Rosal Infrastructure Builders et al.32 (an extended unsigned Resolution) and
reiterated in National Irrigation Administration v. Court of Appeals,33 from which we quote thus:
"Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1, as applied in the Tesco
case, the law as it now stands does not provide that the parties should agree to submit
disputes arising from their agreement specifically to the CIAC for the latter to acquire
jurisdiction over the same. Rather, it is plain and clear that as long as the parties agree
to submit to voluntary arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically
choose another forum, the parties will not be precluded from electing to submit their dispute

before the CIAC because this right has been vested upon each party by law, i.e., E.O. No.
1008."34
Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to
decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because that clause is binding, they are expected to abide
by it in good faith.35 And because it covers the dispute between the parties in the present case,
either of them may compel the other to arbitrate.36
Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the
proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of
such action, as provided under RA 876 [the Arbitration Law].37
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.

G.R. No. 152878

May 5, 2003

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,


vs.
MAGWIN MARKETING CORPORATION, NELSON TIU, BENITO SY and ANDERSON
UY, respondents.
BELLOSILLO, J.:
WE ARE PERTURBED that this case should drag this Court in the banal attempts to decipher the
hazy and confused intent of the trial court in proceeding with what would have been a simple,
straightforward and hardly arguable collection case. Whether the dismissal without prejudice for
failure to prosecute was unconditionally reconsidered, reversed and set aside to reinstate the civil
case and have it ready for pre-trial are matters which should have been clarified and resolved in the
first instance by the court a quo. Unfortunately, this feckless imprecision of the trial court became the
soup stock of the parties and their lawyers to further delay the case below when they could have
otherwise put things in proper order efficiently and effectively.
On 4 March 1999 PETITIONER Rizal Commercial Banking Corporation (RCBC) filed a
complaint for recovery of a sum of money with prayer for a writ of preliminary attachment against
RESPONDENTS Magwin Marketing Corporation, Nelson Tiu, Benito Sy and Anderson Uy.1 On 26
April 1999, the trial court issued a writ of attachment.2 On 4 June 1999 the writ was returned
partially satisfied since only a parcel of land purportedly owned by defendant Benito Sy was
attached.3 In the meantime, summons was served on each of the defendants, respondents herein,
who filed their respective answers, except for defendant Gabriel Cheng who was dropped without
prejudice as party-defendant as his whereabouts could not be located.4 On 21 September 1999
petitioner moved for an alias writ of attachment which on 18 January 2000 the court a quo denied.5
Petitioner did not cause the case to be set for pre-trial.6 For about six (6) months thereafter,
discussions between petitioner and respondents Magwin Marketing Corporation, Nelson Tiu, Benito
Sy and Anderson Uy, as parties in Civil Case No. 99-518, were undertaken to restructure the
indebtedness of respondent Magwin Marketing Corporation.7 On 9 May 2000 petitioner approved a
debt payment scheme for the corporation which on 15 May 2000 was communicated to the latter
by means of a letter dated 10 May 2000 for the conformity of its officers, i.e., respondent Nelson Tiu
as President/General Manager of Magwin Marketing Corporation and respondent Benito Sy as
Director thereof.8 Only respondent Nelson Tiu affixed his signature on the letter to signify his
agreement to the terms and conditions of the restructuring.9
On 20 July 2000 the RTC of Makati City, on its own initiative, issued an Order dismissing without
prejudice Civil Case No. 99-518 for failure of petitioner as plaintiff therein to "prosecute its
action for an unreasonable length of time . . .."10 On 31 July 2000 petitioner moved for
reconsideration of the Order by informing the trial court of respondents' unremitting desire to settle
the case amicably through a loan restructuring program.11 On 22 August 2000 petitioner notified
the trial court of the acquiescence thereto of respondent Nelson Tiu as an officer of Magwin
Marketing Corporation and defendant in the civil case.12
On 8 September 2000 the court a quo issued an Order reconsidering the dismissal without prejudice
of Civil Case No. 99-518 Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing
this case for failure to prosecute, it appearing that there was already conformity to the
restructuring of defendants' indebtedness with plaintiff by defendant Nelson Tiu, President of

defendant corporation per "Manifestation and Motion" filed by plaintiff on 22 August 2000,
there being probability of settlement among the parties, as prayed for, the Order dated 20
July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof.
Failure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case.13
On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and Motion to Set Case
for Pre-Trial Conference alleging that "[t]o date, only defendant Nelson Tiu had affixed his
signature on the May 10, 2000 letter which informed the defendants that plaintiff [herein petitioner]
already approved defendant Magwin Marketing Corporations request for restructuring of its loan
obligations to plaintiff but subject to the terms and conditions specified in said letter."14 This motion
was followed on 5 October 2000 by petitioner's Supplemental Motion to Plaintiffs Manifestation and
Motion to Set Case for Pre-Trial Conference affirming that petitioner "could not submit a
compromise agreement because only defendant Nelson Tiu had affixed his signature on the May
10, 2000 letter . . .."15 Respondent Anderson Uy opposed the foregoing submissions of petitioner
while respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy neither contested nor
supported them.16
The trial court, in an undated Order (although a date was later inserted in the Order), denied
petitioner's motion to calendar Civil Case No. 99-518 for pre-trial stating that Acting on plaintiff's [herein petitioner] "Manifestation and Motion to Set Case for Pre-Trial
Conference," the "Opposition" filed by defendant Uy and the subsequent "Supplemental
Motion" filed by plaintiff; defendant Uy's "Opposition," and plaintiff's "Reply;" for failure of the
plaintiff to submit a compromise agreement pursuant to the Order dated 8 September 2000
plaintiff's motion to set case for pre-trial conference is hereby denied.17
On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September 2000 Order of
the trial court as well as its undated Order in Civil Case No. 99-518. On 16 November 2000 the trial
court issued two (2) Orders, one of which inserted the date "6 November 2000" in the
undated Order rejecting petitioner's motion for pre-trial in the civil case, and the other denying due
course to the Notice of Appeal on the ground that the "Orders dated 8 September 2000 and 6
November 2000 are interlocutory orders and therefore, no appeal may be taken . . .."18
On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6 November 2000
and 16 November 2000 of the trial court to the Court of Appeals in a petition for certiorari under
Rule 65 of the Rules of Civil Procedure.19 In the main, petitioner argued that the court a quo had
no authority to compel the parties in Civil Case No. 99-518 to enter into an amicable settlement
nor to deny the holding of a pre-trial conference on the ground that no compromise
agreement was turned over to the court a quo.20
On 28 September 2001 the appellate court promulgated its Decision dismissing the petition for lack
of merit and affirming the assailed Orders of the trial court21 holding that . . . although the language of the September 8, 2000 Order may not be clear, yet, a careful
reading of the same would clearly show that the setting aside of the Order dated July 20,
2000 which dismissed petitioner's complaint . . . for failure to prosecute its action for an
unreasonable length of time is dependent on the following conditions, to wit: a) The
submission of the compromise agreement by petitioner within fifteen (15) days from notice;
and b) Failure of petitioner to submit the said compromise agreement shall cause the

imposition of the payment of the required docket fees for the re-filing of the case; so much so
that the non-compliance by petitioner of condition no. 1 would make condition no. 2 effective,
especially that petitioner's manifestation and motion to set case for pre-trial conference and
supplemental motion . . . [were] denied by the respondent judge in his Order dated
November 6, 2000, which in effect means that the Order dated July 20, 2000 was ultimately
not set aside considering that a party need not pay docket fees for the re-filing of a case if
the original case has been revived and reinstated.22
On 2 April 2002 reconsideration of the Decision was denied; hence, this petition.
In the instant case, petitioner maintains that the trial court cannot coerce the parties in Civil
Case No. 99-518 to execute a compromise agreement and penalize their failure to do so by
refusing to go forward with the pre-trial conference. To hold otherwise, so petitioner avers, would
violate Art. 2029 of the Civil Code which provides that "[t]he court shall endeavor to persuade the
litigants in a civil case to agree upon some fair compromise," and this Court's ruling in Goldloop
Properties, Inc. v. Court of Appeals23 where it was held that the trial court cannot dismiss a complaint
for failure of the parties to submit a compromise agreement.
On the other hand, respondent Anderson Uy filed his comment after several extensions asserting
that there are no special and important reasons for undertaking this review. He also alleges that
petitioner's attack is limited to the Order dated 8 September 2000 as to whether it is conditional as
the Court of Appeals so found and the applicability to this case of the ruling in Goldloop Properties,
Inc. v. Court of Appeals. Respondent Uy claims that the Order reconsidering the dismissal of Civil
Case No. 99-518 without prejudice is on its face contingent upon the submission of the compromise
agreement which in the first place was the principal reason of petitioner to justify the withdrawal of
the Order declaring his failure to prosecute the civil case. He further contends that the trial court did
not force the parties in the civil case to execute a compromise agreement, the truth being that it
dismissed the complaint therein for petitioner's dereliction.
Finally, respondent Uy contests the relevance of Goldloop Properties, Inc. v. Court of Appeals, and
refers to its incongruence with the instant case, i.e., that the complaint of petitioner was dismissed
for failure to prosecute and not for its reckless disregard to present an amicable settlement as was
the situation in Goldloop Properties, Inc., and that the dismissal was without prejudice, in contrast
with the dismissal with prejudice ordered in the cited case. For their part, respondents Magwin
Marketing Corporation, Nelson Tiu and Benito Sy waived their right to file a comment on the instant
petition and submitted the same for resolution of this Court.24
The petition of Rizal Commercial Banking Corporation is meritorious. It directs our attention to
questions of substance decided by the courts a quo plainly in a way not in accord with applicable
precedents as well as the accepted and usual course of judicial proceedings; it offers special and
important reasons that demand the exercise of our power of supervision and review. Furthermore,
petitioner's objections to the proceedings below encompass not only the Order of 8 September 2000
but include the cognate Orders of the trial court of 6 and 16 November 2000. This is evident from the
prayer of the instant petition which seeks to reverse and set aside theDecision of the appellate court
and to direct the trial court to proceed with the pre-trial conference in Civil Case No. 99-518.
Evidently, the substantive issue involved herein is whether the proceedings in the civil case should
progress, a question which at bottom embroils all the Orders affirmed by the Court of Appeals.
On the task at hand, we see no reason why RTC-Br. 135 of Makati City should stop short of hearing
the civil case on the merits. There is no substantial policy worth pursuing by requiring petitioner to
pay again the docket fees when it has already discharged this obligation simultaneously with the
filing of the complaint for collection of a sum of money. The procedure for dismissed cases when re-

filed is the same as though it was initially lodged, i.e., the filing of answer, reply, answer to counterclaim, including other foot-dragging maneuvers, except for the rigmarole of raffling cases which is
dispensed with since the re-filed complaint is automatically assigned to the branch to which the
original case pertained.25 A complaint that is re-filed leads to the re-enactment of past proceedings
with the concomitant full attention of the same trial court exercising an immaculate slew of
jurisdiction and control over the case that was previously dismissed,26 which in the context of the
instant case is a waste of judicial time, capital and energy.
What judicial benefit do we derive from starting the civil case all over again, especially where three
(3) of the four (4) defendants, i.e., Magwin Marketing Corporation, Nelson Tiu and Benito Sy, have
not contested petitioner's plea before this Court and the courts a quo to advance to pre-trial
conference? Indeed, to continue hereafter with the resolution of petitioner's complaint without the
usual procedure for the re-filing thereof, we will save the court a quo invaluable time and other
resources far outweighing the docket fees that petitioner would be forfeiting should we rule
otherwise.
Going over the specifics of this petition and the arguments of respondent Anderson Uy, we rule that
the Order of 8 September 2000 did not reserve conditions on the reconsideration and reversal of
the Order dismissing without prejudice Civil Case No. 99-518. This is quite evident from its text
which does not use words to signal an intent to impose riders on the dispositive portion Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing
this case for failure to prosecute, it appearing that there was already conformity to the
restructuring of defendants' indebtedness with plaintiff by defendant Nelson Tiu, President of
defendant corporation per "Manifestation and Motion" filed by plaintiff on 22 August 2000,
there being probability of settlement among the parties, as prayed for, the Order dated 20
July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof.
Failure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case.27
Contrary to respondent Uy's asseverations, the impact of the second paragraph upon the first is
simply to illustrate what the trial court would do after setting aside the dismissal without prejudice:
submission of the compromise agreement for the consideration of the trial court. Nothing in the
second paragraph do we read that the reconsideration is subject to two (2) qualifications. Certainly
far from it, for in Goldloop Properties, Inc. v. Court of Appeals28 a similar directive, i.e., "[t]he parties
are given a period of fifteen (15) days from today within which to submit a Compromise Agreement,"
was held to mean that "should the parties fail in their negotiations the proceedings would continue
from where they left off." Goldloop Properties, Inc. further said that its order, or a specie of it, did not
constitute an agreement or even an expectation of the parties that should they fail to settle their
differences within the stipulated number of days their case would be dismissed.
The addition of the second sentence in the second paragraph does not change the absolute
nullification of the dismissal without prejudice decreed in the first paragraph. The sentence "[f]ailure
on the part of plaintiff to submit the said agreement shall cause the imposition of payment of the
required docket fees for re-filing of this case" is not a directive to pay docket fees but only a
statement of the event that may result in its imposition. The reason for this is that the trial court could
not have possibly made such payment obligatory in the same civil case, i.e., Civil Case No. 99-518,
since docket fees are defrayed only after the dismissal becomes final and executory and when the
civil case is re-filed.

It must be emphasized however that once the dismissal attains the attribute of finality, the trial court
cannot impose legal fees anew because a final and executory dismissal although without prejudice
divests the trial court of jurisdiction over the civil case as well as any residual power to order
anything relative to the dismissed case; it would have to wait until the complaint is docketed once
again.29 On the other hand, if we are to concede that the trial court retains jurisdiction over Civil
Case No. 99-518 for it to issue the assailed Orders, a continuation of the hearing thereon would not
trigger a disbursement for docket fees on the part of petitioner as this would obviously imply the
setting aside of the order of dismissal and the reinstatement of the complaint.
Indubitably, it is speculative to reckon the effectivity of the Order of dismissal without prejudice to the
presentation of the compromise agreement. If we are to admit that the efficacy of the invalidation of
the Order of dismissal is dependent upon this condition, then we must inquire: from what date do we
count the fifteen (15)-day reglementary period within which the alleged revival of the order of
dismissal began to run? Did it commence from the lapse of the fifteen (15) days provided for in
the Order of 8 September 2000? Or do we count it from the 6 November 2000 Order when the trial
court denied the holding of a pre-trial conference? Or must it be upon petitioner's receipt of the 16
November 2000 Order denying due course to its Notice of Appeal? The court a quocould not have
instituted an Order that marked the proceedings before it with a shadow of instability and chaos
rather than a semblance of constancy and firmness.
The subsequent actions of the trial court also belie an intention to revive the Order of dismissal
without prejudice in the event that petitioner fails to submit a compromise agreement. The Orders of
6 and 16 November 2000 plainly manifest that it was retaining jurisdiction over the civil case, a fact
which would not have been possible had the dismissal without prejudice been resuscitated. Surely,
the court a quo could not have denied on 6 November 2000 petitioner's motion to calendar Civil
Case No. 99-518 for pre-trial if the dismissal had been restored to life in the meantime. By then the
dismissal without prejudice would have already become final and executory so as to effectively
remove the civil case from the docket of the trial court.
The same is true with the Order of 16 November 2000 denying due course to petitioner's Notice of
Appeal. There would have been no basis for such exercise of discretion because the jurisdiction of
the court a quo over the civil case would have been discharged and terminated by the presumed
dismissal thereof. Moreover, we note the ground for denying due course to the appeal: the "Orders
dated 8 September 2000 and 6 November 2000 are interlocutory orders and therefore, no appeal
may be taken from . . .."30 This declaration strongly suggests that something more was to be
accomplished in the civil case, thus negating the claim that the Order of dismissal without prejudice
was resurrected upon the parties' failure to yield a compromise agreement. A "final order" issued by
a court has been defined as one which disposes of the subject matter in its entirety or terminates a
particular proceeding or action, leaving nothing else to be done but to enforce by execution what has
been determined by the court, while an "interlocutory order" is one which does not dispose of a case
completely but leaves something more to be decided upon.31
Besides the semantic and consequential improbabilities of respondent Uy's argument, our ruling
in Goldloop Properties, Inc., is decisive of the instant case. In Goldloop Properties, Inc., we reversed
the action of the trial court in dismissing the complaint for failure of the plaintiff to prosecute its case,
which was in turn based on its inability to forge a compromise with the other parties within fifteen
(15) days from notice of the order to do so and held Since there is nothing in the Rules that imposes the sanction of dismissal for failing to submit
a compromise agreement, then it is obvious that the dismissal of the complaint on the basis
thereof amounts no less to a gross procedural infirmity assailable by certiorari. For such
submission could at most be directory and could not result in throwing out the case for failure

to effect a compromise. While a compromise is encouraged, very strongly in fact, failure to


consummate one does not warrant any procedural sanction, much less an authority to
jettison a civil complaint worth P4,000,000.00 . . . Plainly, submission of a compromise
agreement is never mandatory, nor is it required by any rule.32

( //Basically, the motion of the Petitioner has been dismissed by the court for failure to prosecute
action since it required the petitioner to submit a compromise agreement)
As also explained therein, the proper course of action that should have been taken by the
court a quo, upon manifestation of the parties of their willingness to discuss a settlement, was to
suspend the proceedings and allow them reasonable time to come to terms (a) If willingness to
discuss a possible compromise is expressed by one or both parties; or (b) If it appears that one of
the parties, before the commencement of the action or proceeding, offered to discuss a possible
compromise but the other party refused the offer, pursuant to Art. 2030 of the Civil Code. If despite
efforts exerted by the trial court and the parties the negotiations still fail, only then should the action
continue as if no suspension had taken place.33
Ostensibly, while the rules allow the trial court to suspend its proceedings consistent with the
policy to encourage the use of alternative mechanisms of dispute resolution, in the instant
case, the trial court only gave the parties fifteen (15) days to conclude a deal. This was, to say
the least, a passive and paltry attempt of the court a quo in its task of persuading litigants to agree
upon a reasonable concession.34 Hence, if only to inspire confidence in the pursuit of a middle
ground between petitioner and respondents, we must not interpret the trial court's Orders as
dismissing the action on its own motion because the parties, specifically petitioner, were anxious to
litigate their case as exhibited in their several manifestations and motions.
We reject respondent Uy's contention that Goldloop Properties, Inc. v. Court of Appeals is irrelevant
to the case at bar on the dubious reasoning that the complaint of petitioner was dismissed for failure
to prosecute and not for the non-submission of a compromise agreement which was the bone of
contention in that case, and that the dismissal imposed in the instant case was without prejudice, in
contrast to the dismissal with prejudice decreed in the cited case. To begin with, whether the
dismissal is with or without prejudice if grievously erroneous is detrimental to the cause of the
affected party; Goldloop Properties, Inc. does not tolerate a wrongful dismissal just because it was
without prejudice. More importantly, the facts in Goldloop Properties, Inc. involve, as in the instant
case, a dismissal for failure to prosecute on the ground of the parties' inability to come up with a
compromise agreement within fifteen (15) days from notice of the court's order therein. All told, the
parallelism between them is unmistakable.
Even if we are to accept on face value respondent's understanding of Goldloop Properties, Inc. as
solely about the failure to submit a compromise agreement, it is apparent that the present case
confronts a similar problem. Perhaps initially the issue was one of failure to prosecute, as can be
observed from the Order dated 20 July 2000, although later reversed and set aside. But thereafter,
in the Order of 6 November 2000, the trial court refused to proceed to pre-trial owing to the "failure of
the plaintiff to submit a compromise agreement pursuant to the Order dated 8 September 2000."
When the civil case was stalled on account of the trial court's refusal to call the parties to a pre-trial
conference, the reason or basis therefor was the absence of a negotiated settlement - a
circumstance that takes the case at bar within the plain ambit of Goldloop Properties, Inc. In any
event, given that the instant case merely revolves around the search for a reasonable interpretation
of the several Orders of the trial court, i.e., as to whether the dismissal without prejudice was revived

upon petitioner's helplessness to perfect an out-of-court arrangement, with more reason must we
employ the ruling in Goldloop Properties, Inc. to resolve the parties' differences of opinion.
We also find nothing in the record to support respondent Uy's conclusion that petitioner has been
mercilessly delaying the prosecution of Civil Case No. 99-518 to warrant its dismissal. A complaint
may be dismissed due to plaintiff's fault: (a) if he fails to appear during a scheduled trial, especially
on the date for the presentation of his evidence in chief, or when so required at the pre-trial; (b) if he
neglects to prosecute his action for an unreasonable length of time; or (c) if he does not comply with
the rules or any order of the court. None of these was obtaining in the civil case.
While there was a lull of about six (6) months in the prosecution of Civil Case No. 99-518, it must be
remembered that respondents themselves contributed largely to this delay. They repeatedly
asked petitioner to consider re-structuring the debt of respondent Magwin Marketing Corporation to
which petitioner graciously acceded. Petitioner approved a new debt payment scheme that was
sought by respondents, which it then communicated to respondent Corporation through a letter for
the conformity of the latter's officers, i.e., respondent Nelson Tiu as President/General Manager and
respondent Benito Sy as Director thereof. Regrettably, only respondent Nelson Tiu affixed his
signature on the letter to signify his concurrence with the terms and conditions of the arrangement.
The momentary lag in the civil case was aggravated when respondent Benito Sy for unknown and
unexplained reasons paid no heed to the adjustments in the indebtedness although curiously he has
not opposed before this Court or the courts a quo petitioner's desire to go ahead with the pre-trial
conference.
Admittedly, delay took place in this case but it was not an interruption that should have entailed the
dismissal of the complaint even if such was designated as without prejudice. To constitute a
sufficient ground for dismissal, the inattention of plaintiff to pursue his cause must not only be
prolonged but also be unnecessary and dilatory resulting in the trifling of judicial processes. In the
instant case, the adjournment was not only fleeting as it lasted less than six (6) months but was also
done in good faith to accommodate respondents' incessant pleas to negotiate. Although the
dismissal of a case for failure to prosecute is a matter addressed to the sound discretion of the court,
that judgment however must not be abused. The availability of this recourse must be determined
according to the procedural history of each case, the situation at the time of the dismissal, and the
diligence of plaintiff to proceed therein.35 Stress must also be laid upon the official directive that
courts must endeavor to convince parties in a civil case to consummate a fair settlement36 and to
mitigate damages to be paid by the losing party who has shown a sincere desire for such give-andtake.37 All things considered, we see no compelling circumstances to uphold the dismissal of
petitioner's complaint regardless of its characterization as being without prejudice.
In fine, petitioner cannot be said to have lost interest in fighting the civil case to the end. A court may
dismiss a case on the ground of non prosequitur but the real test of the judicious exercise of such
power is whether under the circumstances plaintiff is chargeable with want of fitting assiduousness
in not acting on his complaint with reasonable promptitude. Unless a party's conduct is so indifferent,
irresponsible, contumacious or slothful as to provide substantial grounds for dismissal, i.e.,
equivalent to default or non-appearance in the case, the courts should consider lesser sanctions
which would still amount to achieving the desired end.38 In the absence of a pattern or scheme to
delay the disposition of the case or of a wanton failure to observe the mandatory requirement of the
rules on the part of the plaintiff, as in the case at bar, courts should decide to dispense rather than
wield their authority to dismiss.39
Clearly, another creative remedy was available to the court a quo to attain a speedy disposition of
Civil Case No. 99-518 without sacrificing the course of justice. Since the failure of petitioner to
submit a compromise agreement was the refusal of just one of herein respondents, i.e., Benito Sy, to

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

G.R. No. 141897

September 24, 2001

METRO CONSTRUCTION, INC., petitioner,


vs.
CHATHAM PROPERTIES, INC., respondent.
DAVIDE, JR., C.J.:
The core issue in this case is whether under existing law and rules the Court of Appeals can also
review findings of facts of the Construction Industry Arbitration Commission (CIAC).
RESPONDENT Chatham Properties, Inc. (CHATHAM) and PETITIONER Metro Construction,
Inc. (MCI) entered into a contract for the construction of a multi-storey building known as the
Chatham House located at the corner of Herrera and Valero Streets, Salcedo Village, Makati City,
Metro Manila. In April 1998, MCI sought to collect from CHATHAM a sum of money for unpaid
progress billings and other charges and instituted a request for adjudication of its claims with
the CIAC. The case was docketed as CIAC Case No. 10-98. The arbitral tribunal was composed of
Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C. Aquino as members.
The preliminary conference before the CIAC started in June 1998 and was concluded a month
after with the signing of the Terms of Reference (TOR) of the Case.1 The hearings immediately
started with the presentation of MCI's witnesses, namely: Ms. Ma. Suzette S. Nucum, Chief
Accountant; Ms. Isabela Redito, Office Engineer; Mr. John Romulo, Field Manager; and Dr. John Y.
Lai, President. CHATHAM's witnesses were: Engr. Ruperto Kapunan III, Managing Director of RK
Development and Construction Co., Inc. (RKDCCI), which was the Construction Manager firm hired
by CHATHAM to oversee the construction work of the Chatham House; Engr. Alex Bautista, Area
Manager of RKDCCI; Mr. Avelino M. Mercado, CHATHAM's Project Manager; and Engr. Jose T.
Infante.
In the meantime, the TOR was amended and finalized on 19 August 1998.2
The facts, as admitted by the parties before the CIAC and incorporated in the original TOR, are as
follows:
1. On 21 April 1994, the parties formally entered into a . . . contract for the construction of
the "Chatham House" . . . for the contract price of price of P50,000,000.00 inclusive of valueadded tax, subject to adjustments in accordance with Article 9 of the contract. Construction
of the project, however, commenced on 15 April 1994 upon the release by CHATHAM of the
down payment
2. On 12 July 1994, a Supplemental Contract was executed by and between the parties
whereby CHATHAM authorized MCI to procure in behalf of the former materials, equipment,
tools, fixtures, refurbishing, furniture, and accessories necessary for the completion of the
project.
3. Under Section I.04 of the Supplemental Contract, the total amount of procurement and
transportation cost[s] and expenses which may be reimbursed by MCI from CHATHAM
shall not exceed the amount of P75, 000,000.00.

4. In the course of the construction, Change Orders No. 1, 4, 8A, 11, 12 and 13 were
implemented, payment of which were recommended by x x x RKDCCI and approved by one
of CHATHAM's Project Managers, Romulo F. Sugay.
5. On 15 September 1995, CHATHAM through its Project Manager, Romulo F. Sugay,
agreed to give P20,000 per floor for five (5) floors, or a total of P100,000.00 as
bonus/incentive pay to MCI's construction workers for the completion of each floor on
schedule. CHATHAM reimbursed MCI the amount of P60,000.00 corresponding to bonuses
advanced to its workers by the latter for the 14th, 16th, and 17th floors.
6. CHATHAM's payments to MCI totaled P104,875,792.37, representing payments for
portions of MCI's progress billings and x x x additional charges.
The parties then stipulated on the following issues, again, as set forth in the TOR:
1. Is MCI entitled to its claims for unpaid progress billings amounting to P21,062,339.76?
2. Were the approved Change Orders 1, 4, 8a, 11, 12 and 13 fully paid by CHATHAM? If not,
is MCI entitled to its claim for the unpaid balance?
3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15, 16, 17, 19 and 20?
4. Were the CHB works from the 8th to the 31st floors part of the original contract or in the
nature of extra/additional works? Is CHATHAM liable for the same? If so, how much?
5. Is MCI entitled to an additional reimbursement of P40,000.00 for bonuses granted to
workers as an incentive for the early completion of each floor?
6. Were the deductions in the amount of P1,393,458.84 made by CHATHAM in MCI's
progress billing reasonable?
7. Is MCI's claim of P1,646,502.00 for labor escalation valid?
8. Is MCI entitled to payment of attendance fee? To what extent and how much?
9. Did MCI fail to complete and/or deliver the project within the approved completion period?
If so, is MCI liable for liquidated damages and how much?
10. Whether or not CHATHAM is entitled to claim x x x actual damages? If so, to what extent
and how much?
11. Whether or not CHATHAM is entitled to x x x additional counterclaims as follows:
11.1. Core testing expenses and penalty for concrete strength failure P3,630,587.38.
11.2. Expenses to rectify structural steel works for the foundation P1,331,139.74.
11.3. Cost of additional materials (concrete & rebars) supplied by CPI
P5,761,457.91.

12. Are the parties entitled to their respective claims for attorney's fees and cost of litigation?
If so, how much?3
In the resolution of these issues, the CIAC discovered significant data, which were not evident or
explicit in the documents and records but otherwise revealed or elicited during the hearings, which
the CIAC deemed material and relevant to the complete adjudication of the case. In its decision of
19 October 1998, 4 the CIAC made the following findings and conclusions:
It was established during the hearing that the contract was awarded to MCI through
negotiation as no bidding was conducted, x x x It was also revealed that two agreements
were entered into, one is labeled Construction Contract for the total fixed amount of
P50,000,000.00 and the other a Supplemental Contract for an amount not to exceed
P75,000,000.00. The latter is supposed to cover the procurement of materials for the project.
The Construction Contract provides for monthly progress billings and payments based on
actual accomplishments of the various phases of work. The Supplemental Contract provides
for; reimbursement of [the] total amount of procurement and transportation costs and
expenses, upon MCI's presentation of suppliers' invoices/receipts.
However, from testimonies of witnesses from both parties, it was revealed that the two
distinct manner(s) of payment to MCI was set aside. The earlier attempt by CHATHAM to
prove that MCI was remiss in submitting suppliers' invoices and/or receipts in support of its
billings against the Supplemental Contract was in fact later on abandoned when
CHATHAM's witness Mercado admitted that the matter of adherence to the payment
provision of the Supplemental Contract is a 'non-issue.' This was borne out by the fact that
progress billings and payments under both contracts were made on the basis of percentage
of project completion.
Both documentary and testimonial evidence prove that, effectively, the construction contract
and supplemental contract is but one agreement for a lump sum contract amount of
P125,000,000.00.
xxx

xxx

xxx

There was also the admitted fact that the contract was negotiated and awarded in the
absence of a complete construction plan. In any case, in support of the total contract amount
of P125 million, is a Cost Breakdown (Exh. 17-L), where the estimated quantities of owner
furnished materials (OFM) are indicated. It is however, understood that these quantities are
estimates, based on (an) incomplete set of construction plans. It is likewise understood that
except for the OFM, all the other costs in the Cost Breakdown form the basis for the lumpsum agreement under the contract, subject to adjustment only if there are any significant
changes in the contract plans.
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4), informed MCI that it was confirming
the agreement allegedly accepted by Dr. Lai that the Building Committee will take over the
management of the construction operations (of the project) albeit under certain conditions.
Specifically, the take over was for an interim period and will extend only after concreting of
up to basement level 5 or up to 30 May 1995 whichever is later. The letter also stated that
the Building Committee . . . will be responsible for management and direction including
management of MCI engineers at the site, sequencing of work, additional labor, additional
equipment and management of the yard and staging area. The letter, however, emphasized
that the intent is not a take over of the contract or take over of the entire work and in fact, it

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

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

P 20,000,000.00
800,000.00

c. Payments of Progress Billings up to Billing


No. 19

71,081,183.44

d. Other Payments (Mar 1994 to Apr. 1996)

5,474,419.67

e. Advances on MCI Payrolls (April 1996 to


March 1997)

8,196,755.51

Total

P
104,752,358.42

The records of this case show that the last progress payment to MCI was in January 1996
representing payment of Progress Billing No. 19 for the period ending 31 December 1995.
The percentage of completion claimed then by MCI was 80.02%, the amount evaluated and
eventually paid to MCI was the equivalent of 77.15% work accomplishment. No further
progress payments were made thereafter, other than for advances to cover MCI payrolls
from April 1996 to March 1997 in the amount of P8,196,755.51 and for various advances and
payments of approved change orders in the amount of P5,474,419.67.
In the meantime, up to Billing No. 23 for the period ending 30 April 1996, MCI billed
CHATHAM a total accomplishment of 95.29%. This billing was however, evaluated by
CHATHAM, and in its letter to MCI dated 27 May 1996 (Exhibit E) it confirmed that MCI's
remaining balance of work stands at P7,374,201.15 as of 23 May 1996. This amount,
percentage-wise, equals roughly 5.88% of the contract amount as testified to by Engr. Jose
Infante. (Exhibit 22-B). Therefore, what was computed as MCI's work accomplishment as of
23 May 1996 was 94.12% and it is this evaluation which this Tribunal believes MCI is entitled
to as of said date.
Applying this percentage of completion of 94.12% to the P125,000,000.00 contract amount
gives a total accomplishment equivalent to P117,650,000.00 as of 23 May 1996. Add to this
amount the sum of P5,353,091.08 representing the total of approved Change Orders as of
31 December 1995 gives a total MCI accomplishment of P123,003,091.08, as CHATHAM
saw it. Of this amount, CHATHAM admitted having paid MCI the total sum of
P104,752,358.42 only (Exhibit 7) up to March 15, 1997, leaving a balance of
P18,250,732.66. It should be noted that of the total payment of P104,752,358.42, the sum of
P5,750,000.00 was paid after May 1996 so that as of 25 May 1996, CHATHAM's total
payment to MCI was P99,002,358.42.
Effectively, therefore, the amount due MCI as of 23 May 1996 amounted to P24,005,732.66
computed as follows:
Total accomplishment as of 23 May 1996 at
94.12%
Add approved change orders
Total
Less payments up to 23 May 1996
Balance due MCI as of 23 May 1996

P 117, 655,
000.00
5,353,091.08
P 123,008,091.08
99,002,358.42
P 24,005,732.66

Of the above balance of P24,005,732.66 as of 23 May 1996, the only payments made by
CHATHAM to MCI is the sum of P5,750,000.00 from June 1996 onwards, allegedly to cover
MCI payrolls. It is of course noted that CHATHAM's suspension of further payments to MCI
was because it had been undertaking on its own, the further procurement of materials and
sub-contracting of various phases of works on the project.
In consideration of the above facts, this Tribunal's conclusion that there was in fact an
implied take over of the project is further confirmed. Furthermore, this Tribunal additionally
concludes that the cut-off date for purposes of delineating the financial obligations of the
parties between them should be 23 May 1996, the date when CHATHAM evaluated MCI's
accomplishment at 94.10% but nevertheless suspended all further progress payments to
MCI.

MCI presented further documentary evidence (Exhibit E-6) the subject of which is a
PUNCHLISTING-CIVIL STRUCTURAL." In this particular document which bears the
signatures of representatives of both MCI and RKDCCI, MCI tried to prove that as of 30
August 1996 it had actually attained 99.16% work accomplishment. While it may be true that
as of that date the project had reached 99.16% completion, there is no incontrovertible
evidence showing that MCI was responsible for such accomplishment. This was in fact
actually testified to by Engr. Alex Bautista of RKDCCI, when he said that it was an evaluation
of the project's completion stage, not necessarily MCI's work accomplishment. This Tribunal
therefore stands firm on its conclusion that MCI's accomplishment is only up to the extent of
94.10%.5
With those findings, the CIAC disposed of the specific money claims by either granting or
reducing them. On Issue No. 9, i.e., whether CHATHAM failed to complete and/or deliver the
project within the approved completion period and, if so, whether CHATHAM is liable for liquidated
damages and how much, the CIAC ruled in this wise:
This Tribunal holds that the provision of the contract insofar as the Overall Schedule is
concerned cannot justifiably be applied in the instant case in view of the implied take-over of
the Chatham House project by CHATHAM. Accordingly, this Tribunal finds no necessity to
resolve whether or not MCI complete[d] and/or deliver[ed] the project within the approved
completion period. In fact, Mr. Mercado testified that it was CHATHAM who ultimately
completed the project, with assistance of the construction managers.
In any case, this Tribunal finds merit in RKDCCI's claim that MCI was in delay in the
concreting milestone and that [it] is liable for liquidated damages therefor. This,
notwithstanding MCI's invoking that Chatham is estopped from claiming liquidated damages
after it failed to deduct the alleged liquidated damages from MCI's progress billings. This
Tribunal holds that such failure to deduct, which CHATHAM claims it did in order not to
hamper progress of work in the project, is an option which [it] may or may not exercise.
However, this Tribunal finds that CHATHAM's Exh. 11-A where the liquidated damages on
delays in concreting milestone was applied is not consistent with [its] own Exhibit 3-I. This
Tribunal notes that in Exh. 11-A, CHATHAM included a projected delay of 85 days for the
Helipad Concreting works, while no such projected delay was included in Exh. 3-I as it
should be.
This Tribunal holds that Exh. 3-I showing a delay of 294 days in concreting milestones
should rightfully be used in computing liquidated damages. Accordingly, this Tribunal holds
that MCI is liable for liquidated damages in the amount of P3,062,498.78 as follows:
1/4 x 1/3[(1/10 x P125,000,000.00) 1%] x 294 = P3,062,498.78.6
The CIAC then decreed:
Accordingly, as presented below, all the amounts due MCI are first listed and added up and
the total payment is deducted therefrom. The admitted total payment figure as reflected in
the Terms of Reference is the amount applied instead of the total reflected in CHATHAM's
Summary of Payments which incidentally reflected a lesser amount. From the 'Balance Due
MCI' the 'Amounts CPI is Held Entitled To' is deducted and the 'Net Amount Due MCI' is
arrived at.

A. AMOUNTS HELD CPI IS ENTITLED TO:


A.1. From the original contract:
94.12% of P125,000,000.00

P117,650,000.00

A.2. Approved Change Orders

5,353,091.08

A.3 Pending Change Orders

1,648,560.46

A.4 CHB Works

1,248,654.71

A.5 Workers Bonus


A.6 Disputed Deductions
A.7 Labor Escalation
A.8 Attendance Fee
Total
Less: Total payments - Item 11-6 of TOR
Balance Due MCI

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

B. AMOUNTS HELD CPI IS ENTITLED TO:


B.1. liquidated Damages
B.2. Actual Damages

P3,062,498.78
335,994.50

B.3. Penalties

1,778,285.44

B.4. Cash Payments in Behalf of MCI

2,214,715.68

Total Amount Due CPI


C. NET AMOUNT DUE MCI (A minus B)

7,391,494.40
P16,126,922.91

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


Respondent [CHATHAM] to pay Claimant [MCI] the net sum of SIXTEEN MILLION ONE
HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY TWO & 91/100
(16,126,922.91) PESOS.
SO ORDERED.7
(Base on the facts in Terms of Reference the CIAC concluded and rendered a judgement in favor of
MCI)
Impugning the decision of the CIAC, CHATHAM instituted a petition for review with the Court of
Appeals, which was docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM alleged that:
The Arbitral Tribunal grossly erred in failing to indicate specific reference to the evidence
presented or to the transcript of stenographic notes in arriving at its questioned Decision, in
violation of the cardinal rule under Section 1, Rule 36 of the Revised Rules of Civil Procedure
that a judgment must state clearly and definitely the facts and the law on which it is based.
The Tribunal's conclusions are grounded entirely on speculations, surmises and conjectures.
The Arbitral Tribunal grossly erred in failing to consider the evidence presented by
CHATHAM and the testimony of its witnesses.

The Arbitral Tribunal gravely abused its discretion in considering arbitrarily that there was an
implied takeover contrary to the facts and evidence submitted.
The Arbitral Tribunal committed grave error and gross misapprehension of facts in holding
that CHATHAM is not entitled to liquidated damages despite failure of MCI to meet the overall schedule of completion.
The Arbitral Tribunal manifestly erred in holding that MCI is entitled to its claim for unpaid
progress billings.
The Arbitral Tribunal committed gross and reversible error in equating the percentage of
MCI's work accomplishment with the entire work in place, despite evidence to the contrary.
The Arbitral Tribunal gravely erred in making 23 May 1996 as the cut-off date for purposes of
delineating the financial obligations of the parties.
The Arbitral Tribunal erred in denying CHATHAM its claim for actual damages pursuant to
Article 27.8 of the Construction Contract.
The facts set forth in CHATHAM's Answer with Compulsory Counterclaim as well as its
documentary and testamentary evidence were not overturned or controverted by any
contrary evidence.8
In its decision of 30 September 1999, 9 the Court of Appeals simplified the assigned errors into one
core issue, namely, the "propriety" of the CIAC's factual findings and conclusions. In upholding the
decision of the CIAC, the Court of Appeals confirmed the jurisprudential principle that absent any
showing of arbitrariness, the CIAC's findings as an administrative agency and quasi judicial body
should not only be accorded great respect but also given the stamp of finality. However, the Court of
Appeals found exception in the CIAC's disquisition of Issue No.9on the matter of liquidated damages.
The Court of Appeals disagreed with the CIAC's finding that there was an implied takeover by
CHATHAM of the project and that it was unnecessary for the CIAC to rule on whether MCI
completed and/or delivered the project within the approved completion schedule of the project since
CHATHAM failed to observe the antecedent acts required for the termination of the contract, as set
forth in the Construction Agreement.
The Court of Appeals ascertained that the evidence overwhelmingly proved that there was no
takeover by CHATHAM and that MCI exercised complete control, authority and responsibility over
the construction. In support of this conclusion, the appellate court pointed to the following evidentiary
bases:10
1. Testimony of CHATHAM's Engr. Kapunan that the interim takeover for the works on the
basement was triggered by lack of manpower and delays as early as February 1995, as
evidenced by their assessment11and that the interim takeover was only with respect to the
direction or management of the field operations and was limited only to works on the
basement and intended to assist MCI to catch up with the schedule of completion, since at
that time the project was very much delayed; thereafter, the MCI was back in full control of
the project.12

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

5. Respondent's Request for Adjudication, Annex G, Records, Folder No. 6 which


incorporated Change Order No. 12, among others, dated 28 August 1995, recommended by
the RKDCCI and accepted by Dr. Lai, and which request for an extension of 25 days readily
showed that even after 30 May 1995, after the close of the supposed takeover period, MCI
was still the contractor in complete control of the project for it would not have otherwise
accepted the said change order if it (were) no longer the Contractor of the project due to the
termination of the Construction agreement as of said date on account of the alleged
takeover.
6. Exhibits "3-J," "3-M," "3-Q," "3-R," "3-V," "3- W-1," "3-W-2," "5-F," "5-1," "6," "12-II," "12JJ," "12-MM," and "12-NN" tending to prove that RKDCCI monitored the work from start to
finish and had zealously pointed out to MCI the defects or improper execution of the
construction works, and gave MCI all the opportunity to rectify the construction deficiencies
and complete the works of the project.
The Court of Appeals concluded that the interim takeover was necessitated by CHATHAM's
insistence to meet its own turnover dates with the buyers of the project's units. Thus, CHATHAM
was constrained to hire subcontractors with sufficient manpower and supervision and incur various
expenses to facilitate the completion of the project and/or assist MCI in making up for its delay.
The Court of Appeals then considered it imperative to determine whether MCI failed to complete the
project on time for which it may be held liable for liquidated damages based on the delays in the
overall schedule of completion pursuant to Art. 13.5 of the Construction Agreement, to wit:
13.5. Over-All Schedule For not meeting the final completion date of the PROJECT, the
OWNER will deduct from the Contract Sum or amounts due the CONTRACTOR, the amount
equivalent to 1/10 of 1% of the Contract Sum for every calendar day of delay, provided,
however, that the maximum penalty should not exceed 25% of the fee payable to the
CONTRACTOR as stipulated in the Bill of Quantities. Penalties from concreting milestones
shall be deducted from the penalty of Over-All Schedule.15
The Court of Appeals disposed of the controversy in this wise:
As is extant from the records, the completion date of the Project under the Construction
Contract or under the revised construction schedule was never met by reason of [MCI's] lack
of manpower, necessary equipment, qualified engineers and inefficient management of
construction works on the Project. Thus, under the Contract (Exhibit '1'), [MCI] had 780 days,
or until 22 January 1996, from starting date, or April 12, 1994, to finish the project. The
completion date, however, was not followed and was revised as early as December 17,
1994, extending the milestone dates up to March 15, 1996 (Exhibits '3-G' and '3-H'). As of
December 25, 1995, the number of days delayed was already 294 days. Thus, on February
22, 1996, the contract milestones were again revised, inclusive of 53 days extension, to May
23, 1996 (Exhibits '3-I' and '3-O'). The May 23, 1996 turnover milestone nor the July 22,
1996 turnover of the whole project were neither met (Exhibits '3-P', '3-R', '3-S' and '3-T' but
[CHATHAM] was again constrained to allow [MCI] to continue working on the Project to
complete the balance of the works (Exhibit 'M'). And all throughout the construction of the
Project, [CHATHAM] had to assist [MCI] along the way to expedite the execution and
completion of the Project (Exhibits '3-K' and '3-V').
From the foregoing disquisitions, it is clear that [MCI] is liable for liquidated damages, as per
Article 13.5 of the Construction Contract, for its failure to complete the project within the
period stipulated in the Construction Contract and even despite an extension of 53 days from

the original schedule or of the overall schedule of completion. [MCI] should therefore pay
[CHATHAM] the amount of liquidated damages equivalent to P24,125,000.00 for 193 days of
delay in the overall schedule of completion counted from overall completion date on July 22,
1996 up to the date of completion on February 15, 1997, as stated in the Certificate of
Occupancy, computed as follows, to wit:
1/10[1%(P125,000,000.00)] per day x 193 days
= [1/10 (P1,250,000.00)] per day x 193 days
= P125,000.00 per day x 193 days
= P24,125,000.00
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered partially granting
[CHATHAM's] claim for liquidated damages. The Tribunal's Decision dated 19 October 1998
is hereby AFFIRMED with the modification on [MCI's] liability for liquidated damages in the
amount of P24,125,000.00. Thus,
A. AMOUNT [MCI] IS ENTITLED TO:
A.1. From the original contract:
94.12% of P125,000,000.00

117,650,000.00

A.2 Approved Change Orders

5,353,091.08

A.3 Pending Change Orders

1,648,560.46

A.4 CHB Works

1,248,654.71

A.5 Workers Bonus

-0-

A.6 Disputed Deductions

909,484.70

A.7 Labor Escalation

076,256.00

A.8 Attendance Fee

508,162.73

Total

P128,394,209.68

Less: Total payments-item 11-6 of TOR

104,875,792.37

Balance Due Respondent

P23,518,417.31

B. AMOUNTS [CHATHAM] IS ENTITLED TO:


B.1. liquidated Damages

P24,125,000.00

B.2. Actual Damages

335,994.50

B.3. Penalties

1,778,285.44

B.4. Cash Payments in behalf of MCI

I2,214,715.68

Total Amount Due CPI

P28,453,995.62

C. NET AMOUNT DUE [CHATHAM] (B minus


A)
Correspondingly, Respondent [MCI] is hereby directed to pay the Petitioner [CHATHAM] the
net sum of FOUR MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE HUNDRED
SEVENTY-EIGHT & 31/100 (P4,935,578.31) PESOS.16

MCI promptly filed on 25 October 1999 a motion for reconsideration. In its Resolution of 4 February
2000, the Court of Appeals denied MCI's motion for reconsideration for lack of merit, as well as
CHATHAM's Motion to Lift Garnishment and Levy Pending Appeal, filed on 13 October 1999, for
being premature.17
Thus, MCI filed the instant petition for review to challenge the decision of the Court of Appeals. MCI
alleges that the Court of Appeals erred in reviewing and reversing the CIAC's factual findings, that
there was an implied takeover by CHATHAM of the project, and that MCI was not in delay in the
overall schedule. In so doing, the Court of Appeals contravened Section 19 of Executive Order
(E.O.) No. 1008,18 which limits the review of an Arbitral Award to only questions of law, thus:
SECTION 19. Finality of Awards The arbitral award shall be binding upon the parties. It
shall be final and inappealable (sic), except on questions of law which shall be appealable to
the Supreme Court.
MCI then asserts that as signatories to the contract, it and CHATHAM complied with this legal
provision when they included as part of their TOR the stipulation that "[t]he decision of the Arbitral
Tribunal shall be final and non-appealable except on questions of law." Accordingly, the binding
character of this provision upon the parties is conclusive and final.
MCI also contends that while it may be argued that recent (1) issuances by the Supreme Court,
specifically, Circular No. 1-91, which eventually became Revised Administrative Circular No. 1-95;
(2) legislation in particular, Republic Act No. 7902, which amended Batas Pambansa Blg. 129; and
(3) amendments to the Rules on Civil Procedure, modifying E.O. No. 1008 in the sense that
"questions of facts, of law, or mixed questions of facts and law may be the subject of an appeal of
the CIAC's decision to the Court of Appeals," it is still E.O. No. 1008 which remains to be the
fundamental and substantive law that endows parties to an arbitral controversy the right to appeal.
Hence, the provisions on appeal of E.O. No. 1008 should be controlling, i.e., only questions of law
should be entertained. Therefore, the only effect of these rules on E.O. No. 1008 is the transfer of
the appeal forum from the Supreme Court to the Court of Appeals.
MCI further asserts that, even assuming that the CIAC's findings of facts are reviewable on appeal,
the Court of Appeals gravely abused its discretion when it accepted "hook, line and sinker"
CHATHAM's contention that MCI was in delay, and ignored competent, clear and substantial
evidence that prove the contrary, and that CHATHAM is not entitled to liquidated damages.
For its part, CHATHAM avers that the evolution on the rules governing appeals from judgments,
decisions, resolutions, orders or awards of the CIAC convincingly discloses that E.O. No. 1008 has
already been superseded. With the power of the Supreme Court to promulgate rules concerning the
protection and enforcement of constitutional rights, pleadings, practice, and procedure in all courts,
its issuances and amendments to the Rules on Civil Procedure, not to mention R A. No. 7902, as
enacted by Congress, effectively modified E.O. No. 1008. Accordingly, the judgments, awards,
decisions, resolutions, orders or awards of the CIAC are now appealable to the Court of Appeals on
questions of facts, mixed questions of facts and law, and questions of law, and no longer with the
Supreme Court on exclusively questions of law. Further, the TOR cannot limit the expanded
jurisdiction of the Court of Appeals based on the latest rules. Thus, the Court of Appeals did not err
in reviewing the factual findings of the CIAC.
CHATHAM also contends that, even if the Court of Appeals can only review questions of law, said
court did not err in rendering the questioned decision as the conclusions therein, drawn as they were
from factual determinations, can be considered questions of law. .

Finally, CHATHAM asseverates that the Court of Appeals did not commit grave abuse of discretion
in reversing the CIAC's ascertainment on the implied take-over and liquidated damages.
This Court shall now resolve the primary issue raised in this case.
EO. No. 1008 vest upon the CIAC original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the completion of the contract, or after
the abandonment or breach thereof.19 By express provision of Section 19 thereof, the arbitral
award of the CIAC is final and unappealable, except on questions of law, which are appealable
to the Supreme Court.
The parties, however, disagree on whether the subsequent Supreme Court issuances on appellate
procedure and R.A. No. 7902 removed from the Supreme Court its appellate jurisdiction in Section
19 of E.O. No. 1008 and vested the same in the Court of Appeals, and whether appeals from CISC
awards are no longer confined to questions of law.
On 27 February 1991, this Court issued Circular No. 1-91, which prescribes the Rules Governing
Appeals to the Court of Appeals from Final Orders or Decisions of the Court of Tax Appeals and
Quasi-Judicial Agencies. Pertinent portions thereof read as follows:
1. Scope. These rules shall apply to appeals from final orders or decisions of the Court of
Tax Appeals. They shall also apply to appeals from final orders or decisions of any quasijudicial agency from which an appeal is now allowed by statute to the Court of Appeals or the
Supreme Court. Among these agencies are the Securities and Exchange Commission, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Secretary of Agrarian
Reform and Special Agrarian Courts under RA. No. 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission and Philippine Atomic Energy Commission.
2. Cases not Covered. These rules shall not apply to decisions and interlocutory orders of
the National Labor Relations Commission or the Secretary of Labor and Employment under
the Labor Code of the Philippines, the Central Board of Assessment Appeals, and other
quasi-judicial agencies from which no appeal to the courts is prescribed or allowed by
statute.
3. Who may appeal and where to appeal. The appeal of a party affected by a final order,
decision, or judgment of the Court of Tax Appeals or a quasi judicial agency shall be taken to
the Court of Appeals within the period and in the manner herein provided, whether the
appeal involves questions of fact or of law or mixed questions of fact and law. From final
judgments or decisions of the Court of Appeals, the aggrieved party may appeal by certiorari
to the Supreme Court as provided in Rule 45 of the Rules of Court.
Subsequently, on 23 February 1995, RA. No. 7902 was enacted. It expanded the jurisdiction of the
Court of Appeals and amended for that purpose Section 9 of B.P. Blg. 129, otherwise known as the
Judiciary Reorganization Act of 1980.20
Section 9(3) thereof reads:
SECTION 9. Jurisdiction. The Court of Appeals shall exercise:

xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or
awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or
commissions, including the Securities and Exchange Commission, the Social Security
Commission, the Employees Compensation Commission and the Civil Service Commission,
except those falling within the appellate jurisdiction of the Supreme Court in accordance with
the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
The Court of Appeals shall have the power to try cases and conduct hearings, receive
evidence and perform any and all acts necessary to resolve factual issues raised in cases
falling within its original and appellate jurisdiction, including the power to grant and conduct
new trials or further proceedings. x x x
Then this Court issued Administrative Circular No. 1-95,21 which revised Circular No. 1-91. Relevant
portions of the former reads as follows:
1. Scope. These rules shall apply to appeals from judgments or final orders of the Court of
Tax Appeals and from awards, judgments, final orders or resolutions of any quasi-judicial
agency from which an appeal is authorized to be taken to the Court of Appeals or the
Supreme Court. Among these agencies are the Securities and Exchange Commission, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunication Commission, Department of Agrarian
Reform under Republic Act No. 6657, Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions Board, Insurance Commission,
Philippine Atomic Energy Commission, Board of Investments, and Construction Industry
Arbitration Commission.
SECTION 2. Cases Not Covered. These rules shall not apply to judgments or final orders
issued under the Labor Code of the Philippines, Central Board of Assessment Appeals, and
by other quasi-judicial agencies from which no appeal to the court is prescribed or allowed.
SECTION 3. Where to Appeal. An appeal under these rules may be taken to the Court of
Appeals within the period and in the manner herein provided, whether the appeal involves
questions of fact, of law, or mixed questions of fact and law.
Thereafter, this Court promulgated the 1997 Rules on Civil Procedure. Sections 1, 2 and 3 of Rule
43 thereof provides:
SECTION 1. Scope. This Rule shall apply to appeals from judgments or final orders of the
Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among
these agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic

Energy Commission, Board of Investments, Construction Industry Arbitration Commission,


and voluntary arbitrators authorized by law.
SECTION 2. Cases Not Covered. This Rule shall not apply to judgments or final orders
issued under the Labor Code of the Philippines.
SECTION 3. Were to Appeal. An appeal under this Rule may be taken to the Court of
Appeals within the period and in the manner herein provided, whether the appeal involves
question of fact, of law, or mixed questions of fact and law.
Through Circular No. 1-91, the Supreme Court intended to establish a uniform procedure for the
review of the final orders or decisions of the Court of Tax Appeals and other quasi judicial agencies
provided that an appeal therefrom is then allowed under existing statutes to either the Court of
Appeals or the Supreme Court. The Circular designated the Court of Appeals as the reviewing body
to resolve questions of fact or of law or mixed questions of fact and law.
It is clear that Circular No. 1-91 covers the CIAC. In the first place, it is a quasi-judicial agency.
A quasi-judicial agency or body has been defined as an organ of government other than a court and
other than a legislature, which affects the rights of private parties through either adjudication or rulemaking.22 The very definition of an administrative agency includes its being vested with quasi judicial
powers. The ever increasing variety of powers and functions given to administrative agencies
recognizes the need for the active intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies which cannot possibly be handled by
regular courts.23 The CIAC's primary function is that of a quasi-judicial agency, which is to adjudicate
claims and/or determine rights in accordance with procedures set forth in E.O. No. 1008.
In the second place, the language of Section 1 of Circular No. 1-91 emphasizes the obvious
inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial agencies.
The introductory words "[a] among these agencies are" preceding the enumeration of specific quasijudicial agencies only highlight the fact that the list is not exclusive or conclusive. Further, the
overture stresses and acknowledges the existence of other quasi-judicial agencies not included in
the enumeration but should be deemed included. In addition, the CIAC is obviously excluded in the
catalogue of cases not covered by the Circular and mentioned in Section 2 thereof for the reason
that at the time the Circular took effect, E.O. No. 1008 allows appeals to the Supreme Court on
questions of law.
In sum, under Circular No. 1-91, appeals from the arbitral awards of the CIAC may be brought to the
Court of Appeals, and not to the Supreme Court alone. The grounds for the appeal are likewise
broadened to include appeals on questions of facts and appeals involving mixed questions of fact
and law.
The jurisdiction of the Court of Appeals over appeals from final orders or decisions of the CIAC is
further fortified by the amendments to B.P. Blg. 129, as introduced by RA. No. 7902. With the
amendments, the Court of Appeals is vested with appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, except "those within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under
Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the
third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of
1948."

While, again, the CIAC was not specifically named in said provision, its inclusion therein is
irrefutable. The CIAC was not expressly covered in the exclusion. Further, it is a quasi-judicial
agency or instrumentality. The decision inLuzon Development Bank v. Luzon Development Bank
Employees24 sheds light on the matter, thus:
Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not
strictly be considered as a quasi-judicial agency, board or commission, still both he and the
panel are comprehended within the concept of a 'quasi-judicial instrumentality.' It may even
be stated that it was to meet the very situation presented by the quasi-judicial functions of
the voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal operating
under the Construction Industry Arbitration Commission, that the broader term
'instrumentalities' was purposely included in [Section 9 of B.P. Blg. 129 as amended by RA.
No. 7902].
An instrumentality' is anything used as a means or agency. Thus, the terms governmental
'agency' or 'instrumentality' are synonymous in the sense that either of them is a means by
which a government acts, or by which a certain government act or function is performed. The
word 'instrumentality,' with respect to a state, contemplates an authority to which the state
delegates governmental power for the performance of a state function.
Any remaining doubt on the procedural mutation of the provisions on appeal in E.O. No. 1008, vis-avis Circular No. 1-91 and R A. No. 7902, was completely removed with the issuance by the Supreme
Court of Revised Administrative Circular No. 1-95 and the 1997 Rules of Civil Procedure. Both
categorically include the CIAC in the enumeration of quasi-judicial agencies comprehended therein.
Section 3 of the former and Section 3, Rule 43 of the latter, explicitly expand the issues that may be
raised in an appeal from quasi judicial agencies or instrumentalities to the Court of Appeals within
the period and in the manner therein provided. Indisputably, the review of the CIAC award may
involve either questions of fact, of law, or of fact and law.
In view of all the foregoing, we reject MCI's submission that Circular No. 1-91, B.P. Blg. 129, as
amended by RA. 7902, Revised Administrative Circular 1-95, and Rule 43 of the 1997 Rules of Civil
Procedure failed to efficaciously modify the provision on appeals in E.O. No. 1008. We further
discard MCI's claim that these amendments have the effect of merely changing the forum for appeal
from the Supreme Court to the Court of Appeals.
There is no controversy on the principle that the right to appeal is statutory. However, the mode or
manner by which this right may be exercised is a question of procedure which may be altered and
modified provided that vested rights are not impaired. The Supreme Court is bestowed by the
Constitution with the power and prerogative, inter alia, to promulgate rules concerning pleadings,
practice and procedure in all courts, as well as to review rules of procedure of special courts and
quasi-judicial bodies, which, however, shall remain in force until disapproved by the Supreme
Court.25 This power is constitutionally enshrined to enhance the independence of the Supreme
Court.26
The right to appeal from judgments, awards, or final orders of the CIAC is granted in E.O. No. 1008.
The procedure for the exercise or application of this right was initially outlined in E.O. No. 1008.
While R. A. No. 7902 and circulars subsequently issued by the Supreme Court and its amendments
to the 1997 Rules on Procedure effectively modified the manner by which the right to appeal ought
to be exercised, nothing in these changes impaired vested rights. The new rules do not take away
the right to appeal allowed in E.O. No. 1008. They only prescribe a new procedure to enforce the
right.27 No litigant has a vested right in a particular remedy, which may be changed by substitution

without impairing vested rights; hence, he can have none in rules of procedure which relate to
remedy."28
The foregoing discussion renders academic MCI's assertion on the binding effect of its stipulation
with CHATHAM in the TOR that the decision of the CIAC shall be final and non-appealable except
on questions of law. The agreement merely adopted Section 19 of E.O. No. 1008, which, as shown
above, had been modified.
The TOR, any contract or agreement of the parties cannot amend, modify, limit, restrict or
circumscribe legal remedies or the jurisdiction of courts. Rules of procedure are matters of public
order and interest and unless the rules themselves so allow, they cannot be altered, changed or
regulated by agreements between or stipulations of the parties for their singular convenience.29
Having resolved the existence of the authority of the Court of Appeals to review the decisions,
awards, or final orders of the CIAC, the Court shall now determine whether the Court of Appeals
erred in rendering the questioned decision of30 September 1999.
Settled is the general rule that the findings of facts of the Court of Appeals are binding on us. There
are recognized exceptions to the rule, such as when the findings are contrary to those of the trial
court 30 as in this case. Hence, we have to take a closer reexamination of this case.
The CIAC is certain that the evidence overwhelmingly tended to prove that the manner by
which CHATHAM took charge in the procurement of materials, fielding of labor, control of MCI
engineers and the subcontracting of various phases of the work, constituted an implied
takeover of the project. The CIAC then concludes that the cut-off date for delineating the fiscal
liabilities of the parties is 23 May 1996 when CHATHAM evaluated MCI's work accomplishment
at 94.12% and then suspended all further progress payments to MCI. For these reasons, the
CIAC found it trifling to determine whether MCI was in delay based on the Overall Schedule.
However, the CIAC discovered that MCI was in delay for 294 days in the concreting milestone
and held the latter liable for liquidated damages in the amount of P3,062,498.78.
The Court of Appeals made a contrary conclusion and declared that MCI was in delay for 193
days based on the overall schedule of completion of the project and should incur liquidated
damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals found MCI liable for liquidated
damages but on different premises. Based on the CIAC's assessment, MCI's responsibility was
anchored on its delay in the concreting milestone, while the Court of Appeal's evaluation
concentrated on MCI's delay in completing the project based on the overall schedule of work. The
variance in the evaluation spells a staggering difference in the party who should ultimately be held
liable and the net amount involved.
A study of the final computation of the net amount due in both the final disquisition of the CIAC and
the Court of Appeals shows that all the other figures therein are constant, save for the amount of
liquidated damages for which MCI should be accountable. If this Court concurs with the CIAC's
conclusions, MCI's responsibility for liquidated damages is, as already stated, P3,062,498.78.
Setting this off against CHATHAM's overall fiscal accountability would bring the latter's total liability
to MCI to P16,126,922.91. If the Court of Appeals is correct, MCI would be held liable for a much
higher P24,125,000 liquidated damages. Setting this off against CHATHAM's monetary
responsibilities, MCI would still have to pay CHATHAM P4,935,578.31.

After painstakingly combing through the voluminous records, we affirm the findings of the CIAC.
The evidence taken as a whole or in their totality reveals that there was an implied takeover by
CHATHAM on the completion of the project. The evidence that appears to accentuate the Court of
Appeals' decision ironically bolstered the CIAC's conclusion. The testimonies of Engr. Kapunan,
Engr. Bautista, Dr. Lai, and the letter of Engr. Ruiz,31acknowledging the "temporary takeover" by
CHATHAM of the project, underscore the palpable fact that there was indeed a takeover. We confer
particular credit to Dr. Lai's testimony that as of 15 February 1995, MCI was relieved of full control of
the construction operations, that it was relegated to a mere supplier of labor, materials and
equipment, and that the alleged interim takeover actually extended through the completion of the
project. Even CHATHAM admits the takeover but sugarcoated the same with words like "interim" did
"charging the costs to MCI." With these glaring admissions, we can even consider that the takeover
was not implied but blatant.
Exhibits "4," "4-A," "4-C," "8A," "8," "4-D," '43," "3-I," "3-M," "3- N," "3-W-1," "3-X," "3-Y," "3-Z," "5,""5A," "5-B," "5-C," "5-D," "5-E," "5-F," "5-O," "C-7," "E-9," etc.,32 relied upon by the Court of Appeals
when considered by themselves and singly, seemingly and initially evince MCI's control over the
project. However, they eventually lose evidentiary puissance to support the Court of Appeals'
conclusion when reckoned against the totality of the evidence that CHATHAM took charge of the
completion of the project, particularly, the fact that CHATHAM suspended all progress billing
payments to MCI. The continued presence and participation of MCI in the project was, as found by
the CIAC, a matter of mutual benefit to and convenience of the parties.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30 September 1999 decision of
the Court of Appeals in CA-G.R SP No. 49429 is hereby PARTIALLY MODIFIED by setting aside the
order directing Metro Construction, Inc. to pay Chatham Properties, Inc. the amount of
P4,935,578.31. The arbitral award of the Construction Industry Arbitration Commission in CIAC
Case 10-98, promulgated on 19 October 1998, directing Chatham Properties, Inc. to pay Metro
Construction, Inc. the sum of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX THOUSAND NINE
HUNDRED TWENTY-TWO & 91/100 (P16,126,922.91) PESOS, is accordingly REINSTATED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 132848-49

June 26, 2001

PHILROCK, INC., petitioner,


vs.
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION and Spouses VICENTE and NELIA
CID,respondents.
PANGANIBAN, J.:
Courts encourage the use of alternative methods of dispute resolution. When parties agree to
settle their disputes arising from or connected with construction contracts, the Construction Industry
Arbitration Commission (CIAC) acquires primary jurisdiction. It may resolve not only the merits
of such controversies; when appropriate, it may also award damages, interests, attorneys fees
and expenses of litigation.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court. The Petition seeks the
reversal of the July 9, 1997 Decision1 and the February 24, 1998 Resolution of the Court of Appeals
(CA) in the consolidated cases docketed as CA-GR SP Nos. 39781 and 42443. The assailed
Decision disposed as follows:
"WHEREFORE, judgment is hereby rendered DENYING the petitions and,
accordingly, AFFIRMING in totothe CIACs decision. Costs against petitioner."2
The assailed Resolution ruled in this wise:
"Considering that the matters raised and discussed in the motion for reconsideration filed by
appellants counsel are substantially the same arguments which the Court had passed upon
and resolved in the decision sought to be reconsidered, and there being no new issue raised,
the subject motion is herebyDENIED."3
The Facts
The undisputed facts of the consolidated cases are summarized by the CA as follows:
"On September 14, 1992, the Cid spouses, herein PRIVATE RESPONDENTS, filed a
Complaint for damages against Philrock and seven of its officers and engineers with the
Regional Trial Court of Quezon City, Branch 82.
"On December 7, 1993, the initial trial date, the trial court issued an Order dismissing the
case and referring the same to the CIAC because the Cid spouses and Philrock had filed
an Agreement to Arbitrate with the CIAC.
"Thereafter, preliminary conferences were held among the parties and their appointed
arbitrators. At these conferences, disagreements arose as to whether moral and exemplary
damages and tort should be included as an issue along with breach of contract, and whether
the seven officers and engineers of Philrock who are not parties to the Agreement to
Arbitrate should be included in the arbitration proceedings. No common ground could be
reached by the parties, hence, on April 2, 1994, both the Cid spouses and Philrock

requested that the case be remanded to the trial court. On April 13, 1994, the CIAC issued
an Order stating, thus:
'x x x the Arbitral Tribunal hereby formally dismisses the above-captioned case for
referral to Branch 82 of the Regional Trial Court, Quezon City where it first
originated.
SO ORDERED.'
"The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon City a
Motion To Set Case for Hearing which motion was opposed by Philrock.
"On June 13, 1995, the trial court declared that it no longer had jurisdiction over the
case and ordered the records of the case to be remanded anew to the CIAC for arbitral
proceedings.
"Pursuant to the aforementioned Order of the Regional Trial C[o]urt of Quezon City, the
CIAC resumed conducting preliminary conferences. On August 21, 1995, herein
[P]etitioner Philrock requested to suspend the proceedings until the court clarified its ruling
in the Order dated June 13, 1995. Philrock argued that said Order was based on a mistaken
premise that 'the proceedings in the CIAC fell through because of the refusal of [Petitioner]
Philrock to include the issue of damages therein,' whereas the true reason for the withdrawal
of the case from the CIAC was due to Philrock's opposition to the inclusion of its seven
officers and engineers, who did not give their consent to arbitration, as party defendants. On
the other hand, private respondent Nelia Cid manifested that she was willing to exclude the
seven officers and engineers of Philrock as parties to the case so as to facilitate or expedite
the proceedings. With such manifestation from the Cid spouses, the Arbitral Tribunal denied
Philrock's request for the suspension of the proceedings. Philrock's counsel agreed to the
continuation of the proceedings but reserved the right to file a pleading elucidating the
position he [had] raised regarding the Court's Order dated June 13, 1995. The parties then
proceeded to finalize, approve and sign the Terms of Reference. Philrock's counsel and
representative, Atty. Pericles C. Consunji affixed his signature to said Terms of Reference
which stated that 'the parties agree that their differences be settled by an Arbitral Tribunal x x
x x' (p. 9, Terms of Reference, p. 200, Rollo).
"On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging therein that
the CIAC had lost jurisdiction to hear the arbitration case due to the parties' withdrawal of
their consent to arbitrate. The motion was denied by x x x CIAC per Order dated September
22, 1995. On November 8, public respondent ordered the parties to appear before it on
November 28, 1995 for the continuation of the arbitral proceedings, and on February 7,
1996, public respondent directed [P]etitioner Philrock to set two hearing dates in the month
of February to present its evidence and to pay all fees assessed by it, otherwise x x x
Philrock would be deemed to have waived its right to present evidence.
"Hence, petitioner instituted the petition for certiorari but while said petition was pending, the
CIAC rendered its Decision dated September 24, 1996, the dispositive portion of which
reads, as follows:
'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing
Respondent to pay Claimant as follows:

1. P23,276.25 representing the excess cash payment for materials ordered by the
Claimants, (No. 7 of admitted facts) plus interests thereon at the rate of 6% per
annum from September 26, 1995 to the date payment is made.
2. P65,000.00 representing retrofitting costs.
3. P13,404.54 representing refund of the value of delivered but unworkable concrete
mix that was laid to waste.
4. P50,000.00 representing moral damages.
5. P50,000.00 representing nominal damages.
6. P50,000.00 representing attorney's fees and expenses of litigation.
7. P144,756.80 representing arbitration fees, minus such amount that may already
have been paid to CIAC by respondent.
"Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera, presiding
judge, Branch 82 of Regional Trial Court of Quezon City who referred this case to the
Construction Industry Arbitration Commission for arbitration and proper disposition.' (pp. 4445, Rollo, CA-G.R. SP No. 42443) "4
Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No. 42443, contesting
the jurisdiction of the CIAC and assailing the propriety of the monetary awards in favor of
respondent spouses. This Petition was consolidated by the CA with CA-GR SP No. 39781, a
Petition for Certiorari earlier elevated by petitioner questioning the jurisdiction of the CIAC.
Ruling of the Court of Appeals
The CA upheld the jurisdiction of the CIAC5 over the dispute between petitioner and private
respondent. Under Executive Order No. 1008, the CIAC acquires jurisdiction when the parties agree
to submit their dispute to voluntary arbitration. Thus, in the present case, its jurisdiction continued
despite its April 13, 1994 Order referring the case back to the Regional Trial Court (RTC) of Quezon
City, Branch 82, the court of origin. The CIACs action was based on the principle that once
acquired, jurisdiction remains "until the full termination of the case unless a law provides the
contrary." No such "full termination" of the case was evident in the said Order; nor did the CIAC or
private respondents intend to put an end to the case.
Besides, according to Section 3 of the Rules of Procedure Governing Construction Arbitration,
technical rules of law or procedure are not applicable in a single arbitration or arbitral tribunal. Thus,
the "dismissal" could not have divested the CIAC of jurisdiction to ascertain the facts of the case,
arrive at a judicious resolution of the dispute and enforce its award or decision.
Since the issues concerning the monetary awards were questions of fact, the CA held that those
awards were inappropriate in a petition for certiorari. Such questions are final and not appealable
according to Section 19 of EO 1008, which provides that "arbitral awards shall be x x x final and
[u]nappealable except on questions of law which shall be appealable to the Supreme Court x x x."
Nevertheless, the CA reviewed the records and found that the awards were supported by substantial
evidence. In matters falling under the field of expertise of quasi-judicial bodies, their findings of fact
are accorded great respect when supported by substantial evidence.

Hence, this Petition.6


Issues
The petitioner, in its Memorandum, raises the following issues:
"A.
Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses against
Petitioner Philrock after the case had been dismissed by both the RTC and the CIAC.
"B.
Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.
"C.
Whether or not the awarding of the amount of P23,276.75 for materials ordered by Respondent
Spouses Cid plus interest thereon at the rate of 6% from 26 September 1995 is proper.
"D.
Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is proper.
"E.
Whether or not the awarding of the amount of P1,340,454 for the value of the delivered but the
allegedly unworkable concrete which was wasted is proper.
"F.
Whether or not the awarding o[f] moral and nominal damages and attorney's fees and expenses of
litigation in favor of respondents is proper.
"G.
Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees."7
In sum, petitioner imputes reversible error to the CA (1) for upholding the jurisdiction of the CIAC
after the latter had dismissed the case and referred it to the regular court, (2) for ruling that
respondent spouses had a cause of action against petitioner, and (3) for sustaining the award of
damages.
This Courts Ruling
The Petition has no merit.
First Issue:
Jurisdiction

Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties had
withdrawn their consent to arbitrate. The June 13, 1995 RTC Order remanding the case to the
CIAC for arbitration was allegedly an invalid mode of referring a case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and
exclusive jurisdiction over disputes arising from or connected with construction contracts entered
into by parties that have agreed to submit their dispute to voluntary arbitration.8
It is undisputed that the parties submitted themselves to the jurisdiction of the Commission
by virtue of their Agreement to Arbitrate dated November 24, 1993. Signatories to the Agreement
were Atty. Ismael J. Andres and Perry Y. Uy (president of Philippine Rock Products, Inc.) for
petitioner, and Nelia G. Cid and Atty. Esteban A. Bautista for respondent spouses.9
Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents on
April 8, 1994, because of the exclusion of the seven engineers of petitioners in the arbitration case.
This withdrawal became the basis for the April 13, 1994 CIAC Order dismissing the arbitration case
and referring the dispute back to the RTC. Consequently, the CIAC was divested of its jurisdiction
to hear and decide the case.
This contention is untenable. First, private respondents removed the obstacle to the
continuation of the arbitration, precisely by withdrawing their objection to the exclusion of
the seven engineers. Second, petitioner continued participating in the arbitration even after
the CIAC Order had been issued. It even concluded and signed the Terms of Reference10 on
August 21, 1995, in which the parties stipulated the circumstances leading to the dispute;
summarized their respective positions, issues, and claims; and identified the composition of the
tribunal of arbitrators. The document clearly confirms both parties intention and agreement to
submit the dispute to voluntary arbitration. In view of this fact, we fail to see how the CIAC
could have been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTCs final
resolution of the dispute by arguing that the regular court also lost jurisdiction after the arbitral
tribunals April 13, 1994 Order referring the case back to the RTC. In so doing, petitioner conceded
and estopped itself from further questioning the jurisdiction of the CIAC. The Court will not
countenance the effort of any party to subvert or defeat the objective of voluntary arbitration for its
own private motives. After submitting itself to arbitration proceedings and actively participating
therein, petitioner is estopped from assailing the jurisdiction of the CIAC, merely because the latter
rendered an adverse decision.11
Second Issue:
Cause of Action
Petitioner contends that respondent spouses were negligent in not engaging the services of an
engineer or architect who should oversee their construction, in violation of Section 308 of the
National Building Code. It adds that even if the concrete it delivered was defective, respondent
spouses should bear the loss arising from their illegal operation. In short, it alleges that they had no
cause of action against it.
We disagree. Cause of action is defined as an act or omission by which a party violates the right of
another.12 A complaint is deemed to have stated a cause of action provided it has indicated the
following: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the
act or the omission of the defendant in violation of the said legal right.13 The cause of action against

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

"9. Claimants were assured that the problem and her demands had been the subject of
several staff meetings and that Arteche was very much aware of it, a memorandum having
been submitted citing all the demands of [c]laimants. This assurance was made on July 31,
1992 when Respondents Secillano, Martillano and Lomibao came to see Claimant Nelia Cid
and offered to refund P23,276.25, [t]he difference between the billing by Philrocks Marketing
Department in the amount of P125,586.25 and the amount charged by Philrock's Batching
Plant Department in the amount of only P102,586.25, which [c]laimant refused to accept by
saying, Saka na lang."18
The same issue was discussed during the hearing before the arbitration tribunal on December 19,
1995.19 It was also mentioned in that tribunals Decision dated September 24, 1996.20
The payment of interest is based on Article 2209 of the Civil Code, which provides that if the
obligation consists of the payment of a sum of money, and the debtor incurs delay, the indemnity for
damages shall be the payment of legal interest which is six per cent per annum, in the absence of a
stipulation of the rate.
Awards for Retrofitting Costs, Wasted Unworkable
But Delivered Concrete, and Arbitration Fees
Petitioner maintains that the defects in the concrete structure were due to respondent spouses
failure to secure the services of an engineer or architect to supervise their project. Hence, it claims
that the award for retrofitting cost was without legal basis. It also denies liability for the wasted
unworkable but delivered concrete, for which the arbitral court awarded P13,404.54. Finally, it
complains against the award of litigation expenses, inasmuch as the case should not have been
instituted at all had respondents complied with the requirements of the National Building Code.
We are unconvinced. Not only did respondents disprove the contention of petitioner; they also
showed that they sustained damages due to the defective concrete it had delivered. These were
items of actual damages they sustained due to its breach of contract.
Moral and Nominal Damages, Attorneys Fees and Costs
Petitioner assails the award of moral damages, claiming no malice or bad faith on its part.
We disagree. Respondents were deprived of the comfort and the safety of a house and were
exposed to the agony of witnessing the wastage and the decay of the structure for more than seven
years. In her Memorandum, Respondent Nelia G. Cid describes her familys sufferings arising from
the unreasonable delay in the construction of their residence, as follows: "The family lives separately
for lack of space to stay in. Mrs. Cid is staying in a small dingy bodega, while her son occupies
another makeshift room. Their only daughter stayed with her aunt from 1992 until she got married in
1996. x x x."21 The Court also notes that during the pendency of the case, Respondent Vicente Cid
died without seeing the completion of their home.22 Under the circumstances, the award of moral
damages is proper.
Petitioner also contends that nominal damages should not have been granted, because it did not
breach its obligation to respondent spouses.
Nominal damages are recoverable only if no actual or substantial damages resulted from the breach,
or no damage was or can be shown.23 Since actual damages have been proven by private
respondents for which they were amply compensated, they are no longer entitled to nominal
damages.

Petitioner protests the grant of attorneys fees, arguing that respondent spouses did not engage the
services of legal counsel. Also, it contends that attorneys fees and litigation expenses are awarded
only if the opposing party acted in gross and evident bad faith in refusing to satisfy plaintiffs valid,
just and demandable claim.
We disagree. The award is not only for attorneys fees, but also for expenses of litigation. Hence, it
does not matter if respondents represented themselves in court, because it is obvious that they
incurred expenses in pursuing their action before the CIAC, as well as the regular and the appellate
courts. We find no reason to disturb this award.1wphi1.nt
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED; however, the award
of nominal damages is DELETED for lack of legal basis. Costs against petitioner.
SO ORDERED.

G.R. No. 126212

March 2, 2000

SEA-LAND SERVICE, INC., petitioner,


vs.
COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING
AGENCY (FILIPINAS), INC., respondents.
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set aside the decision of the Court of
Appeals dated September 29, 1995 in CA-G.R. SP No. 35777,1 dismissing the petition
for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of
Quezon City, Branch 216, in Civil Case No. Q-92-12593.
The facts are as follows:
On April 29, 1991, PETITIONER Sea-Land Services, Inc. and PRIVATE RESPONDENT A.P.
Moller/Maersk Line (hereinafter referred to as "AMML"), both carriers of cargo in containerships
as well as common carriers, entered into a contract entitled, "Co-operation in the
Pacific"2 (hereinafter referred to as the "Agreement"), a vessel sharing agreement whereby they
mutually agreed to purchase, share and exchange needed space for cargo in their respective
containerships. Under the Agreement, they could be, depending on the occasion, either a
principal carrier (with a negotiable bill of lading or other contract of carriage with respect to cargo)
or a containership operator (owner, operator or charterer of containership on which the cargo is
carried).
During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc. (hereinafter
referred to as "Florex") delivered to private respondent AMML cargo of various foodstuffs, with
Oakland, California as port of discharge and San Francisco as place of delivery. The
corresponding Bill of Lading No. MAEU MNL110263 was issued to Florex by respondent AMML.
Pursuant to the Agreement, respondent AMML loaded the subject cargo on MS Sealand Pacer, a
vessel owned by petitioner. Under this arrangement, therefore, respondent AMML was the
principal carrier while petitioner was the containership operator.
The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, on
June 26, 1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping Agency
(Filipinas), Inc. for reimbursement of the value of the cargo and other charges.3 According to
Florex, the cargo was received by the consignee only on June 28, 1991, since it was discharged in
Long Beach, California, instead of in Oakland, California on June 5, 1991 as stipulated.
Respondent AMML filed its Answer4 alleging that even on the assumption that Florex was entitled
to reimbursement, it was petitioner who should be liable. Accordingly, respondent AMML filed a
Third Party Complaint5 against petitioner on November 10, 1992, averring that whatever
damages sustained by Florex were caused by petitioner, which actually received and
transported Florex's cargo on its vessels and unloaded them.
On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint6 on the
ground of failure to state a cause of action and lack of jurisdiction, the amount of damages not
having been specified therein. Petitioner also prayed either for dismissal or suspension of the Third
Party Complaint on the ground that there exists an arbitration agreement between it and
respondent AMML. On September 27, 1993, the lower court issued an Order denying petitioner's

Motion to Dismiss. Petitioner's Motion for Reconsideration was likewise denied by the lower court
in its August 22, 1994 Order.
Undaunted, petitioner filed a petition for certiorari7 with the Court of Appeals on November 23,
1994. Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial court.
On September 29, 1995, respondent Court of Appeals rendered the assailed Decision dismissing
the petition forcertiorari. With the denial of its Motion for Reconsideration, petitioner filed the instant
petition for review, raising the following issues
I.
THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN
VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING THAT
ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN AGREEMENT
TO ARBITRATE EXISTS.
II.
THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH
JURISPRUDENCE WHEN IT REFUSED TO HAVE THE THIRD-PARTY COMPLAINT
DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION AND FOR RULING THAT
THE FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY REFERENCE
TO ITS ATTACHMENTS.8
Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did
not err in reading the Complaint of Florex and respondent AMML's Answer together with the Third
Party Complaint to determine whether a cause of action is properly alleged. In Fil-Estate Golf and
Development, Inc. vs. Court of Appeals,9 this Court ruled that in the determination of whether or not
the complaint states a cause of action, the annexes attached to the complaint may be considered,
they being parts of the complaint.
Coming now to the main issue of arbitration, the pertinent clauses of the "Co-operation in the Pacific"
contract entered into by the parties provide:
16.2 For the purposes of this agreement the Containership Operator shall be deemed to have
issued to the Principal Carrier for good consideration and for both loaded and empty
containers its non-negotiable memo bills of lading in the form attached hereto as Appendix 6,
consigned only to the Principal Carrier or its agents, provisions of which shall govern the
liability between the Principal Carrier and the Containership Operator and that for the
purpose of determining the liability in accordance with either Lines' memo bill of lading, the
number of packages or customary freight units shown on the bill of lading issued by the
Principal Carrier to its shippers shall be controlling.
16.3 The Principal Carrier shall use all reasonable endeavours to defend all
in personam and in rem suits for loss of or damage to cargo carried pursuant to bills of lading
issued by it, or to settle such suits for as low a figure as reasonably possible. The Principal
Carrier shall have the right to seek damages and/or an indemnity from the
Containership Operator by arbitration pursuant to Clause 32 hereof. Notwithstanding
the provisions of the Lines' memo bills of lading or any statutory rules incorporated therein or
applicable thereto, the Principal Carrier shall be entitled to commence such arbitration at any
time until one year after its liability has been finally determined by agreement, arbitration

award or judgment, such award or judgment not being the subject of appeal, provided that
the Containership Operator has been given notice of the said claim in writing by the Principal
Carrier within three months of the Principal Carrier receiving notice in writing of the claim.
Further the Principal Carrier shall have the right to grant extensions of time for the
commencement of suit to any third party interested in the cargo without prior reference to the
Containership Operator provided that notice of any extension so granted is given to the
Containership Operator within 30 days of any such extension being granted.
xxx

xxx

xxx

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

To begin with, allowing respondent AMML's Third Party Claim against petitioner to proceed
would be in violation of Clause 16.2 of the Agreement. As summarized, the clause provides
that whatever dispute there may be between the Principal Carrier and the Containership Operator
arising from contracts of carriage shall be governed by the provisions of the bills of lading deemed
issued to the Principal Carrier by the Containership Operator. On the other hand, to sustain the Third
Party Complaint would be to allow private respondent to hold petitioner liable under the provisions of
the bill of lading issued by the Principal Carrier to Florex, under which Florex is suing in its
Complaint, not under the bill of lading petitioner, as containership operator, issued to respondent
AMML, as Principal Carrier, contrary to what is contemplated in Clause 16.2.
The Court of Appeals ruled that the terms of the Agreement "explicitly required that the principal
carrier's claim against the containership operator first be finally determined by, among others, a court
judgment, before the right to arbitration accrues." However, the Court of Appeals failed to consider
that, precisely, ARBITRATION is the mode by which the liability of the Containership Operator
may be finally determined. This is clear from the mandate of Clause 16.3 that "(T)he Principal
Carrier shall have the right to seek damages and/or an indemnity from the Containership
Operator by arbitration" and that it "shall be entitled to commence such arbitration at any time until
one year after its liability has been finally determined by agreement, arbitration award or judgment".
For respondent Court of Appeals to say that the terms of the contract do not require arbitration as a
condition precedent to judicial action is erroneous. In the light of the Agreement clauses
aforequoted, it is clear that arbitration is the mode provided by which respondent AMML as Principal
Carrier can seek damages and/or indemnity from petitioner, as Containership Operator. Stated
differently, respondent AMML is barred from taking judicial action against petitioner by the clear
terms of their Agreement.
As the Principal Carrier with which Florex directly dealt with, respondent AMML can and
should be held accountable by Florex in the event that it has a valid claim against the former.
Pursuant to Clause 16.3 of the Agreement, respondent AMML, when faced with such a suit "shall
use all reasonable endeavours to defend" itself or "settle such suits for as low a figure as reasonably
possible". In turn, respondent AMML can seek damages and/or indemnity from petitioner as
Containership Operator for whatever final judgment may be adjudged against it under the Complaint
of Florex. The crucial point is that collection of said damages and/or indemnity from petitioner
should be by arbitration.
All told, when the text of a contract is explicit and leaves no doubt as to its intention, the court may
not read into it any other intention that would contradict its plain import. 11 Arbitration being the
mode of settlement between the parties expressly provided for by their Agreement, the Third
Party Complaint should have been dismissed.
This Court has previously held that arbitration is one of the alternative methods of dispute resolution
that is now rightfully vaunted as "the wave of the future" in international relations, and is recognized
worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward. 12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is GRANTED. The
decision of the Court of Appeals in CA-G.R. SP No. 35777 is REVERSED and SET ASIDE. The
Regional Trial Court of Quezon City, Branch 77, is ordered to DISMISS Respondent AMML's Third
Party Complaint in Civil Case No. Q-92-12593. No pronouncement as to costs.
SO ORDERED.

G.R. No. 129916

March 26, 2001

MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN CAPITAL HOLDINGS


CORPORATION, petitioners,
vs.
ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in his capacity as Presiding Judge
of Branch 58 of the Regional Trial Court of Cebu, 7th Judicial Region, respondents.
BUENA, J.:
Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings
Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as manager
for the operation of its business and affairs.1 Pursuant thereto, on the same month, MCHC, MCMC,
and private respondent Rolando M. Zosa entered into an "Employment Agreement" designating
Zosa as President and Chief Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent Zosa's employment shall be coterminous with the management agreement, or until March 1996,2 unless sooner terminated
pursuant to the provisions of the Employment Agreement.3 The grounds for termination of
employment are also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHC's Board of Directors decided not to re-elect respondent
Zosa as President and Chief Executive Officer of MCHC on account of loss of trust and
confidence4 arising from alleged violation of the resolution issued by MCHC's board of directors and
of the non-competition clause of the Employment Agreement.5 Nevertheless, respondent Zosa was
elected to a new position as MCHC's Vice-Chairman/Chairman for New Ventures Development.6
On September 26, 1995, respondent Zosa communicated his resignation for good reason from
the position of Vice-Chairman under paragraph 7 of the Employment Agreement on the ground that
said position had less responsibility and scope than President and Chief Executive Officer. He
demanded that he be given termination benefits as provided for in Section 8 (c) (i) (ii) and (iii) of
the Employment Agreement.7
In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent
Zosa's resignation for good reason, but instead informed him that the Employment Agreement is
terminated for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of the said
agreement, on account of his breach of Section 12 thereof. Respondent Zosa was further advised
that he shall have no further rights under the said Agreement or any claims against the Manager or
the Corporation except the right to receive within thirty (30) days from November 19, 1995, the
amounts stated in Section 8 (a) (i) (ii) of the Agreement.8
Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration
Clause of theEmployment Agreement, to wit:
"23. Arbitration. In the event that any dispute, controversy or claim arises out of or under any
provisions of this Agreement, then the parties hereto agree to submit such dispute,
controversy or claim to arbitration as set forth in this Section and the determination to be
made in such arbitration shall be final and binding. Arbitration shall be effected by a panel of
three arbitrators. The Manager, Employee and Corporation shall designate one (1) arbitrator
who shall, in turn, nominate and elect who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of an arbitration award, shall take
place in Metro Manila. The arbitrators shall interpret this Agreement in accordance with the

substantive laws of the Republic of the Philippines. The arbitrators shall have no power to
add to, subtract from or otherwise modify the terms of Agreement or to grant injunctive relief
of any nature. Any judgment upon the award of the arbitrators may be entered in any court
having jurisdiction thereof, with costs of the arbitration to be borne equally by the parties,
except that each party shall pay the fees and expenses of its own counsel in the arbitration."
On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his
representative in the arbitration panel9 while MCHC designated Atty. Inigo S. Fojas10 and MCMC
nominated Atty. Enrique I. Quiason11as their respective representatives in the arbitration panel.
However, instead of submitting the dispute to arbitration, respondent Zosa, on April 17, 1996,
filed an action for damages against petitioners before the Regional Trial Court of Cebu12 to
enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss13 arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the venue
is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City and thus, the
venue of this case, granting without admitting that the respondent has a cause of action against the
petitioners cognizable by the RTC, should be limited only to RTC-Pasig City.14
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners motion
to dismiss upon the findings that (1) the validity and legality of the arbitration provision can only be
determined after trial on the merits; and (2) the amount of damages claimed, which is over
P100,000.00, falls within the jurisdiction of the RTC.15 Petitioners filed a motion for reconsideration
which was denied by the RTC in an order dated September 5, 1996.16
In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their Answer Ad
Cautelam with counterclaim reiterating their position that the dispute should be settled through
arbitration and the court had no jurisdiction over the nature of the action.17
On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage terminated
and setting the case for hearing. The order states:
"ISSUES:
"The Court will only resolve one issue in so far as this case is concerned, to wit:
"Whether or not the Arbitration Clause contained in Sec. 23 of the Employment Agreement is
void and of no effect: and, if it is void and of no effect, whether or not the plaintiff is entitled to
damages in accordance with his complaint and the defendants in accordance with their
counterclaim.
"It is understood, that in the event the arbitration clause is valid and binding between the
parties, the parties shall submit their respective claim to the Arbitration Committee in
accordance with the said arbitration clause, in which event, this case shall be deemed
dismissed."18

On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction, Addition and
Clarification of the Pre-trial Order dated November 15, 1996,19 which was denied by the court in an
order dated November 28, 1996.20
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file their
Memoranda to support their respective stand on the issue of the validity of the "arbitration clause"
contained in the Employment Agreement. In an order dated December 13, 1996, the trial court
denied the motion of petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and prohibition
under Rule 65 of the Rules of Court with the Court of Appeals, questioning the trial court orders
dated August 1, 1996, September 5, 1996, and December 13, 1996.21
On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the petition,
the decretal portion of which reads:
"WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to
resolve the issue on the validity or effectivity of the arbitration clause in the Employment
Agreement, and to suspend further proceedings in the trial on the merits until the said issue
is resolved. The questioned orders are set aside insofar as they contravene this Court's
resolution of the issues raised as herein pronounced.
"The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5)
days from notice.
"SO ORDERED."22
Petitioners filed a motions for partial reconsideration of the CA decision praying (1) for the dismissal
of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the parties be directed
to submit their dispute to arbitration in accordance with the Employment Agreement dated March
1994. The CA, in a resolution promulgated on June 20, 1997, denied the motion for partial
reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision declaring
the "arbitration clause" in the Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:
"WHEREFORE, premises considered, judgment is hereby rendered partially declaring the
arbitration clause of the Employment Agreement void and of no effect, only insofar as it
concerns the composition of the panel of arbitrators, and directing the parties to proceed to
arbitration in accordance with the Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants, and the third to be chosen by both
the plaintiff and defendants. The other terms, conditions and stipulations in the arbitration
clause remain in force and effect."23
In view of the trial court's decision, petitioners filed this petition for review on certiorari, under Rule 45
of the Rules of Court, assigning the following errors for the Court's resolution:
"I. The trial court gravely erred when it ruled that the arbitration clause under the employment
agreement is partially void and of no effect, considering that:

"A. The arbitration clause in the employment agreement dated March 1994 between
respondent Zosa and defendants MCHC and MCMC is valid and binding upon the
parties thereto.
"B. In view of the fact that there are three parties to the employment agreement, it is
but proper that each party be represented in the arbitration panel.
"C. The trial court grievously erred in its conclusion that petitioners MCMC and
MCHC represent the same interest.
"D. Respondent Zosa is estopped from questioning the validity of the arbitration
clause, including the right of petitioner MCMC to nominate its own arbitrator, which
he himself has invoked.
"II. In any event, the trial court acted without jurisdiction in hearing the case below,
considering that it has no jurisdiction over the nature of the action or suit since controversies
in the election or appointment of officers or managers of a corporation, such as the action
brought by respondent Zosa, fall within the original and exclusive jurisdiction of the Securities
and Exchange Commission.
"III. Contrary to respondent Zosa's allegation, the issue of the trial court's jurisdiction over the
case below has not yet been resolved with finality considering that petitioners have expressly
reserved their right to raise said issue in the instant petition. Moreover, the principle of the
law of the case is not applicable in the instant case.
"IV. Contrary to respondent Zosa's allegation, petitioners MCMC and MCHC are not guilty of
forum shopping.
"V. Contrary to respondent Zosa's allegation, the instant petition for review involves only
questions of law and not of fact."24
We rule against the petitioners.
It is error for the petitioners to claim that the case should fall under the jurisdiction of the
Securities and Exchange Commission [SEC, for brevity]. The controversy does not in anyway
involve the election/appointment of officers of petitioner MCHC, as claimed by petitioners in their
assignment of errors. Respondent Zosa's amended complaint focuses heavily on the illegality of
the Employment Agreement's "Arbitration Clause" initially invoked by him in seeking his termination
benefits under Section 8 of the employment contract. And under Republic Act No. 876, otherwise
known as the "Arbitration Law," it is the regional trial court which exercises jurisdiction over
questions relating to arbitration. We thus advert to the following discussions made by the Court of
Appeals, speaking thru Justice Minerva P. Gonzaga-Reyes,25 in C.A.-G.R. S.P. No. 43059, viz.
"As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is
raised for the first time in this petition, suffice it to state that the Amended Complaint squarely
put in issue the question whether the Arbitration Clause is valid and effective between the
parties. Although the controversy which spawned the action concerns the validity of the
termination of the service of a corporate officer, the issue on the validity and effectivity of the
arbitration clause is determinable by the regular courts, and do not fall within the exclusive
and original jurisdiction of the SEC.

"The determination and validity of the agreement is not a matter intrinsically connected with
the regulation and internal affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244;
Sales vs. SEC, 169 SCRA 121); it is rather an ordinary case to be decided in accordance
with the general laws, and do not require any particular expertise or training to interpret and
apply (Viray vs. CA, 191 SCRA 308)."26
Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the trial court's
assumption of jurisdiction over the case has become the "law of the case" which now binds the
petitioners. The "law of the case" doctrine has been defined as "a term applied to an established rule
that when an appellate court passes on a question and remands the cause to the lower court for
further proceedings, the question there settled becomes the law of the case upon subsequent
appeal."27 To note, the CA's decision in CA-G.R. SP No. 43059 has already attained finality as
evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit:
"ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a decision/resolution rendered in the aboveentitled case was filed in this Office, the dispositive part of which reads as follows:
'G.R. No. 129615. (Magellan Capital Management Corporation, et al. vs. Court of
Appeals, Rolando Zosa, et al.). Considering the petitioner's manifestation dated
August 11, 1997 and withdrawal of intention to file petition for review on certiorari, the
Court Resolved to DECLARE THIS CASE TERMINATED and DIRECT the Clerk of
Court to INFORM the parties that the judgment sought to be reviewed has become
final and executory, no appeal therefore having been timely perfected.'
and that the same has, on September 17, 1997, become final and executory and is hereby
recorded in the Book of Entries of Judgments."28
Petitioners, therefore, are barred from challenging anew, through another remedial measure and in
any other forum, the authority of the regional trial court to resolve the validity of the arbitration
clause, lest they be truly guilty of forum-shopping which the courts consistently consider as a
contumacious practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the instant petition, of the factual
findings made by the trial court that the composition of the panel of arbitrators would, in all
probability, work injustice to respondent Zosa. We have repeatedly stressed that the jurisdiction of
this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited
to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of
support by the evidence on record, or the assailed judgment is based on misapprehension of facts.29
Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken, this
Court finds the trial court's observations on why the composition of the panel of arbitrators should be
voided, incisively correct so as to merit our approval. Thus,
"From the memoranda of both sides, the Court is of the view that the defendants [petitioner]
MCMC and MCHC represent the same interest. There is no quarrel that both defendants are
entirely two different corporations with personalities distinct and separate from each other
and that a corporation has a personality distinct and separate from those persons composing
the corporation as well as from that of any other legal entity to which it may be related.

"But as the defendants [herein petitioner] represent the same interest, it could never be
expected, in the arbitration proceedings, that they would not protect and preserve their own
interest, much less, would both or either favor the interest of the plaintiff. The arbitration law,
as all other laws, is intended for the good and welfare of everybody. In fact, what is being
challenged by the plaintiff herein is not the law itself but the provision of the Employment
Agreement based on the said law, which is the arbitration clause but only as regards the
composition of the panel of arbitrators. The arbitration clause in question provides, thus:
'In the event that any dispute, controversy or claim arise out of or under any
provisions of this Agreement, then the parties hereto agree to submit such dispute,
controversy or claim to arbitration as set forth in this Section and the determination to
be made in such arbitration shall be final and binding. Arbitration shall be effected by
a panel of three arbitrators. The Manager, Employee, and Corporation shall
designate one (1) arbitrator who shall, in turn, nominate and elect as who among
them shall be the chairman of the committee. Any such arbitration, including the
rendering of an arbitration award, shall take place in Metro Manila. The arbitrators
shall interpret this Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no power to add to, subtract
from or otherwise modify the terms of this Agreement or to grant injunctive relief of
any nature. Any judgment upon the award of the arbitrators may be entered in any
court having jurisdiction thereof, with costs of the arbitration to be borne equally by
the parties, except that each party shall pay the fees and expenses of its own
counsel in the arbitration.' (Emphasis supplied).
"From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners]
(MCMC and MCHC) have one (1) arbitrator each to compose the panel of three (3)
arbitrators. As the defendant MCMC is the Manager of defendant MCHC, its decision or vote
in the arbitration proceeding would naturally and certainly be in favor of its employer and the
defendant MCHC would have to protect and preserve its own interest; hence, the two (2)
votes of both defendants (MCMC and MCHC) would certainly be against the lone arbitrator
for the plaintiff [herein defendant]. Hence, apparently, plaintiff [defendant] would never get or
receive justice and fairness in the arbitration proceedings from the panel of arbitrators as
provided in the aforequoted arbitration clause. In fairness and justice to the plaintiff
[defendant], the two defendants (MCMC and MCHC) [herein petitioners] which represent the
same interest should be considered as one and should be entitled to only one arbitrator to
represent them in the arbitration proceedings. Accordingly, the arbitration clause, insofar as
the composition of the panel of arbitrators is concerned should be declared void and of no
effect, because the law says, "Any clause giving one of the parties power to choose more
arbitrators than the other is void and of no effect" (Article 2045, Civil Code).
"The dispute or controversy between the defendants (MCMC and MCHC) [herein petitioners]
and the plaintiff [herein defendant] should be settled in the arbitration proceeding in
accordance with the Employment Agreement, but under the panel of three (3) arbitrators,
one (1) arbitrator to represent the plaintiff, one (1) arbitrator to represent both defendants
(MCMC and MCHC) [herein petitioners] and the third arbitrator to be chosen by the plaintiff
[defendant Zosa] and defendants [petitioners].
"xxx

xxx

xxx"30

In this connection, petitioners' attempt to put respondent in estoppel in assailing the arbitration
clause must be struck down. For one, this issue of estoppel, as likewise noted by the Court of
Appeals, found its way for the first time only on appeal. Well-settled is the rule that issues not raised

below cannot be resolved on review in higher courts.31 Secondly, employment agreements such as
the one at bar are usually contracts of adhesion. Any ambiguity in its provisions is generally resolved
against the party who drafted the document. Thus, in the relatively recent case of Phil. Federation of
Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria Abril,32 we had
the occasion to stress that "where a contract of employment, being a contract of adhesion, is
ambiguous, any ambiguity therein should be construed strictly against the party who prepared it."
And, finally, respondent Zosa never submitted himself to arbitration proceedings (as there was none
yet) before bewailing the composition of the panel of arbitrators. He in fact, lost no time in assailing
the "arbitration clause" upon realizing the inequities that may mar the arbitration proceedings if the
existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are designed to level the
playing field among the parties in pursuit of a mutually acceptable solution to their conflicting claims.
Any arrangement or scheme that would give undue advantage to a party in the negotiating table is
anathema to the very purpose of arbitration and should, therefore, be resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the trial
court dated July 18, 1997 is AFFIRMED.
SO ORDERED.

G.R. No. L-78325 January 25, 1990


DEL MONTE CORPORATION and PHILIPPINE PACKING CORPORATION, petitioners,
vs.
COURT OF APPEALS and SUNSHINE SAUCE MANUFACTURING INDUSTRIES, respondents.
Bito, Misa & Lozada for petitioners.
Reynaldo F. Singson for private respondent.

CRUZ, J.:
The petitioners are questioning the decision of the respondent court upholding the dismissal by the
trial court of their complaint against the private respondent for infringement of trademark and unfair
competition.
PETITIONER Del Monte Corporation is a foreign company organized under the laws of the United
States and not engaged in business in the Philippines. Both the Philippines and the United
States are signatories to the Convention of Paris of September 27, 1965, which grants to the
nationals of the parties rights and advantages which their own nationals enjoy for the repression of
acts of infringement and unfair competition.
Petitioner Philippine Packing Corporation (PHILPACK) is a domestic corporation duly organized
under the laws of the Philippines. On April 11, 1969, Del Monte granted Philpack the right to
manufacture, distribute and sell in the Philippines various agricultural products, including catsup,
under the Del Monte trademark and logo.
On October 27,1965, Del Monte authorized Philpack to register with the Philippine Patent Office
the Del Monte catsup bottle configuration, for which it was granted Certificate of Trademark
Registration No. SR-913 by the Philippine Patent Office under the Supplemental Register. 1 On
November 20, 1972, Del Monte also obtained two registration certificates for its trademark "DEL
MONTE" and its logo. 2
Respondent Sunshine Sauce Manufacturing Industries was issued a Certificate of Registration
by the Bureau of Domestic Trade on April 17,1980, to engage in the manufacture, packing,
distribution and sale of various kinds of sauce, identified by the logo Sunshine Fruit Catsup. 3 This
logo was registered in the Supplemental Register on September 20, 1983. 4 The product itself was
contained in various kinds of bottles, including the Del Monte bottle, which the private
respondent bought from the junk shops for recycling.
Having received reports that the private respondent was using its exclusively designed bottles and a
logo confusingly similar to Del Monte's, Philpack warned it to desist from doing so on pain of
legal action. Thereafter, claiming that the demand had been ignored, Philpack and Del Monte
filed a complaint against the private respondent for infringement of trademark and unfair
competition, with a prayer for damages and the issuance of a writ of preliminary injunction. 5
In its answer, Sunshine alleged that it had long ceased to use the Del Monte bottle and that its logo
was substantially different from the Del Monte logo and would not confuse the buying public to the
detriment of the petitioners. 6

After trial, the Regional Trial Court of Makati dismissed the complaint. It held that there were
substantial differences between the logos or trademarks of the parties; that the defendant had
ceased using the petitioners' bottles; and that in any case the defendant became the owner of the
said bottles upon its purchase thereof from the junk yards. Furthermore, the complainants had failed
to establish the defendant's malice or bad faith, which was an essential element of infringement of
trademark or unfair competition. 7
This decision was affirmed in toto by the respondent court, which is now faulted in this petition
for certiorari under Rule 45 of the Rules of Court.
Section 22 of R.A. No. 166, otherwise known as the Trademark Law, provides in part as follows:
Sec. 22. Infringement, what constitutes. Any person who shall use, without the
consent of the registrant, any reproduction, counterfeit, copy or colorable imitation of
any registered mark or trade-name in connection with the sale, offering for sale, or
advertising of any goods, business or services on or in connection with which such
use is likely to cause confusion or mistake or to deceive purchasers or others as to
the source or origin of such goods or services or identity of such business; or
reproduce, counterfeit copy or colorably imitate any such mark or trade name and
apply such reproduction, counterfeit copy or colorable imitation to labels, signs,
prints, packages, wrappers, receptacles or advertisements intended to be used upon
or in connection with such goods, business or services, shall be liable to a civil action
by the registrant for any or all of the remedies herein provided.
Sec. 29 of the same law states as follows:
Sec. 29. Unfair competition, rights and remedies. A person who has identified in
the mind of the public the goods he manufactures or deals in, his business or
services from those of others, whether or not a mark or tradename is employed, has
a property right in the goodwill of the said goods, business or services so identified,
which will be protected in the same manner as other property rights. Such a person
shall have the remedies provided in section twenty- three, Chapter V hereof.
Any person who shall employ deception or any other means contrary to good faith by
which he shall pass off the goods manufactured by him or in which he deals, or his
business, or services for those of the one having established such goodwill, or who
shall commit any acts calculated to produce said result, shall be guilty of unfair
competition, and shall be subject to an action therefor.
In particular, and without in any way limiting the scope of unfair competition, the
following shall be deemed guilty of unfair competition:
(a) Any person, who in selling his goods shall give them the general
appearance of goods of another manufacturer or dealer, either as to
the goods themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon, or in any other
feature of their appearance, which would likely influence purchasers
to believe that the goods offered are those of a manufacturer or
dealer other than the actual manufacturer or dealer, or who otherwise
clothes the goods with such appearance as shall deceive the public
and defraud another of his legitimate trade, or any subsequent

vendor of such goods or any agent of any vendor engaged in selling


such goods with a like purpose;
(b) Any person who by any artifice, or device, or who employs ally
other means calculated to induce the false belief that such person is
offering the services of another who has identified such services in
the mind of the public; or
(c) Any person who shall make any false statement in the course of
trade or who shall commit any other act contrary to good faith of a
nature calculated to discredit the goods, business or services of
another.
To arrive at a proper resolution of this case, it is important to bear in mind the following distinctions
between infringement of trademark and unfair competition.
(1) Infringement of trademark is the unauthorized use of a
trademark, whereas unfair competition is the passing off of one's
goods as those of another.
(2) In infringement of trademark fraudulent intent is unnecessary
whereas in unfair competition fraudulent intent is essential.
(3) In infringement of trademark the prior registration of the trademark
is a prerequisite to the action, whereas in unfair competition
registration is not necessary. 8
In the challenged decision, the respondent court cited the following test laid down by this Court in a
number of cases:
In determining whether two trademarks are confusingly similar, the two marks in their
entirety as they appear in the respective labels must be considered in relation to the
goods to which they are attached; the discerning eye of the observer must focus not
only on the predorninant words but also on the other features appearing on both
labels. 9
and applying the same, held that there was no colorable imitation of the petitioners' trademark and
logo by the private respondent. The respondent court agreed with the findings of the trial court that:
In order to resolve the said issue, the Court now attempts to make a
comparison of the two products, to wit:
1. As to the shape of label or make:
Del Monte: Semi-rectangular with a crown or tomato shape design on
top of the rectangle.
Sunshine: Regular rectangle.
2. As to brand printed on label:

Del Monte: Tomato catsup mark.


Sunshine: Fruit catsup.
3. As to the words or lettering on label or mark:
Del Monte: Clearly indicated words packed by Sysu International,
Inc., Q.C., Philippines.
Sunshine: Sunshine fruit catsup is clearly indicated "made in the
Philippines by Sunshine Sauce Manufacturing Industries" No. 1 Del
Monte Avenue, Malabon, Metro Manila.
4. As to color of logo:
Del Monte: Combination of yellow and dark red, with words "Del
Monte Quality" in white.
Sunshine: White, light green and light red, with words "Sunshine
Brand" in yellow.
5. As to shape of logo:
Del Monte: In the shape of a tomato.
Sunshine: Entirely different in shape.
6. As to label below the cap:
Del Monte: Seal covering the cap down to the neck of the bottle, with
picture of tomatoes with words "made from real tomatoes."
Sunshine: There is a label below the cap which says "Sunshine
Brand."
7. As to the color of the products:
Del Monte: Darker red.
Sunshine: Lighter than Del Monte.
While the Court does recognize these distinctions, it does not agree with the conclusion that there
was no infringement or unfair competition. It seems to us that the lower courts have been so preoccupied with the details that they have not seen the total picture.
It has been correctly held that side-by-side comparison is not the final test of similarity. 10 Such
comparison requires a careful scrutiny to determine in what points the labels of the products differ,
as was done by the trial judge. The ordinary buyer does not usually make such scrutiny nor does he
usually have the time to do so. The average shopper is usually in a hurry and does not inspect every
product on the shelf as if he were browsing in a library. Where the housewife has to return home as

soon as possible to her baby or the working woman has to make quick purchases during her off
hours, she is apt to be confused by similar labels even if they do have minute differences. The male
shopper is worse as he usually does not bother about such distinctions.
The question is not whether the two articles are distinguishable by their label when set side by side
but whether the general confusion made by the article upon the eye of the casual purchaser who is
unsuspicious and off his guard, is such as to likely result in his confounding it with the original. 11 As
observed in several cases, the general impression of the ordinary purchaser, buying under the
normally prevalent conditions in trade and giving the attention such purchasers usually give in
buying that class of goods is the touchstone. 12
It has been held that in making purchases, the consumer must depend upon his recollection of the
appearance of the product which he intends to purchase. 13 The buyer having in mind the mark/label
of the respondent must rely upon his memory of the petitioner's mark. 14 Unlike the judge who has
ample time to minutely examine the labels in question in the comfort of his sala, the ordinary
shopper does not enjoy the same opportunity.
A number of courts have held that to determine whether a trademark has been infringed, we must
consider the mark as a whole and not as dissected. If the buyer is deceived, it is attributable to the
marks as a totality, not usually to any part of it. 15 The court therefore should be guided by its first
impression, 16 for a buyer acts quickly and is governed by a casual glance, the value of which may
be dissipated as soon as the court assumes to analyze carefully the respective features of the
mark. 17
It has also been held that it is not the function of the court in cases of infringement and unfair
competition to educate purchasers but rather to take their carelessness for granted, and to be ever
conscious of the fact that marks need not be identical. A confusing similarity will justify the
intervention of equity. 18 The judge must also be aware of the fact that usually a defendant in cases
of infringement does not normally copy but makes only colorable changes. 19 Well has it been said
that the most successful form of copying is to employ enough points of similarity to confuse the
public with enough points of difference to confuse the courts. 20
We also note that the respondent court failed to take into consideration several factors which should
have affected its conclusion, to wit: age, training and education of the usual purchaser, the nature
and cost of the article, whether the article is bought for immediate consumption and also the
conditions under which it is usually purchased . 21 Among these, what essentially determines the
attitude of the purchaser, specifically his inclination to be cautious, is the cost of the goods. To be
sure, a person who buys a box of candies will not exercise as much care as one who buys an
expensive watch. As a general rule, an ordinary buyer does not exercise as much prudence in
buying an article for which he pays a few centavos as he does in purchasing a more valuable
thing. 22 Expensive and valuable items are normally bought only after deliberate, comparative and
analytical investigation. But mass products, low priced articles in wide use, and matters of everyday
purchase requiring frequent replacement are bought by the casual consumer without great care. 23 In
this latter category is catsup.
At that, even if the labels were analyzed together it is not difficult to see that the Sunshine label is a
colorable imitation of the Del Monte trademark. The predominant colors used in the Del Monte label
are green and red-orange, the same with Sunshine. The word "catsup" in both bottles is printed in
white and the style of the print/letter is the same. Although the logo of Sunshine is not a tomato, the
figure nevertheless approximates that of a tomato.

As previously stated, the person who infringes a trade mark does not normally copy out but only
makes colorable changes, employing enough points of similarity to confuse the public with enough
points of differences to confuse the courts. What is undeniable is the fact that when a manufacturer
prepares to package his product, he has before him a boundless choice of words, phrases, colors
and symbols sufficient to distinguish his product from the others. When as in this case, Sunshine
chose, without a reasonable explanation, to use the same colors and letters as those used by Del
Monte though the field of its selection was so broad, the inevitable conclusion is that it was done
deliberately to deceive . 24
It has been aptly observed that the ultimate ratio in cases of grave doubt is the rule that as between
a newcomer who by the confusion has nothing to lose and everything to gain and one who by honest
dealing has already achieved favor with the public, any doubt should be resolved against the
newcomer inasmuch as the field from which he can select a desirable trademark to indicate the
origin of his product is obviously a large one. 25
Coming now to the second issue, we find that the private respondent is not guilty of infringement for
having used the Del Monte bottle. The reason is that the configuration of the said bottle was merely
registered in the Supplemental Register. In the case of Lorenzana v. Macagba, 26 we declared that:
(1) Registration in the Principal Register gives rise to a presumption
of the validity of the registration, the registrant's ownership of the
mark and his right to the exclusive use thereof. There is no such
presumption in the registration in the Supplemental Register.
(2) Registration in the Principal Register is limited to the actual owner
of the trademark and proceedings therein on the issue of ownership
which may be contested through opposition or interference
proceedings or, after registration, in a petition for cancellation.
Registration in the Principal Register is constructive notice of the
registrant's claim of ownership, while registration in the Supplemental
Register is merely proof of actual use of the trademark and notice
that the registrant has used or appropriated it. It is not subject to
opposition although it may be cancelled after the issuance.
Corollarily, registration in the Principal Register is a basis for an
action for infringement while registration in the Supplemental Register
is not.
(3) In applications for registration in the Principal Register, publication
of the application is necessary. This is not so in applications for
registrations in the Supplemental Register.
It can be inferred from the foregoing that although Del Monte has actual use of the bottle's
configuration, the petitioners cannot claim exclusive use thereof because it has not been registered
in the Principal Register. However, we find that Sunshine, despite the many choices available to it
and notwithstanding that the caution "Del Monte Corporation, Not to be Refilled" was embossed on
the bottle, still opted to use the petitioners' bottle to market a product which Philpack also produces.
This clearly shows the private respondent's bad faith and its intention to capitalize on the latter's
reputation and goodwill and pass off its own product as that of Del Monte.
The Court observes that the reasons given by the respondent court in resolving the case in favor of
Sunshine are untenable. First, it declared that the registration of the Sunshine label belied the

company's malicious intent to imitate petitioner's product. Second, it held that the Sunshine label
was not improper because the Bureau of Patent presumably considered other trademarks before
approving it. Third, it cited the case of Shell Co. v. Insular Petroleum, 27 where this Court declared
that selling oil in containers of another with markings erased, without intent to deceive, was not
unfair competition.
Regarding the fact of registration, it is to be noted that the Sunshine label was registered not in the
Principal Register but only in the Supplemental Register where the presumption of the validity of the
trademark, the registrant's ownership of the mark and his right to its exclusive use are all absent.
Anent the assumption that the Bureau of Patent had considered other existing patents, it is reiterated
that since registration was only in the Supplemental Register, this did not vest the registrant with the
exclusive right to use the label nor did it give rise to the presumption of the validity of the registration.
On the argument that no unfair competition was committed, the Shell Case is not on all fours with
the case at bar because:
(1) In Shell, the absence of intent to deceive was supported by the fact that the
respondent therein, before marketing its product, totally obliterated and erased the
brands/mark of the different companies stenciled on the containers thereof, except
for a single isolated transaction. The respondent in the present case made no similar
effort.
(2) In Shell, what was involved was a single isolated transaction. Of the many drums
used, there was only one container where the Shell label was not erased, while in the
case at hand, the respondent admitted that it made use of several Del Monte bottles
and without obliterating the embossed warning.
(3) In Shell, the product of respondent was sold to dealers, not to ultimate
consumers. As a general rule, dealers are well acquainted with the manufacturer
from whom they make their purchases and since they are more experienced, they
cannot be so easily deceived like the inexperienced public. There may well be
similarities and imitations which deceive all, but generally the interests of the dealers
are not regarded with the same solicitude as are the interests of the ordinary
consumer. For it is the form in which the wares come to the final buyer that is of
significance. 28
As Sunshine's label is an infringement of the Del Monte's trademark, law and equity call for the
cancellation of the private respondent's registration and withdrawal of all its products bearing the
questioned label from the market. With regard to the use of Del Monte's bottle, the same constitutes
unfair competition; hence, the respondent should be permanently enjoined from the use of such
bottles.
The court must rule, however, that the damage prayed for cannot be granted because the petitioner
has not presented evidence to prove the amount thereof. Section 23 of R.A. No. 166 provides:
Sec. 23. Actions and damages and injunction for infringement. Any person entitled
to the exclusive use of a registered mark or trade name may recover damages in a
civil action from any person who infringes his rights, and the measure of the
damages suffered shall be either the reasonable profit which the complaining party
would have made, had the defendant not infringed his said rights or the profit which
the defendant actually made out of the infringement, or in the event such measure of

damages cannot be readily ascertained with reasonable certainty the court may
award as damages reasonable percentage based upon the amount of gross sales of
the defendant or the value of the services in connection with which the mark or trade
name was used in the infringement of the rights of the complaining party. In cases
where actual intent to mislead the public or to defraud the complaining party shall be
shown, in the discretion of the court, the damages may be doubled.
The complaining party, upon proper showing may also be granted injunction.
Fortunately for the petitioners, they may still find some small comfort in Art. 2222 of the Civil Code,
which provides:
Art. 2222. The court may award nominal damages in every obligation arising from
any source enumerated in Art. 1157, or in every case where any property right has
been invaded.
Accordingly, the Court can only award to the petitioners, as it hereby does award, nominal damages
in the amount of Pl,000.00.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated December 24,
1986 and the Resolution dated April 27,1987, are REVERSED and SET ASIDE and a new judgment
is hereby rendered:
(1) Canceling the private respondent's Certificate of Register No. SR-6310 and
permanently enjoining the private respondent from using a label similar to that of the
petitioners.
(2) Prohibiting the private respondent from using the empty bottles of the petitioners
as containers for its own products.
(3) Ordering the private respondent to pay the petitioners nominal damages in the
amount of Pl,000.00, and the costs of the suit.
SO ORDERED.

G.R. No. L-29169

August 19, 1968

ROGER CHAVEZ, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, THE PEOPLE OF THE PHILIPPINES and THE
WARDEN OF THE CITY JAIL OF MANILA, respondents.
Estanislao E. Fernandez and Fausto Arce for petitioner.
Office of the Solicitor General for respondents.
SANCHEZ, J.:
The thrust of petitioner's case presented in his original and supplementary petitions invoking
jurisdiction of this Court is that he is entitled, on habeas corpus, to be freed from imprisonment upon
the ground that in the trial which resulted in his conviction1 he was denied his constitutional right not
to be compelled to testify against himself. There is his prayer, too, that, should he fail in this, he be
granted the alternative remedies of certiorari to strike down the two resolutions of the Court of
Appeals dismissing his appeal for failure to file brief, and of mandamus to direct the said court to
forward his appeal to this Court for the reason that he was raising purely questions of law.
The indictment in the court below the third amended information upon which the judgment of
conviction herein challenged was rendered, was for qualified theft of a motor vehicle, one (1)
Thunderbird car, Motor No. H9YH-143003, with Plate No. H-16648 Pasay City '62 together with its
accessories worth P22,200.00. Accused were the following: Petitioner herein, Roger Chavez,
Ricardo Sumilang alias "Romeo Vasquez", Edgardo P. Pascual alias "Ging" Pascual, Pedro Rebullo
alias "Pita", Luis Asistio alias "Baby" Asistio, Lorenzo Meneses alias"Lory" Meneses, Peter Doe,
Charlie Doe and Paul Doe.2
Averred in the aforesaid information was that on or about the 14th day of November, 1962, in
Quezon City, the accused conspired, with intent of gain, abuse of confidence and without the
consent of the owner thereof, Dy Sun Hiok y Lim, in asporting the motor vehicle above-described.
Upon arraignment, all the accused, except the three Does who have not been identified nor
apprehended, pleaded not guilty.1wph1.t
On July 23, 1963, trial commenced before the judge presiding Branch IX of the Court of First
Instance of Rizal in Quezon City.
The trial opened with the following dialogue, which for the great bearing it has on this case, is here
reproduced:.
COURT:
The parties may proceed.
FISCAL GRECIA:
Our first witness is Roger Chavez [one of the accused].
ATTY. CARBON [Counsel for petitioner Chavez]:

I am quite taken by surprise, as counsel for the accused Roger Chavez, with this move of the
Fiscal in presenting him as his witness. I object.
COURT:
On what ground, counsel? .
ATTY. CARBON:
On the ground that I have to confer with my client. It is really surprising that at this stage,
without my being notified by the Fiscal, my client is being presented as witness for the
prosecution. I want to say in passing that it is only at this very moment that I come to know
about this strategy of the prosecution.
COURT (To the Fiscal):
You are not withdrawing the information against the accused Roger Chavez by making [him
a] state witness?.
FISCAL GRECIA:
I am not making him as state witness, Your Honor.
I am only presenting him as an ordinary witness.
ATTY. CARBON:
As a matter of right, because it will incriminate my client, I object.
COURT:
The Court will give counsel for Roger Chavez fifteen minutes within which to confer and
explain to his client about the giving of his testimony.
xxx

xxx

xxx

COURT: [after the recess]


Are the parties ready? .
FISCAL:
We are ready to call on our first witness, Roger Chavez.
ATTY. CARBON:
As per understanding, the proceeding was suspended in order to enable me to confer with
my client.
I conferred with my client and he assured me that he will not testify for the prosecution this
morning after I have explained to him the consequences of what will transpire.

COURT:
What he will testify to does not necessarily incriminate him, counsel.
And there is the right of the prosecution to ask anybody to act as witness on the witnessstand including the accused.
If there should be any question that is incriminating then that is the time for counsel to
interpose his objection and the court will sustain him if and when the court feels that the
answer of this witness to the question would incriminate him.
Counsel has all the assurance that the court will not require the witness to answer questions
which would incriminate him.
But surely, counsel could not object to have the accused called on the witnessstand.
ATTY. CARBON:
I submit.
xxx

xxx

xxx

ATTY. CRUZ [Counsel for defendants Pascual and Meneses]: .


MAY IT PLEASE THE COURT:
This incident of the accused Roger Chavez being called to testify for the prosecution is
something so sudden that has come to the knowledge of this counsel.
This representation has been apprised of the witnesses embraced in the information.
For which reason I pray this court that I be given at least some days to meet whatever
testimony this witness will bring about. I therefore move for postponement of today's hearing.
COURT:
The court will give counsel time within which to prepare his cross-examination of this
witness.
ATTY. CRUZ:
I labored under the impression that the witnesses for the prosecution in this criminal case are
those only listed in the information.
I did not know until this morning that one of the accused will testify as witness for the
prosecution.
COURT:

That's the reason why the court will go along with counsels for the accused and will give
them time within which to prepare for their cross-examination of this witness.
The court will not defer the taking of the direct examination of the witness.
Call the witness to the witness stand.
EVIDENCE FOR THE PROSECUTION
ROGER CHAVEZ, 31 years old, single, buy and sell merchant, presently detained at the
Manila Police Department headquarters, after being duly sworn according to law, declared
as follows:
ATTY. IBASCO [Counsel for defendant Luis Asistio]:
WITH THE LEAVE OF THE COURT:
This witness, Roger Chavez is one of the accused in this case No. Q-5311.
The information alleges conspiracy. Under Rule 123, Section 12, it states:
'The act or declaration of a conspirator relating to the conspiracy and during its existence,
may be given in evidence against the co-conspirator after the conspiracy is shown by
evidence other than such act or declaration.'
COURT:
That is premature, counsel. Neither the court nor counsels for the accused know what
the prosecution events to establish by calling this witness to the witness stand.
ATTY. IBASCO:
I submit.
COURT: The Fiscal may proceed.3
And so did the trial proceed. It began with the "direct examination" of Roger Chavez by "Fiscal
Grecia".
Came the judgment of February 1, 1965. The version of the prosecution as found by the court below
may be briefly narrated as follows:
A few days before November 12, 1962, Roger Chavez saw Johnson Lee, a Chinese, driving a
Thunderbird car. With Ricardo Sumilang (movie actor Romeo Vasquez) in mind, whom he knew was
in the market for such a car, Chavez asked Lee whether his car was for sale. Lee answered
affirmatively and left his address with Chavez. Then, on November 12, Chavez met Sumilang at a
barbershop informed him about the Thunderbird. But Sumilang said that he had changed his mind
about buying a new car. Instead, he told Chavez that he wanted to mortgage his Buick car for
P10,000.00 to cover an indebtedness in Pasay City. Upon the suggestion of Chavez, they went to
see Luis Asistio, who he knew was lending money on car mortgages and who, on one occasion,

already lent Romeo Vasquez P3,000.00 on the same Buick car. Asistio however told the two that he
had a better idea on how to raise the money. His plan was to capitalize on Romeo Vasquez'
reputation as a wealthy movie star, introduce him as a buyer to someone who was selling a car and,
after the deed of sale is signed, by trickery to run away with the car. Asistio would then register it,
sell it to a third person for a profit. Chavez known to be a car agent was included in the plan. He
furnished the name of Johnson Lee who was selling his Thunderbird. 1wph1.t
In the morning of November 14, Chavez telephoned Johnson Lee and arranged for an appointment.
Sometime in the afternoon. Chavez and Sumilang met Lee in his Thunderbird on Highway 54.
Sumilang was introduced as the interested buyer. Sumilang's driver inspected the car, took the
wheel for a while. After Sumilang and Lee agreed on the purchase price (P21.000.00), they went to
Binondo to Johnson Lee's cousin, Dy Sun Hiok, in whose name the car was registered. Thereafter,
they went to see a lawyer notary public in Quezon City, known to Chavez for the drafting of the deed
of sale. After the deed of sale was drawn up, it was signed by Sumilang as the vendee, Dy Sun Hiok
the vendor, and Sumilang's driver and Johnson Lee the witnesses thereto.
As payment was to be made at Eugene's restaurant in Quezon City, all of them then drove in the
Thunderbird car to that place. The deed of sale and other papers remained in the pockets of
Johnson Lee.
At Eugene's, a man approached Sumilang with a note which stated that the money was ready at the
Dalisay Theater. Sumilang then wrote on the same note that the money should be brought to the
restaurant. At the same time he requested Lee to exhibit the deed of sale of the car to the note
bearer.4
Then, the two Chinese were left alone in the restaurant. For Sumilang, who had left the table to pose
for pictures with some fans and come back, again left never to return. So did Chavez, who
disappeared after he left on the pretext of buying cigarettes. The two Chinese could not locate
Sumilang and Chavez. They went out to the place where the Thunderbird was parked, found that it
was gone. They then immediately reported its loss to the police. Much later, the NBI recovered the
already repainted car and impounded it.
Right after the meeting at Eugene's, Chavez, Sumilang and Asistio converged that same day at
Barrio Fiesta, a restaurant at Highway 54 near the Balintawak monument in Caloocan. There, Asistio
handed to Sumilang P1,000.00 cash and a golf set worth P800.00 as the latter's share in the
transaction. On the 14th of November, the registration of the car was transferred in the name of
Sumilang in Cavite City, and three days later, in the name of Asistio in Caloocan.
From the court's decision, Ricardo Sumilang's version, corroborated in part by Asistio, may be
condensed as follows:
In the last week of September, 1962, Sumilang saw Roger Chavez at a gas station. The latter
informed him that there was a Thunderbird from Clark Field for sale for a price between P20,000.00
and P22,000.00. Chavez said that it could be held for him with a down payment of P10,000.00.
To raise this sum, Sumilang and Chavez, on October 1, went to the house of a certain Nena
Hernaez de los Reyes who wrote out a check for P5,000.00 as a loan to Sumilang. That check was
exhibited in court. Sumilang and Chavez then went to Pasay City to see a certain Mario Baltazar, an
agent of the Pasay City Mayor, and Narsing Cailles, Chief of the Fire Department. Sumilang asked
the two for a P10,000-loan backed up by the P5,000.00-check aforesaid on condition that it should
not be cashed immediately as there were not enough funds therefor. Baltazar and Cailles agreed to
give the money the nextday as long as the check would be left with them and Sumilang would sign a

promissory note for P10,000.00. Baltazar later informed Sumilang that Chavez picked up the money
the next day. Four or five days afterwards, Chavez returned P4,000.00 to Sumilang because
P6,000.00 was enough for the deposit. And so, Sumilang gave back the P4,000.00 to Baltazar.
About the end of October or at the beginning of November, Chavez asked Sumilang for another
P3,000.00. Sumilang sent Chavez to Baltazar and Cailles, with a note requesting that they
accommodate him once more. He also sent a check, again without funds. Baltazar gave the money
after verifying the authenticity of the note.
On November 14, Chavez appeared at Sumilang's house with the news that the car was ready if
Sumilang was ready with the rest of the money. So Sumilang got P9,000.00 from his mother and
another P4,000.00 from his aparador. He immediately gave P6,000.00 to Chavez, intending to pay
out the balance upon the car's delivery. It was then that Chavez told Sumilang that the car was
already bought by a Chinese who would be the vendor.
The purchase price finally agreed upon between Sumilang and Johnson Lee was P21,000.00, plus
P500.00 agents commission at the expense of the buyer. Sumilang told Lee that he already paid
part of the price to Chavez.
At Eugene's, Chavez asked Sumilang for the balance. Sumilang accommodated. There, Sumilang,
also saw a friend, "Ging" Pascual. In the course of their conversation at the bar, Sumilang mentioned
the proposed transaction thru Chavez. Pascual warned that Chavez was a "smart" agent and
advised that Sumilang should have a receipt for his money. A certain Bimbo, a friend of Pascual,
offered to make out a receipt for Chavez to sign.
After Sumilang returned from posing for some photographs with some of his fans, Bimbo showed
him the receipt already signed by Chavez. Sumilang requested Pascual and Bimbo to sign the
receipt as witnesses. And they did. This receipt was offered as an exhibit by the prosecution and by
Sumilang.
When Sumilang was ready to leave Eugene's, Johnson Lee turned over to him the deed of sale, the
registration papers and the keys to the car. After shaking hands with Lee, Sumilang drove away in
the car with his driver at the wheel.
Two or three days afterwards, Sumilang dropped by the Barrio Fiesta on his way to a film shooting at
Bulacan. He saw Asistio with many companions. Asistio liked his Thunderbird parked outside.
Asistio offered to buy it from him for P22,500.00. As the offer was good, and knowing Asistio's and
his friends' reputation for always getting what they wanted, Sumilang consented to the sale. Asistio
tendered a down payment of P1,000.00; the balance he promised to pay the next day after
negotiating with some financing company. Before said balance could be paid, the car was
impounded.
The trial court gave evidence to Sumilang's averment, strengthened by Baltazar's and Cailles'
corroborations, that he paid good money for the car. Sumilang was thus cleared. So was Asistio
whom the trial court believed to be a mere buyer of the car. And so, the prosecution's theory of
conspiracy was discounted.
As to the other accused, the court found no case against Pedro Rebullo alias "Pita" and Lorenzo
Meneses alias "Lory". The accused "Ging" Pascual was also acquitted for in the first place he was
not identified by Johnson Lee in court.

As to Roger Chavez, however, the court had this to say: "Roger Chavez does not offer any
defense. As a matter of fact, his testimony as witness for the prosecution establishes his guilt
beyond reasonable doubt."5 The trial court branded him "a self-confessed culprit".6 The court further
continued:
It is not improbable that true to the saying that misery loves company Roger Chavez tried to
drag his co-accused down with him by coloring his story with fabrications which he expected
would easily stick together what with the newspaper notoriety of one and the sensationalism
caused by the other. But Roger Chavez'accusations of Asistio's participation is utterly
uncorroborated. And coming, as it does, from a man who has had at least two convictions for
acts not very different from those charged in this information, the Court would be too
gullible if it were to give full credence to his words even if they concerned a man no less
notorious than himself.7
The trial court then came to the conclusion that if Johnson Lee was not paid for his car, he had no
one but Roger Chavez to blame.
The sum of all these is that the trial court freed all the accused except Roger Chavez who was found
guilty beyond reasonable doubt of the crime of qualified theft. He was accordingly sentenced to
suffer an indeterminate penalty of not less than ten (10) years, one (1) day, as minimum and not
more than fourteen (14) years, eight (8) months and one (1) day as maximum, to indemnify Dy Sun
Hiok and/or Johnson Lee in the sum of P21,000.00 without subsidiary imprisonment in case of
insolvency, to undergo the accessory penalties prescribed by law, and to pay the costs. The
Thunderbird car then in the custody of the NBI was ordered to be turned over to Ricardo Sumilang,
who was directed to return to Asistio the sum of P1,000.00 unless the latter chose to pay
P21,500.00, representing the balance of the contract price for the car.
The foregoing sentence was promulgated on March 8, 1965. Roger Chavez appealed to the Court of
Appeals.
On April 18, 1968, the Court of Appeals required Atty. Natividad Marquez, counsel for Roger
Chavez, to show cause within ten days from notice why Chavez' appeal should not be considered
abandoned and dismissed. Reason for this is that said lawyer received notice to file brief on
December 28, 1967 and the period for the filing thereof lapsed on January 27, 1968 without any brief
having been filed.
On May 13, 1968, Atty. Marquez registered a detailed written explanation. She also stated that if she
were allowed to file appellant's brief she would go along with the factual findings of the court below
but will show however that its conclusion is erroneous.8
On May 14, 1968, the Court of Appeals, despite the foregoing explanation, resolved to dismiss the
appeal. A move to reconsider was unavailing. For, on June 21, 1968, the Court of Appeals, through
a per curiam resolution, disposed to maintain its May 14 resolution dismissing the appeal, directed
the City Warden of Manila where Chavez is confined by virtue of the warrant of arrest issued by the
Court of Appeals, to turn him over to Muntinlupa Bilibid Prisons pending execution of the judgment
below, and ordered remand of the case to the Quezon City court for execution of judgment.
It was at this stage that the present proceedings were commenced in this Court.
Upon the petitions, the return, and the reply, and after hearing on oral arguments, we now come to
grips with the main problem presented.

We concentrate attention on that phase of the issues which relates petitioner's assertion that he was
compelled to testify against himself. For indeed if this one question is resolved in the affirmative, we
need not reach the others; in which case, these should not be pursued here.
1. Petitioner's plea on this score rests upon his averment, with proof, of violation of his right
constitutionally entrenched against self-incrimination. He asks that the hand of this Court be made
to bear down upon his conviction; that he be relieved of the effects thereof. He asks us to consider
the constitutional injunction that "No person shall be compelled to be a witness against
himself,"9 fully echoed in Section 1, Rule 115, Rules of Court where, in all criminal prosecutions, the
defendant shall be entitled: "(e) To be exempt from being a witness against himself." .
It has been said that forcing a man to be a witness against himself is at war with "the fundamentals
of a republican government"; 10 that [i]t may suit the purposes of despotic power but it can not abide
the pure atmosphere of political liberty and personal freedom."11 Mr. Justice Abad Santos recounts
the historical background of this constitutional inhibition, thus: " "The maxim Nemo tenetur seipsum
accusare had its origin in a protest against the inquisitorial and manifestly unjust methods of
interrogating accused persons, which has long obtained in the continental system, and, until the
expulsion of the Stuarts from the British throne in 1688, and the erection of additional barriers for the
protection of the people against the exercise of arbitrary power, was not uncommon even in
England. While the admissions of confessions of the prisoner, when voluntarily and freely made,
have always ranked high in the scale of incriminating evidence, if an accused person be asked to
explain his apparent connection with a crime under investigation, the ease with which the questions
put to him may assume an inquisitorial character, the temptation to press, the witness unduly, to
browbeat him if he be timid or reluctant, to push him into a corner, and to entrap him into fatal
contradictions, which is so painfully evident in many of the earlier state trials, notably in those of Sir
Nicholas Throckmorton, and Udal, the Puritan minister, made the system so odious as to give rise to
a demand for its total abolition. The change in the English criminal procedure in that particular
seems to be founded upon no statute and no judicial opinion, but upon a general and silent
acquiescence of the courts in a popular demand. But, however adopted, it has become firmly
embedded in English, as well as in American jurisprudence. So deeply did the iniquities of the
ancient system impress themselves upon the minds of the American colonists that the states, with
one accord, made a denial of the right to question an accused person a part of their fundamental
law, so that a maxim which in England was a mere rule of evidence, became clothed in this country
with the impregnability of a constitutional enactment." (Brown vs. Walker, 161 U.S., 591, 597; 40
Law. ed., 819, 821)." 12 Mr. Justice Malcolm, in expressive language, tells us that this maxim was
recognized in England in the early days "in a revolt against the thumbscrew and the rack." 13 An old
Philippine case [1904] 14 speaks of this constitutional injunction as "older than the Government of the
United States"; as having "its origin in a protest against the inquisitorial methods of interrogating the
accused person"; and as having been adopted in the Philippines "to wipe out such practices as
formerly prevailed in these Islands of requiring accused persons to submit to judicial examinations,
and to give testimony regarding the offenses with which they were charged."
So it is then that this right is "not merely a formal technical rule the enforcement of which is left to the
discretion of the court"; it is mandatory; it secures to a defendant a valuable and substantive
right; 15 it is fundamental to our scheme of justice. Just a few months ago, the Supreme Court of the
United States (January 29, 1968), speaking thru Mr. Justice Harlan warned that "[t]he constitutional
privilege was intended to shield the guilty and imprudent as well as the innocent and foresighted." 16
It is in this context that we say that the constitutional guarantee may not be treated with unconcern.
To repeat, it is mandatory; it secures to every defendant a valuable and substantive right. Taada
and Fernando (Constitution of the Philippines, 4th ed., vol. I, pp. 583-584) take note of U.S. vs.
Navarro, supra, which reaffirms the rule that the constitutional proscription was established on broad
grounds of public policy and humanity; of policy because it would place the witness against the

strongest temptation to commit perjury, and of humanity because it would be to extort a confession
of truth by a kind of duress every species and degree of which the law abhors. 17
Therefore, the court may not extract from a defendant's own lips and against his will an admission of
his guilt. Nor may a court as much as resort to compulsory disclosure, directly or indirectly, of facts
usable against him as a confession of the crime or the tendency of which is to prove the commission
of a crime. Because, it is his right to forego testimony, to remain silent, unless he chooses to take
the witness stand with undiluted, unfettered exercise of his own free, genuine will.
Compulsion as it is understood here does not necessarily connote the use of violence; it may be the
product of unintentional statements. Pressure which operates to overbear his will, disable him from
making a free and rational choice, or impair his capacity for rational judgment would in our opinion
be sufficient. So is moral coercion "tending to force testimony from the unwilling lips of the
defendant." 18
2. With the foregoing as guideposts, we now turn to the facts. Petitioner is a defendant in a criminal
case. He was called by the prosecution as the first witness in that case to testify for the People
during the first day of trial thereof. Petitioner objected and invoked the privilege of self-incrimination.
This he broadened by the clear cut statement that he will not testify. But petitioner's protestations
were met with the judge's emphatic statement that it "is the right of the prosecution to ask anybody to
act as witness on the witness stand including the accused," and that defense counsel "could not
object to have the accused called on the witness stand." The cumulative impact of all these is that
accused-petitioner had to take the stand. He was thus peremptorily asked to create evidence against
himself. The foregoing situation molds a solid case for petitioner, backed by the Constitution, the
law, and jurisprudence.
Petitioner, as accused, occupies a different tier of protection from an ordinary witness. Whereas an
ordinary witness may be compelled to take the witness stand and claim the privilege as each
question requiring an incriminating answer is shot at him, 19 and accused may altogether refuse to
take the witness stand and refuse to answer any and all questions. 20 For, in reality, the purpose of
calling an accused as a witness for the People would be to incriminate him. 21 The rule positively
intends to avoid and prohibit the certainly inhuman procedure of compelling a person "to furnish the
missing evidence necessary for his conviction." 22 This rule may apply even to a co-defendant in a
joint trial.23
And the guide in the interpretation of the constitutional precept that the accused shall not be
compelled to furnish evidence against himself "is not the probability of the evidence but it is
the capability of abuse." 24 Thus it is, that it was undoubtedly erroneous for the trial judge to placate
petitioner with these words:.
What he will testify to does not necessarily incriminate him, counsel.
And there is the right of the prosecution to ask anybody to act as witness on the witnessstand including the accused.
If there should be any question that is incriminating then that is the time for counsel to
interpose his objection and the court will sustain him if and when the court feels that the
answer of this witness to the question would incriminate him.
Counsel has all the assurance that the court will not require the witness to answer questions
which would incriminate him.

But surely, counsel could not object to have the accused called on the witness stand.
Paraphrasing Chief Justice Marshall in Aaron Burr's Trial, Robertsons Rep. I, 208, 244, quoted in
VIII Wigmore, p. 355, 25 While a defendant's knowledge of the facts remains concealed within his
bosom, he is safe; but draw it from thence, and he is exposed" to conviction.
The judge's words heretofore quoted "But surely counsel could not object to have the accused
called on the witness stand" wielded authority. By those words, petitioner was enveloped by a
coercive force; they deprived him of his will to resist; they foreclosed choice; the realities of human
nature tell us that as he took his oath to tell the truth, the whole truth and nothing but the truth, no
genuine consent underlay submission to take the witness stand. Constitutionally sound consent was
absent.
3. Prejudice to the accused for having been compelled over his objections to be a witness for the
People is at once apparent. The record discloses that by leading questions Chavez, the accused,
was made to affirm his statement given to the NBI agents on July 17, 1963 at 5:00 o'clock in the
afternoon. 26 And this statement detailed the plan and execution thereof by Sumilang (Vasquez),
Asistio and himself to deprive the Chinese of his Thunderbird car. And he himself proceeded to
narrate the same anew in open court. He identified the Thunderbird car involved in the case. 27
The decision convicting Roger Chavez was clearly of the view that the case for the People was built
primarily around the admissions of Chavez himself. The trial court described Chavez as the "star
witness for the prosecution". Indeed, the damaging facts forged in the decision were drawn directly
from the lips of Chavez as a prosecution witness and of course Ricardo Sumilang for the defense.
There are the unequivocal statements in the decision that "even accused Chavez" identified "the
very same Thunderbird that Johnson Lee had offered for sale"; that Chavez "testimony as witness
for the prosecution establishes his guilt beyond reasonable doubt and that Chavez is "a selfconfessed culprit". 1wph1.t
4. With all these, we have no hesitancy in saying that petitioner was forced to testify to incriminate
himself, in full breach of his constitutional right to remain silent. It cannot be said now that he has
waived his right. He did not volunteer to take the stand and in his own defense; he did not offer
himself as a witness; on the contrary, he claimed the right upon being called to testify. If petitioner
nevertheless answered the questions inspite of his fear of being accused of perjury or being put
under contempt, this circumstance cannot be counted against him. His testimony is not of his own
choice. To him it was a case of compelled submission. He was a cowed participant in proceedings
before a judge who possessed the power to put him under contempt had he chosen to remain silent.
Nor could he escape testifying. The court made it abundantly clear that his testimony at least on
direct examination would be taken right then and thereon the first day of the trial.
It matters not that, after all efforts to stave off petitioner's taking the stand became fruitless, no
objections to questions propounded to him were made. Here involve is not a mere question of selfincrimination. It is a defendant's constitutional immunity from being called to testify against himself.
And the objection made at the beginning is a continuing one. 1wph1.t
There is therefore no waiver of the privilege. "To be effective, a waiver must be certain
and unequivocal, andintelligently, understandably, and willingly made; such waiver following only
where liberty of choice has been fully accorded. After a claim a witness cannot properly be held to
have waived his privilege on vague and uncertain evidence." 28 The teaching in Johnson vs.
Zerbst 29 is this: "It has been pointed out that "courts indulge every reasonable presumption against
waiver" of fundamental constitutional rights and that we "do not presume acquiescence in the loss of

fundamental rights." A waiver is ordinarily an intentional relinquishment or abandonment of a known


right or privilege." Renuntiatio non praesumitur.
The foregoing guidelines, juxtaposed with the circumstances of the case heretofore adverted to,
make waiver a shaky defense. It cannot stand. If, by his own admission, defendant proved his guilt,
still, his original claim remains valid. For the privilege, we say again, is a rampart that gives
protection - even to the guilty. 30
5. The course which petitioner takes is correct. Habeas corpus is a high prerogative writ. 31 It is
traditionally considered as an exceptional remedy to release a person whose liberty is illegally
restrained such as when the accused's constitutional rights are disregarded. 32 Such defect results in
the absence or loss of jurisdiction 33 and therefore invalidates the trial and the consequent conviction
of the accused whose fundamental right was violated.34 That void judgment of conviction may be
challenged by collateral attack, which precisely is the function of habeas corpus. 35 This writ may
issue even if another remedy which is less effective may be availed of by the defendant. 36 Thus,
failure by the accused to perfect his appeal before the Court of Appeals does not preclude a
recourse to the writ. 37 The writ may be granted upon a judgment already final. 38 For, as explained
in Johnson vs. Zerbst, 39 the writ of habeas corpus as an extraordinary remedy must be liberally
given effect 40 so as to protect well a person whose liberty is at stake. The propriety of the writ was
given the nod in that case, involving a violation of another constitutional right, in this wise:
Since the Sixth Amendment constitutionally entitles one charged with crime to the assistance
of Counsel, compliance with this constitutional mandate is an essential jurisdictional
prerequisite to a Federal Court's authority. When this right is properly waived, the assistance
of Counsel is no longer a necessary element of the Court's jurisdiction to proceed to
conviction and sentence. If the accused, however, is not represented by Counsel and has
not competently and intelligently waived his constitutional right, the Sixth Amendment stands
as a jurisdictional bar to a valid conviction and sentence depriving him of his liberty. A court's
jurisdiction at the beginning of trial may be lost "in the course of the proceedings" due to
failure to complete the court as the Sixth Amendment requires by providing Counsel for
an accused who is unable to obtain Counsel, who has not intelligently waived this
constitutional guaranty, and whose life or liberty is at stake. If this requirement of the Sixth
Amendment is not complied with, the court no longer has jurisdiction to proceed. The
judgment of conviction pronounced by a court without jurisdiction is void, and oneimprisoned
thereunder may obtain release of habeas corpus. 41
Under our own Rules of Court, to grant the remedy to the accused Roger Chavez whose case
presents a clear picture of disregard of a constitutional right is absolutely proper. Section 1 of Rule
102 extends the writ, unless otherwise expressly provided by law, "to all cases of illegal confinement
or detention by which any person is deprived of his liberty, or by which the rightful custody of any
person is withheld from the person entitled thereto.
Just as we are about to write finis to our task, we are prompted to restate that: "A void judgment is in
legal effect no judgment. By it no rights are divested. From it no rights can be obtained. Being
worthless in itself, all proceedings founded upon it are equally worthless. It neither binds nor bars
any one. All acts performed under it and all claims flowing out of it are void. The parties attempting to
enforce it may be responsible as trespassers. ... " 42
6. Respondents' return 43 shows that petitioner is still serving under a final and valid judgment of
conviction for another offense. We should guard against the improvident issuance of an order
discharging a petitioner from confinement. The position we take here is that petitioner herein is

entitled to liberty thru habeas corpus only with respect to Criminal Case Q-5311 of the Court of First
Instance of Rizal, Quezon City Branch, under which he was prosecuted and convicted.
Upon the view we take of this case, judgment is hereby rendered directing the respondent Warden
of the City Jail of Manila or the Director of Prisons or any other officer or person in custody of
petitioner Roger Chavez by reason of the judgment of the Court of First Instance of Rizal, Quezon
City Branch, in Criminal Case Q-5311, entitled"People of the Philippines, plaintiff, vs. Ricardo
Sumilang, et al., accused," to discharge said Roger Chavez from custody, unless he is held, kept in
custody or detained for any cause or reason other than the said judgment in said Criminal Case Q5311 of the Court of First Instance of Rizal, Quezon City Branch, in which event the discharge herein
directed shall be effected when such other cause or reason ceases to exist.
No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Angeles and Fernando, JJ., concur.
Castro, J., concurs in a separate opinion.

Separate Opinions
CASTRO, J., dissenting :
In 1901, early in the history of constitutional government in this country, this Court reversed the
conviction of an accused who, having pleaded "not guilty," was required by the judge to testify and
answer the complaint. The case was that of United States v. Junio, reported in the first volume of
the Philippine Reports, on page 50 thereof.
Resolution of the case did not require an extended opinion (it consumed no more than a page in
the Reports). For indeed the facts fitted exactly into the prohibition contained in The President's
Instruction to the (Second) Philippine Commission1 "that no person shall ... be compelled in any
criminal case to be a witness against himself.".
There was no need either for a dissertation on the Rights of Man, though occasion for this was not
lacking as the predominant American members of the Court were under a special commission to
prepare the Filipinos for self-government. The privilege against self-incrimination was fully
understood by the Filipinos, whose own history provided the necessary backdrop for this privilege. 2
The Supreme Court simply said, "The judge had no right to compel the accused to make any
statement whatever," and declared the proceedings void.
Nor was there a similar judicial error likely to be committed in the years to come, what with the
constant reminder of a Bill of Rights enshrined in successive organic acts intended for the
Philippines.3 This is not to say that the Philippine history of the privilege ended with the Junio case.
To be sure, violations of the privilege took other, and perhaps subtle, forms4 but not the form directly
prohibited by the privilege. Even in the recent case of Cabal v. Kapunan5 it was assumed as a
familiar learning that the accused in a criminal case cannot be required to give testimony and that if
his testimony is needed at all against his co-accused, he must first be discharged.6 If Cabal, the
respondent in an administrative case, was required by an investigating committee to testify, it was
because it was thought that proceedings for forfeiture of illegally acquired property under Republic

Act 13797 were civil and not criminal in nature. Thus Mr. Justice (now Chief Justice) Concepcion
could confidently say:
At the outset, it is not disputed that the accused in a criminal case may refuse not only to
answer incriminatory questions but also to take the witness stand. (3 Whartons Criminal
Evidence, pp. 1959-1960; 98 C.J.S., p. 264). Hence, the issue before us boils down to
whether or not the proceedings before the aforementioned Committee is civil or criminal in
character.
Today, perhaps because of long separation from our past, we need what Holmes called "education
in the obvious, more than investigation of the obscure."8 The past may have receded so far into the
distance that our perspectives may have been altered and our vision blurred.
When the court in the case at bar required the petitioner to testify, it in effect undid the libertarian
gains made over half a century and overturned the settled law. The past was recreated with all its
vividness and all its horrors: John Lilburne in England in 1637, refusing to testify before the Council
of the Star Chamber and subsequently condemned by it to be whipped and pilloried for his "boldness
in refusing to take a legal oath;"9 the Filipino priests Gomez, Burgos and Zamora in 1872
condemned by the Inquisition to die by their own testimony. 10
It is for this reason that I deem this occasion important for the expression of my views on the larger
question of constitutional dimension.
No doubt the constitutional provision that "No person shall be compelled to be a witness against
himself" 11 may, on occasion, save a guilty man from his just deserts, but it is aimed against a more
far reaching evil recurrence of the Inquisition and the Star Chamber, even if not in their stark
brutality. Prevention of the greater evil was deemed of more importance than occurrence of the
lesser evil. 12 As Dean Griswold put the matter with eloquence:.
[T]he privilege against self-incrimination is one of the great landmarks in man's struggle to
make himself civilized ... [W]e do not make even the most hardened criminal sign his own
death warrant, or dig his own grave, or pull the lever that springs the trap on which he
stands. We have through the course of history developed considerable feeling of the dignity
and intrinsic importance of the individual man. Even the evil man is a human being. 13
The Government must thus establish guilt by evidence independently and freely secured; it can not
by coercion prove a charge against an accused out of his own mouth. 14
This is not what was done here. What was done here was to force the petitioner to take the witness
stand and state his part in the crime charged as "star witness for the prosecution," to use the very
words of the decision, and, by means of his testimony, prove his guilt. Thus, the trial court said in its
decision:
Roger Chavez does not offer any defense. As a matter of fact, his testimony as a witness for
the prosecution establishes his guilt beyond reasonable doubt.
The petitioner has been variously described by the trial court as "a car agent ... well versed in this
kind of chicanery" "a self-confessed culprit," and "a man with at least two convictions for acts not
very different from those charged in [the] information." But if he has thus been described it was on
the basis of evidence wrung from his lips. If he was ultimately found guilty of the charge against him
it was because of evidence which he was forced to give. In truth he was made the "star witness for
the prosecution" against himself.

But neither torture nor an oath nor the threat of punishment such as imprisonment for contempt can
be used to compel him to provide the evidence to convict himself. No matter how evil he is, he is still
a human being.
The fact that the judgment of conviction became final with the dismissal of the appeal to the Court of
Appeals for failure of the petitioner's former counsel to file a brief,15 is of no moment. That judgment
is void, and it is precisely the abiding concern of the writ of habeas corpus to provide redress for
unconstitutional and wrongful convictions. Vindication of due process, it has been well said, is
precisely the historic office of the Great Writ. 16
In many respects, this case is similar to that of Fay v. Noia. 17 Noia was convicted of murder in 1942
with Santo Caminito and Frank Bonino in the County Court of Kings County, New York, in the killing
of one Hemmeroff during the commission of a robbery. The sole evidence against each defendant
was his signed confession. Caminito and Bonino, but not Noia appealed their convictions to the
Appellate Division of the New York Supreme Court. These appeals were unsuccessful but
subsequent legal proceedings resulted in the releases of Caminito and Bonino upon findings that
their confessions had been coerced and their conviction therefore procured in violation of the
Fourteenth Amendment. Although Noia's confession was found to have been coerced, the United
States District Court for the Southern District of New York held that, because of Noia's failure to
appeal, he must be denied reliefin view of the provision of 28 U.S.C. sec. 2254 that "An application
for a writ of habeas corpus in behalf of a person in custody pursuant to the judgment of a State court
shall not be granted unless it appears that the applicant has exhausted the remedies available in the
courts of the State. ..." The Court of Appeals for the Second Circuit reversed the judgment of the
District Court and ordered Noia's conviction set aside, with direction to discharge him from custody
unless given a new trial forthwith. From that judgment the State appealed.
As the Supreme Court of the United States phrased the issue, the "narrow question is whether the
respondent Noia may be granted federal habeas corpus relief from imprisonment under a New York
conviction now admitted by the State to rest upon a confession obtained from him in violation of the
Fourteenth Amendment, after he was denied state post-conviction relief because the coerced
confession claim had been decided against him at the trial and Noia had allowed the time for a direct
appeal to lapse without seeking review by a state appellate court."
In affirming the judgment of the Court of Appeals, the United States Supreme Court, through Mr.
Justice Brennan, spoke in enduring language that may well apply to the case of Roger Chavez. Said
the Court: 1wph1.t
Today as always few indeed is the number of State prisoners who eventually win their
freedom by means of federal habeas corpus. These few who are ultimately successful are
persons whom society has grievously wronged and for whom belated liberation is little
enough compensation. Surely no fair minded person will contend that those who have been
deprived of their liberty without due process of law ought nevertheless to languish in prison.
Noia, no less than his co-defendants Caminito and Bonino, is conceded to have been the
victim of unconstitutional state action. Noia's case stands on its own; but surely no just and
humane legal system can tolerate a result whereby a Caminito and a Bonino are at liberty
because their confessions were found to have been coerced yet Noia, whose confession
was also coerced, remains in jail for life. For such anomalies, such affronts to the conscience
of a civilized society, habeas corpus is predestined by its historical role in the struggle for
personal liberty to be the ultimate remedy. If the States withhold effective remedy, the federal
courts have the power and the duty to provide it. Habeas Corpus is one of the precious
heritages of Anglo-American civilization. We do no more today than confirm its continuing
efficacy.

A fitting conclusion of this separate opinion may perhaps be found in two memorable admonitions
from Marjorie G. Fribourg and Justice William O. Douglas.
Mrs. Fribourg, in her inimitable phrase, warns us that
... Time has taught its age-old lesson. Well-meaning people burnt witches. Well-meaning
prosecutors have convicted the innocent. Well-meaning objectives espoused by those not
grounded in history can lure us from protecting our heritage of equal justice under the law.
They can entice us, faster than we like to believe, into endangering our liberties.18
And these are the unforgettable words of Justice Douglas:
The challenge to our liberties comes frequently not from those who consciously seek to
destroy our system of government, but from men of goodwill - good men who allow their
proper concerns to blind them to the fact that what they propose to accomplish involves an
impairment of liberty.
xxx

xxx

xxx

The motives of these men are often commendable. What we must remember, however, is
that preservation of liberties does not depend on motives. A suppression of liberty has the
same effect whether the suppressor be a reformer or an outlaw. The only protection against
misguided zeal is constant alertness to infractions of the guarantees of liberty contained in
our Constitution. Each surrender of liberty to the demands of the moment makes easier
another, larger surrender. The battle over the Bill of Rights is a never ending
one. 1wph1.t
xxx

xxx

xxx

The liberties of any person are the liberties of all of us.


xxx

xxx

xxx

In short, the liberties of none are safe unless the liberties of all are protected.
But even if we should sense no danger to our own liberties, even if we feel secure because
we belong to a group that is important and respected, we must recognize that our Bill of
Rights is a code of fair play for the less fortunate that we in all honor and good conscience
must observe.19

G.R. No. 163582

August 9, 2010

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, Petitioner,


vs.
RAY BURTON DEVELOPMENT CORPORATION, Respondent.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that
the Decision1of the Court of Appeals (CA) dated December 19, 2003, holding that the Construction
Industry Arbitration Commission (CIAC) had no jurisdiction over the dispute between herein parties,
and the CA Resolution2 dated May 24, 2004, denying herein petitioner's motion for reconsideration,
be reversed and set aside.
The undisputed facts, as accurately narrated in the CA Decision, are as follows.
On July 20, 1995, PETITIONER Ray Burton Development Corporation [herein respondent]
(RBDC for brevity) and PRIVATE RESPONDENT William Golangco Construction Corporation
[herein petitioner] (WGCC) entered into a Contract for the construction of the Elizabeth Place
(Office/Residential Condominium).
On March 18, 2002, private respondent WGCC filed a complaint with a request for arbitration with
the Construction Industry Arbitration Commission (hereinafter referred to as CIAC). In its complaint,
private respondent prayed that CIAC render judgment ordering petitioner to pay private respondent
the amount of, to wit:
1. P24,703,132.44 for the unpaid balance on the contract price;
2. P10,602,670.25 for the unpaid balance on the labor cost adjustment;
3. P9,264,503.70 for the unpaid balance of additive works;
4. P2,865,615.10 for extended overhead expenses;
5. P1,395,364.01 for materials cost adjustment and trade contractors' utilities expenses;
6. P4,835,933.95 for interest charges on unpaid overdue billings on labor cost adjustment
and change orders.
or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred Nineteen and
45/xx (P53,667,219.45) and interest charges based on the prevailing bank rates on the foregoing
amount from March 1, 2002 and until such time as the same shall be fully paid.
On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on the
ground of lack of jurisdiction. It is petitioner's contention that the CIAC acquires jurisdiction over
disputes arising from or connected with construction contracts only when the parties to the contract
agree to submit the same to voluntary arbitration. In the contract between petitioner and private
respondent, petitioner claimed that only disputes by reason of differences in interpretation of the
contract documents shall be deemed subject to arbitration.

Private respondent filed a Comment and Opposition to the aforesaid Motion dated April 15, 2002.
Private respondent averred that the claims set forth in the complaint require contract interpretation
and are thus cognizable by the CIAC pursuant to the arbitration clause in the construction contract
between the parties. Moreover, even assuming that the claims do not involve differing contract
interpretation, they are still cognizable by the CIAC as the arbitration clause mandates their direct
filing therewith.
On May 6, 2002, the CIAC rendered an Order(In favor of respondent) the pertinent portion of
which reads as follows:
The Commission has taken note of the foregoing arguments of the parties. After due deliberations,
the Commission resolved to DENY Respondent's motion on the following grounds:
[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides that "any dispute" arising
under the construction contract shall be submitted to "the Construction Arbitration Authority created
by the Government." Even without this provision, the bare agreement to submit a construction
dispute to arbitration vests in the Commission original and exclusive jurisdiction by virtue of Sec. 4 of
Executive Order No. 1008, whether or not a dispute involves a collection of sum of money or
contract interpretation as long as the same arises from, or in connection with, contracts entered into
by the parties involved. The Supreme Court jurisprudence on Tesco vs. Vera case referred to by
respondent is no longer controlling as the same was based on the old provision of Article III, Sec. 1
of the CIAC Rules which has long been amended.
[2] The issue raised by Respondent in its Motion to Dismiss is similar to the issue set forth in CAG.R. Sp. No. 67367, Continental Cement Corporation vs. CIAC and EEI Corporation, where the
appellate court upheld the ruling of the CIAC thereon that since the parties agreed to submit to
arbitration any dispute, the same does not exclude disputes relating to claims for payment in as
much as the said dispute originates from execution of the works. As such, the subject dispute falls
within the original and exclusive jurisdiction of the CIAC.
WHEREFORE, in view of the foregoing, Respondent's Motion to Dismiss is DENIED for lack of
merit. Respondent is given anew an inextendible period of ten (10) days from receipt hereof within
which to file its Answer and nominees for the Arbitral Tribunal. If Respondent shall fail to comply
within the prescribed period, the Commission shall proceed with arbitration in accordance with its
Rules. x x x
Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order a
suspension of the proceedings in Case No. 13-2002 until the resolution of the negotiations between
the parties, and consequently, that the period to file an Answer be held in abeyance.
Private respondent filed an Opposition to the aforesaid Motion and a Counter-Motion to Declare
respondent to Have Refused to Arbitrate and to Proceed with Arbitration Ex Parte.
On May 24, 2002 the CIAC issued an Order, the pertinent portion of which reads:
In view of the foregoing, Respondent's (petitioner's) Motion to Suspend Proceedings is DENIED.
Accordingly, respondent is hereby given a non-extendible period of five (5) days from receipt thereof
within which to submit its Answer and nominees for the Arbitral Tribunal. In default thereof,
claimant's (private respondent's) Counter-Motion is deemed granted and arbitration shall proceed in
accordance with the CIAC Rules Governing Construction Arbitration.
SO ORDERED. x x x

On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition for Certiorari and
Prohibition with prayer for the issuance of a temporary restraining order and a writ of preliminary
injunction. Petitioner contended that CIAC acted without or in excess of its jurisdiction when it issued
the questioned order despite the clear showing that there is lack of jurisdiction on the issue
submitted by private respondent for arbitration.3
On December 19, 2003, the CA rendered the assailed Decision granting the petition
for certiorari, ruling that the CIAC had no jurisdiction over the subject matter of the case because the
parties agreed that only disputes regarding differences in interpretation of the contract documents
shall be submitted for arbitration, while the allegations in the complaint make out a case for
collection of sum of money. Petitioner moved for reconsideration of said ruling, but the same was
denied in a Resolution dated May 24, 2004.
Hence, this petition where it is alleged that:
I.
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN FAILING TO
DISMISS PRIVATE RESPONDENT RBDC'S PETITION IN CA-G.R. SP NO. 70959 OUTRIGHT IN
VIEW OF RBDC'S FAILURE TO FILE A MOTION FOR RECONSIDERATION OF THE CIAC'S
ORDER, AS WELL AS FOR RBDC'S FAILURE TO ATTACH TO THE PETITION THE RELEVANT
PLEADINGS IN CIAC CASE NO. 13-2002, IN VIOLATION OF THE REQUIREMENT UNDER RULE
65, SECTIONS 1 AND 2, PARAGRAPH 2 THEREOF, AND RULE 46, SECTION 3, PARAGRAPH 2
THEREOF.
II.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC HAS
JURISDICTION OVER WGCC'S CLAIMS, WHICH ARE IN THE NATURE OF ARBITRABLE
DISPUTES COVERED BY CLAUSE 17.1 OF ARTICLE XVII INVOLVING CONTRACT
INTERPRETATION.
xxxx
III.
THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO DISCERN THAT CLAUSE 17.2 OF
ARTICLE XVII CANNOT BE TREATED AS BEING "LIMITED TO DISPUTES ARISING FROM
INTERPRETATION OF THE CONTRACT."
xxxx
IV.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS ESTOPPED
FROM DISPUTING THE JURISDICTION OF THE CIAC.
xxxx
V.

FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN


REFUSING TO PAY HEED TO THE DECLARATION IN EXECUTIVE ORDER NO. 1008 THAT THE
POLICY OF THE STATE IS IN FAVOR OF ARBITRATION OF CONSTRUCTION DISPUTES,
WHICH POLICY HAS BEEN REINFORCED FURTHER BY THE RECENT PASSAGE OF THE
"ALTERNATIVE DISPUTE RESOLUTION ACT OF 2004"(R.A. NO. 9285).4
The petition is meritorious.
The aforementioned issues boil down to (1) whether the CA acted with grave abuse of discretion in
failing to dismiss the petition for certiorari filed by herein respondent, in view of the latter's failure to
file a motion for reconsideration of the assailed CIAC Order and for failure to attach to the petition
the relevant pleadings in CIAC Case No. 13-2002; and (2) whether the CA gravely erred in not
upholding the jurisdiction of the CIAC over the subject complaint.
Petitioner is correct that it was grave error for the CA to have given due course to respondent's
petition forcertiorari despite its failure to attach copies of relevant pleadings in CIAC Case No. 132002. In Tagle v. Equitable PCI Bank,5 the party filing the petition for certiorari before the CA failed to
attach the Motion to Stop Writ of Possession and the Order denying the same. On the ground of
non-compliance with the rules, the CA dismissed said petition for certiorari. When the case was
elevated to this Court via a petition for certiorari, the same was likewise dismissed. In said case, the
Court emphasized the importance of complying with the formal requirements for filing a petition
for certiorari and held as follows:
x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court. Sec. 1 of Rule 65
reads:
SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasijudicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of [its or his] jurisdiction, and there is no appeal, or any plain,
speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such
incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order or resolution
subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn
certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46.
(Emphasis supplied.)
And Sec. 3 of Rule 46 provides:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition
shall contain the full names and actual addresses of all the petitioners and respondents, a concise
statement of the matters involved, the factual background of the case, and the grounds relied upon
for the relief prayed for.
In actions filed under Rule 65, the petition shall further indicate the material dates showing when
notice of the judgment or final order or resolution subject thereof was received, when a motion for
new trial or reconsideration, if any, was filed and when notice of the denial thereof was received.
It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the
respondent with the original copy intended for the court indicated as such by the petitioner and shall

be accompanied by a clearly legible duplicate original or certified true copy of the judgment, order,
resolution, or ruling subject thereof, such material portions of the record as are referred to therein,
and other documents relevant or pertinent thereto. The certification shall be accomplished by the
proper clerk of court or by his duly-authorized representative, or by the proper officer of the court,
tribunal, agency or office involved or by his duly authorized representative. The other requisite
number of copies of the petition shall be accompanied by clearly legible plain copies of all
documents attached to the original.
xxxx
The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient
ground for the dismissal of the petition. (Emphasis supplied.)
The afore-quoted provisions are plain and unmistakable. Failure to comply with the requirement
that the petition be accompanied by a duplicate original or certified true copy of the judgment, order,
resolution or ruling being challenged is sufficient ground for the dismissal of said petition.
Consequently, it cannot be said that the Court of Appeals acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in dismissing the petition x x x for noncompliance with Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court.6
In the present case, herein petitioner (private respondent below) strongly argued against the CA's
granting due course to the petition, pointing out that pertinent pleadings such as
the Complaint before the CIAC, herein respondent's Motion to Dismiss, herein petitioner's Comment
and Opposition (Re: Motion to Dismiss), and theMotion to Suspend Proceedings, have not been
attached to the petition. Herein respondent (petitioner before the CA) argued in its Reply7 before the
CA that it did not deem such pleadings or documents germane to the petition. However, in the CA
Resolution8 dated July 4, 2002, the appellate court itself revealed the necessity of such documents
by ordering the submission of copies of pleadings relevant to the petition. Indeed, such pleadings
are necessary for a judicious resolution of the issues raised in the petition and should have been
attached thereto. As mandated by the rules, the failure to do so is sufficient ground for the dismissal
of the petition. The CA did not give any convincing reason why the rule regarding requirements for
filing a petition should be relaxed in favor of herein respondent. Therefore, it was error for the CA to
have given due course to the petition for certiorari despite herein respondent's failure to comply with
the requirements set forth in Section 1, Rule 65, in relation to Section 3, Rule 46, of the Revised
Rules of Court.
Even on the main issue regarding the CIAC's jurisdiction, the CA erred in ruling that said
arbitration body had no jurisdiction over the complaint filed by herein petitioner. There is no question
that, as provided under Section 4 of Executive Order No. 1008, also known as the "Construction
Industry Arbitration Law," the CIAC has original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines
and all that is needed for the CIAC to acquire jurisdiction is for the parties to agree to submit the
same to voluntary arbitration. Nevertheless, respondent insists that the only disputes it agreed to
submit to voluntary arbitration are those arising from interpretation of contract documents. It argued
that the claims alleged in petitioner's complaint are not disputes arising from interpretation of
contract documents; hence, the CIAC cannot assume jurisdiction over the case.
Respondent's contention is tenuous.
The contract between herein parties contained an arbitration clause which reads as follows:

17.1.1. Any dispute arising in the course of the execution of this Contract by reason of differences in
interpretation of the Contract Documents which the OWNER and the CONTRACTOR are unable to
resolve between themselves, shall be submitted by either party for resolution or decision, x x x to a
Board of Arbitrators composed of three (3) members, to be chosen as follows:
One (1) member each shall be chosen by the OWNER and the CONTRACTOR. The said two (2)
members, in turn, shall select a third member acceptable to both of them. The decision of the Board
of Arbitrators shall be rendered within fifteen (15) days from the first meeting of the Board. The
decision of the Board of Arbitrators when reached through the affirmative vote of at least two (2) of
its members shall be final and binding upon the OWNER and the CONTRACTOR.
17.2 Matters not otherwise provided for in this Contract or by special agreement of the parties shall
be governed by the provisions of the Construction Arbitration Law of the Philippines. As a last resort,
any dispute which is not resolved by the Board of Arbitrators shall be submitted to the Construction
Arbitration Authority created by the government.9
In gist, the foregoing provisions mean that herein parties agreed to submit disputes arising by
reason of differences in interpretation of the contract to a Board of Arbitrators the composition of
which is mutually agreed upon by the parties, and, as a last resort, any other dispute which had not
been resolved by the Board of Arbitrators shall be submitted to the Construction Arbitration Authority
created by the government, which is no other than the CIAC. Moreover, other matters not dealt with
by provisions of the contract or by special agreements shall be governed by provisions of the
Construction Industry Arbitration Law, or Executive Order No. 1008.
The Court finds that petitioner's claims that it is entitled to payment for several items under their
contract, which claims are, in turn, refuted by respondent, involves a "dispute arising from
differences in interpretation of the contract." Verily, the matter of ascertaining the duties and
obligations of the parties under their contract all involve interpretation of the provisions of the
contract. Therefore, if the parties cannot see eye to eye regarding each others obligations, i.e., the
extent of work to be expected from each of the parties and the valuation thereof, this is properly a
dispute arising from differences in the interpretation of the contract.
Note, further, that in respondent's letter10 dated February 14, 2000, it stated that disputed items of
work such as Labor Cost Adjustment and interest charges, retention, processing of payment on Cost
Retained by WGCC, Determination of Cost of Deletion for miscellaneous Finishing Works, are
considered "unresolved dispute[s] as to the proper interpretation of our respective obligations under
the Contract," which should be referred to the Board of Arbitrators. Even if the dispute subject matter
of said letter had been satisfactorily settled by herein parties, the contents of the letter evinces
respondent's frame of mind that the claims being made by petitioner in the complaint subject of this
petition, are indeed matters involving disputes arising from differences in interpretation.
Clearly, the subject matter of petitioner's claims arose from differences in interpretation of the
contract, and under the terms thereof, such disputes are subject to voluntary arbitration. Since,
under Section 4 of Executive Order No. 1008 the CIAC shall have original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines and all that is needed for the CIAC to acquire jurisdiction is for the
parties to agree to submit the same to voluntary arbitration, there can be no other conclusion but
that the CIAC had jurisdiction over petitioner's complaint. Furthermore, Section 1, Article III of
the CIAC Rules of Procedure Governing Construction Arbitration (CIAC Rules) further provide that
"[a]n arbitration clause in a construction contract or a submission to arbitration of a construction
dispute shall be deemed an agreement to submit an existing or future controversy to CIAC
jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such

contract or submission." Thus, even if there is no showing that petitioner previously brought its
claims before a Board of Arbitrators constituted under the terms of the contract, this circumstance
would not divest the CIAC of jurisdiction. In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro
Manila Tollways Corporation,11 the Court held that:
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction contract shall
be deemed as an agreement to submit an existing or future controversy to CIAC jurisdiction,
"notwithstanding the reference to a different arbitration institution or arbitral body in such contract x x
x." Elementary is the rule that when laws or rules are clear, it is incumbent on the court to apply
them. When the law (or rule) is unambiguous and unequivocal, application, not interpretation thereof,
is imperative.1avvphi1
Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC is
sufficient to vest the CIAC with jurisdiction over any construction controversy or claim between the
parties. The arbitration clause in the construction contract ipso facto vested the CIAC with
jurisdiction. This rule applies, regardless of whether the parties specifically choose another forum or
make reference to another arbitral body. Since the jurisdiction of CIAC is conferred by law, it cannot
be subjected to any condition; nor can it be waived or diminished by the stipulation, act or omission
of the parties, as long as the parties agreed to submit their construction contract dispute to
arbitration, or if there is an arbitration clause in the construction contract. The parties will not be
precluded from electing to submit their dispute to CIAC, because this right has been vested in each
party by law.
xxxx
It bears to emphasize that the mere existence of an arbitration clause in the construction
contract is considered by law as an agreement by the parties to submit existing or future
controversies between them to CIAC jurisdiction, without any qualification or condition
precedent. To affirm a condition precedent in the construction contract, which would effectively
suspend the jurisdiction of the CIAC until compliance therewith, would be in conflict with the
recognized intention of the law and rules to automatically vest CIAC with jurisdiction over a dispute
should the construction contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the contribution of the construction industry to
national development goals. Realizing that delays in the resolution of construction industry disputes
would also hold up the development of the country, Executive Order No. 1008 expressly mandates
the CIAC to expeditiously settle construction industry disputes and, for this purpose, vests in the
CIAC original and exclusive jurisdiction over disputes arising from, or connected with, contracts
entered into by the parties involved in construction in the Philippines.12
Thus, there is no question that in this case, the CIAC properly took cognizance of petitioner's
complaint as it had jurisdiction over the same.
IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Court of Appeals,
dated December 19, 2003, and its Resolution dated May 24, 2004 in CA-G.R. SP No. 70959
are REVERSED and SET ASIDE. The Order of the Construction Industry Arbitration Commission
is REINSTATED.
SO ORDERED.

G.R. No. 176657

September 1, 2010

DEPARTMENT OF FOREIGN AFFAIRS and BANGKO SENTRAL NG PILIPINAS, Petitioners,


vs.
HON. FRANCO T. FALCON, IN HIS CAPACITY AS THE PRESIDING JUDGE OF BRANCH 71 OF
THE REGIONAL TRIAL COURT IN PASIG CITY and BCA INTERNATIONAL
CORPORATION, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Certiorari and prohibition under Rule 65 of the Rules of Court with a
prayer for the issuance of a temporary restraining order and/or a writ of preliminary injunction filed by
petitioners Department of Foreign Affairs (DFA) and Bangko Sentral ng Pilipinas (BSP). Petitioners
pray that the Court declare as null and void the Order1 dated February 14, 2007 of respondent Judge
Franco T. Falcon (Judge Falcon) in Civil Case No. 71079, which granted the application for
preliminary injunction filed by respondent BCA International Corporation (BCA). Likewise, petitioners
seek to prevent respondent Judge Falcon from implementing the corresponding Writ of Preliminary
Injunction dated February 23, 20072 issued pursuant to the aforesaid Order.
The facts of this case, as culled from the records, are as follows:
Being a member state of the International Civil Aviation Organization (ICAO),3 the Philippines has to
comply with the commitments and standards set forth in ICAO Document No. 93034 which requires
the ICAO member states to issue machine readable travel documents (MRTDs)5 by April 2010.
Thus, in line with the DFAs mandate to improve the passport and visa issuance system, as well as
the storage and retrieval of its related application records, and pursuant to our governments ICAO
commitments, the DFA secured the approval of the President of the Philippines, as Chairman of the
Board of the National Economic and Development Authority (NEDA), for the implementation of the
Machine Readable Passport and Visa Project (the MRP/V Project) under the Build-Operate-andTransfer (BOT) scheme, provided for by Republic Act No. 6957, as amended by Republic Act No.
7718 (the BOT Law), and its Implementing Rules and Regulations (IRR). Thus, a Pre-qualification,
Bids and Awards Committee (PBAC) published an invitation to pre-qualify and bid for the supply of
the needed machine readable passports and visas, and conducted the public bidding for the MRP/V
Project on January 10, 2000. Several bidders responded and BCA was among those that prequalified and submitted its technical and financial proposals. On June 29, 2000, the PBAC found
BCAs bid to be the sole complying bid; hence, it permitted the DFA to engage in direct negotiations
with BCA. On even date, the PBAC recommended to the DFA Secretary the award of the MRP/V
Project to BCA on a BOT arrangement.
In compliance with the Notice of Award dated September 29, 2000 and Section 11.3, Rule 11 of the
IRR of the BOT Law,6 BCA incorporated a project company, the Philippine Passport Corporation
(PPC) to undertake and implement the MRP/V Project.
On February 8, 2001, a Build-Operate-Transfer Agreement7 (BOT Agreement) between the DFA and
PPC was signed by DFA Acting Secretary Lauro L. Baja, Jr. and PPC President Bonifacio Sumbilla.
Under the BOT Agreement, the MRP/V Project was defined as follows:
Section 1.02 MRP/V Project refers to all the activities and services undertaken in the fulfillment of
the Machine Readable Passport and Visa Project as defined in the Request for Proposals (RFP), a

copy of which is hereto attached as Annex A, including but not limited to project financing, systems
development, installation and maintenance in the Philippines and Foreign Service Posts (FSPs),
training of DFA personnel, provision of all project consumables (related to the production of
passports and visas, such as printer supplies, etc.), scanning of application and citizenship
documents, creation of data bases, issuance of machine readable passports and visas, and site
preparation in the Central Facility and Regional Consular Offices (RCOs) nationwide.8
On April 5, 2002, former DFA Secretary Teofisto T. Guingona and Bonifacio Sumbilla, this time as
BCA President, signed an Amended BOT Agreement9 in order to reflect the change in the
designation of the parties and to harmonize Section 11.3 with Section 11.810 of the IRR of the BOT
Law. The Amended BOT Agreement was entered into by the DFA and BCA with the conformity of
PPC.
The two BOT Agreements (the original version signed on February 8, 2001 and the amended
version signed April 5, 2002) contain substantially the same provisions except for seven additional
paragraphs in the whereas clauses and two new provisions Section 9.05 on Performance and
Warranty Securities and Section 20.15 on Miscellaneous Provisions. The two additional provisions
are quoted below:
Section 9.05. The PPC has posted in favor of the DFA the performance security required for Phase
1 of the MRP/V Project and shall be deemed, for all intents and purposes, to be full compliance by
BCA with the provisions of this Article 9.
xxxx
Section 20.15 It is clearly and expressly understood that BCA may assign, cede and transfer all of
its rights and obligations under this Amended BOT Agreement to PPC, as fully as if PPC is the
original signatory to this Amended BOT Agreement, provided however that BCA shall nonetheless
be jointly and severally liable with PPC for the performance of all the obligations and liabilities under
this Amended BOT Agreement.11
Also modified in the Amended BOT Agreement was the Project Completion date of the MRP/V
Project which set the completion of the implementation phase of the project within 18 to 23 months
from the date of effectivity of the Amended BOT Agreement as opposed to the previous period found
in the original BOT Agreement which set the completion within 18 to 23 months from receipt of the
NTP (Notice to Proceed) in accordance with the Project Master Plan.
On April 12, 2002, an Assignment Agreement12 was executed by BCA and PPC, whereby BCA
assigned and ceded its rights, title, interest and benefits arising from the Amended BOT Agreement
to PPC.
As set out in Article 8 of the original and the Amended BOT Agreement, the MRP/V Project was
divided into six phases:
Phase 1. Project Planning Phase The Project Proponent [BCA] shall prepare detailed plans and
specifications in accordance with Annex A of this [Amended] BOT Agreement within three (3)
months from issuance of the NTP (Notice to Proceed) [from the date of effectivity of this Amended
BOT Agreement]. This phase shall be considered complete upon the review, acceptance and
approval by the DFA of these plans and the resulting Master Plan, including the Master Schedule,
the business process specifications, the acceptance criteria, among other plans.
xxxx

The DFA must approve all detailed plans as a condition precedent to the issuance of the CA
[Certificate of Acceptance] for Phase 1.
Phase 2. Implementation of the MRP/V Project at the Central Facility Within six (6) months
from issuance of the CA for Phase 1, the PROJECT PROPONENT [BCA] shall complete the
implementation of the MRP/V Project in the DFA Central Facility, and establish the network design
between the DFA Central Facility, the ten (10) RCOs [Regional Consular Offices] and the eighty (80)
FSPs [Foreign Service Posts].
xxxx
Phase 3. Implementation of the MRP/V Project at the Regional Consular Offices This phase
represents the replication of the systems as approved from the Central Facility to the RCOs
throughout the country, as identified in the RFP [Request for Proposal]. The approved systems are
those implemented, evaluated, and finally approved by DFA as described in Phase 1. The Project
Proponent [BCA] will be permitted to begin site preparation and the scanning and database building
operations in all offices as soon as the plans are agreed upon and accepted. This includes site
preparation and database building operations in these Phase-3 offices.
Within six (6) months from issuance of CA for Phase 2, the Project Proponent [BCA] shall complete
site preparation and implementation of the approved systems in the ten (10) RCOs, including a fully
functional network connection between all equipment at the Central Facility and the RCOs.
Phase 4. Full Implementation, including all Foreign Service Posts Within three (3) to eight (8)
months from issuance of the CA for Phase-3, the Project Proponent [BCA] shall complete all
preparations and fully implement the approved systems in the eighty (80) FSPs, including a fully
functional network connection between all equipment at the Central Facility and the FSPs. Upon
satisfactory completion of Phase 4, a CA shall be issued by the DFA.
Phase 5. In Service Phase Operation and maintenance of the complete MRP/V Facility to provide
machine readable passports and visas in all designated locations around the world.
Phase 6. Transition/Turnover Transition/Turnover to the DFA of all operations and equipment, to
include an orderly transfer of ownership of all hardware, application system software and its source
code and/or licenses (subject to Section 5.02 [H]), peripherals, leasehold improvements, physical
and computer security improvements, Automated Fingerprint Identification Systems, and all other
MRP/V facilities shall commence at least six (6) months prior to the end of the [Amended] BOT
Agreement. The transition will include the training of DFA personnel who will be taking over the
responsibilities of system operation and maintenance from the Project Proponent [BCA]. The Project
Proponent [BCA] shall bear all costs related to this transfer.13 (Words in brackets appear in the
Amended BOT Agreement)
To place matters in the proper perspective, it should be pointed out that both the DFA and BCA
impute breach of the Amended BOT Agreement against each other.
According to the DFA, delays in the completion of the phases permeated the MRP/V Project due to
the submission of deficient documents as well as intervening issues regarding BCA/PPCs supposed
financial incapacity to fully implement the project.
On the other hand, BCA contends that the DFA failed to perform its reciprocal obligation to issue to
BCA a Certificate of Acceptance of Phase 1 within 14 working days of operation purportedly required
by Section 14.04 of the Amended BOT Agreement. BCA bewailed that it took almost three years for

the DFA to issue the said Certificate allegedly because every appointee to the position of DFA
Secretary wanted to review the award of the project to BCA. BCA further alleged that it was the
DFAs refusal to approve the location of the DFA Central Facility which prevented BCA from
proceeding with Phase 2 of the MRP/V Project.
Later, the DFA sought the opinion of the Department of Finance (DOF) and the Department of
Justice (DOJ) regarding the appropriate legal actions in connection with BCAs alleged delays in the
completion of the MRP/V Project. In a Letter dated February 21, 2005,14 the DOJ opined that the
DFA should issue a final demand upon BCA to make good on its obligations, specifically on the
warranties and responsibilities regarding the necessary capitalization and the required financing to
carry out the MRP/V Project. The DOJ used as basis for said recommendation, the Letter dated April
19, 200415 of DOF Secretary Juanita Amatong to then DFA Secretary Delia Albert stating, among
others, that BCA may not be able to infuse more capital into PPC to use for the completion of the
MRP/V Project.
Thus, on February 22, 2005, DFA sent a letter16 to BCA, through its project company PPC, invoking
BCAs financial warranty under Section 5.02(A) of the Amended BOT Agreement.17 The DFA
required BCA to submit (a) proof of adequate capitalization (i.e., full or substantial payment of stock
subscriptions); (b) a bank guarantee indicating the availability of a credit facility of P700 million; and
(c) audited financial statements for the years 2001 to 2004.
In reply to DFAs letter, BCA, through PPC, informed the former of its position that its financial
capacity was already passed upon during the prequalification process and that the Amended BOT
Agreement did not call for any additional financial requirements for the implementation of the MRP/V
Project. Nonetheless, BCA submitted its financial statements for the years 2001 and 2002 and
requested for additional time within which to comply with the other financial requirements which the
DFA insisted on.18
According to the DFA, BCAs financial warranty is a continuing warranty which requires that it shall
have the necessary capitalization to finance the MRP/V Project in its entirety and not on a "per
phase" basis as BCA contends. Only upon sufficient proof of its financial capability to complete and
implement the whole project will the DFAs obligation to choose and approve the location of its
Central Facility arise. The DFA asserted that its approval of a Central Facility site was not ministerial
and upon its review, BCAs proposed site for the Central Facility was purportedly unacceptable in
terms of security and facilities. Moreover, the DFA allegedly received conflicting official letters and
notices19 from BCA and PPC regarding the true ownership and control of PPC. The DFA implied that
the disputes among the shareholders of PPC and between PPC and BCA appeared to be part of the
reason for the hampered implementation of the MRP/V Project.
BCA, in turn, submitted various letters and documents to prove its financial capability to complete
the MRP/V Project.20 However, the DFA claimed these documents were unsatisfactory or of dubious
authenticity. Then on August 1, 2005, BCA terminated its Assignment Agreement with PPC and
notified the DFA that it would directly implement the MRP/V Project.21 BCA further claims that the
termination of the Assignment Agreement was upon the instance, or with the conformity, of the DFA,
a claim which the DFA disputed.
On December 9, 2005, the DFA sent a Notice of Termination22 to BCA and PPC due to their alleged
failure to submit proof of financial capability to complete the entire MRP/V Project in accordance with
the financial warranty under Section 5.02(A) of the Amended BOT Agreement. The Notice states:
After a careful evaluation and consideration of the matter, including the reasons cited in your letters
dated March 3, May 3, and June 20, 2005, and upon the recommendation of the Office of the

Solicitor General (OSG), the Department is of the view that your continuing default in complying with
the requisite bank guarantee and/or credit facility, despite repeated notice and demand, is legally
unjustified.
In light of the foregoing considerations and upon the instruction of the Secretary of Foreign Affairs,
the Department hereby formally TERMINATE (sic) the Subject Amended BOT Agreement dated 5
April 2005 (sic)23effective 09 December 2005. Further, and as a consequence of this termination, the
Department formally DEMAND (sic) that you pay within ten (10) days from receipt hereof, liquidated
damages equivalent to the corresponding performance security bond that you had posted for the
MRP/V Project.
Please be guided accordingly.
On December 14, 2005, BCA sent a letter24 to the DFA demanding that it immediately reconsider
and revoke its previous notice of termination, otherwise, BCA would be compelled to declare the
DFA in default pursuant to the Amended BOT Agreement. When the DFA failed to respond to said
letter, BCA issued its own Notice of Default dated December 22, 200525 against the DFA, stating that
if the default is not remedied within 90 days, BCA will be constrained to terminate the MRP/V Project
and hold the DFA liable for damages.
BCAs request for mutual discussion under Section 19.01 of the Amended BOT Agreement26 was
purportedly ignored by the DFA and left the dispute unresolved through amicable means within 90
days. Consequently, BCA filed its Request for Arbitration dated April 7, 200627 with the Philippine
Dispute Resolution Center, Inc. (PDRCI), pursuant to Section 19.02 of the Amended BOT
Agreement which provides:
Section 19.02 Failure to Settle Amicably If the Dispute cannot be settled amicably within ninety
(90) days by mutual discussion as contemplated under Section 19.01 herein, the Dispute shall be
settled with finality by an arbitrage tribunal operating under International Law, hereinafter referred to
as the "Tribunal", under the UNCITRAL Arbitration Rules contained in Resolution 31/98 adopted by
the United Nations General Assembly on December 15, 1976, and entitled "Arbitration Rules on the
United Nations Commission on the International Trade Law". The DFA and the BCA undertake to
abide by and implement the arbitration award. The place of arbitration shall be Pasay City,
Philippines, or such other place as may mutually be agreed upon by both parties. The arbitration
proceeding shall be conducted in the English language.28
As alleged in BCAs Request for Arbitration, PDRCI is a non-stock, non-profit organization
composed of independent arbitrators who operate under its own Administrative Guidelines and
Rules of Arbitration as well as under the United Nations Commission on the International Trade Law
(UNCITRAL) Model Law on International Commercial Arbitration and other applicable laws and
rules. According to BCA, PDRCI can act as an arbitration center from whose pool of accredited
arbitrators both the DFA and BCA may select their own nominee to become a member of the arbitral
tribunal which will render the arbitration award.
BCAs Request for Arbitration filed with the PDRCI sought the following reliefs:
1. A judgment nullifying and setting aside the Notice of Termination dated December 9, 2005
of Respondent [DFA], including its demand to Claimant [BCA] to pay liquidated damages
equivalent to the corresponding performance security bond posted by Claimant [BCA];
2. A judgment (a) confirming the Notice of Default dated December 22, 2005 issued by
Claimant [BCA] to Respondent [DFA]; and (b) ordering Respondent [DFA] to perform its

obligation under the Amended BOT Agreement dated April 5, 2002 by approving the site of
the Central Facility at the Star Mall Complex on Shaw Boulevard, Mandaluyong City, within
five days from receipt of the Arbitral Award; and
3. A judgment ordering respondent [DFA] to pay damages to Claimant [BCA], reasonably
estimated atP50,000,000.00 as of this date, representing lost business opportunities;
financing fees, costs and commissions; travel expenses; legal fees and expenses; and costs
of arbitration, including the fees of the arbitrator/s.29
PDRCI, through a letter dated April 26, 2006,30 invited the DFA to submit its Answer to the Request
for Arbitration within 30 days from receipt of said letter and also requested both the DFA and BCA to
nominate their chosen arbitrator within the same period of time.
Initially, the DFA, through a letter dated May 22, 2006,31 requested for an extension of time to file its
answer, "without prejudice to jurisdictional and other defenses and objections available to it under
the law." Subsequently, however, in a letter dated May 29, 2006,32 the DFA declined the request for
arbitration before the PDRCI. While it expressed its willingness to resort to arbitration, the DFA
pointed out that under Section 19.02 of the Amended BOT Agreement, there is no mention of a
specific body or institution that was previously authorized by the parties to settle their dispute. The
DFA further claimed that the arbitration of the dispute should be had before an ad hocarbitration
body, and not before the PDRCI which has as its accredited arbitrators, two of BCAs counsels of
record. Likewise, the DFA insisted that PPC, allegedly an indispensable party in the instant case,
should also participate in the arbitration.
The DFA then sought the opinion of the DOJ on the Notice of Termination dated December 9, 2005
that it sent to BCA with regard to the MRP/V Project.
In DOJ Opinion No. 35 (2006) dated May 31, 2006,33 the DOJ concurred with the steps taken by the
DFA, stating that there was basis in law and in fact for the termination of the MRP/V Project.
Moreover, the DOJ recommended the immediate implementation of the project (presumably by a
different contractor) at the soonest possible time.
Thereafter, the DFA and the BSP entered into a Memorandum of Agreement for the latter to provide
the former passports compliant with international standards. The BSP then solicited bids for the
supply, delivery, installation and commissioning of a system for the production of Electronic Passport
Booklets or e-Passports.34
For BCA, the BSPs invitation to bid for the supply and purchase of e-Passports (the e-Passport
Project) would only further delay the arbitration it requested from the DFA. Moreover, this new ePassport Project by the BSP and the DFA would render BCAs remedies moot inasmuch as the ePassport Project would then be replacing the MRP/V Project which BCA was carrying out for the
DFA.
Thus, BCA filed a Petition for Interim Relief35 under Section 28 of the Alternative Dispute Resolution
Act of 2004 (R.A. No. 9285),36 with the Regional Trial Court (RTC) of Pasig City, Branch 71,
presided over by respondent Judge Falcon. In that RTC petition, BCA prayed for the following:
WHEREFORE, BCA respectfully prays that this Honorable Court, before the constitution of the
arbitral tribunal in PDRCI Case No. 30-2006/BGF, grant petitioner interim relief in the following
manner:

(a) upon filing of this Petition, immediately issue an order temporarily restraining
Respondents [DFA and BSP], their agents, representatives, awardees, suppliers and
assigns (i) from awarding a new contract to implement the Project, or any similar electronic
passport or visa project; or (ii) if such contract has been awarded, from implementing such
Project or similar projects until further orders from this Honorable Court;
(b) after notice and hearing, issue a writ of preliminary injunction ordering Respondents [DFA
and BSP], their agents, representatives, awardees, suppliers and assigns to desist (i) from
awarding a new contract to implement the Project or any similar electronic passport or visa
project; or (ii) if such contract has been awarded, from implementing such Project or similar
projects, and to maintain the status quo ante pending the resolution on the merits of BCAs
Request for Arbitration; and
(c) render judgment affirming the interim relief granted to BCA until the dispute between the
parties shall have been resolved with finality.
BCA also prays for such other relief, just and equitable under the premises.37
BCA alleged, in support for its application for a Temporary Restraining Order (TRO), that unless the
DFA and the BSP were immediately restrained, they would proceed to undertake the project
together with a third party to defeat the reliefs BCA sought in its Request for Arbitration, thus causing
BCA to suffer grave and irreparable injury from the loss of substantial investments in connection with
the implementation of the MRP/V Project.
Thereafter, the DFA filed an Opposition (to the Application for Temporary Restraining Order and/or
Writ of Preliminary Injunction) dated January 18, 2007,38 alleging that BCA has no cause of action
against it as the contract between them is for machine readable passports and visas which is not the
same as the contract it has with the BSP for the supply of electronic passports. The DFA also
pointed out that the Filipino people and the governments international standing would suffer great
damage if a TRO would be issued to stop the e-Passport Project. The DFA mainly anchored its
opposition on Republic Act No. 8975, which prohibits trial courts from issuing a TRO, preliminary
injunction or mandatory injunction against the bidding or awarding of a contract or project of the
national government.
On January 23, 2007, after summarily hearing the parties oral arguments on BCAs application for
the issuance of a TRO, the trial court ordered the issuance of a TRO restraining the DFA and the
BSP, their agents, representatives, awardees, suppliers and assigns from awarding a new contract
to implement the Project or any similar electronic passport or visa project, or if such contract has
been awarded, from implementing such or similar projects.39 The trial court also set for hearing
BCAs application for preliminary injunction.
Consequently, the DFA filed a Motion for Reconsideration40 of the January 23, 2007 Order. The
BSP, in turn, also sought to lift the TRO and to dismiss the petition. In its Urgent Omnibus Motion
dated February 1, 2007,41 the BSP asserted that BCA is not entitled to an injunction, as it does not
have a clear right which ought to be protected, and that the trial court has no jurisdiction to enjoin the
implementation of the e-Passport Project which, the BSP alleged, is a national government project
under Republic Act No. 8975.
In the hearings set for BCAs application for preliminary injunction, BCA presented as witnesses, Mr.
Bonifacio Sumbilla, its President, Mr. Celestino Mercader, Jr. from the Independent Verification and
Validation Contractor commissioned by the DFA under the Amended BOT Agreement, and DFA
Assistant Secretary Domingo Lucenario, Jr. as adverse party witness.

The DFA and the BSP did not present any witness during the hearings for BCAs application for
preliminary injunction. According to the DFA and the BSP, the trial court did not have any jurisdiction
over the case considering that BCA did not pay the correct docket fees and that only the Supreme
Court could issue a TRO on the bidding for a national government project like the e-Passport Project
pursuant to the provisions of Republic Act No. 8975. Under Section 3 of Republic Act No. 8975, the
RTC could only issue a TRO against a national government project if it involves a matter of extreme
urgency involving a constitutional issue, such that unless a TRO is issued, grave injustice and
irreparable injury will arise.
Thereafter, BCA filed an Omnibus Comment [on Opposition and Supplemental Opposition (To the
Application for Temporary Restraining Order and/or Writ of Preliminary Injunction)] and Opposition
[to Motion for Reconsideration (To the Temporary Restraining Order dated January 23, 2007)] and
Urgent Omnibus Motion [(i) To Lift Temporary Restraining Order; and (ii) To Dismiss the Petition]
dated January 31, 2007.42 The DFA and the BSP filed their separate Replies (to BCAs Omnibus
Comment) dated February 9, 200743 and February 13, 2007,44 respectively.
On February 14, 2007, the trial court issued an Order granting BCAs application for preliminary
injunction, to wit:
WHEREFORE, in view of the above, the court resolves that it has jurisdiction over the instant
petition and to issue the provisional remedy prayed for, and therefore, hereby GRANTS petitioners
[BCAs] application for preliminary injunction. Accordingly, upon posting a bond in the amount of Ten
Million Pesos (P10,000,000.00), let a writ of preliminary injunction issue ordering respondents [DFA
and BSP], their agents, representatives, awardees, suppliers and assigns to desist (i) from awarding
a new contract to implement the project or any similar electronic passport or visa project or (ii) if
such contract has been awarded from implementing such project or similar projects.
The motion to dismiss is denied for lack of merit. The motions for reconsideration and to lift
temporary restraining Order are now moot and academic by reason of the expiration of the TRO.45
On February 16, 2007, BCA filed an Amended Petition,46 wherein paragraphs 3.3(b) and 4.3 were
modified to add language to the effect that unless petitioners were enjoined from awarding the ePassport Project, BCA would be deprived of its constitutionally-protected right to perform its
contractual obligations under the original and amended BOT Agreements without due process of
law. Subsequently, on February 26, 2007, the DFA and the BSP received the Writ of Preliminary
Injunction dated February 23, 2007.
Hence, on March 2, 2007, the DFA and the BSP filed the instant Petition for Certiorari47 and
prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction, imputing grave abuse of discretion on the
trial court when it granted interim relief to BCA and issued the assailed Order dated February 14,
2007 and the writ of preliminary injunction dated February 23, 2007.
The DFA and the BSP later filed an Urgent Motion for Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction dated March 5, 2007.48
On March 12, 2007, the Court required BCA to file its comment on the said petition within ten days
from notice and granted the Office of the Solicitor Generals urgent motion for issuance of a TRO
and/or writ of preliminary injunction,49 thus:
After deliberating on the petition for certiorari and prohibition with temporary restraining order and/or
writ of preliminary injunction assailing the Order dated 14 February 2007 of the Regional Trial Court,

Branch 71, Pasig City, in Civil Case No. 71079, the Court, without necessarily giving due course
thereto, resolves to require respondents to COMMENT thereon (not to file a motion to dismiss)
within ten (10) days from notice.
The Court further resolves to GRANT the Office of the Solicitor Generals urgent motion for issuance
of a temporary restraining order and/or writ of preliminary injunction dated 05 March 2007 and
ISSUE a TEMPORARY RESTRAINING ORDER, as prayed for, enjoining respondents from
implementing the assailed Order dated 14 February 2007 and the Writ of Preliminary Injunction
dated 23 February 2007, issued by respondent Judge Franco T. Falcon in Civil Case No. 71079
entitled BCA International Corporation vs. Department of Foreign Affairs and Bangko Sentral ng
Pilipinas, and from conducting further proceedings in said case until further orders from this Court.
BCA filed on April 2, 2007 its Comment with Urgent Motion to Lift TRO,50 to which the DFA and the
BSP filed their Reply dated August 14, 2007.51
In a Resolution dated June 4, 2007,52 the Court denied BCAs motion to lift TRO. BCA filed another
Urgent Omnibus Motion dated August 17, 2007, for the reconsideration of the Resolution dated June
4, 2007, praying that the TRO issued on March 12, 2007 be lifted and that the petition be denied.
In a Resolution dated September 10, 2007,53 the Court denied BCAs Urgent Omnibus Motion and
gave due course to the instant petition. The parties were directed to file their respective memoranda
within 30 days from notice of the Courts September 10, 2007 Resolution.
Petitioners DFA and BSP submit the following issues for our consideration:
Issues
I
Whether or not the respondent judge gravely abused his discretion amounting to lack or excess of
jurisdiction when he issued the assailed order, which effectively enjoined the implementation of the
e-passport project -- A national government project under Republic Act No. 8975.
II
Whether or not the respondent judge acted with grave abuse of discretion amounting to lack or
excess of jurisdiction in granting respondent BCAs "interim relief" inasmuch as:
(I) Respondent BCA has not established a clear right that can be protected by an injunction;
and
(II) Respondent BCA has not shown that it will sustain grave and irreparable injury that must
be protected by an injunction. On the contrary, it is the Filipino people, who petitioners
protect, that will sustain serious and severe injury by the injunction.54
At the outset, we dispose of the procedural objections of BCA to the petition, to wit: (a) petitioners
did not follow the hierarchy of courts by filing their petition directly with this Court, without filing a
motion for reconsideration with the RTC and without filing a petition first with the Court of Appeals;
(b) the person who verified the petition for the DFA did not have personal knowledge of the facts of
the case and whose appointment to his position was highly irregular; and (c) the verification by the

Assistant Governor and General Counsel of the BSP of only selected paragraphs of the petition was
with the purported intent to mislead this Court.
Although the direct filing of petitions for certiorari with the Supreme Court is discouraged when
litigants may still resort to remedies with the lower courts, we have in the past overlooked the failure
of a party to strictly adhere to the hierarchy of courts on highly meritorious grounds. Most recently,
we relaxed the rule on court hierarchy in the case of Roque, Jr. v. Commission on
Elections,55 wherein we held:
The policy on the hierarchy of courts, which petitioners indeed failed to observe, is not an iron-clad
rule. For indeed the Court has full discretionary power to take cognizance and assume jurisdiction of
special civil actions forcertiorari and mandamus filed directly with it for exceptionally compelling
reasons or if warranted by the nature of the issues clearly and specifically raised in the
petition.56 (Emphases ours.)
The Court deems it proper to adopt a similarly liberal attitude in the present case in consideration of
the transcendental importance of an issue raised herein. This is the first time that the Court is
confronted with the question of whether an information and communication technology project, which
does not conform to our traditional notion of the term "infrastructure," is covered by the prohibition on
the issuance of court injunctions found in Republic Act No. 8975, which is entitled "An Act to Ensure
the Expeditious Implementation and Completion of Government Infrastructure Projects by Prohibiting
Lower Courts from Issuing Temporary Restraining Orders, Preliminary Injunctions or Preliminary
Mandatory Injunctions, Providing Penalties for Violations Thereof, and for Other Purposes." Taking
into account the current trend of computerization and modernization of administrative and service
systems of government offices, departments and agencies, the resolution of this issue for the
guidance of the bench and bar, as well as the general public, is both timely and imperative.
Anent BCAs claim that Mr. Edsel T. Custodio (who verified the Petition on behalf of the DFA) did not
have personal knowledge of the facts of the case and was appointed to his position as Acting
Secretary under purportedly irregular circumstances, we find that BCA failed to sufficiently prove
such allegations. In any event, we have previously held that "[d]epending on the nature of the
allegations in the petition, the verification may be based either purely on personal knowledge, or
entirely on authentic records, or on both sources."57 The alleged lack of personal knowledge of Mr.
Custodio (which, as we already stated, BCA failed to prove) would not necessarily render the
verification defective for he could have verified the petition purely on the basis of authentic records.
As for the assertion that the partial verification of Assistant Governor and General Counsel Juan de
Zuniga, Jr. was for the purpose of misleading this Court, BCA likewise failed to adduce evidence on
this point. Good faith is always presumed. Paragraph 3 of Mr. Zunigas verification indicates that his
partial verification is due to the fact that he is verifying only the allegations in the petition peculiar to
the BSP. We see no reason to doubt that this is the true reason for his partial or selective
verification.
In sum, BCA failed to successfully rebut the presumption that the official acts (of Mr. Custodio and
Mr. Zuniga) were done in good faith and in the regular performance of official duty.58 Even assuming
the verifications of the petition suffered from some defect, we have time and again ruled that "[t]he
ends of justice are better served when cases are determined on the merits after all parties are
given full opportunity to ventilate their causes and defenses rather than on technicality or some
procedural imperfections."59 In other words, the Court may suspend or even disregard rules when
the demands of justice so require.60
We now come to the substantive issues involved in this case.

On whether the trial court had jurisdiction to issue a writ of preliminary injunction in the present case
In their petition, the DFA and the BSP argue that respondent Judge Falcon gravely abused his
discretion amounting to lack or excess of jurisdiction when he issued the assailed orders, which
effectively enjoined the bidding and/or implementation of the e-Passport Project. According to
petitioners, this violated the clear prohibition under Republic Act No. 8975 regarding the issuance of
TROs and preliminary injunctions against national government projects, such as the e-Passport
Project.
The prohibition invoked by petitioners is found in Section 3 of Republic Act No. 8975, which reads:
Section 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and
Preliminary Mandatory Injunctions. No court, except the Supreme Court, shall issue any temporary
restraining order, preliminary injunction or preliminary mandatory injunction against the government,
or any of its subdivisions, officials or any person or entity, whether public or private, acting under the
governments direction, to restrain, prohibit or compel the following acts:
(a) Acquisition, clearance and development of the right-of-way and/or site or location of any
national government project;
(b) Bidding or awarding of contract/project of the national government as defined under
Section 2 hereof;
(c) Commencement, prosecution, execution, implementation, operation of any such contract
or project;
(d) Termination or rescission of any such contract/project; and
(e) The undertaking or authorization of any other lawful activity necessary for such
contract/project.
This prohibition shall apply in all cases, disputes or controversies instituted by a private party,
including but not limited to cases filed by bidders or those claiming to have rights through such
bidders involving such contract/project. This prohibition shall not apply when the matter is of extreme
urgency involving a constitutional issue, such that unless a temporary restraining order is issued,
grave injustice and irreparable injury will arise. The applicant shall file a bond, in an amount to be
fixed by the court, which bond shall accrue in favor of the government if the court should finally
decide that the applicant was not entitled to the relief sought.
If after due hearing the court finds that the award of the contract is null and void, the court may, if
appropriate under the circumstances, award the contract to the qualified and winning bidder or order
a rebidding of the same, without prejudice to any liability that the guilty party may incur under
existing laws.
From the foregoing, it is indubitable that no court, aside from the Supreme Court, may enjoin a
"national government project" unless the matter is one of extreme urgency involving a constitutional
issue such that unless the act complained of is enjoined, grave injustice or irreparable injury would
arise.
What then are the "national government projects" over which the lower courts are without jurisdiction
to issue the injunctive relief as mandated by Republic Act No. 8975?

Section 2(a) of Republic Act No. 8975 provides:


Section 2. Definition of Terms.
(a) "National government projects" shall refer to all current and future national government
infrastructure, engineering works and service contracts, including projects undertaken by
government-owned and -controlled corporations, all projects covered by Republic Act No. 6975, as
amended by Republic Act No. 7718, otherwise known as the Build-Operate-and-Transfer Law, and
other related and necessary activities, such as site acquisition, supply and/or installation of
equipment and materials, implementation, construction, completion, operation, maintenance,
improvement, repair and rehabilitation, regardless of the source of funding.
As petitioners themselves pointed out, there are three types of national government projects
enumerated in Section 2(a), to wit:
(a) current and future national government infrastructure projects, engineering works and
service contracts, including projects undertaken by government-owned and controlled
corporations;
(b) all projects covered by R.A. No. 6975, as amended by R.A. No. 7718, or the BuildOperate-and-Transfer ( BOT) Law; and
(c) other related and necessary activities, such as site acquisition, supply and/or installation
of equipment and materials, implementation, construction, completion, operation,
maintenance, improvement repair and rehabilitation, regardless of the source of funding.
Under Section 2(a) of the BOT Law as amended by Republic Act No. 7718,61 private sector
infrastructure or development projects are those normally financed and operated by the public sector
but which will now be wholly or partly implemented by the private sector, including but not limited
to, power plants, highways, ports, airports, canals, dams, hydropower projects, water supply,
irrigation, telecommunications, railroads and railways, transport systems, land reclamation projects,
industrial estates or townships, housing, government buildings, tourism projects, markets,
slaughterhouses, warehouses, solid waste management, information technologynetworks and
database infrastructure, education and health facilities, sewerage, drainage, dredging, and other
infrastructure and development projects as may be authorized by the appropriate agency.
In contrast, Republic Act No. 9184,62 also known as the Government Procurement Reform Act,
defines infrastructure projects in Section 5(k) thereof in this manner:
(k) Infrastructure Projects - include the construction, improvement, rehabilitation, demolition, repair,
restoration or maintenance of roads and bridges, railways, airports, seaports, communication
facilities, civil works components of information technology projects, irrigation, flood control and
drainage, water supply, sanitation, sewerage and solid waste management systems, shore
protection, energy/power and electrification facilities, national buildings, school buildings, hospital
buildings and other related construction projects of the government. (Emphasis supplied.)
In the present petition, the DFA and the BSP contend that the bidding for the supply, delivery,
installation and commissioning of a system for the production of Electronic Passport Booklets, is a
national government project within the definition of Section 2 of Republic Act No. 8975. Petitioners
also point to the Senate deliberations on Senate Bill No. 203863 (later Republic Act No. 8975) which
allegedly show the legislatives intent to expand the scope and definition of national government
projects to cover not only the infrastructure projects enumerated in Presidential Decree No. 1818,

but also future projects that may likewise be considered national government infrastructure projects,
like the e-Passport Project, to wit:
Senator Cayetano. x x x Mr. President, the present bill, the Senate Bill No. 2038, is actually an
improvement of P.D. No. 1818 and definitely not a repudiation of what I have earlier said, as my
good friend clearly stated. But this is really an effort to improve both the scope and definition of the
term "government projects" and to ensure that lower court judges obey and observe this prohibition
on the issuance of TROs on infrastructure projects of the government.
xxxx
Senator Cayetano. That is why, Mr. President, I did try to explain why I would accept the proposed
amendment, meaning the totality of the repeal of P.D. 1818 which is not found in the original version
of the bill, because of my earlier explanation that the definition of the term government infrastructure
project covers all of those enumerated in Section 1 of P.D. No. 1818. And the reason for that, as we
know, is we do not know what else could be considered government infrastructure project in the next
10 or 20 years.
x x x So, using the Latin maxim of expression unius est exclusion alterius, which means what is
expressly mentioned is tantamount to an express exclusion of the others, that is the reason we did
not include particularly an enumeration of certain activities of the government found in Section 1 of
P.D. No. 1818. Because to do that, it may be a good excuse for a brilliant lawyer to say Well, you
know, since it does not cover this particular activity, ergo, the Regional Trial Court may issue TRO.
Using the foregoing discussions to establish that the intent of the framers of the law was to broaden
the scope and definition of national government projects and national infrastructure projects, the
DFA and the BSP submit that the said scope and definition had since evolved to include the ePassport Project. They assert that the concept of "infrastructure" must now refer to any and all
elements that provide support, framework, or structure for a given system or organization, including
information technology, such as the e-Passport Project.
Interestingly, petitioners represented to the trial court that the e-Passport Project is a BOT project
but in their petition with this Court, petitioners simply claim that the e-Passport Project is a national
government project under Section 2 of Republic Act No. 8975. This circumstance is significant, since
relying on the claim that the e-Passport Project is a BOT project, the trial court ruled in this wise:
The prohibition against issuance of TRO and/or writ of preliminary injunction under RA 8975 applies
only to national government infrastructure project covered by the BOT Law, (RA 8975, Sec 3[b] in
relation to Sec. 2).
The national government projects covered under the BOT are enumerated under Sec. 2 of RA6957,
as amended, otherwise known as the BOT Law. Notably, it includes "information technology
networks and database infrastructure."
In relation to information technology projects, infrastructure projects refer to the "civil works
components" thereof. (R.A. No. 9184 [2003], Sec. 5[c]{sic}).64
Respondent BSPs request for bid, for the supply, delivery, installation and commissioning of a
system for the production of Electronic Passport Booklets appears to be beyond the scope of the
term "civil works." Respondents did not present evidence to prove otherwise.65 (Emphases ours.)

From the foregoing, it can be gleaned that the trial court accepted BCAs reasoning that, assuming
the e-Passport Project is a project under the BOT Law, Section 2 of the BOT Law must be read in
conjunction with Section 5(c) of Republic Act No. 9184 or the Government Procurement Reform Act
to the effect that only the civil works component of information technology projects are to be
considered "infrastructure." Thus, only said civil works component of an information technology
project cannot be the subject of a TRO or writ of injunction issued by a lower court.
Although the Court finds that the trial court had jurisdiction to issue the writ of preliminary injunction,
we cannot uphold the theory of BCA and the trial court that the definition of the term "infrastructure
project" in Republic Act No. 9184 should be applied to the BOT Law.
Section 5 of Republic Act No. 9184 prefaces the definition of the terms therein, including the term
"infrastructure project," with the following phrase: "For purposes of this Act, the following terms or
words and phrases shall mean or be understood as follows x x x."
This Court has stated that the definition of a term in a statute is not conclusive as to the meaning of
the same term as used elsewhere.66 This is evident when the legislative definition is expressly made
for the purposes of the statute containing such definition.67
There is no legal or rational basis to apply the definition of the term "infrastructure project" in one
statute to another statute enacted years before and which already defined the types of projects it
covers. Rather, a reading of the two statutes involved will readily show that there is a legislative
intent to treat information technology projects differently under the BOT Law and the Government
Procurement Reform Act.
In the BOT Law as amended by Republic Act No. 7718, the national infrastructure and development
projects covered by said law are enumerated in Section 2(a) as follows:
SEC. 2. Definition of Terms. - The following terms used in this Act shall have the meanings stated
below:
(a) Private sector infrastructure or development projects - The general description of infrastructure or
development projects normally financed and operated by the public sector but which will now be
wholly or partly implemented by the private sector, including but not limited to, power plants,
highways, ports, airports, canals, dams, hydropower projects, water supply, irrigation,
telecommunications, railroads and railways, transport systems, land reclamation projects, industrial
estates of townships, housing, government buildings, tourism projects, markets, slaughterhouses,
warehouses, solid waste management, information technology networks and database
infrastructure, education and health facilities, sewerage, drainage, dredging, and other infrastructure
and development projects as may be authorized by the appropriate agency pursuant to this Act.
Such projects shall be undertaken through contractual arrangements as defined hereunder and such
other variations as may be approved by the President of the Philippines.
For the construction stage of these infrastructure projects, the project proponent may obtain
financing from foreign and/or domestic sources and/or engage the services of a foreign and/or
Filipino contractor: Provided, That, in case an infrastructure or a development facility's operation
requires a public utility franchise, the facility operator must be a Filipino or if a corporation, it must be
duly registered with the Securities and Exchange Commission and owned up to at least sixty percent
(60%) by Filipinos: Provided, further, That in the case of foreign contractors, Filipino labor shall be
employed or hired in the different phases of construction where Filipino skills are available: Provided,
finally, That projects which would have difficulty in sourcing funds may be financed partly from direct
government appropriations and/or from Official Development Assistance (ODA) of foreign

governments or institutions not exceeding fifty percent (50%) of the project cost, and the balance to
be provided by the project proponent. (Emphasis supplied.)
A similar provision appears in the Revised IRR of the BOT Law as amended, to wit:
SECTION 1.3 - DEFINITION OF TERMS
For purposes of these Implementing Rules and Regulations, the terms and phrases hereunder shall
be understood as follows:
xxxx
v. Private Sector Infrastructure or Development Projects - The general description of
infrastructure or Development Projects normally financed, and operated by the public sector but
which will now be wholly or partly financed, constructed and operated by the private sector, including
but not limited to, power plants, highways, ports, airports, canals, dams, hydropower projects, water
supply, irrigation, telecommunications, railroad and railways, transport systems, land reclamation
projects, industrial estates or townships, housing, government buildings, tourism projects, public
markets, slaughterhouses, warehouses, solid waste management, information technology networks
and database infrastructure, education and health facilities, sewerage, drainage, dredging, and other
infrastructure and development projects as may otherwise be authorized by the appropriate
Agency/LGU pursuant to the Act or these Revised IRR. Such projects shall be undertaken through
Contractual Arrangements as defined herein, including such other variations as may be approved by
the President of the Philippines.
xxxx
SECTION 2.2 - ELIGIBLE TYPES OF PROJECTS
The Construction, rehabilitation, improvement, betterment, expansion, modernization, operation,
financing and maintenance of the following types of projects which are normally financed and
operated by the public sector which will now be wholly or partly financed, constructed and operated
by the private sector, including other infrastructure and development projects as may be authorized
by the appropriate agencies, may be proposed under the provisions of the Act and these Revised
IRR, provided however that such projects have a cost recovery component which covers at least
50% of the Project Cost, or as determined by the Approving Body:
xxxx
h. Information technology (IT) and data base infrastructure, including modernization of IT, geospatial resource mapping and cadastral survey for resource accounting and planning. (Underscoring
supplied.)
Undeniably, under the BOT Law, wherein the projects are to be privately funded, the entire
information technology project, including the civil works component and the technological aspect
thereof, is considered an infrastructure or development project and treated similarly as traditional
"infrastructure" projects. All the rules applicable to traditional infrastructure projects are also
applicable to information technology projects. In fact, the MRP/V Project awarded to BCA under the
BOT Law appears to include both civil works (i.e., site preparation of the Central Facility, regional
DFA offices and foreign service posts) and non-civil works aspects (i.e., development, installation
and maintenance in the Philippines and foreign service posts of a computerized passport and visa

issuance system, including creation of databases, storage and retrieval systems, training of
personnel and provision of consumables).
In contrast, under Republic Act No. 9184 or the Government Procurement Reform Act, which
contemplates projects to be funded by public funds, the term "infrastructure project" was limited to
only the "civil works component" of information technology projects. The non-civil works component
of information technology projects would be treated as an acquisition of goods or consulting services
as the case may be.
This limited definition of "infrastructure project" in relation to information technology projects under
Republic Act No. 9184 is significant since the IRR of Republic Act No. 9184 has some provisions
that are particular to infrastructure projects and other provisions that are applicable only to
procurement of goods or consulting services.68
Implicitly, the civil works component of information technology projects are subject to the provisions
on infrastructure projects while the technological and other components would be covered by the
provisions on procurement of goods or consulting services as the circumstances may warrant.
When Congress adopted a limited definition of what is to be considered "infrastructure" in relation to
information technology projects under the Government Procurement Reform Act, legislators are
presumed to have taken into account previous laws concerning infrastructure projects (the BOT Law
and Republic Act No. 8975) and deliberately adopted the limited definition. We can further presume
that Congress had written into law a different treatment for information technology projects financed
by public funds vis-a-vis privately funded projects for a valid legislative purpose.
The idea that the definitions of terms found in the Government Procurement Reform Act were not
meant to be applied to projects under the BOT Law is further reinforced by the following provision in
the IRR of the Government Procurement Reform Act:
Section 1. Purpose and General Coverage
This Implementing Rules and Regulations (IRR) Part A, hereinafter called "IRR-A," is promulgated
pursuant to Section 75 of Republic Act No. 9184 (R.A. 9184), otherwise known as the "Government
Procurement Reform Act" (GPRA), for the purpose of prescribing the necessary rules and
regulations for the modernization, standardization, and regulation of the procurement activities of the
government. This IRR-A shall cover all fully domestically-funded procurement activities from
procurement planning up to contract implementation and termination, except for the following:
a) Acquisition of real property which shall be governed by Republic Act No. 8974 (R.A.
8974), entitled "An Act to Facilitate the Acquisition of Right-of-Way Site or Location for
National Government Infrastructure Projects and for Other Purposes," and other applicable
laws; and
b) Private sector infrastructure or development projects and other procurement covered by
Republic Act No. 7718 (R.A. 7718), entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other
Purposes," as amended: Provided, however, That for the portions financed by the
Government, the provisions of this IRR-A shall apply.
The IRR-B for foreign-funded procurement activities shall be the subject of a subsequent issuance.
(Emphases supplied.)

The foregoing provision in the IRR can be taken as an administrative interpretation that the
provisions of Republic Act No. 9184 are inapplicable to a BOT project except only insofar as such
portions of the BOT project that are financed by the government.
Taking into account the different treatment of information technology projects under the BOT Law
and the Government Procurement Reform Act, petitioners contention the trial court had no
jurisdiction to issue a writ of preliminary injunction in the instant case would have been correct if the
e-Passport Project was a project under the BOT Law as they represented to the trial court.
However, petitioners presented no proof that the e-Passport Project was a BOT project. On the
contrary, evidence adduced by both sides tended to show that the e-Passport Project was a
procurement contract under Republic Act No. 9184.
The BSPs on-line request for expression of interest and to bid for the e-Passport Project69 from the
BSP website and the newspaper clipping70 of the same request expressly stated that "[t]he two stage
bidding procedure under Section 30.4 of the Implementing Rules and Regulation (sic) Part-A of
Republic Act No. 9184 relative to the bidding and award of the contract shall apply." During the
testimony of DFA Assistant Secretary Domingo Lucenario, Jr. before the trial court, he admitted that
the e-Passport Project is a BSP procurement project and that it is the "BSP that will pay the
suppliers."71 In petitioners Manifestation dated July 29, 200872 and the Erratum73thereto, petitioners
informed the Court that a contract "for the supply of a complete package of systems design,
technology, hardware, software, and peripherals, maintenance and technical support, ecovers and
datapage security laminates for the centralized production and personalization of Machine Readable
Electronic Passport" was awarded to Francois Charles Oberthur Fiduciaire. In the Notice of Award
dated July 2, 200874 attached to petitioners pleading, it was stated that the failure of the
contractor/supplier to submit the required performance bond would be sufficient ground for the
imposition of administrative penalty under Section 69 of the IRR-A of Republic Act No. 9184.
Being a government procurement contract under Republic Act No. 9184, only the civil works
component of the e-Passport Project would be considered an infrastructure project that may not be
the subject of a lower court-issued writ of injunction under Republic Act No. 8975.
Could the e-Passport Project be considered as "engineering works or a service contract" or as
"related and necessary activities" under Republic Act No. 8975 which may not be enjoined?
We hold in the negative. Under Republic Act No. 8975, a "service contract" refers to "infrastructure
contracts entered into by any department, office or agency of the national government with private
entities and nongovernment organizations for services related or incidental to the functions and
operations of the department, office or agency concerned." On the other hand, the phrase "other
related and necessary activities" obviously refers to activities related to a government infrastructure,
engineering works, service contract or project under the BOT Law. In other words, to be considered
a service contract or related activity, petitioners must show that the e-Passport Project is an
infrastructure project or necessarily related to an infrastructure project. This, petitioners failed to do
for they saw fit not to present any evidence on the details of the e-Passport Project before the trial
court and this Court. There is nothing on record to indicate that the e-Passport Project has a civil
works component or is necessarily related to an infrastructure project.
Indeed, the reference to Section 30.475 of the IRR of Republic Act No. 9184 (a provision specific to
the procurement of goods) in the BSPs request for interest and to bid confirms that the e-Passport
Project is a procurement of goods and not an infrastructure project. Thus, within the context of
Republic Act No. 9184 which is the governing law for the e-Passport Project the said Project is
not an infrastructure project that is protected from lower court issued injunctions under Republic Act

No. 8975, which, to reiterate, has for its purpose the expeditious and efficient implementation and
completion of government infrastructure projects.
We note that under Section 28, Republic Act No. 9285 or the Alternative Dispute Resolution Act of
2004,76 the grant of an interim measure of protection by the proper court before the constitution of an
arbitral tribunal is allowed:
Sec. 28. Grant of Interim Measure of Protection. (a) It is not incompatible with an arbitration
agreement for a party to request, before constitution of the tribunal, from a Court an interim measure
of protection and for the Court to grant such measure. After constitution of the arbitral tribunal and
during arbitral proceedings, a request for an interim measure of protection, or modification thereof,
may be made with the arbitral tribunal or to the extent that the arbitral tribunal has no power to act or
is unable to act effectively, the request may be made with the Court. The arbitral tribunal is deemed
constituted when the sole arbitrator or the third arbitrator, who has been nominated, has accepted
the nomination and written communication of said nomination and acceptance has been received by
the party making the request.
(a) The following rules on interim or provisional relief shall be observed:
(1) Any party may request that provisional relief be granted against the adverse party.
(2) Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(3) The order granting provisional relief may be conditioned upon the provision of security or
any act or omission specified in the order.
(4) Interim or provisional relief is requested by written application transmitted by reasonable
means to the Court or arbitral tribunal as the case may be and the party against whom the
relief is sought, describing in appropriate detail the precise relief, the party against whom the
relief is requested, the grounds for the relief, and the evidence supporting the request.
(5) The order shall be binding upon the parties.
(6) Either party may apply with the Court for assistance in implementing or enforcing an
interim measure ordered by an arbitral tribunal.
(7) A party who does not comply with the order shall be liable for all damages resulting from
noncompliance, including all expenses and reasonable attorneys fees, paid in obtaining the
orders judicial enforcement.
Section 3(h) of the same statute provides that the "Court" as referred to in Article 6 of the Model Law
shall mean a Regional Trial Court.

Republic Act No. 9285 is a general law applicable to all matters and controversies to be resolved
through alternative dispute resolution methods. This law allows a Regional Trial Court to grant
interim or provisional relief, including preliminary injunction, to parties in an arbitration case prior to
the constitution of the arbitral tribunal. This general statute, however, must give way to a special law
governing national government projects, Republic Act No. 8975 which prohibits courts, except the
Supreme Court, from issuing TROs and writs of preliminary injunction in cases involving national
government projects.
However, as discussed above, the prohibition in Republic Act No. 8975 is inoperative in this case,
since petitioners failed to prove that the e-Passport Project is national government project as defined
therein. Thus, the trial court had jurisdiction to issue a writ of preliminary injunction against the ePassport Project.
On whether the trial courts issuance of a writ of injunction was proper
Given the above ruling that the trial court had jurisdiction to issue a writ of injunction and going to the
second issue raised by petitioners, we answer the question: Was the trial courts issuance of a writ
of injunction warranted under the circumstances of this case?
Petitioners attack on the propriety of the trial courts issuance of a writ of injunction is two-pronged:
(a) BCA purportedly has no clear right to the injunctive relief sought; and (b) BCA will suffer no grave
and irreparable injury even if the injunctive relief were not granted.
To support their claim that BCA has no clear right to injunctive relief, petitioners mainly allege that
the MRP/V Project and the e-Passport Project are not the same project. Moreover, the MRP/V
Project purportedly involves a technology (the 2D optical bar code) that has been rendered obsolete
by the latest ICAO developments while the e-Passport Project will comply with the latest ICAO
standards (the contactless integrated circuit). Parenthetically, and not as a main argument,
petitioners imply that BCA has no clear contractual right under the Amended BOT Agreement since
BCA had previously assigned all its rights and obligations under the said Agreement to PPC.
BCA, on the other hand, claims that the Amended BOT Agreement also contemplated the supply
and/or delivery of e-Passports with the integrated circuit technology in the future and not only the
machine readable passport with the 2D optical bar code technology. Also, it is BCAs assertion that
the integrated circuit technology is only optional under the ICAO issuances. On the matter of its
assignment of its rights to PPC, BCA counters that it had already terminated (purportedly at DFAs
request) the assignment agreement in favor of PPC and that even assuming the termination was not
valid, the Amended BOT Agreement expressly stated that BCA shall remain solidarily liable with its
assignee, PPC.
Most of these factual allegations and counter-allegations already touch upon the merits of the main
controversy between the DFA and BCA, i.e., the validity and propriety of the termination of the
Amended BOT Agreement (the MRP/V Project) between the DFA and BCA. The Court deems it best
to refrain from ruling on these matters since they should be litigated in the appropriate arbitration or
court proceedings between or among the concerned parties.
One preliminary point, however, that must be settled here is whether BCA retains a right to seek
relief against the DFA under the Amended BOT Agreement in view of BCAs previous assignment of
its rights to PPC. Without preempting any factual finding that the appropriate court or arbitral tribunal
on the matter of the validity of the assignment agreement with PPC or its termination, we agree with
BCA that it remained a party to the Amended BOT Agreement, notwithstanding the execution of the
assignment agreement in favor of PPC, for it was stipulated in the Amended BOT Agreement that

BCA would be solidarily liable with its assignee. For convenient reference, we reproduce the relevant
provision of the Amended BOT Agreement here:
Section 20.15. It is clearly and expressly understood that BCA may assign, cede and transfer all of
its rights and obligations under this Amended BOT Agreement to PPC [Philippine Passport
Corporation], as fully as if PPC is the original signatory to this Amended BOT Agreement, provided
however that BCA shall nonetheless be jointly and severally liable with PPC for the
performance of all the obligations and liabilities under this Amended BOT
Agreement. (Emphasis supplied.)
Furthermore, a review of the records shows that the DFA continued to address its correspondence
regarding the MRP/V Project to both BCA and PPC, even after the execution of the assignment
agreement. Indeed, the DFAs Notice of Termination dated December 9, 2005 was addressed to Mr.
Bonifacio Sumbilla as President of both BCA and PPC and referred to the Amended BOT
Agreement "executed between the Department of Foreign Affairs (DFA), on one hand, and the BCA
International Corporation and/or the Philippine Passport Corporation (BCA/PPC)." At the very least,
the DFA is estopped from questioning the personality of BCA to bring suit in relation to the Amended
BOT Agreement since the DFA continued to deal with both BCA and PPC even after the signing of
the assignment agreement. In any event, if the DFA truly believes that PPC is an indispensable party
to the action, the DFA may take necessary steps to implead PPC but this should not prejudice the
right of BCA to file suit or to seek relief for causes of action it may have against the DFA or the BSP,
for undertaking the e-Passport Project on behalf of the DFA.
With respect to petitioners contention that BCA will suffer no grave and irreparable injury so as to
justify the grant of injunctive relief, the Court finds that this particular argument merits consideration.
The BOT Law as amended by Republic Act No. 7718, provides:
SEC. 7. Contract Termination. - In the event that a project is revoked, cancelled or terminated by the
Government through no fault of the project proponent or by mutual agreement, the Government shall
compensate the said project proponent for its actual expenses incurred in the project plus a
reasonable rate of return thereon not exceeding that stated in the contract as of the date of such
revocation, cancellation or termination: Provided, That the interest of the Government in this
instances shall be duly insured with the Government Service Insurance System [GSIS] or any other
insurance entity duly accredited by the Office of the Insurance Commissioner:Provided, finally, That
the cost of the insurance coverage shall be included in the terms and conditions of the bidding
referred to above.
In the event that the government defaults on certain major obligations in the contract and such
failure is not remediable or if remediable shall remain unremedied for an unreasonable length of
time, the project proponent/contractor may, by prior notice to the concerned national government
agency or local government unit specifying the turn-over date, terminate the contract. The project
proponent/contractor shall be reasonably compensated by the Government for equivalent or
proportionate contract cost as defined in the contract. (Emphases supplied.)
In addition, the Amended BOT Agreement, which is the law between and among the parties to it,
pertinently provides:
Section 17.01 Default In case a party commits an act constituting an event of default, the
non-defaulting party may terminate this Amended BOT Agreement by serving a written notice to
the defaulting party specifying the grounds for termination and giving the defaulting party a period of
ninety (90) days within which to rectify the default. If the default is not remedied within this period to

the satisfaction of the non-defaulting party, then the latter will serve upon the former a written notice
of termination indicating the effective date of termination.
Section 17.02 Proponents Default If this Amended BOT Agreement is terminated by reason of
the BCAs default, the DFA shall have the following options:
A. Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to
foreclose on the MRP/V Facility. The right of the BCAs unpaid creditors to foreclose on the
MRP/V Facility shall be valid for the duration of the effectivity of this Amended BOT
Agreement; or,
B. Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to
designate a substitute BCA for the MRP/V Project, provided the designated substitute BCA
is qualified under existing laws and acceptable to the DFA. This substitute BCA shall
hereinafter be referred to as the "Substitute BCA." The Substitute BCA shall assume all the
BCAs rights and privileges, as well as the obligations, duties and responsibilities hereunder;
provided, however, that the DFA shall at all times and its sole option, have the right to invoke
and exercise any other remedy which may be available to the DFA under any applicable
laws, rules and/or regulations which may be in effect at any time and from time to time. The
DFA shall cooperate with the creditors with a view to facilitating the choice of a Substitute
BCA, who shall take-over the operation, maintenance and management of the MRP/V
Project, within three (3) months from the BCAs receipt of the notice of termination from the
DFA. The Substituted BCA shall have all the rights and obligations of the previous BCA as
contained in this Amended BOT Agreement; or
C. Take-over the MRP/V Facility and assume all attendant liabilities thereof.
D. In all cases of termination due to the default of the BCA, it shall pay DFA liquidated
damagesequivalent to the applicable the (sic) Performance Security.
Section 17.03 DFAs Default If this Amended BOT Agreement is terminated by the BCA by reason
of the DFAs Default, the DFA shall:
A. Be obligated to take over the MRP/V Facility on an "as is, where is" basis, and shall
forthwith assume attendant liabilities thereof; and
B. Pay liquidated damages to the BCA equivalent to the following amounts, which may be
charged to the insurance proceeds referred to in Article 12:
(1) In the event of termination prior to completion of the implementation of the
MRP/V Project,damages shall be paid equivalent to the value of completed
implementation, minus the aggregate amount of the attendant liabilities
assumed by the DFA, plus ten percent (10%) thereof. The amount of such
compensation shall be determined as of the date of the notice of termination and
shall become due and demandable ninety (90) days after the date of this notice of
termination. Under this Amended BOT Agreement, the term "Value of the Completed
Implementation" shall mean the aggregate of all reasonable costs and expenses
incurred by the BCA in connection with, in relation to and/or by reason of the MRP/V
Project, excluding all interest and capitalized interest, as certified by a reputable and
independent accounting firm to be appointed by the BCA and subject to the approval
by the DFA, such approval shall not be unreasonably withheld.

(2) In the event of termination after completion of design, development, and


installation of the MRP/V Project, just compensation shall be paid equivalent to
the present value of the net income which the BCA expects to earn or realize
during the unexpired or remaining term of this Amended BOT Agreement using
the internal rate of return on equity (IRRe) defined in the financial projections of the
BCA and agreed upon by the parties, which is attached hereto and made as an
integral part of this Amended BOT Agreement as Schedule "1". (Emphases
supplied.)
The validity of the DFAs termination of the Amended BOT Agreement and the determination of the
party or parties in default are issues properly threshed out in arbitration proceedings as provided for
by the agreement itself. However, even if we hypothetically accept BCAs contention that the DFA
terminated the Amended BOT Agreement without any default or wrongdoing on BCAs part, it is not
indubitable that BCA is entitled to injunctive relief.
The BOT Law expressly allows the government to terminate a BOT agreement, even without fault on
the part of the project proponent, subject to the payment of the actual expenses incurred by the
proponent plus a reasonable rate of return.
Under the BOT Law and the Amended BOT Agreement, in the event of default on the part of the
government (in this case, the DFA) or on the part of the proponent, the non-defaulting party is
allowed to terminate the agreement, again subject to proper compensation in the manner set forth in
the agreement.
Time and again, this Court has held that to be entitled to injunctive relief the party seeking such relief
must be able to show grave, irreparable injury that is not capable of compensation.
In Lopez v. Court of Appeals, 77 we held:
Generally, injunction is a preservative remedy for the protection of one's substantive right or interest.
It is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit. It is
resorted to only when there is a pressing necessity to avoid injurious consequences which cannot be
remedied under any standard compensation. The application of the injunctive writ rests upon the
existence of an emergency or of a special reason before the main case can be regularly heard. The
essential conditions for granting such temporary injunctive relief are that the complaint alleges facts
which appear to be sufficient to constitute a proper basis for injunction and that on the entire
showing from the contending parties, the injunction is reasonably necessary to protect the legal
rights of the plaintiff pending the litigation. Two requisites are necessary if a preliminary injunction is
to issue, namely, the existence of a right to be protected and the facts against which the injunction is
to be directed are violative of said right. In particular, for a writ of preliminary injunction to issue, the
existence of the right and the violation must appear in the allegation of the complaint and a
preliminary injunction is proper only when the plaintiff (private respondent herein) appears to be
entitled to the relief demanded in his complaint. (Emphases supplied.)
We reiterated this point in Transfield Philippines, Inc. v. Luzon Hydro Corporation,78 where we
likewise opined:
Before a writ of preliminary injunction may be issued, there must be a clear showing by the
complaint that there exists a right to be protected and that the acts against which the writ is to be
directed are violative of the said right. It must be shown that the invasion of the right sought to be
protected is material and substantial, that the right of complainant is clear and unmistakable and that
there is an urgent and paramount necessity for the writ to prevent serious damage. Moreover, an

injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation. (Emphasis supplied.)
As the Court explained previously in Philippine Airlines, Inc. v. National Labor Relations
Commission79:
An injury is considered irreparable if it is of such constant and frequent recurrence that no fair and
reasonable redress can be had therefor in a court of law, or where there is no standard by which
their amount can be measured with reasonable accuracy, that is, it is not susceptible of
mathematical computation. It is considered irreparable injury when it cannot be adequately
compensated in damages due to the nature of the injury itself or the nature of the right or property
injured or when there exists no certain pecuniary standard for the measurement of damages.
(Emphases supplied.)
It is still contentious whether this is a case of termination by the DFA alone or both the DFA and
BCA. The DFA contends that BCA, by sending its own Notice of Default, likewise terminated or
"abandoned" the Amended BOT Agreement. Still, whether this is a termination by the DFA alone
without fault on the part of BCA or a termination due to default on the part of either party, the BOT
Law and the Amended BOT Agreement lay down the measure of compensation to be paid under the
appropriate circumstances.
Significantly, in BCAs Request for Arbitration with the PDRCI, it prayed for, among others, "a
judgment ordering respondent [DFA] to pay damages to Claimant [BCA], reasonably estimated
at P50,000,000.00 as of [the date of the Request for Arbitration], representing lost business
opportunities; financing fees, costs and commissions; travel expenses; legal fees and expenses; and
costs of arbitration, including the fees of the arbitrator/s."80 All the purported damages that BCA
claims to have suffered by virtue of the DFAs termination of the Amended BOT Agreement are
plainly determinable in pecuniary terms and can be "reasonably estimated" according to BCAs own
words.
Indeed, the right of BCA, a party which may or may not have been in default on its BOT contract, to
have the termination of its BOT contract reversed is not guaranteed by the BOT Law. Even
assuming BCAs innocence of any breach of contract, all the law provides is that BCA should be
adequately compensated for its losses in case of contract termination by the government.
There is one point that none of the parties has highlighted but is worthy of discussion. In seeking to
enjoin the government from awarding or implementing a machine readable passport project or any
similar electronic passport or visa project and praying for the maintenance of the status quo ante
pending the resolution on the merits of BCAs Request for Arbitration, BCA effectively seeks to
enjoin the termination of the Amended BOT Agreement for the MRP/V Project.
There is no doubt that the MRP/V Project is a project covered by the BOT Law and, in turn,
considered a "national government project" under Republic Act No. 8795. Under Section 3(d) of that
statute, trial courts are prohibited from issuing a TRO or writ of preliminary injunction against the
government to restrain or prohibit the termination or rescission of any such national government
project/contract.
The rationale for this provision is easy to understand. For if a project proponent that the
government believes to be in default is allowed to enjoin the termination of its contract on the
ground that it is contesting the validity of said termination, then the government will be unable to
enter into a new contract with any other party while the controversy is pending litigation. Obviously, a
courts grant of injunctive relief in such an instance is prejudicial to public interest since government

would be indefinitely hampered in its duty to provide vital public goods and services in order to
preserve the private proprietary rights of the project proponent. On the other hand, should it turn out
that the project proponent was not at fault, the BOT Law itself presupposes that the project
proponent can be adequately compensated for the termination of the contract. Although BCA did not
specifically pray for the trial court to enjoin the termination of the Amended BOT Agreement and
thus, there is no direct violation of Republic Act No. 8795, a grant of injunctive relief as prayed for by
BCA will indirectly contravene the same statute.
Verily, there is valid reason for the law to deny preliminary injunctive relief to those who seek to
contest the governments termination of a national government contract. The only circumstance
under which a court may grant injunctive relief is the existence of a matter of extreme urgency
involving a constitutional issue, such that unless a TRO or injunctive writ is issued, grave injustice
and irreparable injury will result.
Now, BCA likewise claims that unless it is granted injunctive relief, it would suffer grave and
irreparable injury since the bidding out and award of the e-Passport Project would be tantamount to
a violation of its right against deprivation of property without due process of law under Article III,
Section 1 of the Constitution. We are unconvinced.1avvphi1
Article III, Section 1 of the Constitution provides "[n]o person shall be deprived of life, liberty, or
property without due process of law, nor shall any person be denied the equal protection of the
laws." Ordinarily, this constitutional provision has been applied to the exercise by the State of its
sovereign powers such as, its legislative power,81police power,82 or its power of eminent domain.83
In the instant case, the State action being assailed is the DFAs termination of the Amended BOT
Agreement with BCA. Although the said agreement involves a public service that the DFA is
mandated to provide and, therefore, is imbued with public interest, the relationship of DFA to BCA is
primarily contractual and their dispute involves the adjudication of contractual rights. The propriety of
the DFAs acts, in relation to the termination of the Amended BOT Agreement, should be gauged
against the provisions of the contract itself and the applicable statutes to such contract. These
contractual and statutory provisions outline what constitutes due process in the present case. In all,
BCA failed to demonstrate that there is a constitutional issue involved in this case, much less a
constitutional issue of extreme urgency.
As for the DFAs purported failure to appropriate sufficient amounts in its budget to pay for liquidated
damages to BCA, this argument does not support BCAs position that it will suffer grave and
irreparable injury if it is denied injunctive relief. The DFAs liability to BCA for damages is contingent
on BCA proving that it is entitled to such damages in the proper proceedings. The DFA has no
obligation to set aside funds to pay for liquidated damages, or any other kind of damages, to BCA
until there is a final and executory judgment in favor of BCA. It is illogical and impractical for the DFA
to set aside a significant portion of its budget for an event that may never happen when such idle
funds should be spent on providing necessary services to the populace. For if it turns out at the end
of the arbitration proceedings that it is BCA alone that is in default, it would be the one liable for
liquidated damages to the DFA under the terms of the Amended BOT Agreement.
With respect to BCAs allegation that the e-Passport Project is grossly disadvantageous to the
Filipino people since it is the government that will be spending for the project unlike the MRP/V
Project which would have been privately funded, the same is immaterial to the issue at hand. If it is
true that the award of the e-Passport Project is inimical to the public good or tainted with some
anomaly, it is indeed a cause for grave concern but it is a matter that must be investigated and
litigated in the proper forum. It has no bearing on the issue of whether BCA would suffer grave and
irreparable injury such that it is entitled to injunctive relief from the courts.

In all, we agree with petitioners DFA and BSP that the trial courts issuance of a writ of preliminary
injunction, despite the lack of sufficient legal justification for the same, is tantamount to grave abuse
of discretion.
To be very clear, the present decision touches only on the twin issues of (a) the jurisdiction of the
trial court to issue a writ of preliminary injunction as an interim relief under the factual milieu of this
case; and (b) the entitlement of BCA to injunctive relief. The merits of the DFA and BCAs dispute
regarding the termination of the Amended BOT Agreement must be threshed out in the proper
arbitration proceedings. The civil case pending before the trial court is purely for the grant of interim
relief since the main case is to be the subject of arbitration proceedings.
BCAs petition for interim relief before the trial court is essentially a petition for a provisional remedy
(i.e., preliminary injunction) ancillary to its Request for Arbitration in PDRCI Case No. 30-2006/BGF.
BCA specifically prayed that the trial court grant it interim relief pending the constitution of the arbitral
tribunal in the said PDRCI case. Unfortunately, during the pendency of this case, PDRCI Case No.
30-2006/BGF was dismissed by the PDRCI for lack of jurisdiction, in view of the lack of agreement
between the parties to arbitrate before the PDRCI.84 In Philippine National Bank v. Ritratto Group,
Inc.,85 we held:
A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a
litigant to protect or preserve his rights or interests and for no other purpose during the pendency of
the principal action. The dismissal of the principal action thus results in the denial of the prayer for
the issuance of the writ. x x x. (Emphasis supplied.)
In view of intervening circumstances, BCA can no longer be granted injunctive relief and the civil
case before the trial court should be accordingly dismissed. However, this is without prejudice to the
parties litigating the main controversy in arbitration proceedings, in accordance with the provisions of
the Amended BOT Agreement, which should proceed with dispatch.
It does not escape the attention of the Court that the delay in the submission of this controversy to
arbitration was caused by the ambiguity in Section 19.02 of the Amended BOT Agreement regarding
the proper body to which a dispute between the parties may be submitted and the failure of the
parties to agree on such an arbitral tribunal. However, this Court cannot allow this impasse to
continue indefinitely. The parties involved must sit down together in good faith and finally come to an
understanding regarding the constitution of an arbitral tribunal mutually acceptable to them.
WHEREFORE, the instant petition is hereby GRANTED. The assailed Order dated February 14,
2007 of the Regional Trial Court of Pasig in Civil Case No. 71079 and the Writ of Preliminary
Injunction dated February 23, 2007 are REVERSED and SET ASIDE. Furthermore, Civil Case No.
71079 is hereby DISMISSED.
No pronouncement as to costs.
SO ORDERED.

G.R. Nos. 147933-34

December 12, 2001

PUBLIC ESTATES AUTHORITY, petitioner,


vs.
ELPIDIO S. UY, doing business under the name and style EDISON DEVELOPMENT &
CONSTRUCTION, AND THE COURT OF APPEALS, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review of the Joint Decision dated September 25, 20001 and the Joint
Resolution dated April 25, 20012 of the Court of Appeals in the consolidated cases CA-G.R. SP Nos.
59308 and 59849.
PETITIONER Public Estates Authority is the government agency tasked by the Bases
Conversion Development Authority to develop the first-class memorial park known as the Heritage
Park, located in Fort Bonifacio, Taguig, Metro Manila. On November 20, 1996, petitioner executed
with RESPONDENT Elpidio S. Uy, doing business under the name and style Edison Development
& Construction, a Landscaping and Construction Agreement, whereby respondent undertook to
perform all landscaping works on the 105-hectare Heritage Park. The Agreement stipulated that
the completion date for the landscaping job was within 450 days, commencing within 14 days after
receipt by respondent of petitioner's written notice to proceed. Due to delays, the contracted period
was extended to 693 days. Among the causes of the delay was petitioner's inability to deliver to
respondent 45 hectares of the property for landscaping, because of the existence of squatters and a
public cemetery.
Respondent instituted with the Construction Industry Arbitration Commission an action, docketed
as CIAC Case No. 02-2000, seeking to collect from petitioner damages arising from its delay in the
delivery of the entire property for landscaping. Specifically, respondent alleged that he incurred
additional rental costs for the equipment which were kept on standby and labor costs for the idle
manpower. Likewise, the delay incurred by petitioner caused the topsoil at the original supplier to be
depleted, which compelled respondent to obtain the topsoil from a farther source, thereby incurring
added costs. He also claims that he had to mobilize water trucks for the plants and trees which have
already been delivered at the site. Furthermore, it became necessary to construct a nursery shade to
protect and preserve the young plants and trees prior to actual transplanting at the landscaped area.
On May 16, 2000, the CIAC rendered a decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the Claimant Contractor ELPIDIO
S. UY and Award is hereby made on its monetary claim as follows:
Respondent PUBLIC ESTATES AUTHORITY is directed to pay the Claimant the following
amounts:
P19,604,132.06 for the cost of idle time of equipment.
2,275,721.00 for the cost of idled manpower.
6,050,165.05 for the construction of the nursery shade net
area.
605,016.50 for attorney's fees.

Interest on the amount of P6,050,165.05 as cost for the construction of the nursery shade
net area shall be paid at the rate of 6% per annum from the date the Complaint was filed on
12 January 2000. Interest on the total amount of P21,879,853.06 for the cost of idled
manpower and equipment shall be paid at the same rate of 6% per annum from the date this
Decision is promulgated. After finality of this Decision, interest at the rate of 12% per annum
shall be paid on the total of these 3 awards amounting to P27,930,018.11 until full payment
of the awarded amount shall have been made, "this interim period being deemed to be at
that time already a forbearance of credit" (Eastern Shipping Lines Inc. v. Court of Appeals et
al., 243 SCRA 78 [1994]; Keng Hua Paper Products Co., Inc. v. Court of Appeals, 286 SCRA
257 [1998]; Crismina Garments Inc. v. Court of Appeals, G.R. No. 128721, March 9, 1999).
SO ORDERED.3
Both petitioner and respondent filed petitions for review with the Court of Appeals. In CA-G.R. SP
No. 59308, petitioner contested the monetary awards given by the CIAC. On the other hand,
respondent filed CA-G.R. SP No. 59849, arguing that the CIAC erred in awarding a reduced
amount for equipment stand-by costs and for denying his claims for additional costs for topsoil
hauling and operating costs of water trucks.
The two petitions were consolidated. On September 25, 2000, the Court of Appeals rendered the
now assailed Joint Decision, dismissing the petitions, to wit:
WHEREFORE, premises considered, the petitions in CA-G.R. SP No. 59308, entitled "Public
Estates Authority v. Elpidio S. Uy, doing business under the name and style of Edison
Development & Construction," and CA-G.R. SP No. 59849, "Elpidio S. Uy, doing business
under the name and style of Edison Development & Construction v. Public Estates
Authority," are both hereby DENIED DUE COURSE and accordingly, DISMISSED, for lack
of merit.
Consequently, the Award/Decision issued by the Construction Industry Arbitration
Commission on May 16, 2000 in CIAC Case No. 02-200, entitled "Elpidio S. Uy, doing
business under the name and style of Edison Development & Construction v. Public Estates
Authority," is hereby AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.4
Both parties filed motions for reconsideration. Subsequently, petitioner filed with the Court of
Appeals an Urgent Motion for Issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction, seeking to enjoin the CIAC from proceeding with CIAC Case No. 03-2001, which
respondent has filed. Petitioner alleged that the said case involved claims by respondent arising
from the same Landscaping and Construction Agreement, subject of the cases pending with the
Court of Appeals.
On April 25, 2001, the Court of Appeals issued the assailed Joint Resolution, thus:
WHEREFORE, the present Motion/s for Reconsideration in CA-G.R. SP No. 59308 and CAG.R. SP No. 59849 are hereby both DENIED, for lack of merit.

Accordingly, let an injunction issue permanently enjoining the Construction Industry


Arbitration Commission from proceeding with CIAC Case No. 03-2001, entitled ELPIDIO S.
UY, doing business under the name and style of EDISON DEVELOPMENT &
CONSTRUCTION v. PUBLIC ESTATES AUTHORITY and/or HONORABLE CARLOS P.
DOBLE.
SO ORDERED.5
Hence, this petition for review, raising the following arguments:
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DENYING DUE COURSE
PETITIONER'S (SIC) PETITION FILED PURSUANT TO RULE 43 OF THE 1997 RULES OF CIVIL
PROCEDURE APPEALING THE ADVERSE DECISION OF THE CIAC A QUO.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DENYING THE HEREIN
PETITIONER'S MOTION FOR RECONSIDERATION ON THE JOINT DECISION PROMULGATED
ON SEPTEMBER 25, 2000.
III
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT ALLOWING THE APPEAL
ON THE MERITS TO BE THRESHED OUT PURSUANT TO EXISTING LAWS AND
JURISPRUDENCE ALL IN INTEREST OF DUE PROCESS.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DENYING PETITIONER'S CLAIM FOR
UNRECOUPED BALANCE IN THE 15% ADVANCE PAYMENT; UNRECOUPED BALANCE ON
PRE-PAID MATERIALS, AND OVERPAYMENT BASED ON ACTUAL PAYMENT MADE AS
AGAINST PHYSICAL ACCOMPLISHMENTS.
V
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE CIAC DECISION FINDING
RESPONDENT ENTITLED TO ATTORNEY'S FEES IN THE AMOUNT OF P605,096.50 WHICH
IS 10% OF THE AMOUNT AWARDED FOR THE CLAIM OF NURSERY SHADE CONSTRUCTION
WHILE DENYING PETITIONER'S COUNTERCLAIM FOR ATTORNEY'S FEES.
VI
THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT PETITIONER'S
OBLIGATION, IF ANY, HAS BEEN EFFECTIVELY EXTINGUISHED.
VII

THE HONORABLE COURT OF APPEALS ERRED IN NOT ORDERING THE RESPONDENT TO


REIMBURSE THE PETITIONER THE AMOUNT OF P345,583.20 THE LATTER PAID TO THE
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION.6
After respondent filed its comment 7 on August 20, 2001, this Court issued a resolution dated
September 3, 20018requiring petitioner to file its reply within ten days from notice. Despite service of
the resolution on petitioner and its counsel on October 1, 2001, no reply has been filed with this
Court to date. Therefore, we dispense with the filing of petitioner's reply and decide this case based
on the pleadings on record.
The petition is without merit.
Petitioner assails the dismissal of its petition by the Court of Appeals based on a technicality, i.e., the
verification and certification of non-forum shopping was signed by its Officer-in-Charge, who did not
appear to have been authorized by petitioner to represent it in the case. Petitioner moreover argues
that in an earlier resolution, the First Division of the Court of Appeals gave due course to its petition.
Despite this, it was the Seventeenth Division of the Court of Appeals which rendered the Joint
Decision dismissing its petition.
The contention is untenable. Petitioner, being a government owned and controlled corporation, can
act only through its duly authorized representatives. In the case of Premium Marble Resources, Inc.
v. Court of Appeals,9which the Court of Appeals cited, we made it clear that in the absence of an
authority from the board of directors, no person, not even the officers of the corporation, can validly
bind the corporation.10 Thus, we held in that case:
We agree with the finding of public respondent Court of Appeals, that "in the absence of any
board resolution from its board of directors the [sic] authority to act for and in behalf of the
corporation, the present action must necessary fail. The power of the corporation to sue and
be sued in any court is lodged with the board of directors that exercises its corporate powers.
Thus, the issue of authority and the invalidity of plaintiff-appellant's subscription which is still
pending, is a matter that is also addressed, considering the premises, to the sound judgment
of the Securities and Exchange Commission."11
Therefore, the Court of Appeals did not err in finding that, in view of the absence of a board
resolution authorizing petitioner's Officer-in-Charge to represent it in the petition, the verification and
certification of non-forum shopping executed by said officer failed to satisfy the requirement of the
Rules. In this connection, Rule 43, Section 7, of the 1997 Rules of Civil Procedure categorically
provides:
Effect of failure to comply with requirements. The failure of the petition to comply with any
of the foregoing requirements regarding the payment of the docket and other lawful fees, the
deposit for costs, proof of service of the petition, and the contents of and the documents
which should accompany the petition shall be sufficient ground for the dismissal thereof.
Anent petitioner's contention that its petition had already been given due course, it is well to note that
under the Internal Rules of the Court of Appeals, each case is raffled to a Justice twice the first
raffle for completion of records and the second raffle for study and report.12 Hence, there was
nothing unusual in the fact that its petition was first raffled to the First Division of the Court of
Appeals but was later decided by the Seventeenth Division thereof. Petitioner's imputations of
irregularity have no basis whatsoever, and can only be viewed as a desperate attempt to muddle the
issue by nit-picking on non-essential matters. Likewise, the giving of due course to a petition is not a
guarantee that the same will be granted on its merits.

Significantly, the dismissal by the Court of Appeals of the petition was based not only on its fatal
procedural defect, but also on its lack of substantive merit; specifically, its failure to show that the
CIAC committed gross abuse of discretion, fraud or error of law, such as to warrant the reversal of
its factual findings.
We have carefully gone over the decision of the CIAC in CIAC Case No. 02-2000, and we have
found that it contains an exhaustive discussion of all claims and counterclaims of respondent and
petitioner, respectively. More importantly, its findings are well supported by evidence which are
properly referred to in the record. In all, we have found no ground to disturb the decision of the
CIAC, especially since it possesses the required expertise in the field of construction arbitration. It is
well settled that findings of fact of administrative agencies and quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to specific matters, are generally accorded
not only respect, but finality when affirmed by the Court of Appeals.13
Thus, we affirm the factual findings and conclusions of the CIAC as regards the arbitral awards
to respondent. The records clearly show that these are amply supported by substantial evidence.
Coming now to petitioner's counterclaims, we find that the CIAC painstakingly sifted through the
records to discuss these, despite its initial observation that petitioner "absolutely omitted to make
any arguments" to substantiate the same.14 As far as the unrecouped balance on prepaid materials
are concerned, the CIAC found:
The Arbitral Tribunal finds the evidence adduced by the Respondents (petitioner herein)
sorely lacking to establish this counterclaim. The affidavit of Mr. Jaime Millan touched on this
matter by merely stating this "additional claim a) Unrecouped balance on prepaid materials
amounting to P45,372,589.85." No further elaboration was made of this bare statement. The
affidavit of Mr. Roigelio A. Cantoria merely states that as Senior Accountant, it was he who
prepared the computation for the recoupment of prepaid materials and advance payment
marked as "Annex "B" of Respondent's Compliance/Submission dated 16 March 2000.
Examination of that single page document shows that for the 2nd Billing, the amount of
P32,695,138.86 was "75% Prepaid" for some unspecified "Materials on Hand." The rest of
the other items were payments for "trees and shrubs RCP Baluster & Cons. Paver, and
GFRC (Baluster)" in various amounts taken from other billings. The billings themselves have
not been introduced in evidence. No testimonial evidence was also offered to explain how
these computations were made, if only to explain the meaning of those terms above-quoted
and why the recoupment of amounts of the various billings were generally much lower than
the payment for materials. As stated at the outset of the discussion of these additional
claims, "it is not the burden of this Tribunal to dig into the haystack to look for the proverbial
needle to support these counterclaims."15
On the other hand, we find that the CIAC correctly deferred determination of the counterclaim for
unrecouped balance on the advance payment. It explained that the amount of this claim is
determined by deducting from respondent's progress billing a proportionate amount equal to the
percentage of work accomplished. However, this could not be done since petitioner terminated the
construction contract. At the time the CIAC rendered its decision, the issue of the validity of the
termination was still pending determination by the Regional Trial Court of Paraaque. Thus, in view
of the non-fulfillment of that "precondition to the grant" of petitioner's counterclaim, the CIAC
deferred resolution of the same.16 In the case at bar, petitioner still failed to show that its termination
of the construction contract was upheld by the court as valid.
Anent petitioner's claim for attorney's fees, suffice it to state that it was represented by the
Government Corporate Counsel in the proceedings before the CIAC. Attorney's fees are in the

nature of actual damages, which must be duly proved.17 Petitioner failed to show with convincing
evidence that it incurred attorney's fees.
Petitioner further argues that its liability to respondent has been extinguished by novation when it
assigned and turned over all its contracted works at the Heritage Park to the Heritage Park
Management Corporation.18 This, however, can not bind respondent, who was not a party to the
assignment. Moreover, it has not been shown that respondent gave his consent to the turn-over.
Article 1293 of the Civil Code expressly provides:
Novation which consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237.
(emphasis ours)
Lastly, petitioner argues that respondent should reimburse to it all fees paid to the CIAC by reason of
the case. To be sure, this contention is based on the premise that the suit filed by respondent was
unwarranted and without legal and factual basis. But as shown in the CIAC decision, this was not so.
In fact, respondent was adjudged entitled to the arbitral awards made by the CIAC. These awards
have been sustained by the Court of Appeals, and now by this Court.
It appears that there is a pending motion to consolidate the instant petition with G.R. No. 147925-26,
filed by respondent. Considering, however, that the instant petition has no merit, the motion for
consolidation is rendered also without merit, as there will be no more petition to consolidate with the
said case. Hence, the motion to consolidate filed in this case must be denied.
However, in order not to prejudice the deliberations of the Court's Second Division in G.R. No.
147925-26, it should be stated that the findings made in this case, especially as regards the
correctness of the findings of the CIAC, are limited to the arbitral awards granted to respondent
Elpidio S. Uy and to the denial of the counterclaims of petitioner Public Estates Authority. Our
decision in this case does not affect the other claims of respondent Uy which were not granted by
the CIAC in its questioned decision, the merits of which were not submitted to us for determination in
the instant petition.
WHEREFORE, in view of the foregoing, the petition for review is DENIED. The Motion to
Consolidate this petition with G.R. No. 147925-26 is also DENIED.
SO ORDERED.

G.R. No. 172525

October 20, 2010

SHINRYO (PHILIPPINES) COMPANY, INC., Petitioner,


vs.
RRN INCORPORATED,* Respondent.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that
the Decision1of the Court of Appeals (CA) dated February 22, 2006, affirming the Decision of the
Construction Industry Arbitration Commission (CIAC), and the CA Resolution2 dated April 26, 2006,
denying herein petitioner's motion for reconsideration, be reversed and set aside.
The facts, as accurately narrated in the CA Decision, are as follows.
PETITIONER Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic corporation
organized under Philippine laws. PRIVATE RESPONDENT RRN Incorporated (hereinafter
respondent) is likewise a domestic corporation organized under Philippine laws.
Respondent filed a claim for arbitration against petitioner before CIAC for recovery of unpaid
account which consists of unpaid portions of the sub-contract, variations and unused materials in
the total sum of P5,275,184.17 and legal interest in the amount of P442,014.73. Petitioner filed a
counterclaim for overpayment in the amount ofP2,512,997.96.
The parties admitted several facts before the CIAC. It was shown that petitioner and respondent
executed an Agreement and Conditions of Sub-contract (hereafter Agreement signed on June
11, 1996 and June 14, 1996, respectively. Respondent signified its willingness to accept and
perform for petitioner in any of its projects, a part or the whole of the works more particularly
described in Conditions of Sub-Contract and other Sub-contract documents.
On June 11, 2002, the parties executed a "Supply of Manpower, Tools/Equipment, Consumables for
the Electrical Works-Power and Equipment Supply, Bus Duct Installation" for the Phillip Morris
Greenfield Project (hereafter Project) covered by Purchase Order Nos. 4501200300-000274 and
4501200300-000275 amounting toP15,724,000.00 and P9,276,000.00 respectively, or a total
amount of P25,000,000.00. The parties also agreed that respondent will perform variation orders in
the Project. In connection with the Project, petitioner supplied manpower chargeable against
respondent.
Respondent was not able to finish the entire works with petitioner due to financial difficulties.
Petitioner paid respondent a total amount of P26,547,624.76. On June 25, 2005 [should read
2003], respondent, through its former counsel sent a letter to petitioner demanding for the payment
of its unpaid balance amounting toP5,275,184.17. Petitioner claimed material back charges in
the amount of P4,063,633.43. On September 26, 2003, respondent only
acknowledged P2,371,895.33 as material back charges. Thereafter, on October 16, 2003,
respondent sent another letter to petitioner for them to meet and settle their dispute.
On January 8, 2004, respondent sent another letter to petitioner regarding the cost of equipment
rental and the use of scaffolding. Thereafter, on August 12, 2004, petitioner sent a letter to
respondent denying any unpaid account and the failure in their negotiations for amicable settlement.

On September 3, 2004, respondent, through its new counsel, advised petitioner of their intention to
submit the matter to arbitration. Thereafter, their dispute was submitted to arbitration. During the
preliminary conference, the parties agreed in their Terms of Reference to resolve eight issues, to wit:
1. What should be the basis in evaluating the variation cost?
1.1 How much is the variation cost?
2. Is the Respondent (petitioner in the instant case) justified in charging claimant (herein
respondent) the equipment rental fee and for the use of the scaffoldings? If so, how much
should be charged to Claimant?
3. What should be the basis in evaluating the total cost of materials supplied by Respondent
to the Project which is chargeable to Claimant?
3.1 How much is the total cost of materials supply chargeable to Claimant?
4. How much is the value of the remaining works left undone by the Claimant in the project?
5. Is the Claimant's claim for inventory of excess materials valid? If so, how much is the
value thereof?
6. Is the Respondent entitled to its claim for an overpayment in the amount
of P2,512,997.96?
7. Is Claimant entitled to its claim for interest? If so, how much?
8. Who between the parties shall bear the cost of Arbitration?
The CIAC rendered the assailed decision after the presentation of the parties' evidence. [The
dispositive portion of said decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the claimant and respondent is ordered to
pay claimant its unpaid account in the sum of P3,728,960.54 plus legal interest of 6% reckoned from
June 25, 2003 up to the filing of the case on October 11, 2004 and 12% of P3,728,960.54 from the
finality of the judgment until fully paid and arbitration cost of P104,333.82 representing claimant's
share of the arbitration cost which respondent should reimburse.
SO ORDERED.]
Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in Issue
No. 2 in so far as the amount of P440,000.00 awarded as back charges for the use of scaffoldings. x
x x3
On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of the
CIAC. The CA upheld the CIAC ruling that petitioner failed to adduce sufficient proof that the parties
had an agreement regarding charges for respondent's use of the manlift. As to the other charges for
materials, the CA held that the evidence on record amply supports the CIAC findings. Petitioner
moved for reconsideration of said ruling, but the same was denied per Resolution dated April 26,
2006.

Hence, this petition where it is alleged that:


I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN
IT DENIED PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL IN THE AMOUNT
OFP511,000.00 DESPITE EVIDENCE ON RECORD THAT RESPONDENT RRN ACTUALLY USED
AND BENEFITED FROM THE MANLIFT EQUIPMENT.
II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE
HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE HONORABLE
SUPREME COURT.
III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING THE
CIAC AWARD FOR THE VALUE OF INVENTORIED MATERIALS CONSIDERING THAT:
A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON ACCOUNT
OF MATERIAL SUPPLY, WHICH INCLUDED THE INVENTORIED MATERIALS.
B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR. BONIFACIO
ADMITTED THAT RESPONDENT RRN FAILED TO ESTABLISH WHETHER THE
MATERIALS CAME FROM RESPONDENT RRN OR FROM PETITIONER AND THAT IT
WAS PETITIONER THAT ACTUALLY INSTALLED THE SAID MATERIALS AS PART OF
REMAINING WORKS THAT PETITIONER TOOK OVER FROM RESPONDENT RRN.
C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A DOUBLE CLAIM
OR DOUBLE ENTRY BECAUSE IN THE COMPUTATION OF THE FINAL ACCOUNT,
RESPONDENT RRN WAS CREDITED THE FULL CONTRACT PRICE AND THE COST OF
VARIATIONS, WHICH INCLUDED THE INVENTORIED MATERIALS.
IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE
COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT COMPLETELY
DISREGARDED THE PROVISION OF THE SUBCONTRACT, WHICH ALLOWED PAYMENT OF
ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE REMAINING WORKS THAT
PRIVATE RESPONDENT ADMITTEDLY FAILED TO COMPLETE.
V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT
COMPLETELY DISREGARDED THE EVIDENCE ON ACTUAL COST INCURRED BY PETITIONER
IN COMPLETING THE REMAINING WORKS.
VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT AFFIRMED
THE CIAC AWARD FOR INTERESTS AND ARBITRATION COSTS IN FAVOR OF RESPONDENT
RRN.4
The petition is bereft of merit.
Despite petitioner's attempts to make it appear that it is advancing questions of law, it is quite clear
that what petitioner seeks is for this Court to recalibrate the evidence it has presented before the
CIAC. It insists that its evidence sufficiently proves that it is entitled to payment for respondent's use
of its manlift equipment, and even absent proof of the supposed agreement on the charges petitioner
may impose on respondent for the use of said equipment, respondent should be made to pay based
on the principle of unjust enrichment. Petitioner also questions the amounts awarded by the CIAC for

inventoried materials, and costs incurred by petitioner for completing the work left unfinished by
respondent.
As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance System,5 to
wit:
It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not only
respect, but also finality, especially when affirmed by the Court of Appeals. In particular,
factual findings of construction arbitrators are final and conclusive and not reviewable by
this Court on appeal.
This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation, we said:
In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by this Court when the petitioner proves
affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there
was evident partiality or corruption of the arbitrators or any of them; (3) the arbitrators were guilty of
misconduct in refusing to hear evidence pertinent and material to the controversy; (4) one or more of
the arbitrators were disqualified to act as such under Section nine of Republic Act No. 876 and
willfully refrained from disclosing such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or
so imperfectly executed them, that a mutual, final and definite award upon the subject matter
submitted to them was not made.1avvp++i1
Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to
present its position before the Arbitral Tribunal or when an award is obtained through fraud or the
corruption of arbitrators, (2) when the findings of the Court of Appeals are contrary to those of the
CIAC, and (3) when a party is deprived of administrative due process.6
A perusal of the records would reveal that none of the aforementioned circumstances, which would
justify exemption of this case from the general rule, are present here. Such being the case, the
Court, not being a trier of facts, is not duty-bound to examine, appraise and analyze anew the
evidence presented before the arbitration body.7
Petitioner's reliance on the principle of unjust enrichment is likewise misplaced. The ruling of the
Court inUniversity of the Philippines v. Philab Industries, Inc.8 is highly instructive, thus:
Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the sense
that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove
that another party knowingly received something of value to which he was not entitled and that the
state of affairs are such that it would be unjust for the person to keep the benefit. Unjust
enrichment is a term used to depict result or effect of failure to make remuneration of or for property
or benefits received under circumstances that give rise to legal or equitable obligation to account for
them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.
Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of
the doctrine of restitution.

Article 22 of the New Civil Code reads:


Every person who, through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him.
In order that accion in rem verso may prosper, the essential elements must be present: (1) that the
defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the
defendant is without just or legal ground, and (4) that the plaintiff has no other action based on
contract, quasi-contract, crime or quasi-delict.
An accion in rem verso is considered merely an auxiliary action, available only when there is no
other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action
under any other institution of positive law, that action must be resorted to, and the principle of accion
in rem verso will not lie.9
As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent's
free use of the manlift was without legal ground based on the provisions of their contract.
Thus, the third requisite, i.e., that the enrichment of respondent is without just or legal ground, is
missing. In addition, petitioner's claim is based on contract, hence, the fourth requisite that the
plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict is also absent.
Clearly, the principle of unjust enrichment is not applicable in this case.
The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in rejecting
its claims for costs of some materials.
Again, these issues are purely factual and cannot be properly addressed in this petition for review
on certiorari. InHanjin Heavy Industries and Construction Co., Ltd. v. Dynamic Planners and
Construction Corp.,10 it was emphasized that mathematical computations, the propriety of arbitral
awards, claims for "other costs" and "abandonment" are factual questions. Since the discussions of
the CIAC and the CA in their respective Decisions show that its factual findings are supported by
substantial evidence, there is no reason why this Court should not accord finality to said findings.
Verily, to accede to petitioner's request for a recalibration of its evidence, which had been thoroughly
studied by both the CIAC and the CA would result in negating the objective of Executive Order No.
1008, which created an arbitration body to ensure the prompt and efficient settlement of disputes in
the construction industry. Thus, the Court held in Uniwide Sales Realty and Resources Corporation
v. Titan-Ikeda Construction and Development Corporation,11 that:
x x x The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that
such body had "misapprehended 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 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.12
As discussed above, there is nothing in the records that point to any grave abuse of discretion
committed by the CIAC.

The awards for interests and arbitration costs are, likewise, correct as they are in keeping with
prevailing jurisprudence.13
IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of Appeals dated
February 22, 2006 and its Resolution dated April 26, 2006 are AFFIRMED.
SO ORDERED.

G.R. No. 177556

December 8, 2010

TRANSCEPT CONSTRUCTION AND MANAGEMENT PROFESSIONALS, INC., Petitioner,


vs.
TERESA C. AGUILAR, Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review assailing the 24 January 2007 Decision1 and the 20 April
2007 Resolution2 of the Court of Appeals in CA-G.R. SP No. 93021.
The Antecedent Facts
From the decisions of the Court of Appeals and the Construction Industry Arbitration Commission
(CIAC), we gathered the following facts:
On 18 August 2004, Teresa C. Aguilar (AGUILAR) entered into an Owner-General Contractor
Agreement (First Contract) with Transcept Construction and Management Professionals, Inc.
(TRANSCEPT) for the construction of a two-storey split level vacation house (the Project) located at
Phase 3, Block 3, Lot 7, Canyon Woods, Laurel, Batangas. Under the First Contract, the Project
would cost P3,486,878.64 and was to be completed within 2103working days from the date of the
First Contract or on 7 June 2005. Aguilar paid a downpayment of P1 million on 27 August 2004.
On 30 November 2004, Transcept submitted its First Billing to Aguilar for work accomplishments
from start to 15 November 2004, in accordance with the Progressive Billing payment scheme.
Aguilar paid P566,356.
On 1 February 2005, Aguilar received the Second Billing amounting to P334,488 for the period of 16
November 2004 to 15 December 2004. Transcept informed Aguilar that non-payment would force
them to halt all works on the Project. Aguilar questioned the Second Billing as unusual for being 45
days ahead of actual accomplishment. Aguilar did not pay and on 2 February 2005, Transcept
stopped working on the Project.
Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcepts quality of
work. The test showed substandard works done by Transcept. In a letter dated 7 March 2005,
Transcept outlined its program to reinforce or redo the substandard works discovered by ASTEC. On
28 March 2005, ASTEC, through Engr. Jaime E. Rioflorido (Engr. Rioflorido), sent Aguilar an
Evaluation of Contractors Performance which showed that aside from the substandard workmanship
and use of substandard materials, Transcept was unreasonably and fraudulently billing Aguilar.
Of the downpayment amounting to P1,632,436.29, Engr. Riofloridos reasonable assessment of
Transcepts accomplishment amounted only to P527,875.94. Engr. Rioflorido recommended the
partial demolition of Transcepts work.
On 30 May 2005, Transcept and Aguilar entered into a Construction Contract (Second Contract) to
extend the date of completion from 7 June 2005 to 29 July 2005 and to use up the P1.6 million
downpayment paid by Aguilar. Aguilar hired the services of Engr. Edgardo Anonuevo (Engr.
Anonuevo) to ensure that the works would comply with the plans in the Second Contract.

Transcept failed to finish the Project on 29 July 2005, alleging that the delay was due to
additional works ordered by Aguilar. Transcept also asked for payment of the additional amount
of P290,824.96. Aguilar countered that the Second Contract did not provide for additional works.
On 2 September 2005, Aguilar sent a demand letter to Transcept asking for payment of P581,844.54
for refund and damages. Transcept ignored the demand letter. On 6 September 2005, Aguilar filed
a complaint against Transcept before CIAC.
The Decision of the CIAC
CIAC assessed the work accomplished with the corresponding costs, as against the downpayment
ofP1,632,436.29 which was the contract price in the Second Contract. On 16 January 2006, the
CIAC promulgated its Decision.4
For Labor and Materials of the Scope of Work, the CIAC credited the accomplishment to
be P1,110,440.13 representing Aguilars estimate which was reassessed by the CIAC after the
ocular inspection conducted by the parties. For indirect costs for General Requirements of the Scope
of Work, the CIACs computation wasP275,355.50. The CIAC noted that Aguilar did not submit any
evidence on indirect costs and her counsel did not cross-examine Transcepts witnesses on the
matter. For the Septic Tank, which the CIAC found to be part of the Second Contract, the CIAC
assessed the accomplishment to amount to P7,300. The CIAC added 5% Contingencies and 10%
Contractors Profit which are the minimum factors in making estimates practiced in the construction
industry. The CIAC thus estimated that the total accomplishment amounted to P1,602,359.97 which
was P30,076.72 below the contract price of P1,632,436.29. The tabulated amount shows:
Direct Costs for Labor and Materials
Indirect Costs for General Requirements
Septic Tank
Sub-Total
Plus 5% Contingencies
Add 10% of Sub-Total for Contractor's Profit
Total

P1,110,440.13
275,355.50
7,300.00
P1,393,095.63
69,654.78
139,309.56
P1,602,359.97

The CIAC ruled that the accomplishment of P1,602,359.97 was 98.16% of P1,632,436.29, which
was way above 95% and should therefore be considered as substantial completion of the Project.
As such, the CIAC ruled that liquidated damages could not be awarded to Aguilar. The CIAC,
however, ruled that Aguilar was entitled toP75,000 as Consultancy Expenses.
The CIAC also found that Aguilar demanded extra works which entailed additional working days.
The CIAC computed that the additional works performed over and above the Second Contract
amounted to P189,909.91.
The dispositive portion of the CIACs decision reads:
In view of all the foregoing, it is hereby ordered that:

1. Respondent [Transcept] shall pay Claimant [Aguilar] the amount of P30,076.72,


representing the unaccomplished works in the contract, plus 6% interests from the date of
the promulgation of this case, until fully paid.
2. Respondent shall pay Claimant the amount of P75,000.00, representing the cost of
Consultancy Services, plus 6% interests from the date of the promulgation of this case, until
fully paid.
3. Claimant shall pay Respondent the amount of P189,909.91, representing the cost of work
performed over & above the scope of work in the contract.
4. The cost for liquidated damages and cost representing interests of construction bond,
prayed for the Claimant, are denied for being without merit.
5. Attorneys fees prayed for by both parties are denied for being without merit.
6. Cost of Arbitration shall be shared equally by the parties.
SO ORDERED.5
Aguilar assailed the CIACs decision before the Court of Appeals.
The Decision of the Court of Appeals
In its 24 January 2007 Decision, the Court of Appeals reversed the CIACs decision.
The Court of Appeals agreed with the CIAC that Aguilar did not allege in her complaint the amount
corresponding to the indirect costs for General Requirements. However, the Court of Appeals made
a recomputation of the indirect costs for General Requirements based on P1,632,436.29 and made
the following findings:
Direct Costs for Labor and Materials
Indirect Costs for General Requirements
Septic Tank
Sub-Total
Plus 5% Contingencies
Add 10% of Sub-Total for Contractor's Profit
Total

P1,110,440.13
128,799.22
7,300.00
P1,246,539.35
62,326.96
124,653.93
P1,433,520.24

The Court of Appeals then deducted P1,433,520.24 from P1,632,436.29 and concluded that Aguilar
is entitled toP198,916.05 instead of P30,076.72.
From the above computation, the Court of Appeals ruled that Transcept only accomplished 87.81%
of the contract price thus entitling Aguilar to liquidated damages equivalent to 10% of P1,632,436.29
or P163,243.63.

The Court of Appeals further ruled that Transcept was not entitled to payment for additional works
because they were in fact only rectifications of the works poorly done by Transcept. Finally, the
Court of Appeals ruled that Aguilar was able to prove that she paid P135,000 for consultancy
services.
The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED and the assailed
decision REVERSED AND SET ASIDE. Accordingly, a new one is entered ordering respondent to
pay petitioner the following:
1) P198,916.02 for unaccomplished works in the second contract, plus 6% interest from the
date of the filing of the case, until fully paid;
2) P135,000.00, representing the cost of consultancy services, plus 6% interest from the
filing of the case, until fully paid; and
3) P163,243.63 as and by way of liquidated damages.
The award of P189,909.91 in favor of Aguilar for additional works is hereby deleted.
No costs.
SO ORDERED.6
Transcept filed a motion for reconsideration. In its 20 April 2007 Resolution, the Court of Appeals
denied the motion.
Hence, the petition before this Court.
The Issues
The issues in this case are the following:
1. Whether the Court of Appeals erred in holding that Aguilar is entitled to P198,916.02
instead ofP30,076.72 for unaccomplished works;
2. Whether the Court of Appeals erred in awarding Aguilar liquidated damages;
3. Whether the Court of Appeals erred in deleting the CIACs award of P189,909.91 to
Transcept representing additional works done under the Second Contract; and
4. Whether the Court of Appeals erred in awarding Aguilar the amount of P135,000 for
consultancy services.
The Ruling of this Court
The petition is partly meritorious.
Refund for Unaccomplished Works

The Court of Appeals ruled that CIAC erred in adopting Transcepts computation of unaccomplished
works. The Court of Appeals agreed with Aguilar that the CIACs computation was based on what
Transcept submitted which was based on the original contract price of P3,486,878.64 instead of the
contract price of P1,632,436.29 under the Second Contract.
However, the Court of Appeals failed to consider the CIACs as well as its own finding that Aguilar
did not present any evidence on indirect costs for General Requirements. In addition, Aguilars
counsel did not cross-examine Transcepts witnesses. In short, Aguilar did not dispute but merely
accepted Transcepts computation on indirect expenses. Aguilar did not interpose any objection to
the computation until after the CIAC ruled that Transcept substantially complied with the Project. We
also note Transcepts explanation, as well as the CIACs finding, that General Requirements refer to
mobilization, overhead, insurance, hoarding and protection, temporary facilities, equipment,
materials testing, line set out, as-built drawings, and clean out. They had been used up at the start of
the Project. Hence, costs for General Requirements are not dependent on the amount of the
contract because they were incurred at the beginning of the Project. We should therefore revert to
the computation made by the CIAC, as follows:
Direct Costs for Labor and Materials
Indirect Costs for General Requirements

P1,110,440.13
275,355.50

Septic Tank

7,300.00

Sub-Total

P1,393,095.63

Plus 5% Contingencies

69,654.78

Add 10% of Sub-Total for Contractor's Profit


Total

139,309.56
P1,602,359.97

Liquidated Damages
Section 20.11(A)(a) of the Construction Industry Authority of the Philippines (CIAP) Document No.
102 provides that "[t]here is substantial completion when the Contractor completes 95% of the Work,
provided that the remaining work and the performance of the work necessary to complete the Work
shall not prevent the normal use of the completed portion."
According to CIACs computation, Transcepts accomplishment amounted to 98.16% of the contract
price. It is beyond the 95% required under CIAP Document No. 102 and is considered a substantial
completion of the Project. We thus agree with CIACs application of Article 1234 of the Civil Code,
which provides that "[i]f the obligation had been substantially performed in good faith, the obligor
may recover as though there had been a strict and complete fulfillment, less damages suffered by
the obligee."7lavvphil
There being a substantial completion of the Project, Aguilar is not entitled to liquidated damages but
only to actual damages of P30,076.72, representing the unaccomplished works in the Second
Contract as found by the CIAC, which is the difference between the contract price of P1,632,436.29
and the accomplishment of P1,602,359.97.
Additional Works
The Second Contract excluded the construction of the following works:

1. Architectural Works - - Roofing System


2. Interior Fit-Out Works/Glass/Windows/CAB/CARP
3. Truss System
4. Supply and Installation of Plumbing Fixtures and Bathroom Accessories
5. Supply and Installation of Downspout System
6. Electrical Roughing-in and Wiring Works
7. Supply and Installation of Wiring Devices
8. Supply and Installation of Circuit Breakers
9. Testing and Commissioning.8
The CIAC found that Aguilar demanded additional works from Transcept. The CIAC found that the
additional works include the balcony, lifting of roof beams, and extra fast walls which are not covered
by the Second Contract. However, we agree with the Court of Appeals that the works done were just
for correction of the substandard works done under the First Contract. During the ocular inspection,
Aguilar pointed out that the lifting of the roof beam was done because the construction was three
meters short of that specified in the First Contact.9 Hence, while the roofing system is excluded from
the Second Contract, it could not be said that the lifting of the roof beam is an additional work on the
part of Transcept.
The Court notes that the Second Contract was entered into by the parties precisely to correct the
substandard works discovered by ASTEC. Hence, Aguilar should not be made to pay for works done
to correct these substandard works.
Consultancy Services
The Court of Appeals correctly awarded Aguilar the cost of consultancy services amounting
to P135,000. While Engr. Rioflorido was not presented as a witness, it was established that Aguilar
hired ASTEC, a duly accredited testing laboratory, to test Transcepts quality of work, and that Engr.
Rioflorido represented ASTEC. As found by the Court of Appeals, Aguilar paid Engr. Rioflorido the
amount of P65,000 for the services, which should be added to the P75,000 consultancy services
awarded to Aguilar.10
WHEREFORE, we AFFIRM the 24 January 2007 Decision and the 20 April 2007 Resolution of the
Court of Appeals in CA-G.R. SP No. 93021, with the MODIFICATION that the award of P198,916.02
for unaccomplished works is reduced to P30,076.72, and the award of P163,243.63 for liquidated
damages is deleted.
SO ORDERED.

G.R. No. 175404

January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,


vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1 dated
July 31, 2006 and the Resolution2 dated November 13, 2006 of the Court of Appeals (CA) in CA
G.R. SP No. 50304.
The factual antecedents are as follows:
On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court
(RTC) of Makati City a Complaint for Rescission of Contract with Damages3 against petitioner Cargill
Philippines, Inc. In its Complaint, respondent alleged that it was engaged in buying and selling of
molasses and petitioner was one of its various sources from whom it purchased molasses.
Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner 12,000 metric tons of Thailand origin
cane blackstrap molasses at the price of US$192 per metric ton; that the delivery of the molasses
was to be made in January/February 1997 and payment was to be made by means of an Irrevocable
Letter of Credit payable at sight, to be opened by September 15, 1996; that sometime prior to
September 15, 1996, the parties agreed that instead of January/February 1997, the delivery would
be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at
sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations
under the contract, despite demands from respondent, thus, the latter prayed for rescission of the
contract and payment of damages.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration,4 wherein it argued that the alleged contract between the
parties, dated July 11, 1996, was never consummated because respondent never returned the
proposed agreement bearing its written acceptance or conformity nor did respondent open the
Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the parties
was whether or not the alleged contract between the parties was legally in existence and the RTC
was not the proper forum to ventilate such issue. It claimed that the contract contained an arbitration
clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association. The
Arbitration Award shall be final and binding on both parties.5
that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC
must either dismiss the case or suspend the proceedings and direct the parties to proceed with
arbitration, pursuant to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for
rescission of contract and could not be changed by the subject arbitration clause. It cited cases
wherein arbitration clauses, such as the subject clause in the contract, had been struck down as void
for being contrary to public policy since it provided that the arbitration award shall be final and
binding on both parties, thus, ousting the courts of jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been
rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and
unenforceable, considering that the requirements imposed by the provisions of the Arbitration Law
had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue
boiled down to whether the arbitration clause contained in the contract subject of the complaint is
valid and enforceable; that the arbitration clause did not violate any of the cited provisions of the
Arbitration Law.
On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:
Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer
Controversy To Voluntary Arbitration" is hereby DENIED. Defendant is directed to file its answer
within ten (10) days from receipt of a copy of this order.9
In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss
the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the provision directed the
court concerned only to stay the action or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not impose the sanction of dismissal.
However, the RTC did not find the suspension of the proceedings warranted, since the Arbitration
Law contemplates an arbitration proceeding that must be conducted in the Philippines under the
jurisdiction and control of the RTC; and before an arbitrator who resides in the country; and that the
arbitral award is subject to court approval, disapproval and modification, and that there must be an
appeal from the judgment of the RTC. The RTC found that the arbitration clause in question
contravened these procedures, i.e., the arbitration clause contemplated an arbitration proceeding in
New York before a non-resident arbitrator (American Arbitration Association); that the arbitral award
shall be final and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law
to such an agreement would result in disregarding the other sections of the same law and rendered
them useless and mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order10 dated November
25, 1998.
Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess
of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least suspend the
proceedings a quo, despite the fact that the party's agreement to arbitrate had not been complied
with.
Respondent filed its Comment and Reply. The parties were then required to file their respective
Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC
Orders.

In denying the petition, the CA found that stipulation providing for arbitration in contractual obligation
is both valid and constitutional; that arbitration as an alternative mode of dispute resolution has long
been accepted in our jurisdiction and expressly provided for in the Civil Code; that R.A. No. 876 (the
Arbitration Law) also expressly authorized the arbitration of domestic disputes. The CA found error in
the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply
because the clause failed to comply with the requirements prescribed by the law. The CA found that
there was nothing in the Civil Code, or R.A. No. 876, that require that arbitration proceedings must
be conducted only in the Philippines and the arbitrators should be Philippine residents. It also found
that the RTC ruling effectively invalidated not only the disputed arbitration clause, but all other
agreements which provide for foreign arbitration. The CA did not find illegal or against public policy
the arbitration clause so as to render it null and void or ineffectual.
Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration
Law for the purpose of suspending the proceedings before the RTC, since in its Motion to
Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the subject
contract between the parties did not exist or it was invalid; that the said contract bearing the
arbitration clause was never consummated by the parties, thus, it was proper that such issue be first
resolved by the court through an appropriate trial; that the issue involved a question of fact that the
RTC should first resolve. Arbitration is not proper when one of the parties repudiated the existence
or validity of the contract.
Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed
despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid,
enforceable and binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.11 is
inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt several
defenses, alternatively or hypothetically, even if such
defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial
court is premature.
Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause
between the parties as valid and enforceable and yet in the same breath decreed that the arbitration
cannot proceed because petitioner assailed the existence of the entire agreement containing the
arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005,
because in the present case, it was respondent who had filed the complaint for rescission and
damages with the RTC, which based its cause of action against petitioner on the alleged agreement
dated July 11, 2006 between the parties; and that the same agreement contained the arbitration
clause sought to be enforced by petitioner in this case. Thus, whether petitioner assails the
genuineness and due execution of the agreement, the fact remains that the agreement sued upon
provides for an arbitration clause; that respondent cannot use the provisions favorable to him and
completely disregard those that are unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the
parties had not entered into any agreement upon which respondent as plaintiff can sue upon; and,
assuming that such agreement existed, there was an arbitration clause that should be enforced,
thus, the dispute must first be submitted to arbitration before an action can be instituted in court.
Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground to
dismiss a complaint is when a condition precedent for filing the complaint has not been complied

with; and that submission to arbitration when such has been agreed upon is one such condition
precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at least
suspended, and the parties be ordered to proceed with arbitration.
On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's rationale in declining to
order arbitration based on the 2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its legal basis, because it had been ruled
that the arbitration agreement can be implemented notwithstanding that one of the parties thereto
repudiated the contract which contained such agreement based on the doctrine of separability.
In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an order
denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary
Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for its Motion
prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review on certiorari under
Rule 45. Respondent contends that the Gonzales case, which was decided in 2007, is inapplicable
in this case, especially as to the doctrine of separability enunciated therein. Respondent argues that
even if the existence of the contract and the arbitration clause is conceded, the decisions of the RTC
and the CA declining referral of the dispute between the parties to arbitration would still be correct.
This is so because respondent's complaint filed in Civil Case No. 98-1376 presents the principal
issue of whether under the facts alleged in the complaint, respondent is entitled to rescind its
contract with petitioner and for the latter to pay damages; that such issue constitutes a judicial
question or one that requires the exercise of judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the
same action several defenses, alternatively or hypothetically, even if such defenses are inconsistent
with each other refers to allegations in the pleadings, such as complaint, counterclaim, cross-claim,
third-party complaint, answer, but not to a motion to dismiss. Finally, respondent claims that
petitioner's argument is premised on the existence of a contract with respondent containing a
provision for arbitration. However, its reliance on the contract, which it repudiates, is inappropriate.
In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis
of the contract, thus, respondent admitted the existence of all the provisions contained thereunder,
including the arbitration clause; that if respondent relies on said contract for its cause of action
against petitioner, it must also consider itself bound by the rest of the terms and conditions contained
thereunder notwithstanding that respondent may find some provisions to be adverse to its position;
that respondents citation of the Gonzalescase, decided in 2005, to show that the validity of the
contract cannot be the subject of the arbitration proceeding and that it is the RTC which has the
jurisdiction to resolve the situation between the parties herein, is not correct since in the resolution of
the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration agreement is
effective notwithstanding the fact that one of the parties thereto repudiated the main contract which
contained it.
We first address the procedural issue raised by respondent that petitioners petition
for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong
remedy invoking Section 29 of R.A. No. 876, which provides:
Section 29.
x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to
question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.13 (Gonzales
case), wherein we ruled the impropriety of a petition for certiorari under Rule 65 as a mode of appeal
from an RTC Order directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration
under R.A. No. 876, pursuant to the arbitration clause found in the Addendum Contract it entered
with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with Us contending that Judge Pimentel acted
with grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite
the proper, valid and timely raised argument in his Answer with counterclaim that the Addendum
Contract containing the arbitration clause was null and void. Climax-Arimco assailed the mode of
review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending that certiorariunder Rule
65 can be availed of only if there was no appeal or any adequate remedy in the ordinary course of
law; that R.A. No. 876 provides for an appeal from such order. We then ruled that Gonzales' petition
for certiorarishould be dismissed as it was filed in lieu of an appeal by certiorari which was the
prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary period.
We found that Gonzales petition for certiorari raises a question of law, but not a question of
jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876
when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making
the determination that there was indeed an arbitration agreement. It had been held that as long as a
court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more than an error of judgment reviewable by
a timely appeal and not assailable by a special civil action of certiorari.14
In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of
jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least suspend, the
proceedings a quo, despite the fact that the partys agreement to arbitrate had not been complied
with. Notably, the RTC found the existence of the arbitration clause, since it said in its decision that
"hardly disputed is the fact that the arbitration clause in question contravenes several provisions of
the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an agreement would
result in the disregard of the afore-cited sections of the Arbitration Law and render them useless and
mere surplusages." However, notwithstanding the finding that an arbitration agreement existed, the
RTC denied petitioner's motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly confines
the courts authority only to the determination of whether or not there is an agreement in writing
providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. If
the court, upon the other hand, finds that no such agreement exists, the proceedings shall be
dismissed.
In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer
Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining only the issue
of whether or not there is an agreement in writing providing for arbitration by directing petitioner to
file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it acted in excess
of its jurisdiction and since there is no plain, speedy, and adequate remedy in the ordinary course of
law, petitioners resort to a petition for certiorari is the proper remedy.

We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be
brought under the arbitration law for the purpose of suspending the proceedings in the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in
our jurisdiction.16 R.A. No. 87617 authorizes arbitration of domestic disputes. Foreign arbitration, as a
system of settling commercial disputes of an international character, is likewise recognized.18 The
enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute
resolution systems, including arbitration, in the settlement of disputes.19
A contract is required for arbitration to take place and to be binding.20 Submission to arbitration is a
contract 21and a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract.22 The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of the contract and is itself a contract.23
In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association, The
Arbitration Award shall be final and binding on both parties.
The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract
between the parties did not exist or was invalid and arbitration is not proper when one of the parties
repudiates the existence or validity of the contract. Thus, said the CA:
Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause
providing for foreign arbitration, it is our considered opinion that the case at bench still cannot be
brought under the Arbitration Law for the purpose of suspending the proceedings before the trial
court. We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as
one of the grounds thereof, that the alleged contract between the parties do not legally exist or is
invalid. As posited by petitioner, it is their contention that the said contract, bearing the arbitration
clause, was never consummated by the parties. That being the case, it is but proper that such issue
be first resolved by the court through an appropriate trial. The issue involves a question of fact that
the trial court should first resolve.
Arbitration is not proper when one of the parties repudiates the existence or validity of the contract.
Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where the Supreme
Court held that:
The question of validity of the contract containing the agreement to submit to arbitration will
affect the applicability of the arbitration clause itself. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its existence or validity.
Indeed, litigants are enjoined from taking inconsistent positions....
Consequently, the petitioner herein cannot claim that the contract was never consummated and, at
the same time, invokes the arbitration clause provided for under the contract which it alleges to be
non-existent or invalid. Petitioner claims that private respondent's complaint lacks a cause of action
due to the absence of any valid contract between the parties. Apparently, the arbitration clause is

being invoked merely as a fallback position. The petitioner must first adduce evidence in support of
its claim that there is no valid contract between them and should the court a quo find the claim to be
meritorious, the parties may then be spared the rigors and expenses that arbitration in a foreign land
would surely entail.24
However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had been
modified upon a motion for reconsideration in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of
the contract containing the agreement to submit to arbitration does not affect the
applicability of the arbitration clause itself. A contrary ruling would suggest that a party's
mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the
situation that the separability doctrine, as well as jurisprudence applying it, seeks to
avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before
the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of
fraud, as it had already been determined that the case should have been brought before the regular
courts involving as it did judicial issues.26
In so ruling that the validity of the contract containing the arbitration agreement does not affect the
applicability of the arbitration clause itself, we then applied the doctrine of separability, thus:
The doctrine of separability, or severability as other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not automatically terminate when the
contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the determination of whether
the invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes
that the invalidity of the main contract, also referred to as the "container" contract, does not affect the
validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the
arbitration clause/agreement still remains valid and enforceable.27
Respondent argues that the separability doctrine is not applicable in petitioner's case, since in
the Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract with
Gonzales and the former's move was premised on the existence of a valid contract; while Gonzales,
who resisted the move of Climax-Arimco for arbitration, did not deny the existence of the contract but
merely assailed the validity thereof on the ground of fraud and oppression. Respondent claims that
in the case before Us, petitioner who is the party insistent on arbitration also claimed in their Motion
to Dismiss/Suspend Proceedings that the contract sought by respondent to be rescinded did not
exist or was not consummated; thus, there is no room for the application of the separability doctrine,
since there is no container or main contract or an arbitration clause to speak of.
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall
not be regarded as invalid or non-existent just because the main contract is invalid or did not come
into existence, since the arbitration agreement shall be treated as a separate agreement
independent of the main contract. To reiterate. a contrary ruling would suggest that a party's mere
repudiation of the main contract is sufficient to avoid arbitration and that is exactly the situation that

the separability doctrine sought to avoid. Thus, we find that even the party who has repudiated the
main contract is not prevented from enforcing its arbitration clause.
Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and
damages with the RTC. In so doing, respondent alleged that a contract exists between respondent
and petitioner. It is that contract which provides for an arbitration clause which states that "any
dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled
before the City of New York by the American Arbitration Association. The arbitration agreement
clearly expressed the parties' intention that any dispute between them as buyer and seller should be
referred to arbitration. It is for the arbitrator and not the courts to decide whether a contract between
the parties exists or is valid.
Respondent contends that assuming that the existence of the contract and the arbitration clause is
conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It
claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is
entitled to rescind the contract with damages; and that issue constitutes a judicial question or one
that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding.
Respondent cites our ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of
jurisdiction over the complaint for declaration of nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the execution of the addendum contract and the other
contracts emanating from it, and that the complaint should have been filed with the regular courts as
it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.
In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines
and Geosciences Bureau, of the Department of Environment and Natural Resources (DENR)
against respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc,
seeking the declaration of nullity or termination of the addendum contract and the other contracts
emanating from it on the grounds of fraud and oppression. The Panel dismissed the complaint for
lack of jurisdiction. However, the Panel, upon petitioner's motion for reconsideration, ruled that it had
jurisdiction over the dispute maintaining that it was a mining dispute, since the subject complaint
arose from a contract between the parties which involved the exploration and exploitation of minerals
over the disputed area.1wphi1 Respondents assailed the order of the Panel of Arbitrators via a
petition for certiorari before the CA. The CA granted the petition and declared that the Panel of
Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was limited to the
resolution of mining disputes, such as those which raised a question of fact or matter requiring the
technical knowledge and experience of mining authorities and not when the complaint alleged fraud
and oppression which called for the interpretation and application of laws. The CA further ruled that
the petition should have been settled through arbitration under R.A. No. 876 the Arbitration Law
as provided under the addendum contract.
On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who, under R.A.
No. 7942 of the Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and
decide mining disputes, such as mining areas, mineral agreements, FTAAs or permits and surface
owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over the complaint for
declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those
mining disputes which raised question of facts or matters requiring the technical knowledge and
experience of mining authorities. We then said:

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the
adjudication of mining cases a purely administrative matter. Decisions of the Supreme Court on
mining disputes have recognized a distinction between (1) the primary powers granted by pertinent
provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau
directors) of an executive or administrative nature, such as granting of license, permits, lease and
contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting
applications, and (2) controversies or disagreements of civil or contractual nature between litigants
which are questions of a judicial nature that may be adjudicated only by the courts of justice. This
distinction is carried on even in Rep. Act No. 7942.28
We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents
with disregarding and ignoring the addendum contract, and acting in a fraudulent and oppressive
manner against petitioner, the complaint filed before the Panel was not a dispute involving rights to
mining areas, or was it a dispute involving claimholders or concessionaires, but essentially judicial
issues. We then said that the Panel of Arbitrators did not have jurisdiction over such issue, since it
does not involve the application of technical knowledge and expertise relating to mining. It is in this
context that we said that:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the
parties as to some provisions of the contract between them, which needs the interpretation and the
application of that particular knowledge and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or validity of such contract or agreement on
the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of
arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters
within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require
the application and interpretation of laws and jurisprudence which is necessarily a judicial function.29
In fact, We even clarified in our resolution on Gonzales motion for reconsideration that "when we
declared that the case should not be brought for arbitration, it should be clarified that the case
referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was
for the nullification of the main contract on the ground of fraud, as it had already been determined
that the case should have been brought before the regular courts involving as it did judicial issues."
We made such clarification in our resolution of the motion for reconsideration after ruling that the
parties in that case can proceed to arbitration under the Arbitration Law, as provided under the
Arbitration Clause in their Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution
dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and
SET ASIDE. The parties are hereby ORDERED to SUBMIT themselves to the arbitration of their
dispute, pursuant to their July 11, 1996 agreement.
SO ORDERED.

G.R. No. 167022

April 4, 2011

LICOMCEN INCORPORATED, Petitioner,


vs.
FOUNDATION SPECIALISTS, INC., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169678
FOUNDATION SPECIALISTS, INC., Petitioner,
vs.
LICOMCEN INCORPORATED, Respondent.
DECISION
BRION, J.:
THE FACTS
The petitioner, LICOMCEN Incorporated (LICOMCEN), is a domestic corporation engaged in the
business of operating shopping malls in the country.
In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public bidding, a
lease contract over a lot located in the central business district of the city. Under the contract,
LICOMCEN was obliged to finance the construction of a commercial complex/mall to be known as
the LCC Citimall (Citimall). It was also granted the right to operate and manage Citimall for 50 years,
and was, thereafter, required to turn over the ownership and operation to the City Government.1
For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its
engineering consultant. Since the Citimall was envisioned to be a high-rise structure, LICOMCEN
contracted respondent Foundation Specialists, Inc. (FSI) to do initial construction works, specifically,
the construction and installation of bored piles foundation.2 LICOMCEN and FSI signed the
Construction Agreement,3 and the accompanying Bid Documents4 and General Conditions of
Contract5 (GCC) on September 1, 1997. Immediately thereafter, FSI purchased the materials
needed for the Citimall6 project and began working in order to meet the 90-day deadline set by
LICOMCEN.
On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design revisions
and the suspension of work on the Citimall project. FSI replied on December 18, 1997, expressing
concern over the revisions and the suspension, as it had fully mobilized its manpower and
equipment, and had ordered the delivery of steel bars. FSI also asked for the payment of
accomplished work amounting to P3,627,818.00.7 A series of correspondence between LICOMCEN
and FSI then followed.
ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in the
bored piles requirement and a substantial reduction in the number of piles. Thus, ESCA proposed to
FSI that only 50% of the steel bars be delivered to the jobsite and the rest be shipped back to
Manila.8 Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on
January 14, 1998.9

On January 15, 1998, LICOMCEN instructed FSI to "hold all construction activities on the
project,"10 in view of a pending administrative case against the officials of the City Government of
Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622).11 On January 19,
1998, ESCA formalized the suspension of construction activities and ordered the constructions
demobilization until the case was resolved.12 In response, FSI sent ESCA a letter, dated February 3,
1998, requesting payment of costs incurred on account of the suspension which
totaled P22,667,026.97.13 FSI repeated its demand for payment on March 3, 1998.14
ESCA replied to FSIs demands for payment on March 24, 1998, objecting to some of the claims.15 It
denied the claim for the cost of the steel bars that were delivered, since the delivery was done in
complete disregard of its instructions. It further disclaimed liability for the other FSI claims based on
the suspension, as its cause was not due to LICOMCENs fault. FSI rejected ESCAs evaluation of
its claims in its April 15, 1998 letter.16
On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment
of P29,232,672.83.17 Since LICOMCEN took no positive action on FSIs demand for payment,18 FSI
filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on
October 2, 2002, docketed as CIAC Case No. 37-2002.19In the arbitration petition, FSI demanded
payment of the following amounts:
a. Unpaid accomplished work billings.

P 1,264,404.12

b. Material costs at site..

15,143,638.51

c. Equipment and labor standby costs..

3,058,984.34

d. Unrealized gross profit..

9,023,575.29

e. Attorneys fees..
f. Interest expenses ...

300,000.00
equivalent to 15%
of the total claim

LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to
indefinitely suspend the Citimall project due to the cases filed against it involving its Lease Contract
with the City Government of Legaspi. LICOMCEN also assailed the CIACs jurisdiction, contending
that FSIs claims were matters not subject to arbitration under GC-61 of the GCC, but one that
should have been filed before the regular courts of Legaspi City pursuant to GC-05.20
During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections to the
CIACs jurisdiction, which the arbitrators simply noted. Both FSI and LICOMCEN then proceeded to
draft the Terms of Reference.21
On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad Cautela
Omnibus Motion, insisting that FSIs petition before the CIAC should be dismissed for lack of
jurisdiction; thus, it prayed for the suspension of the arbitration proceedings until the issue of
jurisdiction was finally settled. The CIAC denied LICOMCENs motion in its February 20, 2003
order,22 finding that the question of jurisdiction depends on certain factual conditions that have yet to
be established by ample evidence. As the CIACs February 20, 2003 order stood uncontested, the
arbitration proceedings continued, with both parties actively participating.
The CIAC issued its decision on July 7, 2003,23 ruling in favor of FSI and awarding the following
amounts:

a. Unpaid accomplished work billings. P 1,264,404.12


b. Material costs at site

14,643,638.51

c. Equipment and labor standby costs

2,957,989.94

d. Unrealized gross profit

5,120,000.00

LICOMCEN was also required to bear the costs of arbitration in the total amount of P474,407.95.
LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November 23,
2004, the CA upheld the CIACs decision, modifying only the amounts awarded by (a) reducing
LICOMCENs liability for material costs at site to P5,694,939.87, and (b) deleting its liability for
equipment and labor standby costs and unrealized gross profit; all the other awards were
affirmed.24 Both parties moved for the reconsideration of the CAs Decision; LICOMCENs motion
was denied in the CAs February 4, 2005 Resolution, while FSIs motion was denied in the CAs
September 13, 2005 Resolution. Hence, the parties filed their own petition for review on certiorari
before the Court.25
LICOMCENs Arguments
LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs claims are
non-arbitrable. In support of its position, LICOMCEN cites GC-61 of the GCC:
GC-61. DISPUTES AND ARBITRATION
Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor
[referring to FSI] or the Engineer [referring to ESCA] and the Contractor in connection with, or arising
out of the execution of the Works, such dispute shall first be referred to and settled by the
LICOMCEN, INCORPORATED who shall within a period of thirty (30) days after being formally
requested by either party to resolve the dispute, issue a written decision to the Engineer and
Contractor.
Such decision shall be final and binding upon the parties and the Contractor shall proceed with the
execution of the Works with due diligence notwithstanding any Contractor's objection to the decision
of the Engineer. If within a period of thirty (30) days from receipt of the LICOMCEN,
INCORPORATED's decision on the dispute, either party does not officially give notice to contest
such decision through arbitration, the said decision shall remain final and binding. However, should
any party, within thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision,
contest said decision, the dispute shall be submitted for arbitration under the Construction Industry
Arbitration Law, Executive Order 1008. The arbitrators appointed under said rules and regulations
shall have full power to open up, revise and review any decision, opinion, direction, certificate or
valuation of the LICOMCEN, INCORPORATED. Neither party shall be limited to the evidence or
arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said
decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him from being
called as a witness and giving evidence in the arbitration. It is understood that the obligations of the
LICOMCEN, INCORPORATED, the Engineer and the Contractor shall not be altered by reason of
the arbitration being conducted during the progress of the Works.26
LICOMCEN posits that only disputes "in connection with or arising out of the execution of the Works"
are subject to arbitration. LICOMCEN construes the phrase "execution of the Works" as referring to
the physical construction activities, since "Works" under the GCC specifically refer to the "structures

and facilities" required to be constructed and completed for the Citimall project.27 It considers FSIs
claims as mere contractual monetary claims that should be litigated before the courts of Legaspi
City, as provided in GC-05 of the GCC:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted for settlement thru arbitration as
provided herein.28
LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid
down in GC-61 of the GCC. An arbitrable dispute under GC-61 must first be referred to and settled
by LICOMCEN, which has 30 days to resolve it. If within a period of 30 days from receipt of
LICOMCENs decision on the dispute, either party does not officially give notice to contest such
decision through arbitration, the said decision shall remain final and binding. However, should any
party, within 30 days from receipt of LICOMCENs decision, contest said decision, the dispute shall
be submitted for arbitration under the Construction Industry Arbitration Law.
LICOMCEN considers its March 24, 1998 letter as its final decision on FSIs claims, but declares that
FSIs reply letter of April 15, 1998 is not the "notice to contest" required by GC-61 that authorizes
resort to arbitration before the CIAC. It posits that nothing in FSIs April 15, 1998 letter states that
FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSIs final demand
letter of March 14, 2001 mentioned its intention to refer the matter to arbitration, LICOMCEN
declares that the letter was made three years after its March 24, 1998 letter, hence, long after the
30-day period provided in GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on
October 2, 2002.29 Considering FSIs delays in asserting its claims, LICOMCEN also contends that
FSIs action is barred by laches.
With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in upholding its
liability for material costs at site for the reinforcing steel bars in the amount of P5,694,939.87,
computed as follows30:
2nd initial rebar requirements purchased from Pag-Asa Steel Works,
Inc..
Reinforcing steel bars purchased from ARCA Industrial Sales (total net
weight of 744,197.66 kilograms) 50% of net amount due.
Subtotal.
Less
Purchase cost of steel bars by Ramon
Quinquileria..
TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT
SITE...

P 799,506.83
5,395,433.04
6,194,939.87

(500,000.00)
5,694,939.87

Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI "[t]he cost of materials or
goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the
Contractor but not yet used, and which delivery has been certified by the Engineer."31 None of these
requisites were allegedly complied with. It contends that FSI failed to establish that the steel bars
delivered in Legaspi City, on January 14, 1998, were for the Citimall project. In fact, the steel bars
were delivered not at the site of the Citimall project, but at FSIs batching plant called Tuanzon

compound, a few hundred meters from the site. Even if delivery to Tuanzon was allowed, the
delivery was done in violation of ESCAs instruction to ship only 50% of the materials. Advised as
early as December 1997 to suspend the works, FSI proceeded with the delivery of the steel bars in
January 1998. LICOMCEN declared that it should not be made to pay for costs that FSI willingly
incurred for itself.32
Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability should be
minimized by the fact that FSI incurred no actual damage from the purchase and delivery of the steel
bars. During the suspension of the works, FSI sold 125,000 kg of steel bars for P500,000.00 to a
third person (a certain Ramon Quinquileria). LICOMCEN alleges that FSI sold the steel bars for a
ridiculously low price of P 4.00/kilo, when the prevailing rate was P20.00/kilo. The sale could have
garnered a higher price that would offset LICOMCENs liability. LICOMCEN also wants FSI to
account for and deliver to it the remaining 744 metric tons of steel bars not sold. Otherwise, FSI
would be unjustly enriched at LICOMCENs expense, receiving payment for materials not delivered
to LICOMCEN.33
LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs of
arbitration. The ruling was apparently based on the finding that LICOMCENs "failure or refusal to
meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to
arbitration."34 LICOMCEN asserts that it was FSIs decision to proceed with the delivery of the steel
bars that actually caused the dispute; it insists that it is not the party at fault which should bear the
arbitration costs.35
FSIs Arguments
FSI takes exception to the CA ruling that modified the amount for material costs at site, and deleted
the awards for equipment and labor standby costs and unrealized profits.
Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of the steel
bars. Under GC-42, it is enough that the materials were delivered to the contractor, although not
used. FSI said that the 744 metric tons of steel bars were ordered and paid for by it for the Citimall
project as early as November 1997. If LICOMCEN contends that these were procured for other
projects FSI also had in Legaspi City, it should have presented proof of this claim, but it failed to do
so.36
ESCAs January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to
Legaspi City; it was not a clear and specific directive. Even if it was, the steel bars were ordered and
paid for long before the notice to suspend was given; by then, it was too late to stop the delivery. FSI
also claims that since it believed in good faith that the Citimall project was simply suspended, it
expected work to resume soon after and decided to proceed with the shipment.37
Contrary to LICOMCENs arguments, GC-42 of the GCC does not require delivery of the materials at
the site of the Citimall project; it only requires delivery to the contractor, which is FSI. Moreover, the
Tuanzon compound, where the steel bars were actually delivered, is very close to the Citimall project
site. FSI contends that it is a normal construction practice for contractors to set up a "staging site," to
prepare the materials and equipment to be used, rather than stock them in the crowded job/project
site. FSI also asserts that it was useless to have the delivery certified by ESCA because by then the
Citimall project had been suspended. It would be unfair to demand FSI to perform an act that ESCA
and LICOMCEN themselves had prevented from happening.38
The CA deleted the awards for equipment and labor standby costs on the ground that FSIs
documentary evidence was inadequate. FSI finds the ruling erroneous, since LICOMCEN never

questioned the list of employees and equipments employed and rented by FSI for the duration of the
suspension.39
FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project. While
LICOMCEN cited several other cases in its petition for review on certiorari as grounds for
suspending the works, its letters/notices of suspension only referred to one case, OMB-ADM-1-970622, an administrative case before the Ombudsman that was dismissed as early as October 12,
1998. LICOMCEN never notified FSI of the dismissal of this case. More importantly, no restraining
order or injunction was issued in any of these cases to justify the suspension of the Citimall
project.40 FSI posits that LICOMCENs true intent was to terminate its contract with it, but, to avoid
paying damages for breach of contract, simply declared it as "indefinitely suspended." That
LICOMCEN conducted another public bidding for the "new designs" is a telling indication of
LICOMCENs intent to ease out FSI.41 Thus, FSI states that LICOMCENs bad faith in indefinitely
suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC-41 that
"[t]he contractor shall have no claim for anticipated profits on the work thus terminated,"42 will not
apply because the stipulation refers to a contract lawfully and properly terminated. FSI seeks to
recover unrealized profits under Articles 1170 and 2201 of the Civil Code.
THE COURTS RULING
The jurisdiction of the CIAC
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to
establish an arbitral machinery that would expeditiously settle construction industry disputes. The
prompt resolution of problems arising from or connected with the construction industry was
considered of necessary and vital for the fulfillment of national development goals, as the
construction industry provides employment to a large segment of the national labor force and is a
leading contributor to the gross national product.43 Section 4 of E.O. 1008 states:
Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the abandonment
or breach thereof. These disputes may involve government or private contracts. For the Board to
acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials
and workmanship; violation of the terms of agreement; interpretation and/or application of
contractual time and delays; maintenance and defects; payment, default of employer or contractor
and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.44 It
cannot be fixed by the will of the parties to a dispute;45 the parties can neither expand nor diminish a
tribunals jurisdiction by stipulation or agreement. The text of Section 4 of E.O. 1008 is broad enough
to cover any dispute arising from, or connected with construction contracts, whether these involve
mere contractual money claims or execution of the works.46 Considering the intent behind the law
and the broad language adopted, LICOMCEN erred in insisting on its restrictive interpretation of GC61. The CIACs jurisdiction cannot be limited by the parties stipulation that only disputes in
connection with or arising out of the physical construction activities (execution of the works) are
arbitrable before it.

In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction
contract to agree to submit their dispute to arbitration. Section 1, Article III of the 1988 CIAC Rules of
Procedure (as amended by CIAC Resolution Nos. 2-91 and 3-93) states:
Section 1. Submission to CIAC Jurisdiction. An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to submit an
existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different
arbitration institution or arbitral body in such contract or submission. When a contract contains a
clause for the submission of a future controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed
by the parties, as long as the intent is clear that the parties agree to submit a present or future
controversy arising from a construction contract to arbitration.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,47 the Court
declared that "the bare fact that the parties x x x incorporated an arbitration clause in [their contract]
is sufficient to vest the CIAC with jurisdiction over any construction controversy or claim between the
parties. The arbitration clause in the construction contract ipso facto vested the CIAC with
jurisdiction."
Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no
intent to limit resort to arbitration only to disputes relating to the physical construction activities.
First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be
interpreted at its widest signification. Under GC-61, the voluntary arbitration clause covers any
dispute of any kind, not only arising of out the execution of the works but also in connection
therewith. The payments, demand and disputed issues in this case namely, work billings, material
costs, equipment and labor standby costs, unrealized profits all arose because of the construction
activities and/or are connected or related to these activities. In other words, they are there because
of the construction activities. Attorneys fees and interests payment, on the other hand, are costs
directly incidental to the dispute. Hence, the scope of the arbitration clause, as worded, covers all
the disputed items.
Second and more importantly, in insisting that contractual money claims can be resolved only
through court action, LICOMCEN deliberately ignores one of the exceptions to the general rule
stated in GC-05:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted for settlement thru arbitration as
provided herein.
The second exception clause authorizes the submission to arbitration of any dispute between
LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI when it filed its petition for
arbitration with the CIAC.
If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be
subjected to a condition precedent. GC-61 requires a party disagreeing with LICOMCENs decision

to "officially give notice to contest such decision through arbitration" within 30 days from receipt of
the decision. However, FSIs April 15, 1998 letter is not the notice contemplated by GC-61; it never
mentioned FSIs plan to submit the dispute to arbitration and instead requested LICOMCEN to
reevaluate its claims. Notwithstanding FSIs failure to make a proper and timely notice, LICOMCENs
decision (embodied in its March 24, 1998 letter) cannot become "final and binding" so as to preclude
resort to the CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is
for the parties to agree to submit their dispute to voluntary arbitration:
[T]he mere existence of an arbitration clause in the construction contract is considered by law as an
agreement by the parties to submit existing or future controversies between them to CIAC
jurisdiction, without any qualification or condition precedent. To affirm a condition precedent in the
construction contract, which would effectively suspend the jurisdiction of the CIAC until compliance
therewith, would be in conflict with the recognized intention of the law and rules to automatically vest
CIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause.48
The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction in the Philippines.49 This jurisdiction
cannot be altered by stipulations restricting the nature of construction disputes, appointing another
arbitral body, or making that bodys decision final and binding.
The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore,
affirmed.
The validity of the indefinite
suspension of the works on the
Citimall project
Before the Court rules on each of FSIs contractual monetary claims, we deem it important to
discuss the validity of LICOMCENs indefinite suspension of the works on the Citimall project. We
quote below two contractual stipulations relevant to this issue:
GC-38. SUSPENSION OF WORKS
The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to
suspend the Works wholly or partly by written order for such period as may be deemed necessary,
due to unfavorable weather or other conditions considered unfavorable for the prosecution of the
Works, or for failure on the part of the Contractor to correct work conditions which are unsafe for
workers or the general public, or failure or refusal to carry out valid orders, or due to change of plans
to suit field conditions as found necessary during construction, or to other factors or causes which, in
the opinion of the Engineer, is necessary in the interest of the Works and to the LICOMCEN,
INCORPORATED. The Contractor [FSI] shall immediately comply with such order to suspend the
work wholly or partly directed.
In case of total suspension or suspension of activities along the critical path of the approved
PERT/CPM network and the cause of which is not due to any fault of the Contractor, the elapsed
time between the effective order for suspending work and the order to resume work shall be allowed
the Contractor by adjusting the time allowed for his execution of the Contract Works.
The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of
work when conditions to resume work shall have become favorable or the reasons for the
suspension have been duly corrected.50

GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE


CONTRACT
xxxx
2. For Convenience of LICOMCEN, INCORPORATED
If any time before completion of work under the Contract it shall be found by the LICOMCEN,
INCORPORATED that reasons beyond the control of the parties render it impossible or against the
interest of the LICOMCEN, INCORPORATED to complete the work, the LICOMCEN,
INCORPORATED at any time, by written notice to the Contractor, may discontinue the work and
terminate the Contract in whole or in part. Upon the issuance of such notice of termination, the
Contractor shall discontinue to work in such manner, sequence and at such time as the LICOMCEN,
INCORPORATED/Engineer may direct, continuing and doing after said notice only such work and
only until such time or times as the LICOMCEN, INCORPORATED/Engineer may direct.51
Under these stipulations, we consider LICOMCENs initial suspension of the works valid. GC-38
authorizes the suspension of the works for factors or causes which ESCA deems necessary in the
interests of the works and LICOMCEN. The factors or causes of suspension may pertain to a
change or revision of works, as cited in the December 16, 1997 and January 6, 1998 letters of
ESCA, or to the pendency of a case before the Ombudsman (OMB-ADM-1-97-0622), as cited in
LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998 and February 17, 1998 letters.
It was not necessary for ESCA/LICOMCEN to wait for a restraining or injunctive order to be issued in
any of the cases filed against LICOMCEN before it can suspend the works. The language of GC-38
gives ESCA/LICOMCEN sufficient discretion to determine whether the existence of a particular
situation or condition necessitates the suspension of the works and serves the interests of
LICOMCEN.1avvphi1
Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully
prolonged the suspension of the works (or "indefinite suspension" as LICOMCEN calls it). GC-38
requires ESCA/LICOMCEN to "issue an order lifting the suspension of work when conditions to
resume work shall have become favorable or the reasons for the suspension have been duly
corrected." The Ombudsman case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in
their letters to FSI as a ground for the suspension, was dismissed as early as October 12, 1998, but
neither ESCA nor LICOMCEN informed FSI of this development. The pendency of the other
cases52 may justify the continued suspension of the works, but LICOMCEN never bothered to inform
FSI of the existence of these cases until the arbitration proceedings commenced. By May 28, 2002,
the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed with the Citimall
project;53 again, LICOMCEN failed to relay this information to FSI. Instead, LICOMCEN conducted a
rebidding of the Citimall project based on the new design.54 LICOMCENs claim that the rebidding
was conducted merely to get cost estimates for the new design goes against the established
practice in the construction industry. We find the CIACs discussion on this matter relevant:
But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was
issued x x x solely to gather cost estimates on the redesigned [Citimall project] x x x. This Arbitral
Tribunal finds said act of asking for bids, without any intention of awarding the project to the lowest
and qualified bidder, if true, to be extremely irresponsible and highly unprofessional. It might even be
branded as fraudulent x x x [since] the invited bidders [were required] to pay P2,000.00 each for a
set of the new plans, which amount was non-refundable. The presence of x x x deceit makes the
whole story repugnant and unacceptable.55

LICOMCENs omissions and the imprudent rebidding of the Citimall project are telling indications of
LICOMCENs intent to ease out FSI and terminate their contract. As with GC-31, GC-42(2) grants
LICOMCEN ample discretion to determine what reasons render it against its interest to complete the
work in this case, the pendency of the other cases and the revised designs for the Citimall project.
Given this authority, the Court fails to the see the logic why LICOMCEN had to resort to an
"indefinite suspension" of the works, instead of outrightly terminating the contract in exercise of its
rights under GC-42(2).
We now proceed to discuss the effects of these findings with regard to FSIs monetary claims
against LICOMCEN.
The claim for material costs at site
GC-42 of the GCC states:
GC-42 PAYMENT FOR TERMINATED CONTRACT
If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed,
satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up to the date of
termination, at the rates and prices provided for in the Contract and in addition:
1. The cost of partially accomplished items of additional or extra work agreed upon by the
LICOMCEN, INCORPORATED and the Contractor.
2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works
which have been delivered to the Contractor but not yet used and which delivery has been
certified by the Engineer.
3. The reasonable cost of demobilization
For any payment due the Contractor under the above conditions, the LICOMCEN,
INCORPORATED, however, shall deduct any outstanding balance due from the Contractor for
advances in respect to mobilization and materials, and any other sum the LICOMCEN,
INCORPORATED is entitled to be credited.56
For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that
a. the materials or goods were reasonably ordered for the Permanent or Temporary Works;
b. the materials or goods were delivered to the Contractor but not yet used; and
c. the delivery was certified by the Engineer.
Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable
for the cost of the steel bars ordered for the Citimall project; the two tribunals differed only to the
extent of LICOMCENs liability because the CA opined that it should be limited only to 50% of the
cost of the steel bars. A review of the records compels us to uphold the CAs finding.
Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCAs
January 6, 1998 letter reads:

As per our information to you on December 16, 1997, a major revision in the design of the Legaspi
Citimall necessitated a change in the bored piles requirement of the project. The change involved a
substantial reduction in the number and length of piles.
We expected that you would have suspended the deliveries of the steel bars until the new design
has been approved.
According to you[,] the steel bars had already been paid and loaded and out of Manila on said date.
In order to avoid double handling, storage, security problems, we suggest that only 50% of the total
requirement of steel bars be delivered at jobsite. The balance should be returned to Manila where
storage and security is better.
In order for us to consider additional cost due to the shipping of the excess steel bars, we need to
know the actual dates of purchase, payments and loading of the steel bars. Obviously, we cannot
consider the additional cost if you have had the chance to delay the shipping of the steel bars.57
From the above, it appears that FSI was informed of the necessity of suspending the works as early
as December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to immediately comply
with the order to suspend the work.58 Though ESCAs December 16, 1997 notice may not have been
categorical in ordering the suspension of the works, FSIs reply letter of December 18, 1997
indicated that it actually complied with the notice to suspend, as it said, "We hope for the early
resolution of the new foundation plan and the resumption of work."59 Despite the suspension, FSI
claimed that it could not stop the delivery of the steel bars (nor found the need to do so) because (a)
the steel bars were ordered as early as November 1997 and were already loaded in Manila and
expected to arrive in Legaspi City by December 23, 1997, and (b) it expected immediate resumption
of work to meet the 90-day deadline.60
Records, however, disclose that these claims are not entirely accurate. The memorandum of
agreement and sale covering the steel bars specifically stated that these would be withdrawn from
the Cagayan de Oro depot, not Manila61; indeed, the bill of lading stated that the steel bars were
loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within three days, on
January 14, 1998.62 The loading and delivery of the steel bar thus happened after FSI received
ESCAs December 16, 1997 and January 6, 1998 letters days after the instruction to suspend the
works. Also, the same stipulation that authorizes LICOMCEN to suspend the works allows the
extension of the period to complete the works. The relevant portion of
GC-38 states:
In case of total suspension x x x and the cause of which is not due to any fault of the Contractor
[FSI], the elapsed time between the effective order for suspending work and the order to resume
work shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract
Works.63
The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de
Oro to Legaspi City, thus negates both FSIs
argument and the CIACs ruling64 that there was no necessity to stop the shipment so as to meet the
90-day deadline. These circumstances prove that FSI acted imprudently in proceeding with the
delivery, contrary to LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for
only 50% of the costs of the steel bars delivered.

The claim for equipment and


labor standby costs
The Court upholds the CAs ruling deleting the award for equipment and labor standby costs. We
quote in agreement pertinent portions of the CA decision:
The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and
maintained at the construction site during the suspension of the project with the prorated rentals
incurred x x x. To the mind of this Court, these lists are not sufficient to establish the fact that indeed
[FSI] incurred the said expenses. Reliance on said lists is purely speculative x x x the list of
equipments is a mere index or catalog of the equipments, which may be utilized at the construction
site. It is not the best evidence to prove that said equipment were in fact rented and maintained at
the construction site during the suspension of the work. x x x [FSI] should have presented the lease
contracts or any similar documents such as receipts of payments x x x. Likewise, the list of
employees does not in anyway prove that those employees in the list were indeed at the
construction site or were required to be on call should their services be needed and were being paid
their salaries during the suspension of the project. Thus, in the absence of sufficient evidence, We
deny the claim for equipment and labor standby costs.65
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE THE
CONTRACT
xxxx
2. For Convenience of the LICOMCEN, INCORPORATED
x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the
Contract, but the Contractor shall receive compensation for reasonable expenses incurred in good
faith for the performance of the Contract and for reasonable expenses associated with termination of
the Contract. The LICOMCEN, INCORPORATED will determine the reasonableness of such
expenses. The Contractor [FSI] shall have no claim for anticipated profits on the work thus
terminated, nor any other claim, except for the work actually performed at the time of complete
discontinuance, including any variations authorized by the LICOMCEN, INCORPORATED/Engineer
to be done.
The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated,
which was not the case at bar. FSI also took pains in differentiating its claim for "unrealized profit"
from the prohibited claim for "anticipated profits"; supposedly, unrealized profit is "one that is built-in
in the contract price, while anticipated profit is not." We fail to see the distinction, considering that the
contract itself neither defined nor differentiated the two terms. [A] contract must be interpreted from
the language of the contract itself, according to its plain and ordinary meaning."66 If the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control.67
Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the proper
procedure in terminating the contract by declaring that it was merely indefinitely suspended, we
deem that FSI is entitled to the payment of nominal damages. Nominal damages may be awarded to
a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating

or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him.68 Its
award is, thus, not for the purpose of indemnification for a loss but for the recognition and vindication
of a right. A violation of the plaintiffs right, even if only technical, is sufficient to support an award of
nominal damages.69 FSI is entitled to recover the amount of P100,000.00 as nominal damages.
The liability for costs of arbitration
Under the parties Terms of Reference, executed before the CIAC, the costs of arbitration shall be
equally divided between them, subject to the CIACs determination of which of the parties shall
eventually shoulder the amount.70The CIAC eventually ruled that since LICOMCEN was the party at
fault, it should bear the costs. As the CA did, we agree with this finding. Ultimately, it was
LICOMCENs imprudent declaration of indefinitely suspending the works that caused the dispute
between it and FSI. LICOMCEN should bear the costs of arbitration.
WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN
INCORPORATED, docketed as G.R. No. 167022, and the petition for review on certiorari of
FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The November 23,
2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to include the award
of nominal damages in favor of FOUNDATION SPECIALISTS, INC. Thus, LICOMCEN
INCORPORATED is ordered to pay FOUNDATION SPECIALISTS, INC. the following amounts:
a. P1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings;
b. P5,694,939.87 for material costs at site; and
c. P100,000.00 for nominal damages.
LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs.
SO ORDERED.

G.R. No. 185582

February 29, 2012

TUNA PROCESSING, INC., Petitioner,


vs.
PHILIPPINE KINGFORD, INC., Respondent.
DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties
from entities in the Philippines, sue here to enforce a foreign arbitral award?
In this Petition for Review on Certiorari under Rule 45,1 PETITIONER Tuna Processing, Inc. (TPI),
a foreign corporation not licensed to do business in the Philippines, prays that the
Resolution2 dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be declared
void and the case be remanded to the RTC for further proceedings. In the assailed Resolution, the
RTC dismissed petitioners Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award3 against respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized
and existing under the laws of the Philippines,4 on the ground that petitioner lacked legal capacity to
sue.5
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-patentee
of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No.
ID0003911 (collectively referred to as the "Yamaoka Patent"),6 and five (5) Philippine tuna
processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
Resources, Santa Cruz Seafoods, Inc., and RESPONDENT Kingford (collectively referred to as the
"sponsors"/"licensees")7 entered into a Memorandum of Agreement (MOA),8 pertinent provisions
of which read:
1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619,
Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form an
alliance with Sponsors for purposes of enforcing his three aforementioned patents, granting
licenses under those patents, and collecting royalties.
The Sponsors wish to be licensed under the aforementioned patents in order to practice the
processes claimed in those patents in the United States, the Philippines, and Indonesia,
enforce those patents and collect royalties in conjunction with Licensor.
xxx
4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment
of Tuna Processors, Inc. ("TPI"), a corporation established in the State of California, in order
to implement the objectives of this Agreement.
5. Bank account. TPI shall open and maintain bank accounts in the United States, which will
be used exclusively to deposit funds that it will collect and to disburse cash it will be
obligated to spend in connection with the implementation of this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be
assigned one share of TPI for the purpose of being elected as member of the board of
directors. The remaining shares of TPI shall be held by the Sponsors according to their
respective equity shares. 9
xxx
The parties likewise executed a Supplemental Memorandum of Agreement10 dated 15 January 2003
and an Agreement to Amend Memorandum of Agreement11 dated 14 July 2003.
Due to a series of events not mentioned in the petition, the licensees, including respondent
Kingford, withdrew from petitioner TPI and correspondingly reneged on their
obligations.12 Petitioner submitted the dispute for arbitration before the International Centre for
Dispute Resolution in the State of California, United States and won the case against
respondent.13 Pertinent portions of the award read:
13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the
terms of this award, the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI, is
the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY SIX
DOLLARS AND TEN CENTS ($1,750,846.10).
(A) For breach of the MOA by not paying past due assessments, RESPONDENT
KINGFORD shall payCLAIMANT the total sum of TWO HUNDRED TWENTY NINE
THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]
(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the
objectives of theMOA, RESPONDENT KINGFORD shall pay CLAIMANT the total sum
of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS
AND TWENTY CENTS ($271,490.20)[;]14 and
(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT,
RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO
HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($1,250,000.00). xxx
xxx15
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The petition
was raffled to Branch 150 presided by Judge Elmo M. Alameda.
At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied the
motion for lack of merit,17 respondent sought for the inhibition of Judge Alameda and moved for the
reconsideration of the order denying the motion.18 Judge Alameda inhibited himself notwithstanding
"[t]he unfounded allegations and unsubstantiated assertions in the motion."19 Judge Cedrick O.
Ruiz of Branch 61, to which the case was re-raffled, in turn, granted respondents Motion for
Reconsideration and dismissed the petition on the ground that the petitioner lacked legal
capacity to sue in the Philippines.20

Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the
order of the trial court dismissing its Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so dismissing the petition
on the ground of petitioners lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the Philippines;
but such corporation may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
Herein plaintiff TPIs "Petition, etc." acknowledges that it "is a foreign corporation established in the
State of California" and "was given the exclusive right to license or sublicense the Yamaoka Patent"
and "was assigned the exclusive right to enforce the said patent and collect corresponding royalties"
in the Philippines. TPI likewise admits that it does not have a license to do business in the
Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the
Philippines, but sans a license to do so issued by the concerned government agency of the
Republic of the Philippines, when it collected royalties from "five (5) Philippine tuna processors[,]
namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources,
Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc." This being the real situation,
TPI cannot be permitted to maintain or intervene in any action, suit or proceedings in any court or
administrative agency of the Philippines." A priori, the "Petition, etc." extant of the plaintiff TPI should
be dismissed for it does not have the legal personality to sue in the Philippines.21
The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of
the subject foreign arbitral award in accordance with Republic Act No. 9285 (Alternative Dispute
Resolution Act of 2004),22the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards drafted during the United Nations Conference on International Commercial Arbitration in
1958 (New York Convention), and the UNCITRAL Model Law on International Commercial
Arbitration (Model Law),23 as none of these specifically requires that the party seeking for the
enforcement should have legal capacity to sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for this
reason that TPI has brought this matter before this most Honorable Court, as it [i]s imperative to
clarify whether the Philippines international obligations and State policy to strengthen arbitration as

a means of dispute resolution may be defeated by misplaced technical considerations not found in
the relevant laws.24
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one
hand, and theAlternative Dispute Resolution Act of 2004, the New York Convention and the Model
Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of
the Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus, in Koruga
v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code and applied the New
Central Bank Act. It ratiocinated:
Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with
similar antecedents, we ruled that:
"The Corporation Code, however, is a general law applying to all types of corporations, while the
New Central Bank Act regulates specifically banks and other financial institutions, including the
dissolution and liquidation thereof. As between a general and special law, the latter shall prevail
generalia specialibus non derogant." (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform
Council,27 this Court held:
Without doubt, the Corporation Code is the general law providing for the formation, organization
and regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian
reform. As between a general and special law, the latter shall prevailgeneralia specialibus
non derogant.28
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this
case as the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute Resolution
System in the Philippines and to Establish the Office for Alternative Dispute Resolution, and for
Other Purposes - would suggest, is a law especially enacted "to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own
arrangements to resolve their disputes."29 It specifically provides exclusive grounds available to
the party opposing an application for recognition and enforcement of the arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant
petition, we do not see the need to discuss compliance with international obligations under the New
York Convention and theModel Law. After all, both already form part of the law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention in the Act by specifically providing:
SEC. 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.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may
oppose an application for recognition and enforcement of the arbitral award in accordance with the
procedural rules to be promulgated by the Supreme Court only on those grounds enumerated under

Article V of the New York Convention. Any other ground raised shall be disregarded by the regional
trial court.
It also expressly adopted the Model Law, to wit:
Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International
commercial arbitration shall be governed by the Model Law on International Commercial Arbitration
(the "Model Law") adopted by the United Nations Commission on International Trade Law on June
21, 1985 xxx."
Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to
sue under the provisions of the Alternative Dispute Resolution Act of 2004? We answer in the
affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an
application for recognition and enforcement of the arbitral award may raise only those grounds that
were enumerated under Article V of the New York Convention, to wit:
Article V
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 the
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 decisions 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 and 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; or
(e) The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law 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.
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the
recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31 which was
promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition the
court to recognize and enforce a foreign arbitral award." The contents of such petition are
enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in the Rule on local
arbitral awards or arbitrations in instances where "the place of arbitration is in the Philippines,"33 it is
specifically required that a petition "to determine any question concerning the existence, validity and
enforceability of such arbitration agreement"34 available to the parties before the commencement of
arbitration and/or a petition for "judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction"35 after arbitration has already commenced should
state "[t]he facts showing that the persons named as petitioner or respondent have legal capacity to
sue or be sued."36
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we
deny availment by the losing party of the rule that bars foreign corporations not licensed to do
business in the Philippines from maintaining a suit in our courts. When a party enters into a
contract containing a foreign arbitration clause and, as in this case, in fact submits itself to
arbitration, it becomes bound by the contract, by the arbitration and by the result of arbitration,
conceding thereby the capacity of the other party to enter into the contract, participate in the
arbitration and cause the implementation of the result. Although not on all fours with the instant case,
also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset
Privatization Trust v. Court of Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial
circles here and abroad. If its tested mechanism can simply be ignored by an aggrieved party, one
who, it must be stressed, voluntarily and actively participated in the arbitration proceedings from the
very beginning, it will destroy the very essence of mutuality inherent in consensual contracts.38
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it
is favored over domestic laws and procedures, but because Republic Act No. 9285 has certainly
erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that
the Model Law, not the New York Convention, governs the subject arbitral award,39 petitioner may
still seek recognition and enforcement of the award in Philippine court, since the Model
Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement.40
Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may
seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of
the Alternative Dispute Resolution Act of 2004.

II
The remaining arguments of respondent Kingford are likewise unmeritorious.
First. There is no need to consider respondents contention that petitioner TPI improperly raised a
question of fact when it posited that its act of entering into a MOA should not be considered "doing
business" in the Philippines for the purpose of determining capacity to sue. We reiterate that the
foreign corporations capacity to sue in the Philippines is not material insofar as the recognition and
enforcement of a foreign arbitral award is concerned.
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed
Resolution dated 21 November 2008 dismissing the case. We have, time and again, ruled that the
prior filing of a motion for reconsideration is not required in certiorari under Rule 45.41
Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which,
under ordinary circumstances, warrants the outright dismissal of the case,42 we opt to relax the rules
following the pronouncement in Chua v. Ang,43 to wit:
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases
involving conflicting factual allegations. Cases which depend on disputed facts for decision cannot
be brought immediately before us as we are not triers of facts.44 A strict application of this rule may
be excused when the reason behind the rule is not present in a case, as in the present case, where
the issues are not factual but purely legal.1wphi1 In these types of questions, this Court has the
ultimate say so that we merely abbreviate the review process if we, because of the unique
circumstances of a case, choose to hear and decide the legal issues outright.45
Moreover, the novelty and the paramount importance of the issue herein raised should be seriously
considered.46Surely, there is a need to take cognizance of the case not only to guide the bench and
the bar, but if only to strengthen arbitration as a means of dispute resolution, and uphold the policy
of the State embodied in theAlternative Dispute Resolution Act of 2004, to wit:
Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements
to resolve their disputes. Towards this end, the State shall encourage and actively promote the use
of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. xxx
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we leave
its determination to the court a quo where its recognition and enforcement is being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for
time to file petition for review on certiorari before the petition was filed with this Court.47 We,
however, find petitioners reply in order. Thus:
26. Admittedly, reference to "Branch 67" in petitioner TPIs "Motion for Time to File a Petition for
Review on Certiorari under Rule 45" is a typographical error. As correctly pointed out by respondent
Kingford, the order sought to be assailed originated from Regional Trial Court, Makati City, Branch
61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of petitioner
TPIs motion was received by the Metropolitan Trial Court, Makati City, Branch 67. On 8 January
2009, the motion was forwarded to the Regional Trial Court, Makati City, Branch 61.48
All considered, petitioner TPI, although a foreign corporation not licensed to do business in the
Philippines, is not, for that reason alone, precluded from filing the Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before a Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61,
Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE. The case
is REMANDED to Branch 61 for further proceedings.
SO ORDERED.

G.R. No. 179628

January 16, 2013

THE MANILA INSURANCE COMPANY, INC., Petitioner,


vs.
SPOUSES ROBERTO and AIDA AMURAO, Respondents.
DECISION
DEL CASTILLO, J.:
The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by
law. Section 41 of Executive Order (E.O.) No. I 008, otherwise known as the Construction Industry
Arbitration Law, "is broad enough to cover any dispute arising from, or connected with construction
contracts, whether these involve mere contractual money claims or execution of the works."2
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the
Decision4 dated June 7, 2007 and the Resolution5 dated September 7, 2007 of the Court of Appeals
(CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, RESPONDENT-spouses Roberto and Aida Amurao entered into a
Construction Contract Agreement (CCA)6 with Aegean Construction and Development
Corporation (AEGEAN) for the construction of a six-storey commercial building in Tomas Morato
corner E. Rodriguez Avenue, Quezon City.7 To guarantee its full and faithful compliance with the
terms and conditions of the CCA, Aegean posted performance bonds secured by PETITIONER
The Manila Insurance Company, Inc.8 (petitioner) and Intra Strata Assurance Corporation (Intra
Strata).9
On November 15, 2001, due to the failure of Aegean to complete the project, respondent
spouses filed with the Regional Trial Court (RTC) of Quezon City, Branch 217, a
Complaint,10 docketed as Civil Case No. Q-01-45573, against petitioner and Intra Strata to collect on
the performance bonds they issued in the amounts ofP2,760,000.00 and P4,440,000.00,
respectively.11
Intra Strata, for its part, filed an Answer12 and later, a Motion to Admit Third Party Complaint,13 with
attached Third Party Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. Mariano.
Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint states
no cause of action16 and that the filing of the Complaint is premature due to the failure of
respondent-spouses to implead the principal contractor, Aegean.17 The RTC, however, denied the
motion in an Order18 dated May 8, 2002. Thus, petitioner filed an Answer with Counterclaim and
Cross-claim,19 followed by a Third Party Complaint20 against Aegean and spouses Ronald and
Susana Nicdao.
During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by
respondent-spouses and Aegean contained an arbitration clause.21
Hence, they filed separate Motions to Dismiss22 on the grounds of lack of cause of action and lack of
jurisdiction.

Ruling of the Regional Trial Court


On May 5, 2006, the RTC denied both motions.23 Petitioner and Intra Strata separately moved for
reconsideration but their motions were denied by the RTC in its subsequent Order24 dated
September 11, 2006.
Aggrieved, petitioner elevated the case to the CA by way of special civil action for certiorari.25
Ruling of the Court of Appeals
On June 7, 2007, the CA rendered a Decision26 dismissing the petition. The CA ruled that the
presence of an arbitration clause in the CCA does not merit a dismissal of the case because under
the CCA, it is only when there are differences in the interpretation of Article I of the construction
agreement that the parties can resort to arbitration.27 The CA also found no grave abuse of
discretion on the part of the RTC when it disregarded the fact that the CCA was not yet signed at the
time petitioner issued the performance bond on February 29, 2000.28 The CA explained that the
performance bond was intended to be coterminous with the construction of the building.29 It pointed
out that "if the delivery of the original contract is contemporaneous with the delivery of the suretys
obligation, each contract becomes completed at the same time, and the consideration which
supports the principal contract likewise supports the subsidiary one."30 The CA likewise said that,
although the contract of surety is only an accessory to the principal contract, the suretys liability is
direct, primary and absolute.31 Thus:
WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of discretion
attended the issuance of the order of the public respondent denying the petitioners motion to
dismiss.
IT IS SO ORDERED.32
Petitioner moved for reconsideration but the CA denied the same in a Resolution33 dated September
7, 2007.
Issues
Hence, this petition raising the following issues:
A.
THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE ARE
DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE CONSTRUCTION
AGREEMENT THAT THE PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.
B.
THE HONORABLE CA ERRED IN TREATING PETITIONER AS A SOLIDARY DEBTOR INSTEAD
OF A SOLIDARY GUARANTOR.
C.

THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE
WAS NO ACTUAL AND EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE MANILA
INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON FEBRUARY 29, 2000.34
Petitioners Arguments
Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only when
there is difference in the interpretation of the contract documents stated in Article I of the
CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it is the CIAC that has original and
exclusive jurisdiction over construction disputes, such as the instant case.36
Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor
instead of a solidary guarantor.37 Petitioner argues that while a surety is bound solidarily with the
obligor, this does not make the surety a solidary co-debtor.38 A surety or guarantor is liable only if the
debtor is himself liable.39 In this case, since respondent-spouses and Aegean agreed to submit any
dispute for arbitration before the CIAC, it is imperative that the dispute between respondent-spouses
and Aegean must first be referred to arbitration in order to establish the liability of Aegean.40 In other
words, unless the liability of Aegean is determined, the filing of the instant case is premature.41
Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution
of the CCA.42Petitioner claims that since there was no existing contract at the time the performance
bond was executed, respondent-spouses have no cause of action against petitioner.43 Thus, the
complaint should be dismissed.44
Respondent spouses Arguments
Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the case
because there is no ambiguity in the provisions of the CCA.45 Besides, petitioner is not a party to the
CCA.46 Hence, it cannot invoke Article XVII of the CCA, which provides for arbitration
proceedings.47 Respondent-spouses also insist that petitioner as a surety is directly and equally
bound with the principal.48 The fact that the performance bond was issued prior to the execution of
the CCA also does not affect the latters validity because the performance bond is coterminous with
the construction of the building.49
Our Ruling
The petition has merit.
Nature of the liability of the surety
A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees
the performance by another party, called the principal or obligor, of an obligation or undertaking in
favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under the provisions of Act No. 536, as
amended by Act No. 2206."50 We have consistently held that a suretys liability is joint and several,
limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in
relation to the principal contract between the obligor and the obligee.51 It bears stressing, however,
that although the contract of suretyship is secondary to the principal contract, the suretys liability to
the obligee is nevertheless direct, primary, and absolute.52

In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner (surety)
to collect on the performance bond it issued. Petitioner, however, seeks the dismissal of the
Complaint on the grounds of lack of cause of action and lack of jurisdiction.
The respondent-spouses have cause of action against the petitioner; the performance bond is
coterminous with the CCA
Petitioner claims that respondent-spouses have no cause of action against it because at the time it
issued the performance bond, the CCA was not yet signed by respondent-spouses and Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the "bond is coterminous with the final
acceptance of the project."53 Thus, the fact that it was issued prior to the execution of the CCA does
not affect its validity or effectivity.
But while there is a cause of action against petitioner, the complaint must still be dismissed for lack
of jurisdiction.
The CIAC has jurisdiction over the case
Section 4 of E.O. No. 1008 provides that:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. These disputes may involve government or private contracts. For
the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary
arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials
and workmanship, violation of the terms of agreement, interpretation and/or application of
contractual time and delays, maintenance and defects, payment, default of employer or contractor,
and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must
concur: "first, the dispute must be somehow connected to a construction contract; and second, the
parties must have agreed to submit the dispute to arbitration proceedings."54
In this case, both requisites are present.
The parties agreed to submit to arbitration proceedings "any dispute arising in the course of the
execution and performance of the CCA by reason of difference in interpretation of the Contract
Documents x x x which the parties are unable to resolve amicably between themselves."55 Article
XVII of the CCA reads:
ARTICLE XVII ARBITRATION

17.1 Any dispute arising in the course of the execution and performance of this Agreement by
reason of difference in interpretation of the Contract Documents set forth in Article I which the
OWNER and the CONTRACTOR are unable to resolve amicably between themselves shall be
submitted by either party to a board of arbitrators composed of Three (3) members chosen as
follows: One (1) member shall be chosen by the CONTRACTOR AND One (1) member shall be
chosen by the OWNER. The said Two (2) members, in turn, shall select a third member acceptable
to both of them. The decision of the Board of Arbitrators shall be rendered within Ten (10) days from
the first meeting of the board, which decision when reached through the affirmative vote of at least
Two (2) members of the board shall be final and binding upon the OWNER and
CONTRACTOR.1wphi1
17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall
be governed by the provisions of the Arbitration Law, Executive Order No. 1008.56
In William Golangco Construction Corporation v. Ray Burton Development Corporation,57 we
declared that monetary claims under a construction contract are disputes arising from "differences in
interpretation of the contract" because "the matter of ascertaining the duties and obligations of the
parties under their contract all involve interpretation of the provisions of the contract."58 Following our
reasoning in that case, we find that the issue of whether respondent-spouses are entitled to collect
on the performance bond issued by petitioner is a "dispute arising in the course of the execution and
performance of the CCA by reason of difference in the interpretation of the contract documents."
The fact that petitioner is not a party to the CCA cannot remove the dispute from the jurisdiction of
the CIAC because the issue of whether respondent-spouses are entitled to collect on the
performance bond, as we have said, is a dispute arising from or connected to the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc.,59 we rejected the
argument that the jurisdiction of CIAC is limited to the construction industry, and thus, cannot extend
to surety contracts. In that case, we declared that "although not the construction contract itself, the
performance bond is deemed as an associate of the main construction contract that it cannot be
separated or severed from its principal. The Performance Bond is significantly and substantially
connected to the construction contract that there can be no doubt it is the CIAC, under Section 4 of
E.O. No. 1008, which has jurisdiction over any dispute arising from or connected with it."60
In view of the foregoing, we agree with the petitioner that juriisdiction over the instant case lies with
the CIAC, and not with the RTC. Thus, the Complaint filed by respondent-spouses with the RTC
must be dismissed.
WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the
Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are hereby
ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon City,
Branch 217 1s DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.
SO ORDERED.

G.R. No. 199650

June 26, 2013

J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,


vs.
UTILITY ASSURANCE CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision1 dated January 27,2011 and Resolution2 dated
December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112808.
The Facts
On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its
Chairman, Joo Han Lee, and Martin E. Mabunay, doing business under the name and style of Seven
Shades of Blue Trading and Services, entered into a Construction Agreement3 whereby the latter
undertook to build the former's 72-room condominium/hotel (Condotel Building 25) located at the
Fairways & Bluewaters Golf & Resort in Boracay Island, Malay, Aklan. The project,
costing P42,000,000.00, was to be completed within one year or 365 days reckoned from the first
calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down
payment (20% of contract price). The P8,400,000.00 down payment was fully paid on January 14,
2008.4Payment of the balance of the contract price will be based on actual work finished within 15
days from receipt of the monthly progress billings. Per the agreed work schedule, the completion
date of the project was December 2008.5 Mabuhay also submitted the required Performance
Bond6 issued by respondent Utility Assurance Corporation (UTASSCO) in the amount equivalent to
20% down payment or P8.4 million.
Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th
monthly progress billing sent by Mabunay. As of September 16, 2008, petitioner had paid the total
amount of P15,979,472.03 inclusive of the 20% down payment. However, as of said date, Mabunay
had accomplished only 27.5% of the project.7
In the Joint Construction Evaluation Result and Status Report8 signed by Mabunay assisted by Arch.
Elwin Olavario, and Joo Han Lee assisted by Roy V. Movido, the following findings were accepted
as true, accurate and correct:
III STATUS OF PROJECT AS OF 14 NOVEMBER 2008
1) After conducting a joint inspection and evaluation of the project to determine the actual
percentage of accomplishment, the contracting parties, assisted by their respective technical
groups, SSB assisted by Arch. Elwin Olavario and JPLUS assisted by Engrs. Joey Rojas and
Shiela Botardo, concluded and agreed that as of 14 November 2008, the project is only
Thirty One point Thirty Nine Percent (31.39%) complete.
2) Furthermore, the value of construction materials allocated for the completion of the project
and currently on site has been determined and agreed to be ONE MILLION FORTY NINE
THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND FORTY FIVE CENTAVOS
(P1,049,364.45)

3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th
and 9th billings, is Three point Eighty Five Percent (3.85%) with a gross value
of P1,563,553.34 amount creditable to SSB after deducting the withholding tax
is P1,538,424.84
4) The unrecouped amount of the down payment is P2,379,441.53 after deducting the cost
of materials on site and the net billable amount reflected in the reconciled and consolidated
8th and 9th billings. The uncompleted portion of the project is 68.61% with an estimated
value per construction agreement signed isP27,880,419.52.9 (Emphasis supplied.)
On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay and
respondent surety. As its demands went unheeded, petitioner filed a Request for Arbitration10 before
the Construction Industry Arbitration Commission (CIAC). Petitioner prayed that Mabunay and
respondent be ordered to pay the sums of P8,980,575.89 as liquidated damages and P2,379,441.53
corresponding to the unrecouped down payment or overpayment petitioner made to Mabunay.11
In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other revision works
ordered by Joo Han Lee. He asserted that he actually had until April 30, 2009 to finish the project
since the 365 days period of completion started only on May 2, 2008 after clearing the retrofitted old
structure. Hence, the termination of the contract by petitioner was premature and the filing of the
complaint against him was baseless, malicious and in bad faith.
Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no cause
of action and the complaint states no cause of action against it. The CIAC denied the motion to
dismiss. Respondents motion for reconsideration was likewise denied.13
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Crossclaims,14 respondent argued that the performance bond merely guaranteed the 20% down payment
and not the entire obligation of Mabunay under the Construction Agreement. Since the value of the
projects accomplishment already exceeded the said amount, respondents obligation under the
performance bond had been fully extinguished. As to the claim for alleged overpayment to Mabunay,
respondent contended that it should not be credited against the 20% down payment which was
already exhausted and such application by petitioner is tantamount to reviving an obligation that had
been legally extinguished by payment. Respondent also set up a cross-claim against Mabunay who
executed in its favor an Indemnity Agreement whereby Mabunay undertook to indemnify respondent
for whatever amounts it may be adjudged liable to pay petitioner under the surety bond.
Both petitioner and respondent submitted their respective documentary and testimonial evidence.
Mabunay failed to appear in the scheduled hearings and to present his evidence despite due notice
to his counsel of record. The CIAC thus declared that Mabunay is deemed to have waived his right
to present evidence.15
On February 2, 2010, the CIAC rendered its Decision16 and made the following award:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges,
orders and directs:
1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:
a) P4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of
6% per annum computed from the date of this decision up to the time this decision

becomes final, and 12% per annum computed from the date this decision becomes
final until fully paid, and
b) P2,379,441.53 as unrecouped down payment plus interest thereon at the rate of
6% per annum computed from the date of this decision up to the time this decision
becomes final, and 12% per annum computed from the date this decision becomes
final until fully paid.
It being understood that respondent Utasscos liability shall in no case exceed P8.4 million.
2. Respondent Mabunay to pay to claimant the amount of P98,435.89, which is respondent
Mabunays share in the arbitration cost claimant had advanced, with legal interest thereon
from January 8, 2010 until fully paid.
3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent
Utassco will have paid to claimant under this decision, plus interest thereon at the rate of
12% per annum computed from the date he is notified of such payment made by respondent
Utassco to claimant until fully paid, and to pay Utassco P100,000.00 as attorneys fees.
SO ORDERED.17
Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil
Procedure, as amended.
In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance
Bond did not clearly state the limitation of the suretys liability. Pursuant to Article 137718 of the Civil
Code, the CA said that the provision should be construed in favor of petitioner considering that the
obscurely phrased provision was drawn up by respondent and Mabunay. Further, the appellate court
stated that respondent could not possibly guarantee the down payment because it is not Mabunay
who owed the down payment to petitioner but the other way around. Consequently, the completion
by Mabunay of 31.39% of the construction would not lead to the extinguishment of respondents
liability. The P8.4 million was a limit on the amount of respondents liability and not a limitation as to
the obligation or undertaking it guaranteed.
However, the CA reversed the CIACs ruling that Mabunay had incurred delay which entitled
petitioner to the stipulated liquidated damages and unrecouped down payment. Citing Aerospace
Chemical Industries, Inc. v. Court of Appeals,19 the appellate court said that not all requisites in order
to consider the obligor or debtor in default were present in this case. It held that it is only from
December 24, 2008 (completion date) that we should reckon default because the Construction
Agreement provided only for delay in the completion of the project and not delay on a monthly basis
using the work schedule approved by petitioner as the reference point. Hence, petitioners
termination of the contract was premature since the delay in this case was merely speculative; the
obligation was not yet demandable.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed
Decision dated 13 January 2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009
is hereby REVERSED and SET ASIDE. Accordingly, the Writ of Execution dated 24 November 2010
issued by the same tribunal is hereby ANNULLED and SET ASIDE.

SO ORDERED.20
Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial
reconsideration. Both motions were denied.
The Issues
Before this Court petitioner seeks to reverse the CA insofar as it denied petitioners claims under the
Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC Decision. Specifically,
petitioner alleged that
A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE
ALTERNATIVE DISPUTE RESOLUTION ACT AND THE SPECIAL RULES ON
ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF
JURISDICTION TO REVIEW ARBITRAL AWARDS.
B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL
AWARD ON AN ISSUE THAT WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN
THE TERMS OF REFERENCE, NOT ASSIGNED AS ANERROR, AND NOT ARGUED IN
ANY OF THE PLEADINGS FILED BEFORE THE COURT.
C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF
AEROSPACE CHEMICAL INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94,
WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS.21
Our Ruling
On the procedural issues raised, we find no merit in petitioners contention that with the
institutionalization of alternative dispute resolution under Republic Act (R.A.) No. 9285,22 otherwise
known as the Alternative Dispute Resolution Act of 2004, the CA was divested of jurisdiction to
review the decisions or awards of the CIAC. Petitioner erroneously relied on the provision in said law
allowing any party to a domestic arbitration to file in the Regional Trial Court (RTC) a petition either
to confirm, correct or vacate a domestic arbitral award.
We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or
decisions of the CIAC in construction disputes. On the contrary, Section 40 thereof expressly
declares that confirmation by the RTC is not required, thus:
SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be governed
by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with
the Rules of Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008. (Emphasis supplied.)

Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award of the
CIAC is final and unappealable, except on questions of law, which are appealable to the Supreme
Court. With the amendments introduced by R.A. No. 7902 and promulgation of the 1997 Rules of
Civil Procedure, as amended, the CIAC was included in the enumeration of quasijudicial agencies
whose decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such
review of the CIAC award may involve either questions of fact, of law, or of fact and law.23
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this
Court and which took effect on October 30, 2009. Since R.A. No. 9285 explicitly excluded CIAC
awards from domestic arbitration awards that need to be confirmed to be executory, said awards are
therefore not covered by Rule 11 of the Special ADR Rules,24 as they continue to be governed by
EO No. 1008, as amended and the rules of procedure of the CIAC. The CIAC Revised Rules of
Procedure Governing Construction Arbitration25 provide for the manner and mode of appeal from
CIAC decisions or awards in Section 18 thereof, which reads:
SECTION 18.2 Petition for review. A petition for review from a final award may be taken by any of
the parties within fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43
of the Rules of Court.
As to the alleged error committed by the CA in deciding the case upon an issue not raised or
litigated before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred delay in
the performance of his obligations under the Construction Agreement was the very first issue
stipulated in the Terms of Reference26(TOR), which is distinct from the issue of the extent of
respondents liability under the Performance Bond.
Indeed, resolution of the issue of delay was crucial upon which depends petitioners right to the
liquidated damages pursuant to the Construction Agreement. Contrary to the CIACs findings, the
CA opined that delay should be reckoned only after the lapse of the one-year contract period, and
consequently Mabunays liability for liquidated damages arises only upon the happening of such
condition.
We reverse the CA.
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a
cause imputable to the former. It is the non-fulfillment of an obligation with respect to time.27
Article 1169 of the Civil Code provides:
ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
xxxx
It is a general rule that one who contracts to complete certain work within a certain time is liable for
the damage for not completing it within such time, unless the delay is excused or waived.28
The Construction Agreement provides in Article 10 thereof the following conditions as to completion
time for the project

1. The CONTRACTOR shall complete the works called for under this Agreement within ONE
(1) YEAR or 365 Days reckoned from the 1st calendar day after signing of the Notice of
Award and Notice to Proceed and receipt of down payment.
2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by
OWNER within Seven (7) days after signing of this Agreement and full payment of 20% of
the agreed contract price. Said detailed work schedule shall follow the general schedule of
activities and shall serve as basis for the evaluation of the progress of work by
CONTRACTOR.29
In this jurisdiction, the following requisites must be present in order that the debtor may be in default:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance judicially or extrajudicially.30
In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to
perform or complete the project was not yet demandable as of November 19, 2008 when petitioner
terminated the contract, because the agreed completion date was still more than one month away
(December 24, 2008). Since the parties contemplated delay in the completion of the entire project,
the CA concluded that the failure of the contractor to catch up with schedule of work activities did not
constitute delay giving rise to the contractors liability for damages.
We cannot sustain the appellate courts interpretation as it is inconsistent with the terms of the
Construction Agreement. Article 1374 of the Civil Code requires that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly. Here, the work schedule approved by petitioner was intended, not only
to serve as its basis for the payment of monthly progress billings, but also for evaluation of the
progress of work by the contractor. Article 13.01 (g) (iii) of the Construction Agreement provides that
the contractor shall be deemed in default if, among others, it had delayed without justifiable cause
the completion of the project "by more than thirty (30) calendar days based on official work schedule
duly approved by the OWNER."31
Records showed that as early as April 2008, or within four months after Mabunay commenced work
activities, the project was already behind schedule for reasons not attributable to petitioner. In the
succeeding months, Mabunay was still unable to catch up with his accomplishment even as
petitioner constantly advised him of the delays, as can be gleaned from the following notices of delay
sent by petitioners engineer and construction manager, Engr. Sheila N. Botardo:
April 30, 2008
Seven Shades of Blue
Boracay Island
Malay, Aklan
1wphi1
Attention : Mr. Martin Mabunay
General Manager
Thru

: Engr. Reynaldo Gapasin

Project

: Villa Beatriz

Subject

: Notice of Delay

Dear Mr. Mabunay:


This is to formalize our discussion with your Engineers during our meeting last April 23, 2008
regarding the delay in the implementation of major activities based on your submitted construction
schedule. Substantial delay was noted in concreting works that affects your roof framing that should
have been 40% completed as of this date. This delay will create major impact on your over-all
schedule as the finishing works will all be dependent on the enclosure of the building.
In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of
critical materials on site. We would highly appreciate if you could attend our next regular meeting so
we could immediately address this matter. Thank you.
Very truly yours,
Engr. Sheila N. Botardo
Construction Manager LMI/FEPI32
October 15, 2008
xxxx
Dear Mr. Mabunay,
We have noticed continuous absence of all the Engineers that you have assigned on-site to
administer and supervise your contracted work. For the past two (2) weeks, your company does not
have a Technical Representative manning the jobsite considering the critical activities that are in
progress and the delays in schedule that you have already incurred. In this regard, we would highly
recommend the immediate replacement of your Project Engineer within the week.
We would highly appreciate your usual attention on this matter.
x x x x33
November 5, 2008
xxxx
Dear Mr. Mabunay,
This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008
regarding the construction of the Field Office and Stock Room for Materials intended for Villa Beatriz
use only. We understand that you have committed to complete it November 5, 2008 but as of this
date there is no improvement or any ongoing construction activity on the said field office and
stockroom.
We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is
badly needed. We will highly appreciate if this matter will be given your immediate attention.

Thank you.
x x x x34
November 6, 2008
xxxx
Dear Mr. Mabunay,
We would like to call your attention regarding the decrease in your manpower assigned on site. We
have observed that for the past three (3) weeks instead of increasing your manpower to catch up
with the delay it was reduced to only 8 workers today from an average of 35 workers in the previous
months.
Please note that based on your submitted revised schedule you are already delayed by
approximately 57% and this will worsen should you not address this matter properly.
We are looking forward for [sic] your cooperation and continuous commitment in delivering this
project as per contract agreement.
x x x x35
Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects
and engineers of petitioner and Mabunay and it was found that as of November 14, 2008, the project
was only 31.39% complete and that the uncompleted portion was 68.61% with an estimated value
per Construction Agreement asP27,880,419.52. Instead of doubling his efforts as the scheduled
completion date approached, Mabunay did nothing to remedy the delays and even reduced the
deployment of workers at the project site. Neither did Mabunay, at anytime, ask for an extension to
complete the project. Thus, on November 19, 2008, petitioner advised Mabunay of its decision to
terminate the contract on account of the tremendous delay the latter incurred. This was followed by
the claim against the Performance Bond upon the respondent on December 18, 2008.
Petitioners claim against the Performance Bond included the liquidated damages provided in the
Construction Agreement, as follows:
ARTICLE 12 LIQUIDATED DAMAGES:
12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the
PROJECT within the period stipulated herein or within the period of extension granted by the
OWNER, plus One (1) Week grace period, without any justifiable reason, the CONTRACTOR
hereby agrees
a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth
of One Percent (1/10 of 1%) of the Contract Amount for each day of delay after any and all
extensions and the One (1) week Grace Period until completed by the CONTRACTOR.
b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted
works and/or delays shall not relieve it of the obligation to complete and finish the
construction.

Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts
retained under Article 9 or retained by the OWNER when the works called for under this Agreement
have been finished and completed.
Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors
collectibles without prior consent and concurrence by the CONTRACTOR.
12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of
any further act and deed, authorizes the OWNER to deduct any amount that may be due under Item
(a) above, from any and all money or amounts due or which will become due to the CONTRACTOR
by virtue of this Agreement and/or to collect such amounts from the Performance Bond filed by the
CONTRACTOR in this Agreement.36 (Emphasis supplied.)
Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which
provide:
ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in
case of breach thereof.
ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
ART. 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the
measure of damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation in order to ensure performance and
has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force
of the obligation by the threat of greater responsibility in the event of breach.37 The amount agreed
upon answers for damages suffered by the owner due to delays in the completion of the project.38 As
a precondition to such award, however, there must be proof of the fact of delay in the performance of
the obligation.39
Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor
to complete the project within the stipulated period or the extension granted by the owner. However,
this will not defeat petitioners claim for damages nor respondents liability under the Performance
Bond. Mabunay was clearly in default considering the dismal percentage of his accomplishment
(32.38%) of the work he contracted on account of delays in executing the scheduled work activities
and repeated failure to provide sufficient manpower to expedite construction works. The events of
default and remedies of the Owner are set forth in Article 13, which reads:
ARTICLE 13 DEFAULT OF CONTRACTOR:
13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.
xxxx
g. In case the CONTRACTOR has done any of the following:
(i.) has abandoned the Project

(ii.) without reasonable cause, has failed to commence the construction or has suspended
the progress of the Project for twenty-eight days
(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty
(30) calendar days based on official work schedule duly approved by the OWNER
(iv.) despite previous written warning by the OWNER, is not executing the construction works
in accordance with the Agreement or is persistently or flagrantly neglecting to carry out its
obligations under the Agreement.
(v.) has, to the detriment of good workmanship or in defiance of the Owners instructions to
the contrary, sublet any part of the Agreement.
13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the
OWNER may after giving fourteen (14) calendar days notice in writing to the CONTRACTOR, enter
upon the site and expel the CONTRACTOR therefrom without voiding this Agreement, or releasing
the CONTRACTOR from any of its obligations, and liabilities under this Agreement. Also without
diminishing or affecting the rights and powers conferred on the OWNER by this Agreement and the
OWNER may himself complete the work or may employ any other contractor to complete the work. If
the OWNER shall enter and expel the CONTRACTOR under this clause, the OWNER shall be
entitled to confiscate the performance bond of the CONTRACTOR to compensate for all kinds of
damages the OWNER may suffer. All expenses incurred to finish the Project shall be charged to the
CONTRACTOR and/or his bond. Further, the OWNER shall not be liable to pay the CONTRACTOR
until the cost of execution, damages for the delay in the completion, if any, and all; other expenses
incurred by the OWNER have been ascertained which amount shall be deducted from any money
due to the CONTRACTOR on account of this Agreement. The CONTRACTOR will not be
compensated for any loss of profit, loss of goodwill, loss of use of any equipment or property, loss of
business opportunity, additional financing cost or overhead or opportunity losses related to the
unaccomplished portions of the work.40 (Emphasis supplied.)
As already demonstrated, the contractors default in this case pertains to his failure to substantially
perform the work on account of tremendous delays in executing the scheduled work activities.
Where a party to a building construction contract fails to comply with the duty imposed by the terms
of the contract, a breach results for which an action may be maintained to recover the damages
sustained thereby, and of course, a breach occurs where the contractor inexcusably fails to perform
substantially in accordance with the terms of the contract.41
The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate
the Performance Bond to answer for all kinds of damages it may suffer as a result of the contractors
failure to complete the building. Having elected to terminate the contract and expel the contractor
from the project site under Article 13 of the said Agreement, petitioner is clearly entitled to the
proceeds of the bond as indemnification for damages it sustained due to the breach committed by
Mabunay. Such stipulation allowing the confiscation of the contractors performance bond partakes
of the nature of a penalty clause. A penalty clause, expressly recognized by law, is an accessory
undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. It
functions to strengthen the coercive force of obligation and to provide, in effect, for what could be the
liquidated damages resulting from such a breach. The obligor would then be bound to pay the
stipulated indemnity without the necessity of proof on the existence and on the measure of damages
caused by the breach. It is well-settled that so long as such stipulation does not contravene law,
morals, or public order, it is strictly binding upon the obligor.42

Respondent, however, insists that it is not liable for the breach committed by Mabunay because by
the terms of the surety bond it issued, its liability is limited to the performance by said contractor to
the extent equivalent to 20% of the down payment. It stresses that with the 32.38% completion of the
project by Mabunay, its liability was extinguished because the value of such accomplishment already
exceeded the sum equivalent to 20% down payment (P8.4 million).
The appellate court correctly rejected this theory of respondent when it ruled that the Performance
Bond guaranteed the full and faithful compliance of Mabunays obligations under the Construction
Agreement, and that nowhere in law or jurisprudence does it state that the obligation or undertaking
by a surety may be apportioned.
The pertinent portions of the Performance Bond provide:
The conditions of this obligation are as follows:
Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION
AND DEVELOPMENT, INC. to post a bond of the abovestated sum to guarantee 20% down
payment for the construction of Building 25 (Villa Beatriz) 72-Room Condotel, The Lodgings inside
Fairways and Bluewater, Boracay Island, Malay, Aklan.
Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated
sum to secure the full and faithful performance on his part of said contract.
It is a special provision of this undertaking that the liability of the surety under this bond shall in no
case exceed the sum of P8,400,000.00 Philippine Currency.
Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants,
terms, conditions and agreements stipulated in said contract, then this obligation shall be null and
void; otherwise to remain in full force and effect.43 (Emphasis supplied.)
While the above condition or specific guarantee is unclear, the rest of the recitals in the bond
unequivocally declare that it secures the full and faithful performance of Mabunays obligations under
the Construction Agreement with petitioner. By its nature, a performance bond guarantees that the
contractor will perform the contract, and usually provides that if the contractor defaults and fails to
complete the contract, the surety can itself complete the contract or pay damages up to the limit of
the bond.44 Moreover, the rule is that if the language of the bond is ambiguous or uncertain, it will be
construed most strongly against a compensated surety and in favor of the obligees or beneficiaries
under the bond, in this case petitioner as the Project Owner, for whose benefit it was ostensibly
executed.45
The imposition of interest on the claims of petitioner is likewise in order. As we held in
Commonwealth Insurance Corporation v. Court of Appeals46
Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds
was made on the condition that its liability shall in no case exceed the amount of the said bonds.
We are not persuaded. Petitioners argument is misplaced.
Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and
reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more
recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we have

sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest,
even if in thus paying, its liability becomes more than the principal obligation. The increased liability
is not because of the contract but because of the default and the necessity of judicial collection.
Petitioners liability under the suretyship contract is different from its liability under the
law.1wphi1 There is no question that as a surety, petitioner should not be made to pay more than
its assumed obligation under the surety bonds. However, it is clear from the above-cited
jurisprudence that petitioners liability for the payment of interest is not by reason of the suretyship
agreement itself but because of the delay in the payment of its obligation under the said
agreement.47 (Emphasis supplied; citations omitted.)
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27,
2011 and Resolution dated December 8, 2011 of the Court of Appeals in CA-G.R. SP No. 112808
are hereby REVERSED and SET ASIDE.
The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration
Commission Is hereby REINSTATED with the following MODIFICATIONS:
"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges,
orders and directs:
1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full
amount of the Performance Bond, P8,400,000.00, pursuant to Art. 13 of the Construction
Agreement dated December 24, 2007, with interest at the rate of 6% per annum computed
from the date of the filing of the complaint until the finality of this decision, and 12% per
annum computed from the date this decision becomes final until fully paid; and
2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent
Utassco will have paid to claimant under this decision, plus interest thereon at the rate of
12% per annum computed from the date he is notified of such payment made by respondent
Utassco to claimant until fully paid, and to pay Utassco P100,000.00 as attorney's fees.
SO ORDERED.