ADR Cases - Finals

ADR Cases Finals
Gr. No. 185582 (Tuna Processing)

SECOND DIVISION
TUNA PROCESSING, INC., G.R. No. 185582

Petitioner,
Present:
CARPIO, J.,
-versus- Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.
PHILIPPINE KINGFORD, INC., Promulgated:

Respondent.
February 29, 2012
x-----------------------------------------------------------------------------------------x
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,[if !supportFootnotes][1][endif]

petitioner Tuna Processing, Inc. (TPI), a foreign corporation not licensed to do
business in the Philippines, prays that the Resolution [if !supportFootnotes][2][endif] 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 Award [if !supportFootnotes][3][endif] against
respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized
and existing under the laws of the Philippines, [if !supportFootnotes][4][endif] on the ground
that petitioner lacked legal capacity to sue.[if !supportFootnotes][5][endif]
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),[if !supportFootnotes][6][endif] 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) [if !supportFootnotes][7][endif]
entered into a Memorandum of Agreement (MOA), [if !supportFootnotes][8][endif] pertinent
provisions of which read:
[if !supportLists]1. [endif]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. [if !supportFootnotes][9][endif]
xxx
The parties likewise executed a Supplemental Memorandum of Agreement [if !

supportFootnotes][10][endif]
dated 15 January 2003 and an Agreement to Amend
Memorandum of Agreement[if !supportFootnotes][11][endif] 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.[if !supportFootnotes][12][endif] 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.[if !supportFootnotes][13][endif] 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 pay CLAIMANT 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 the MOA, RESPONDENT KINGFORD
shall pay CLAIMANT the total sum of TWO HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED NINETY
DOLLARS AND TWENTY CENTS ($271,490.20)[;][if !supportFootnotes]
[14][endif]
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
xxx[if !supportFootnotes][15][endif]
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. [if !

After the court denied the motion for lack of merit, [if !supportFootnotes]
[17][endif]
respondent sought for the inhibition of Judge Alameda and moved for
the reconsideration of the order denying the motion. [if !supportFootnotes][18][endif] Judge
Alameda inhibited himself notwithstanding [t]he unfounded allegations and
unsubstantiated assertions in the motion.[if !supportFootnotes][19][endif] 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. [if !
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.[if !supportFootnotes][21][endif]
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),[if !
the 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),[if !supportFootnotes][23]
[endif]
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.[if !supportFootnotes][24][endif]
Simply put, how do we reconcile the provisions of the Corporation Code

of the Philippines on one hand, and the Alternative 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.,[if !supportFootnotes][25][endif] 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) [if !supportFootnotes][26][endif]
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential

Agrarian Reform Council,[if !supportFootnotes][27][endif] 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.[if !
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.[if !supportFootnotes][29][endif] It specifically
provides exclusive grounds available to the party opposing an application for
recognition and enforcement of the arbitral award.[if !supportFootnotes][30][endif]
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
the Model 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,[if !supportFootnotes][31][endif] 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. [if !supportFootnotes]
[32][endif]
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,[if !supportFootnotes][33][endif] it is specifically required that a petition to
determine any question concerning the existence, validity and enforceability of
such arbitration agreement[if !supportFootnotes][34][endif] 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[if !supportFootnotes][35][endif] 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.[if !supportFootnotes][36][endif]
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,[if !supportFootnotes]
[37][endif]
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.[if !supportFootnotes][38][endif]
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,[if !supportFootnotes][39][endif] 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.[if !supportFootnotes][40][endif]
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.[if !supportFootnotes][41][endif]
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,[if !supportFootnotes][42][endif] we opt to relax the rules following the
pronouncement in Chua v. Ang,[if !supportFootnotes][43][endif] 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.[if !supportFootnotes][44][endif] 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. 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.[if !supportFootnotes][45][endif]
Moreover, the novelty and the paramount importance of the issue herein raised
should be seriously considered.[if !supportFootnotes][46][endif] Surely, 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 the Alternative 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.[if !supportFootnotes][47][endif] 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. [if !supportFootnotes][48]
[endif]
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.
FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and

an Indonesian Patent, entered into a Memorandum of Agreement (MOA) with
five Philippine tuna processors including Respondent Philippine Kingford, Inc.
(KINGFORD). The MOA provides for the enforcing of the abovementioned
patents, granting licenses under the same, and collecting royalties, and for the
establishment of herein Petitioner Tuna Processors, Inc. (TPI).
Due to a series of events not mentioned in the Petition, the tuna processors,
including Respondent KINGFORD, withdrew from Petitioner TPI and
correspondingly reneged on their obligations. Petitioner TPI 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
KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation,

Recognition, and Enforcement of Foreign Arbitral Award before the RTC of
Makati City. Respondent KINGFORD filed a Motion to Dismiss, which the RTC
denied for lack of merit. Respondent KINGFORD then sought for the inhibition
of the RTC judge, Judge Alameda, and moved for the reconsideration of the
order denying the Motion. Judge Alameda inhibited himself notwithstanding
[t]he unfounded allegations and unsubstantiated assertions in the motion.
Judge Ruiz, to which the case was re-raffled, in turn, granted Respondent
KINGFORDSs Motion for Reconsideration and dismissed the Petition on the
ground that Petitioner TPI lacked legal capacity to sue in the Philippines.
Petitioner TPI is a corporation established in the State of California and not
licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.
ISSUE:
Whether or not 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?
ARGUMENT:
Petitioner TPI contends that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with RA No.
9285 (Alternative Dispute Resolution Act of 2004), the 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), as none of these specifically requires that
the party seeking for the enforcement should have legal capacity to sue.
RULING:
YES. 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. A foreign corporations capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral award is
concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.
RATIO DECIDENDI:
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;
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;
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;
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.
Not one of the abovementioned 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, 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. 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, it is specifically
required that a petition to determine any question concerning the existence,
validity and enforceability of such arbitration agreement 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 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.
Indeed, it is in the best interest of justice that in the enforcement of a

foreign arbitral award, the Court 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 Philippine 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 [1998], 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.
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 RTC correctly
observed that the Model Law, not the New York Convention, governs the subject
arbitral award, Petitioner TPI 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.
Gr. No. 141833 (LM Power)
THIRD DIVISION
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 latter had failed to finish it because of its inability to
procure materials.7
Upon completing its task under the Contract, petitioner billed respondent in
the amount of P6,711,813.90.8 Contesting the accuracy of the amount of
advances and billable accomplishments listed by the former, the latter refused
to pay. Respondent also took refuge in the termination clause of the
Agreement.9 That clause allowed it to set off the cost of the work that petitioner
had failed to undertake -- due to termination or take-over -- against the
amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of
Makati (Branch 141) a Complaint10 for the collection of the amount
representing the alleged balance due it under the Subcontract. Instead of
submitting an Answer, respondent filed a Motion to Dismiss,11 alleging that
the Complaint was premature, because there was no prior recourse to
arbitration.
In its 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.
Gr. No. 143581 (Korea Technologies)
Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
KOREA TECHNOLOGIES CO., G.R. No. 143581

LTD.,
Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
HON. ALBERTO A. LERMA, in TINGA, and
his capacity as Presiding Judge of VELASCO, JR., JJ.
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL Promulgated:
MANUFACTURING
CORPORATION,
Respondents. January 7, 2008
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving

disputes, particularly in civil and commercial disputes. Arbitration along with
mediation, conciliation, and negotiation, being inexpensive, speedy and less
hostile methods have long been favored by this Court. The petition before us
puts at issue an arbitration clause in a contract mutually agreed upon by the
parties stipulating that they would submit themselves to arbitration in a
foreign country. Regrettably, instead of hastening the resolution of their
dispute, the parties wittingly or unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean

corporation which is engaged in the supply and installation of Liquefied
Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent
Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract [if !

whereby KOGIES would set up an LPG Cylinder Manufacturing
Plant in Carmona, Cavite. The contract was executed in the Philippines. On
April 7, 1997, the parties executed, in Korea, an Amendment for Contract No.
KLP-970301 dated March 5, 1997[if !supportFootnotes][2][endif] amending the terms of
payment. The contract and its amendment stipulated that KOGIES will ship
the machinery and facilities necessary for manufacturing LPG cylinders for
which PGSMC would pay USD 1,224,000. KOGIES would install and initiate
the operation of the plant for which PGSMC bound itself to pay USD 306,000
upon the plants production of the 11-kg. LPG cylinder samples. Thus, the total
contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease [if !

with Worth Properties, Inc. (Worth) for use of Worths 5,079-
square meter property with a 4,032-square meter warehouse building to house
the LPG manufacturing plant. The monthly rental was PhP 322,560
commencing on January 1, 1998 with a 10% annual increment clause.
Subsequently, the machineries, equipment, and facilities for the manufacture
of LPG cylinders were shipped, delivered, and installed in the Carmona plant.
PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate[if !supportFootnotes][4][endif] executed by the

parties on January 22, 1998, after the installation of the plant, the initial
operation could not be conducted as PGSMC encountered financial difficulties
affecting the supply of materials, thus forcing the parties to agree that KOGIES
would be deemed to have completely complied with the terms and conditions of
the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and

initial operation of the plant, PGSMC issued two postdated checks: (1) BPI
Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI
Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.[if !supportFootnotes][5][endif]
When KOGIES deposited the checks, these were dishonored for the
reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES sent a demand
letter[if !supportFootnotes][6][endif] to PGSMC threatening criminal action for violation of
Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of
PGSMCs President faxed a letter dated May 7, 1998 to KOGIES President who
was then staying at a Makati City hotel. She complained that not only did
KOGIES deliver a different brand of hydraulic press from that agreed upon but
it had not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued
KOGIES were fully funded but the payments were stopped for reasons
previously made known to KOGIES.[if !supportFootnotes][7][endif]
On June 1, 1998, PGSMC informed KOGIES that PGSMC was

canceling their Contract dated March 5, 1997 on the ground that KOGIES had
altered the quantity and lowered the quality of the machineries and equipment
it delivered to PGSMC, and that PGSMC would dismantle and transfer the
machineries, equipment, and facilities installed in the Carmona plant. Five
days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-
Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun
Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that
PGSMC could not unilaterally rescind their contract nor dismantle and transfer
the machineries and equipment on mere imagined violations by KOGIES. It
also insisted that their disputes should be settled by arbitration as agreed upon
in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the

contents of its June 1, 1998 letter threatening that the machineries,
equipment, and facilities installed in the plant would be dismantled and
transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an
Application for Arbitration before the Korean Commercial Arbitration Board
(KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance,

docketed as Civil Case No. 98-117[if !supportFootnotes][8][endif] against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary
restraining order (TRO) on July 4, 1998, which was subsequently extended
until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially
admitted that the checks that were stopped were not funded but later on
claimed that it stopped payment of the checks for the reason that their value
was not received as the former allegedly breached their contract by altering the
quantity and lowering the quality of the machinery and equipment installed in
the plant and failed to make the plant operational although it earlier certified to
the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES
averred that PGSMC violated Art. 15 of their Contract, as amended, by
unilaterally rescinding the contract without resorting to arbitration. KOGIES
also asked that PGSMC be restrained from dismantling and transferring the
machinery and equipment installed in the plant which the latter threatened to
do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that

KOGIES was not entitled to the TRO since Art. 15, the arbitration clause, was
null and void for being against public policy as it ousts the local courts of
jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory

Counterclaim[if !supportFootnotes][9][endif] asserting that it had the full right to dismantle
and transfer the machineries and equipment because it had paid for them in
full as stipulated in the contract; that KOGIES was not entitled to the PhP
9,000,000 covered by the checks for failing to completely install and make the
plant operational; and that KOGIES was liable for damages amounting to PhP
4,500,000 for altering the quantity and lowering the quality of the machineries
and equipment. Moreover, PGSMC averred that it has already paid PhP
2,257,920 in rent (covering January to July 1998) to Worth and it was not
willing to further shoulder the cost of renting the premises of the plant
considering that the LPG cylinder manufacturing plant never became
operational.
After the parties submitted their Memoranda, on July 23, 1998, the
RTC issued an Order denying the application for a writ of preliminary
injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000, the value
of the machineries and equipment as shown in the contract such that KOGIES
no longer had proprietary rights over them. And finally, the RTC held that Art.
15 of the Contract as amended was invalid as it tended to oust the trial court
or any other court jurisdiction over any dispute that may arise between the
parties. KOGIES prayer for an injunctive writ was denied. [if !supportFootnotes][10][endif]
The dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this Court

believes and so holds that no cogent reason exists for this
Court to grant the writ of preliminary injunction to restrain
and refrain defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties,
Incorporated at Carmona, Cavite and transfer the same to
another site: and therefore denies plaintiffs application for a
writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.[if !supportFootnotes][11][endif] KOGIES denied it had altered the quantity and
lowered the quality of the machinery, equipment, and facilities it delivered to
the plant. It claimed that it had performed all the undertakings under the
contract and had already produced certified samples of LPG cylinders. It
averred that whatever was unfinished was PGSMCs fault since it failed to
procure raw materials due to lack of funds. KOGIES, relying on Chung Fu
Industries (Phils.), Inc. v. Court of Appeals,[if !supportFootnotes][12][endif] insisted that the
arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to

[if !supportFootnotes][13][endif]
Dismiss answering PGSMCs memorandum of July 22, 1998
and seeking dismissal of PGSMCs counterclaims, KOGIES, on August 4, 1998,
filed its Motion for Reconsideration [if !supportFootnotes][14][endif] of the July 23, 1998
Order denying its application for an injunctive writ claiming that the contract
was not merely for machinery and facilities worth USD 1,224,000 but was for
the sale of an LPG manufacturing plant consisting of supply of all the
machinery and facilities and transfer of technology for a total contract price of
USD 1,530,000 such that the dismantling and transfer of the machinery and
facilities would result in the dismantling and transfer of the very plant itself to
the great prejudice of KOGIES as the still unpaid owner/seller of the plant.
Moreover, KOGIES points out that the arbitration clause under Art. 15 of the
Contract as amended was a valid arbitration stipulation under Art. 2044 of the
Civil Code and as held by this Court in Chung Fu Industries (Phils.), Inc.[if !
In the meantime, PGSMC filed a Motion for Inspection of Things [if !

to determine whether there was indeed alteration of the
quantity and lowering of quality of the machineries and equipment, and
whether these were properly installed. KOGIES opposed the motion positing
that the queries and issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1) granting
PGSMCs motion for inspection; (2) denying KOGIES motion for reconsideration
of the July 23, 1998 RTC Order; and (3) denying KOGIES motion to dismiss
PGSMCs compulsory counterclaims as these counterclaims fell within the
requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for

Reconsideration[if !supportFootnotes][17][endif] of the September 21, 1998 RTC Order
granting inspection of the plant and denying dismissal of PGSMCs compulsory
counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution
of its October 2, 1998 urgent motion for reconsideration, KOGIES filed before
the Court of Appeals (CA) a petition for certiorari [if !supportFootnotes][18][endif] docketed as
CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and September
21, 1998 RTC Orders and praying for the issuance of writs of prohibition,
mandamus, and preliminary injunction to enjoin the RTC and PGSMC from
inspecting, dismantling, and transferring the machineries and equipment in
the Carmona plant, and to direct the RTC to enforce the specific agreement on
arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent
motion for reconsideration and directed the Branch Sheriff to proceed with the
inspection of the machineries and equipment in the plant on October 28, 1998.
Thereafter, KOGIES filed a Supplement to the Petition [if !supportFootnotes][20]

[endif]
in CA-G.R. SP No. 49249 informing the CA about the October 19, 1998
RTC Order. It also reiterated its prayer for the issuance of the writs of
prohibition, mandamus and preliminary injunction which was not acted upon
by the CA. KOGIES asserted that the Branch Sheriff did not have the technical
expertise to ascertain whether or not the machineries and equipment
conformed to the specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs Report [if !
finding that the enumerated machineries and equipment were
not fully and properly installed.
The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision [if !supportFootnotes][22]
[endif]
affirming the RTC Orders and dismissing the petition for certiorari filed by
KOGIES. The CA found that the RTC did not gravely abuse its discretion in
issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover,
the CA reasoned that KOGIES contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was contrary to
the finding of the RTC that PGSMC fully paid the price of USD 1,224,000,
which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a petition
for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed
with the lower court that an arbitration clause which provided for a final
determination of the legal rights of the parties to the contract by arbitration
was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a

certificate of non-forum shopping by PGSMC, the CA held that the
counterclaims of PGSMC were compulsory ones and payment of docket fees
was not required since the Answer with counterclaim was not an initiatory
pleading. For the same reason, the CA said a certificate of non-forum shopping
was also not required.
Furthermore, the CA held that the petition for certiorari had been filed
prematurely since KOGIES did not wait for the resolution of its urgent motion
for reconsideration of the September 21, 1998 RTC Order which was the plain,
speedy, and adequate remedy available. According to the CA, the RTC must be
given the opportunity to correct any alleged error it has committed, and that
since the assailed orders were interlocutory, these cannot be the subject of a
petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following

errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE
MACHINERY AND FACILITIES AS A QUESTION OF FACT
BEYOND THE AMBIT OF A PETITION FOR CERTIORARI
INTENDED ONLY FOR CORRECTION OF ERRORS OF
JURISDICTION OR GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION,
AND CONCLUDING THAT THE TRIAL COURTS FINDING ON
THE SAME QUESTION WAS IMPROPERLY RAISED IN THE
PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN

ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES
FOR BEING CONTRARY TO PUBLIC POLICY AND FOR
OUSTING THE COURTS OF JURISDICTION;
[if !supportLists]c. [endif]DECREEING PRIVATE RESPONDENTS

COUNTERCLAIMS TO BE ALL COMPULSORY NOT NECESSITATING PAYMENT
OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING;
[if !supportLists]d. [endif]RULING THAT THE PETITION WAS FILED

PREMATURELY WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION
FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR
WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT
ITSELF;
[if !supportLists]e. [endif]PROCLAIMING THE TWO ORDERS

DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS
OF CERTIORARI AND PROHIBITION FOR BEING INTERLOCUTORY IN
NATURE;
[if !supportLists]f. [endif]NOT GRANTING THE RELIEFS AND

REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING
THE SAME FOR ALLEGEDLY WITHOUT MERIT.[if !supportFootnotes][23][endif]
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the
procedural issues.
The rules on the payment of docket fees for counterclaims

and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it

should have paid docket fees and filed a certificate of non-forum shopping, and
that its failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were

incorporated in its Answer with Compulsory Counterclaim dated July 17, 1998
in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure,
the rule that was effective at the time the Answer with Counterclaim was filed.
Sec. 8 on existing counterclaim or cross-claim states, A compulsory
counterclaim or a cross-claim that a defending party has at the time he files
his answer shall be contained therein.
On July 17, 1998, at the time PGSMC filed its Answer incorporating its
counterclaims against KOGIES, it was not liable to pay filing fees for said
counterclaims being compulsory in nature. We stress, however, that effective
August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC,
docket fees are now required to be paid in compulsory counterclaim or cross-
claims.
As to the failure to submit a certificate of forum shopping, PGSMCs

Answer is not an initiatory pleading which requires a certification against
forum shopping under Sec. 5[if !supportFootnotes][24][endif] of Rule 7, 1997 Revised Rules
of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not
commit reversible error in denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,[if !supportFootnotes][25][endif] the CA also pronounced that

certiorari and Prohibition are neither the remedies to question the propriety of
an interlocutory order of the trial court. [if !supportFootnotes][26][endif] The CA erred on its
reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a
criminal case which was not assailable in an action for certiorari since the
denial of a motion to quash required the accused to plead and to continue with
the trial, and whatever objections the accused had in his motion to quash can
then be used as part of his defense and subsequently can be raised as errors
on his appeal if the judgment of the trial court is adverse to him. The general
rule is that interlocutory orders cannot be challenged by an appeal.[if !supportFootnotes]
[27][endif]
Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal

from an adverse judgment on the merits, incorporating in said
appeal the grounds for assailing the interlocutory orders.
Allowing appeals from interlocutory orders would result in the
sorry spectacle of a case being subject of a counterproductive
ping-pong to and from the appellate court as often as a trial
court is perceived to have made an error in any of its
interlocutory rulings. However, where the assailed
interlocutory order was issued with grave abuse of discretion
or patently erroneous and the remedy of appeal would not
afford adequate and expeditious relief, the Court allows
certiorari as a mode of redress.[if !supportFootnotes][28][endif]
Also, appeals from interlocutory orders would open the floodgates to

endless occasions for dilatory motions. Thus, where the interlocutory order was
issued without or in excess of jurisdiction or with grave abuse of discretion, the
remedy is certiorari.[if !supportFootnotes][29][endif]
The alleged grave abuse of discretion of the respondent court

equivalent to lack of jurisdiction in the issuance of the two assailed orders
coupled with the fact that there is no plain, speedy, and adequate remedy in
the ordinary course of law amply provides the basis for allowing the resort to a
petition for certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing

the petition for certiorari. Note that KOGIES motion for reconsideration of the
July 23, 1998 RTC Order which denied the issuance of the injunctive writ had
already been denied. Thus, KOGIES only remedy was to assail the RTCs
interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the

September 21, 1998 RTC Order relating to the inspection of things, and the
allowance of the compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first resolved by the court a
quo. The reason behind the rule is to enable the lower court, in the first
instance, to pass upon and correct its mistakes without the intervention of the
higher court.[if !supportFootnotes][30][endif]
The September 21, 1998 RTC Order directing the branch sheriff to
inspect the plant, equipment, and facilities when he is not competent and
knowledgeable on said matters is evidently flawed and devoid of any legal
support. Moreover, there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would prejudice the interests
of KOGIES. Indeed, there is real and imminent threat of irreparable destruction
or substantial damage to KOGIES equipment and machineries. We find the
resort to certiorari based on the gravely abusive orders of the trial court sans
the ruling on the October 2, 1998 motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract,

the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies, or

differences which may arise between the parties, out of or in
relation to or in connection with this Contract or for the breach
thereof, shall finally be settled by arbitration in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the
Korean Commercial Arbitration Board. The award rendered
by the arbitration(s) shall be final and binding upon both
parties concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the
arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place
where the contract is made governs. Lex loci contractus. The contract in this
case was perfected here in the Philippines. Therefore, our laws ought to govern.
Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
agreed arbitral clause or the finality and binding effect of an arbitral award.
Art. 2044 provides, Any stipulation that the arbitrators award or decision
shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040.
(Emphasis supplied.)
Arts. 2038,[if !supportFootnotes][31][endif] 2039,[if !supportFootnotes][32][endif] and 2040[if !

abovecited refer to instances where a compromise or an
arbitral award, as applied to Art. 2044 pursuant to Art. 2043, [if !supportFootnotes][34]
[endif]
may be voided, rescinded, or annulled, but these would not denigrate the
finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by

the parties. It has not been shown to be contrary to any law, or against morals,
good customs, public order, or public policy. There has been no showing that
the parties have not dealt with each other on equal footing. We find no reason
why the arbitration clause should not be respected and complied with by both
parties. In Gonzales v. Climax Mining Ltd.,[if !supportFootnotes][35][endif] we held that
submission to arbitration is a contract and that a clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract.[if !supportFootnotes][36][endif] Again in Del Monte Corporation-USA
v. Court of Appeals, we likewise ruled that [t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is
part of that contract and is itself a contract.[if !supportFootnotes][37][endif]
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be

done in Seoul, Korea in accordance with the Commercial Arbitration Rules of
the KCAB, and that the arbitral award is final and binding, is not contrary to
public policy. This Court has sanctioned the validity of arbitration clauses in a
catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael
and Co., Inc.,[if !supportFootnotes][38][endif] this Court had occasion to rule that an
arbitration clause to resolve differences and breaches of mutually agreed
contractual terms is valid. In BF Corporation v. Court of Appeals, we held that
[i]n 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. Republic Act No.
876 was adopted to supplement the New Civil Codes provisions on arbitration. [if
!supportFootnotes][39][endif]
And in LM Power Engineering Corporation v. Capitol Industrial
Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of

settling disputes, arbitrationalong with mediation, conciliation
and negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. It is
thus regarded as the wave of the future in international civil
and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be
a step backward.
Consistent with the above-mentioned policy of

encouraging alternative dispute resolution methods, courts
should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be granted. Any
doubt should be resolved in favor of arbitration. [if !supportFootnotes][40]
[endif]
Having said that the instant arbitration clause is not against public
policy, we come to the question on what governs an arbitration clause
specifying that in case of any dispute arising from the contract, an arbitral
panel will be constituted in a foreign country and the arbitration rules of the
foreign country would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to

arbitrate disputes arising from contractual relations. In case a foreign arbitral
body is chosen by the parties, the arbitration rules of our domestic arbitration
bodies would not be applied. As signatory to the Arbitration Rules of the
UNCITRAL Model Law on International Commercial Arbitration [if !supportFootnotes][41]
[endif]
of the United Nations Commission on International Trade Law (UNCITRAL)
in the New York Convention on June 21, 1985, the Philippines committed itself
to be bound by the Model Law. We have even incorporated the Model Law in
Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 entitled 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, promulgated on
April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the pertinent
provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
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 (United Nations Document A/40/17) and recommended
for enactment by the General Assembly in Resolution No.
40/72 approved on December 11, 1985, copy of which is
hereto attached as Appendix A.
SEC. 20. Interpretation of Model Law.In interpreting

the Model Law, regard shall be had to its international origin
and to the need for uniformity in its interpretation and resort
may be made to the travaux preparatories and the report of the
Secretary General of the United Nations Commission on
International Trade Law dated March 25, 1985 entitled,
International Commercial Arbitration: Analytical Commentary
on Draft Trade identified by reference number A/CN. 9/264.
While RA 9285 was passed only in 2004, it nonetheless applies in the

instant case since it is a procedural law which has a retroactive effect.
Likewise, KOGIES filed its application for arbitration before the KCAB on July
1, 1998 and it is still pending because no arbitral award has yet been rendered.
Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that
procedural laws are construed to be applicable to actions pending and
undetermined at the time of their passage, and are deemed retroactive in that
sense and to that extent. As a general rule, the retroactive application of
procedural laws does not violate any personal rights because no vested right
has yet attached nor arisen from them.[if !supportFootnotes][42][endif]
Among the pertinent features of RA 9285 applying and incorporating

the UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that
are properly the subject of arbitration pursuant to an arbitration clause, and
mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an

action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests
not later than the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless it
finds that the arbitration agreement is null and void,
inoperative or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the

arbitration clause to be final and binding are not immediately enforceable or
cannot be implemented immediately. Sec. 35[if !supportFootnotes][43][endif] of the
UNCITRAL Model Law stipulates the requirement for the arbitral award to be
recognized by a competent court for enforcement, which court under Sec. 36 of
the UNCITRAL Model Law may refuse recognition or enforcement on the
grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and
44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.The

enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral
awards shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be promulgated by
the Supreme Court. Said procedural rules shall provide that
the party relying on the award or applying for its enforcement
shall file with the court the original or authenticated copy of
the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the
party shall supply a duly certified translation thereof into any
of such languages.
The applicant shall establish that the country in which

foreign arbitration award was made in party to the New York
Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign

Arbitral Awards Not Covered by the New York Convention.The
recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in
accordance with procedural rules to be promulgated by the
Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award as a
convention award.
SEC. 44. Foreign Arbitral Award Not Foreign

Judgment.A foreign arbitral award when confirmed by a court
of a foreign country, shall be recognized and enforced as a
foreign arbitral award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the

Regional Trial Court, shall be enforced in the same manner as
final and executory decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for

recognition and enforcement of an arbitration agreement or for
vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration
assistance and supervision shall be deemed as special
proceedings and shall be filed with the Regional Trial Court (i)
where arbitration proceedings are conducted; (ii) where the
asset to be attached or levied upon, or the act to be enjoined is
located; (iii) where any of the parties to the dispute resides or
has his place of business; or (iv) in the National Judicial
Capital Region, at the option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In a special

proceeding for recognition and enforcement of an arbitral
award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot be
served notice at such address, at such partys last known
address. The notice shall be sent al least fifteen (15) days
before the date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC
are deemed not as a judgment of a foreign court but as a foreign arbitral award,
and when confirmed, are enforced as final and executory decisions of our
courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral
award is similar to judgments or awards given by some of our quasi-judicial
bodies, like the National Labor Relations Commission and Mines Adjudication
Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed,
upon the instance of any party. Therefore, the final foreign arbitral awards are
similarly situated in that they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the

RTC with specific authority and jurisdiction to set aside, reject, or vacate a
foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL
Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The

enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral

awards shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be promulgated by
the Supreme Court. Said procedural rules shall provide that
the party relying on the award or applying for its enforcement
shall file with the court the original or authenticated copy of
the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the
party shall supply a duly certified translation thereof into any
of such languages.
The applicant shall establish that the country in which
foreign arbitration award was made is party to the New York
Convention.
If the application for rejection or suspension of

enforcement of an award has been made, the Regional Trial
Court may, if it considers it proper, vacate its decision and may
also, on the application of the party claiming recognition or
enforcement of the award, order the party to provide
appropriate security.
xxxx
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 procedures and 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.
Thus, while the RTC does not have jurisdiction over disputes governed
by arbitration mutually agreed upon by the parties, still the foreign arbitral
award is subject to judicial review by the RTC which can set aside, reject, or
vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.),
Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral awards,
while final and binding, do not oust courts of jurisdiction since these arbitral
awards are not absolute and without exceptions as they are still judicially
reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards,
whether domestic or foreign, are subject to judicial review on specific grounds
provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral
awards
The differences between a final arbitral award from an international or

foreign arbitral tribunal and an award given by a local arbitral tribunal are the
specific grounds or conditions that vest jurisdiction over our courts to review
the awards.
For foreign or international arbitral awards which must first be

confirmed by the RTC, the grounds for setting aside, rejecting or vacating the
award by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the
RTC pursuant to Sec. 23 of RA 876[if !supportFootnotes][44][endif] and shall be recognized
as final and executory decisions of the RTC, [if !supportFootnotes][45][endif] they may only be
assailed before the RTC and vacated on the grounds provided under Sec. 25 of
RA 876.[if !supportFootnotes][46][endif]
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy

of an aggrieved party in cases where the RTC sets aside, rejects, vacates,
modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral

Awards.A decision of the Regional Trial Court confirming,
vacating, setting aside, modifying or correcting an arbitral
award may be appealed to the Court of Appeals in accordance
with the rules and procedure to be promulgated by the
Supreme Court.
The losing party who appeals from the judgment of the

court confirming an arbitral award shall be required by the
appellate court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme
Court.
Thereafter, the CA decision may further be appealed or reviewed before

this Court through a petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must

submit to the foreign arbitration as it bound itself through the subject
contract. While it may have misgivings on the foreign arbitration done in Korea
by the KCAB, it has available remedies under RA 9285. Its interests are duly
protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be
enforced.
With our disquisition above, petitioner is correct in its contention that

an arbitration clause, stipulating that the arbitral award is final and binding,
does not oust our courts of jurisdiction as the international arbitral award, the
award of which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the UNCITRAL Model Law
on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract

which provides that the parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid
and binding on the parties, and not contrary to public policy; consequently,
being bound to the contract of arbitration, a party may not unilaterally rescind
or terminate the contract for whatever cause without first resorting to
arbitration.
What this Court held in University of the Philippines v. De Los Angeles [if !
and reiterated in succeeding cases,[if !supportFootnotes][48][endif] that the
act of treating a contract as rescinded on account of infractions by the other
contracting party is valid albeit provisional as it can be judicially assailed, is
not applicable to the instant case on account of a valid stipulation on
arbitration. Where an arbitration clause in a contract is availing, neither of the
parties can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from the contract must
be brought first and resolved by arbitration, and not through an extrajudicial
rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on
whether the equipment and machineries delivered and installed were properly
installed and operational in the plant in Carmona, Cavite; the ownership of
equipment and payment of the contract price; and whether there was
substantial compliance by KOGIES in the production of the samples, given the
alleged fact that PGSMC could not supply the raw materials required to
produce the sample LPG cylinders, are matters proper for arbitration. Indeed,
we note that on July 1, 1998, KOGIES instituted an Application for Arbitration
before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as
amended. Thus, it is incumbent upon PGSMC to abide by its commitment to
arbitrate.
Corollarily, the trial court gravely abused its discretion in granting

PGSMCs Motion for Inspection of Things on September 21, 1998, as the
subject matter of the motion is under the primary jurisdiction of the mutually
agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC
Branch Sheriff from the inspection made on October 28, 1998, as ordered by
the trial court on October 19, 1998, is of no worth as said Sheriff is not
technically competent to ascertain the actual status of the equipment and
machineries as installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC
Orders pertaining to the grant of the inspection of the equipment and
machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the
total contract price of USD 1,530,000 was for the whole plant and its
installation is beyond the ambit of a Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original action for

certiorari.[if !supportFootnotes][49][endif] Whether or not there was full payment for the
machineries and equipment and installation is indeed a factual issue
prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of

the RTC in resolving the issue on the ownership of the plant when it is the
arbitral body (KCAB) and not the RTC which has jurisdiction and authority
over the said issue. The RTCs determination of such factual issue constitutes
grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive
writ paving the way for PGSMC to dismantle and transfer the equipment and
machineries, we find it to be in order considering the factual milieu of the
instant case.
Firstly, while the issue of the proper installation of the equipment and
machineries might well be under the primary jurisdiction of the arbitral body
to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and
grant interim measures to protect vested rights of the parties. Sec. 28
pertinently provides:
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 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 or to the extent that the arbitral
tribunal has no power to act or is unable to act effectivity,
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.
(b) The following rules on interim or provisional relief

shall be observed:
Any party may request that provisional relief be

granted against the adverse party.
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.
(c) The order granting provisional relief may be

conditioned upon the provision of security or any act or
omission specified in the order.
(d) 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.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for

assistance in implementing or enforcing an interim measure
ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be
liable for all damages resulting from noncompliance, including
all expenses, and reasonable attorney's fees, paid in obtaining
the orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim

measure of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether in the

form of an award or in another form, by which, at any time
prior to the issuance of the award by which the dispute is
finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to
cause, current or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may
be satisfied; or
(d) Preserve evidence that may be relevant and material to the resolution of the
dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and
jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an

interim measure in relation to arbitration proceedings,
irrespective of whether their place is in the territory of this
State, as it has in relation to proceedings in courts. The court
shall exercise such power in accordance with its own
procedures in consideration of the specific features of
international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro

Corporation, we were explicit that even the pendency of an arbitral proceeding
does not foreclose resort to the courts for provisional reliefs. We explicated this
way:
As a fundamental point, the pendency of arbitral proceedings does not foreclose

resort to the courts for provisional reliefs. The Rules of the ICC, which governs
the parties arbitral dispute, allows the application of a party to a judicial
authority for interim or conservatory measures. Likewise, Section 14 of
Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes 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. In addition, R.A.
9285, otherwise known as the Alternative Dispute Resolution Act of 2004,
allows the filing of provisional or interim measures with the regular courts
whenever the arbitral tribunal has no power to act or to act effectively.[if !
It is thus beyond cavil that the RTC has authority and jurisdiction to
grant interim measures of protection.
Secondly, considering that the equipment and machineries are in the

possession of PGSMC, it has the right to protect and preserve the equipment
and machineries in the best way it can. Considering that the LPG plant was
non-operational, PGSMC has the right to dismantle and transfer the equipment
and machineries either for their protection and preservation or for the better
way to make good use of them which is ineluctably within the management
discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the

equipment and machineries in Worths property is not to the best interest of
PGSMC due to the prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M
for 1998 alone without considering the 10% annual rent increment in
maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or

petitions relating to the preservation or transfer of the equipment and
machineries as an interim measure, yet on hindsight, the July 23, 1998 Order
of the RTC allowing the transfer of the equipment and machineries given the
non-recognition by the lower courts of the arbitral clause, has accorded an
interim measure of protection to PGSMC which would otherwise been
irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a

substantial amount based on the contract. Moreover, KOGIES is amply
protected by the arbitral action it has instituted before the KCAB, the award of
which can be enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration pursuant to the valid
arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle
and transfer the subject equipment and machineries, it does not have the right
to convey or dispose of the same considering the pending arbitral proceedings
to settle the differences of the parties. PGSMC therefore must preserve and
maintain the subject equipment and machineries with the diligence of a good
father of a family[if !supportFootnotes][51][endif] until final resolution of the arbitral
proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is

REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil
Case No. 98-117 are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the

arbitration of their dispute and differences arising from the subject Contract
before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the

equipment and machineries, if it had not done so, and ORDERED to preserve
and maintain them until the finality of whatever arbitral award is given in the
arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.
Gr. No. 161957 (Jorge Gonzales)
SPECIAL SECOND DIVISION
JORGE GONZALES and G.R. No. 161957

PANEL OF ARBITRATORS,
Petitioners, Present:
PUNO, C. J.,
Chairperson,
[if !supportLists]- [endif]versus AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
NAZARIO, JJ.
CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES Promulgated:
MINING INC.,
Respondents. January 22, 2007
x--------------------------------------------------------------------------------- x
JORGE GONZALES, G.R. No. 167994

Petitioner,
[if !supportLists]- [endif]versus
HON. OSCAR B. PIMENTEL, in his

capacity as PRESIDING JUDGE of BR. 148
of the REGIONAL TRIAL COURT of
MAKATI CITY, and CLIMAX-ARIMCO
MINING CORPORATION,
Respondents.
x-------------------------- --------------------------------------------------- x
R E S O L U T I ON
TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed Addendum

Contract entered into by the parties. In G.R. No. 161957, the Court in its
Decision of 28 February 2005[if !supportFootnotes][1][endif] denied the Rule 45 petition of
petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of Arbitrators
had no jurisdiction over the complaint for the annulment of the Addendum
Contract on grounds of fraud and violation of the Constitution and that the
action should have been brought before the regular courts as it involved
judicial issues. Both parties filed separate motions for reconsideration.
Gonzales avers in his Motion for Reconsideration[if !supportFootnotes][2][endif] that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute
that properly falls within the ambit of the Panels authority. Gonzales adds that
the Court failed to rule on other issues he raised relating to the sufficiency of
his complaint before the DENR Panel of Arbitrators and the timeliness of its
filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for
Partial Reconsideration and/or Clarification[if !supportFootnotes][3][endif] seeking
reconsideration of that part of the Decision holding that the case should not be
brought for arbitration under Republic Act (R.A.) No. 876, also known as the
Arbitration Law.[if !supportFootnotes][4][endif] Respondents, citing American jurisprudence[if
and the UNCITRAL Model Law,[if !supportFootnotes][6][endif] argue that the
arbitration clause in the Addendum Contract should be treated as an
agreement independent of the other terms of the contract, and that a claimed
rescission of the main contract does not avoid the duty to arbitrate.
Respondents add that Gonzaless argument relating to the alleged invalidity of
the Addendum Contract still has to be proven and adjudicated on in a proper
proceeding; that is, an action separate from the motion to compel arbitration.
Pending judgment in such separate action, the Addendum Contract remains
valid and binding and so does the arbitration clause therein. Respondents add
that the holding in the Decision that the case should not be brought under the
ambit of the Arbitration Law appears to be premised on Gonzaless having
impugn[ed] the existence or validity of the addendum contract. If so, it
supposedly conveys the idea that Gonzaless unilateral repudiation of the
contract or mere allegation of its invalidity is all it takes to avoid arbitration.
Hence, respondents submit that the courts holding that the case should not be
brought under the ambit of the Arbitration Law be understood or clarified as
operative only where the challenge to the arbitration agreement has been
sustained by final judgment.
Both parties were required to file their respective comments to the other partys
motion for reconsideration/clarification.[if !supportFootnotes][7][endif] Respondents filed
their Comment on 17 August 2005, [if !supportFootnotes][8][endif] while Gonzales filed his
only on 25 July 2006.[if !supportFootnotes][9][endif]
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005,
or while the motions for reconsideration in G.R. No. 161957 [if !supportFootnotes][10][endif]
were pending, wherein Gonzales challenged the orders of the Regional Trial
Court (RTC) requiring him to proceed with the arbitration proceedings as
sought by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were
consolidated upon the recommendation of the Assistant Division Clerk of Court
since the cases are rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It stemmed from
the petition to compel arbitration filed by respondent Climax-Arimco before the
RTC of Makati City on 31 March 2000 while the complaint for the nullification
of the Addendum Contract was pending before the DENR Panel of Arbitrators.
On 23 March 2000, Climax-Arimco had sent Gonzales a Demand for
Arbitration pursuant to Clause 19.1 [if !supportFootnotes][11][endif] of the Addendum
Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for
arbitration was subsequently filed and Climax-Arimco sought an order to
compel the parties to arbitrate pursuant to the said arbitration clause. The
case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the
RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge.
Respondent Climax-Arimco filed on 5 April 2000 a motion to set the application
to compel arbitration for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed
to set for hearing. On 15 May 2000, he filed an Answer with Counterclaim, [if !
questioning the validity of the Addendum Contract containing
the arbitration clause. Gonzales alleged that the Addendum Contract
containing the arbitration clause is void in view of Climax-Arimcos acts of
fraud, oppression and violation of the Constitution. Thus, the arbitration
clause, Clause 19.1, contained in the Addendum Contract is also null and void
ab initio and legally inexistent.
On 18 May 2000, the RTC issued an order declaring Gonzaless motion to

dismiss moot and academic in view of the filing of his Answer with
Counterclaim.[if !supportFootnotes][13][endif]
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial. [if !
This the RTC denied on 16 June 2000, holding that the
petition for arbitration is a special proceeding that is summary in nature. [if !
However, on 7 July 2000, the RTC granted Gonzaless motion
for reconsideration of the 16 June 2000 Order and set the case for pre-trial on
10 August 2000, it being of the view that Gonzales had raised in his answer the
issue of the making of the arbitration agreement.[if !supportFootnotes][16][endif]
Climax-Arimco then filed a motion to resolve its pending motion to compel

arbitration. The RTC denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I.

Benito for not possessing the cold neutrality of an impartial judge. [if !supportFootnotes]
[17][endif]
On 5 August 2000, Judge Benito issued an Order granting the Motion to
Inhibit and ordered the re-raffling of the petition for arbitration. [if !supportFootnotes][18]
[endif]
The case was raffled to the sala of public respondent Judge Oscar B.
Pimentel of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24

July 2000 Order.[if !supportFootnotes][19][endif] Climax-Arimco argued that R.A. No. 876
does not authorize a pre-trial or trial for a motion to compel arbitration but
directs the court to hear the motion summarily and resolve it within ten days
from hearing. Judge Pimentel granted the motion and directed the parties to
arbitration. On 13 February 2001, Judge Pimentel issued the first assailed
order requiring Gonzales to proceed with arbitration proceedings and
appointing retired CA Justice Jorge Coquia as sole arbitrator.[if !supportFootnotes][20][endif]
Gonzales moved for reconsideration on 20 March 2001 but this was denied in
the Order dated 7 March 2005.[if !supportFootnotes][21][endif]
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13
February 2001 and 7 March 2005 of Judge Pimentel. Gonzales contends that
public respondent 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, is null and void.
Gonzales has also sought a temporary restraining order to prevent the
enforcement of the assailed orders directing the parties to arbitrate, and to
direct Judge Pimentel to hold a pre-trial conference and the necessary hearings
on the determination of the nullity of the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
SEC. 6. Hearing by court.A party aggrieved by the

failure, neglect or refusal of another to perform under an
agreement in writing providing for arbitration may petition
the court for an order directing that such arbitration proceed
in the manner provided for in such agreement. Five days
notice in writing of the hearing of such application shall be
served either personally or by registered mail upon the party
in default. The court shall hear the parties, and upon being
satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance
with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to
summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or
that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a written
provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in
accordance with the terms thereof.
The court shall decide all motions, petitions or

applications filed under the provisions of this Act, within ten
(10) days after such motions, petitions, or applications have
been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative Dispute
Resolution Act of 2004:
SEC. 24. Referral to Arbitration.A court before which

an action is brought in a matter which is the subject matter
of an arbitration agreement shall, if at least one party so
requests not later than the pre-trial conference, or upon the
request of both parties thereafter, refer the parties to
arbitration unless it finds that the arbitration agreement is
null and void, inoperative or incapable of being performed.
According to Gonzales, the above-quoted provisions of law outline the

procedure to be followed in petitions to compel arbitration, which the RTC did
not follow. Thus, referral of the parties to arbitration by Judge Pimentel despite
the timely and properly raised issue of nullity of the Addendum Contract was
misplaced and without legal basis. Both R.A. No. 876 and R.A. No. 9285
mandate that any issue as to the nullity, inoperativeness, or incapability of
performance of the arbitration clause/agreement raised by one of the parties to
the alleged arbitration agreement must be determined by the court prior to
referring them to arbitration. They require that the trial court first determine or
resolve the issue of nullity, and there is no other venue for this determination
other than a pre-trial and hearing on the issue by the trial court which has
jurisdiction over the case. Gonzales adds that the assailed 13 February 2001
Order also violated his right to procedural due process when the trial court
erroneously ruled on the existence of the arbitration agreement despite the
absence of a hearing for the presentation of evidence on the nullity of the
Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of review

availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:
SEC. 29. Appeals.An appeal may be taken from an order made in a

proceeding under this Act, or from a judgment entered upon
an award through certiorari proceedings, but such appeals
shall be limited to questions of law. The proceedings upon
such an appeal, including the judgment thereon shall be
governed by the Rules of Court in so far as they are
applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by
Gonzales is available only where there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law against the challenged orders or
acts. Climax-Arimco then points out that R.A. No. 876 provides for an appeal
from such orders, which, under the Rules of Court, must be filed within 15
days from notice of the final order or resolution appealed from or of the denial
of the motion for reconsideration filed in due time. Gonzales has not denied
that the relevant 15-day period for an appeal had elapsed long before he filed
this petition for certiorari. He cannot use the special civil action of certiorari as
a remedy for a lost appeal.
Climax-Arimco adds that an application to compel arbitration under Sec. 6 of

R.A. No. 876 confers on the trial court only a limited and special jurisdiction,
i.e., a jurisdiction solely to determine (a) whether or not the parties have a
written contract to arbitrate, and (b) if the defendant has failed to comply with
that contract. Respondent cites La Naval Drug Corporation v. Court of Appeals,
which holds that in a proceeding to compel arbitration, [t]he
arbitration law explicitly confines the courts authority only to pass upon the
issue of whether there is or there is no agreement in writing providing for
arbitration, and [i]n 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 !supportFootnotes][23][endif] Climax-Arimco argues
that R.A. No. 876 gives no room for any other issue to be dealt with in such a
proceeding, and that the court presented with an application to compel
arbitration may order arbitration or dismiss the same, depending solely on its
finding as to those two limited issues. If either of these matters is disputed, the
court is required to conduct a summary hearing on it. Gonzaless proposition
contradicts both the trial courts limited jurisdiction and the summary nature
of the proceeding itself.
Climax-Arimco further notes that Gonzaless attack on or repudiation of the

Addendum Contract also is not a ground to deny effect to the arbitration clause
in the Contract. The arbitration agreement is separate and severable from the
contract evidencing the parties commercial or economic transaction, it
stresses. Hence, the alleged defect or failure of the main contract is not a
ground to deny enforcement of the parties arbitration agreement. Even the
party who has repudiated the main contract is not prevented from enforcing its
arbitration provision. R.A. No. 876 itself treats the arbitration clause or
agreement as a contract separate from the commercial, economic or other
transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2
thereof, considers the arbitration stipulation an independent contract in its
own right whose enforcement may be prevented only on grounds which legally
make the arbitration agreement itself revocable, thus:
SEC. 2. Persons and matters subject to arbitration.Two or more

persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing, between them at
the time of the submission and which may be the subject of
an action, or the parties to any contract may in such contract
agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.
xxxx
The grounds Gonzales invokes for the revocation of the Addendum

Contractfraud and oppression in the execution thereofare also not grounds for
the revocation of the arbitration clause in the Contract, Climax-Arimco notes.
Such grounds may only be raised by way of defense in the arbitration itself and
cannot be used to frustrate or delay the conduct of arbitration proceedings.
Instead, these should be raised in a separate action for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel arbitration

under Sec. 6 of R.A. No. 876 should not be confused with the procedure in Sec.
24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel
arbitration where the courts authority is limited to resolving the issue of
whether there is or there is no agreement in writing providing for arbitration,
while Sec. 24 of R.A. No. 9285 refers to an ordinary action which covers a
matter that appears to be arbitrable or subject to arbitration under the
arbitration agreement. In the latter case, the statute is clear that the court,
instead of trying the case, may, on request of either or both parties, refer the
parties to arbitration, unless it finds that the arbitration agreement is null and
void, inoperative or incapable of being performed. Arbitration may even be
ordered in the same suit brought upon a matter covered by an arbitration
agreement even without waiting for the outcome of the issue of the validity of
the arbitration agreement. Art. 8 of the UNCITRAL Model Law [if !supportFootnotes][24][endif]
states that where a court before which an action is brought in a matter which
is subject of an arbitration agreement refers the parties to arbitration, the
arbitral proceedings may proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was
proper for the RTC, in the proceeding to compel arbitration under R.A. No. 876,
to order the parties to arbitrate even though the defendant therein has raised
the twin issues of validity and nullity of the Addendum Contract and,
consequently, of the arbitration clause therein as well. The resolution of both
Climax-Arimcos Motion for Partial Reconsideration and/or Clarification in G.R.
No. 161957 and Gonzaless Petition for Certiorari in G.R. No. 167994 essentially
turns on whether the question of validity of the Addendum Contract bears
upon the applicability or enforceability of the arbitration clause contained
therein. The two pending matters shall thus be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the
remedial law perspective. It deserves to be dismissed on procedural grounds, as
it was filed in lieu of appeal which is the prescribed remedy and at that far
beyond the reglementary period. It is elementary in remedial law that the use
of an erroneous mode of appeal is cause for dismissal of the petition for
certiorari and it has been repeatedly stressed that a petition for certiorari is not
a substitute for a lost appeal. As its nature, a petition for certiorari lies only
where there is no appeal, and no plain, speedy and adequate remedy in the
ordinary course of law.[if !supportFootnotes][25][endif] The Arbitration Law specifically
provides for an appeal by certiorari, i.e., a petition for review under certiorari
under Rule 45 of the Rules of Court that raises pure questions of law. [if !
There is no merit to Gonzaless argument that the use of the
permissive term may in Sec. 29, R.A. No. 876 in the filing of appeals does not
prohibit nor discount the filing of a petition for certiorari under Rule 65. [if !
Proper interpretation of the aforesaid provision of law shows
that the term may refers only to the filing of an appeal, not to the mode of
review to be employed. Indeed, the use of may merely reiterates the principle
that the right to appeal is not part of due process of law but is a mere statutory
privilege to be exercised only in the manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals[if !supportFootnotes][28][endif] cited

by Gonzales support his theory. Gonzales argues that said case recognized and
allowed a petition for certiorari under Rule 65 appealing the order of the
Regional Trial Court disregarding the arbitration agreement as an acceptable
remedy.[if !supportFootnotes][29][endif] The BF Corporation case had its origins in a
complaint for collection of sum of money filed by therein petitioner BF
Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to suspend the
proceedings alleging that the construction agreement or the Articles of
Agreement between the parties contained a clause requiring prior resort to
arbitration before judicial intervention. The trial court found that an arbitration
clause was incorporated in the Conditions of Contract appended to and
deemed an integral part of the Articles of Agreement. Still, the trial court
denied the motion to suspend proceedings upon a finding that the Conditions
of Contract were not duly executed and signed by the parties. The trial court
also found that SPI had failed to file any written notice of demand for
arbitration within the period specified in the arbitration clause. The trial court
denied SPI's motion for reconsideration and ordered it to file its responsive
pleading. Instead of filing an answer, SPI filed a petition for certiorari under
Rule 65, which the Court of Appeals, favorably acted upon. In a petition for
review before this Court, BF Corporation alleged, among others, that the Court
of Appeals should have dismissed the petition for certiorari since the order of
the trial court denying the motion to suspend proceedings is a resolution of an
incident on the merits and upon the continuation of the proceedings, the trial
court would eventually render a decision on the merits, which decision could
then be elevated to a higher court in an ordinary appeal.[if !supportFootnotes][30][endif]
The Court did not uphold BF Corporations argument. The issue raised
before the Court was whether SPI had taken the proper mode of appeal before
the Court of Appeals. The question before the Court of Appeals was whether
the trial court had prematurely assumed jurisdiction over the controversy. The
question of jurisdiction in turn depended on the question of existence of the
arbitration clause which is one of fact. While on its face the question of
existence of the arbitration clause is a question of fact that is not proper in a
petition for certiorari, yet since the determination of the question obliged the
Court of Appeals as it did to interpret the contract documents in accordance
with R.A. No. 876 and existing jurisprudence, the question is likewise a
question of law which may be properly taken cognizance of in a petition for
certiorari under Rule 65, so the Court held.[if !supportFootnotes][31][endif]
The situation in B.F. Corporation is not availing in the present petition.

The disquisition in B.F. Corporation led to the conclusion that in order that the
question of jurisdiction may be resolved, the appellate court had to deal first
with a question of law which could be addressed in a certiorari proceeding. In
the present case, Gonzaless petition raises a question of law, but not a question
of jurisdiction. 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 has 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. [if !supportFootnotes][32][endif] Even if we
overlook the employment of the wrong remedy in the broader interests of
justice, the petition would nevertheless be dismissed for failure of Gonzalez to
show grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has long been

recognized and accepted in our jurisdiction. The Civil Code is explicit on the
matter.[if !supportFootnotes][33][endif] R.A. No. 876 also expressly authorizes arbitration of
domestic disputes. Foreign arbitration, as a system of settling commercial
disputes of an international character, was likewise recognized when the
Philippines adhered to the United Nations "Convention on the Recognition and
the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration agreements between parties of
different nationalities within a contracting state. [if !supportFootnotes][34][endif] The
enactment of R.A. No. 9285 on 2 April 2004 further institutionalized the use of
alternative dispute resolution systems, including arbitration, in the settlement
of disputes.
Disputes do not go to arbitration unless and until the parties have agreed to
abide by the arbitrators decision. Necessarily, a contract is required for
arbitration to take place and to be binding. R.A. No. 876 recognizes the
contractual nature of the arbitration agreement, thus:
SEC. 2. Persons and matters subject to arbitration.Two or more

persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing, between them
at the time of the submission and which may be the subject
of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save
upon such grounds as exist at law for the revocation of
any contract.
Such submission or contract may include question arising out of

valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue
between the parties.
A controversy cannot be arbitrated where one of the parties to the

controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction
approve a petition for permission to submit such controversy
to arbitration made by the general guardian or guardian ad
litem of the infant or of the incompetent. [Emphasis added.]
Thus, we held in Manila Electric Co. v. Pasay Transportation Co. [if !

that a submission to arbitration is a contract. A clause in a
contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract, [if !supportFootnotes][36][endif] and in Del Monte
Corporation-USA v. Court of Appeals[if !supportFootnotes][37][endif] that [t]he provision to
submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are
respected as the law between the contracting parties and produce effect as
between them, their assigns and heirs.[if !supportFootnotes][38][endif]
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. It provides:
SEC. 6. Hearing by court.A party aggrieved by the

failure, neglect or refusal of another to perform under an
agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration
proceed in the manner provided for in such agreement. Five
days notice in writing of the hearing of such application shall
be served either personally or by registered mail upon the
party in default. The court shall hear the parties, and upon
being satisfied that the making of the agreement or such
failure to comply therewith is not in issue, shall make an
order directing the parties to proceed to arbitration in
accordance with the terms of the agreement. If the making of
the agreement or default be in issue the court shall proceed
to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made,
or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a
written provision for arbitration was made and there is a
default in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or

applications filed under the provisions of this Act, within ten
days after such motions, petitions, or applications have been
heard by it. [Emphasis added.]
This special proceeding is the procedural mechanism for the enforcement of the
contract to arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A.
No. 876 as well as the nature of the proceedings therein was expounded upon
in La Naval Drug Corporation v. Court of Appeals.[if !supportFootnotes][39][endif] There it was
held that R.A. No. 876 explicitly confines the court's 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 proceeding shall be dismissed." [if !
The cited case also stressed that the proceedings are
summary in nature.[if !supportFootnotes][41][endif] The same thrust was made in the earlier
case of Mindanao Portland Cement Corp. v. McDonough Construction Co. of
Florida[if !supportFootnotes][42][endif] which held, thus:
Since there obtains herein a written provision for

arbitration as well as failure on respondent's part to comply
therewith, the court a quo rightly ordered the parties to
proceed to arbitration in accordance with the terms of their
agreement (Sec. 6, Republic Act 876). Respondent's
arguments touching upon the merits of the dispute are
improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to
enforce the agreement to arbitrate. The duty of the court in
this case is not to resolve the merits of the parties' claims but
only to determine if they should proceed to arbitration or not.
x x x x[if !supportFootnotes][43][endif]
Implicit in the summary nature of the judicial proceedings is the

separable or independent character of the arbitration clause or agreement. This
was highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co.[if !
and Del Monte Corporation-USA v. Court of Appeals.[if !
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 part comes to an end.[if !supportFootnotes][46][endif]
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.[if !supportFootnotes][47][endif]
The separability of the arbitration clause is confirmed in Art. 16(1) of

the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules. [if !
The separability doctrine was dwelt upon at length in the U.S. case of
Prima Paint Corp. v. Flood & Conklin Manufacturing Co. [if !supportFootnotes][49][endif] In
that case, Prima Paint and Flood and Conklin (F & C) entered into a consulting
agreement whereby F & C undertook to act as consultant to Prima Paint for six
years, sold to Prima Paint a list of its customers and promised not to sell paint
to these customers during the same period. The consulting agreement
contained an arbitration clause. Prima Paint did not make payments as
provided in the consulting agreement, contending that F & C had fraudulently
misrepresented that it was solvent and able for perform its contract when in
fact it was not and had even intended to file for bankruptcy after executing the
consultancy agreement. Thus, F & C served Prima Paint with a notice of
intention to arbitrate. Prima Paint sued in court for rescission of the consulting
agreement on the ground of fraudulent misrepresentation and asked for the
issuance of an order enjoining F & C from proceeding with arbitration. F & C
moved to stay the suit pending arbitration. The trial court granted F & Cs
motion, and the U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paints argument that it
had been fraudulently induced by F & C to sign the consulting agreement and
held that no court should address this argument. Relying on Sec. 4 of the
Federal Arbitration Actwhich provides that if a party [claims to be] aggrieved by
the alleged failure x x x of another to arbitrate x x x, [t]he court shall hear the
parties, and upon being satisfied that the making of the agreement for
arbitration or the failure to comply therewith is not in issue, the court shall
make an order directing the parties to proceed to arbitration x x x. If the
making of the arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed summarily to the trial
thereofthe U.S. High Court held that the court should not order the parties to
arbitrate if the making of the arbitration agreement is in issue. The parties
should be ordered to arbitration if, and only if, they have contracted to submit
to arbitration. Prima Paint was not entitled to trial on the question of whether
an arbitration agreement was made because its allegations of fraudulent
inducement were not directed to the arbitration clause itself, but only to the
consulting agreement which contained the arbitration agreement. [if !supportFootnotes]
[50][endif]
Prima Paint held that arbitration clauses are separable from the
contracts in which they are embedded, and that where no claim is made that
fraud was directed to the arbitration clause itself, a broad arbitration clause
will be held to encompass arbitration of the claim that the contract itself was
induced by fraud.[if !supportFootnotes][51][endif]
There is reason, therefore, to rule against Gonzales when he alleges

that Judge Pimentel acted with grave abuse of discretion in ordering the parties
to proceed with arbitration. Gonzaless argument that the Addendum Contract
is null and void and, therefore the arbitration clause therein is void as well, is
not tenable. First, the proceeding in a petition for arbitration under R.A. No.
876 is limited only to the resolution of the question of whether the arbitration
agreement exists. Second, the separability of the arbitration clause from the
Addendum Contract means that validity or invalidity of the Addendum
Contract will not affect the enforceability of the agreement to arbitrate. Thus,
Gonzaless petition for certiorari should be dismissed.
This brings us back to G.R. No. 161957. 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 partys 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.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should

also be denied. In the motion, Gonzales raises the same question of
jurisdiction, more particularly that the complaint for nullification of the
Addendum Contract pertained to the DENR Panel of Arbitrators, not the
regular courts. He insists that the subject of his complaint is a mining dispute
since it involves a dispute concerning rights to mining areas, the Financial and
Technical Assistance Agreement (FTAA) between the parties, and it also
involves claimowners. He adds that the Court failed to rule on other issues he
raised, such as whether he had ceded his claims over the mineral deposits
located within the Addendum Area of Influence; whether the complaint filed
before the DENR Panel of Arbitrators alleged ultimate facts of fraud; and
whether the action to declare the nullity of the Addendum Contract on the
ground of fraud has prescribed.
These are the same issues that Gonzales raised in his Rule 45 petition
in G.R. No. 161957 which were resolved against him in the Decision of 28
February 2005. Gonzales does not raise any new argument that would sway
the Court even a bit to alter its holding that the complaint filed before the
DENR Panel of Arbitrators involves judicial issues which should properly be
resolved by the regular courts. He alleged fraud or misrepresentation in the
execution of the Addendum Contract which is a ground for the annulment of a
voidable contract. Clearly, such allegations entail legal questions which are
within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the
mineral deposits in the Addendum Area of Influence is a factual question which
is not proper for determination before this Court. At all events, moreover, the
question is irrelevant to the issue of jurisdiction of the DENR Panel of
Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a
factual finding in its Order dated 18 October 2001, which it reiterated in its
Order dated 25 June 2002, that Gonzales had, through the various
agreements, assigned his interest over the mineral claims all in favor of
[Climax-Arimco] as well as that without the complainant [Gonzales] assigning
his interest over the mineral claims in favor of [Climax-Arimco], there would be
no FTAA to speak of.[if !supportFootnotes][52][endif] This finding was affirmed by the Court
of Appeals in its Decision dated 30 July 2003 resolving the petition for
certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of the
DENR Panel.[if !supportFootnotes][53][endif]
The Court of Appeals likewise found that Gonzaless complaint alleged
fraud but did not provide any particulars to substantiate it. The complaint
repeatedly mentioned fraud, oppression, violation of the Constitution and
similar conclusions but nowhere did it give any ultimate facts or particulars
relative to the allegations.[if !supportFootnotes][54][endif]
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all

averments of fraud, the circumstances constituting fraud must be stated with
particularity. This is to enable the opposing party to controvert the particular
facts allegedly constituting the same. Perusal of the complaint indeed shows
that it failed to state with particularity the ultimate facts and circumstances
constituting the alleged fraud. It does not state what particulars about Climax-
Arimcos financial or technical capability were misrepresented, or how the
misrepresentation was done. Incorporated in the body of the complaint are
verbatim reproductions of the contracts, correspondence and government
issuances that reportedly explain the allegations of fraud and
misrepresentation, but these are, at best, evidentiary matters that should not
be included in the pleading.
As to the issue of prescription, Gonzaless claims of fraud and

misrepresentation attending the execution of the Addendum Contract are
grounds for the annulment of a voidable contract under the Civil Code. [if !
Under Art. 1391 of the Code, an action for annulment shall be
brought within four years, in the case of fraud, beginning from the time of the
discovery of the same. However, the time of the discovery of the alleged fraud is
not clear from the allegations of Gonzaless complaint. That being the situation
coupled with the fact that this Court is not a trier of facts, any ruling on the
issue of prescription would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is

DISMISSED. Such dismissal effectively renders superfluous formal action on
the Motion for Partial Reconsideration and/or Clarification filed by Climax
Mining Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No.

161957 is DENIED WITH FINALITY.
SO ORDERED.
Gr. No. 141818 (Insular Savings Bank)
FIRST DIVISION
INSULAR SAVINGS BANK, G.R. No. 141818
Petitioner,
Present:
Panganiban, C.J.
(Chairperson),
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ.
FAR EAST BANK AND
TRUST COMPANY, Promulgated:
Respondent.
June 22, 2006
x ---------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari[if !supportFootnotes][1][endif] assails the November 9,

1999 Order[if !supportFootnotes][2][endif] of the Regional Trial Court of Makati City, Branch
135, in Civil Case No. 92-145 which dismissed the petition for review for lack of
jurisdiction and its February 1, 2000 Order [if !supportFootnotes][3][endif] denying
reconsideration thereof.
The antecedent facts are as follows:
On December 11, 1991, Far East Bank and Trust Company (Respondent) filed
a complaint against Home Bankers Trust and Company (HBTC)[if !supportFootnotes][4]
[endif]
with the Philippine Clearing House Corporations (PCHC) Arbitration
Committee docketed as Arbicom Case No. 91-069. [if !supportFootnotes][5][endif] Respondent
sought to recover from the petitioner, the sum of P25,200,000.00 representing
the total amount of the three checks drawn and debited against its clearing
account. HBTC sent these checks to respondent for clearing by operation of the
PCHC clearing system. Thereafter, respondent dishonored the checks for
insufficiency of funds and returned the checks to HBTC. However, the latter
refused to accept them since the checks were returned by respondent after the
reglementary regional clearing period.[if !supportFootnotes][6][endif]
Meanwhile, on January 17, 1992, before the termination of the

arbitration proceedings, respondent filed another complaint but this time with
the Regional Trial Court (RTC) in Makati City docketed as Civil Case No. 92-
145 for Sum of Money and Damages with Preliminary Attachment. The
complaint was filed not only against HBTC but also against Robert Young,
Eugene Arriesgado and Victor Tancuan (collectively known as Defendants), who
were the president and depositors of HBTC respectively. [if !supportFootnotes][7][endif] Aware
of the arbitration proceedings between respondent and petitioner, the RTC, in
an Omnibus Order dated April 30, 1992, [if !supportFootnotes][8][endif] suspended the
proceedings in the case against all the defendants pending the decision of the
Arbitration Committee, to wit:
WHEREFORE, the Court hereby orders:
(a) Home Bankers & Trust Co. to produce and permit

plaintiff to inspect, copy and/or photograph the checking
account deposit ledger of Victor Tancuans Account No. 1803-
00605-3;
(b) The Motions to Dismiss filed by all defendants

denied, for lack of merit; and
(c) Proceedings in this case against all defendants be suspended pending

award/decision in the arbitration proceedings against Home Bankers and
Trust Co.
SO ORDERED.[if !supportFootnotes][9][endif] (Emphasis supplied)
The above Omnibus Order was amended by the trial court in its
October 1, 1992 Order,[if !supportFootnotes][10][endif] the dispositive portion of which reads
as follows:
WHEREFORE, the Omnibus Order dated 30 April

1992 is hereby reconsidered by deleting the phrase since the
complaint also seeks exemplary damages, attorneys fees,
litigation expenses and costs of suit against HBT, on page 4
thereof and par. C of its dispositive portion is amended to read:
(c) Procedings against Home Bankers and Trust Co. are

suspended pending award/decision in the arbitration
proceedings while those against individual defendants be
immediately reinstated and continued.
HBT and Tancuans separate Motions for

Reconsiderations are hereby denied, for lack of merit.
SO ORDERED.[if !supportFootnotes][11][endif]
On February 2, 1998, the PCHC Arbitration Committee rendered its decision in

favor of respondent,[if !supportFootnotes][12][endif] thus:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in

favor of the plaintiff and against the defendant sentencing the
latter to pay the plaintiff the sum of P25.2 million as principal.
In view of the fact, however, that this amount was split
between the plaintiff and the defendant in the course of the
proceedings, the amount to be paid by the defendant to the
plaintiff should only be P12,600,000.00 plus interest on this
latter amount at the rate of 12% per annum from February 11,
1992, the date when the total amount of P25.2 Million was
split between plaintiff and defendant up to the date of
payment.
In view of the facts found by the committee, no attorneys fees nor other
damages are awarded.
The motion for reconsideration filed by petitioner was denied by the Arbitration
Committee.[if !supportFootnotes][14][endif] Consequently, to appeal the decision of the
Arbitration Committee in Arbicom Case No. 91-069, petitioner filed a petition
for review in the earlier case filed by respondent in Branch 135 of the RTC
of Makati and docketed as Civil Case No. 92-145.[if !supportFootnotes][15][endif] In an
order dated January 20, 1999, the RTC directed both petitioner and
respondent to file their respective memoranda, after which, said petition would
be deemed submitted for resolution.[if !supportFootnotes][16][endif]
Both parties filed several pleadings. On February 8, 1999, respondent filed a

Motion to Dismiss Petition for Review for Lack of Jurisdiction,[if !supportFootnotes][17][endif]
which was opposed by the petitioner.[if !supportFootnotes][18][endif] Respondent then filed
its Reply to the opposition,[if !supportFootnotes][19][endif] to which petitioner filed a
Rejoinder.[if !supportFootnotes][20][endif] On August 16, 1999, respondent submitted its
Surrejoinder.[if !supportFootnotes][21][endif]
On November 9, 1999, the RTC rendered the assailed Order which held, thus:
Acting on plaintiff Far East Bank and Trust Companys Motion To

Dismiss Petition For Review For Lack Of Jurisdiction,
considering that the petition for review is a separate and
distinct case, the same must comply with all the requirements
for filing initiatory pleadings for civil actions before this Court
so that since the commencement of the subject petition lacks
the mandatory requirements provided for, except the payment
of docket fees, for lack of jurisdiction, the petition for review is
hereby dismissed.
The RTC denied petitioners motion for reconsideration, [if !supportFootnotes][23][endif]
hence, this petition on the sole ground, to wit:
THE REGIONAL TRIAL COURT ERRED IN DISMISSING THE PETITION

OF PETITIONER FOR LACK OF JURISDICTION ON THE
GROUND THAT IT SHOULD HAVE BEEN DOCKETED AS A
SEPARATE CASE.[if !supportFootnotes][24][endif]
Petitioner contends that Civil Case No. 92-145 was merely suspended to await
the outcome of the arbitration case pending before the PCHC. Thus, any
petition questioning the decision of the Arbitration Committee must be filed in
Civil Case No. 92-145 and should not be docketed as a separate action.
Likewise, petitioner avers that had it filed a separate action, this would have
resulted in a multiplicity of suits, which is abhorred in procedure.
Meanwhile respondent avers that the RTC correctly dismissed the

appeal from the award of private arbitrators since there is no statutory basis
for such appeal. Respondent argues that petitioners claim that the parties by
agreement had conferred on the RTC appellate jurisdiction over decisions of
private arbitrators is erroneous because they cannot confer a non-existent
jurisdiction on the RTC or any court. Furthermore, the petition for review filed
by petitioner violated the rule on commencing an original action under Section
5, Rule 1, and the raffle of cases under Section 2, Rule 20 of the Rules of
Court, when it filed the same in Branch 135 of the RTC of Makati where there
was already a pending original action, i.e., Civil Case No. 92-145.
The petition lacks merit.
The Philippine Clearing House Corporation was created to facilitate the

clearing of checks of member banks. Among these member banks exists a
compromissoire,[if !supportFootnotes][25][endif] or an arbitration agreement embedded in
their contract wherein they consent that any future dispute or controversy
between its PCHC participants involving any check would be submitted to the
Arbitration Committee for arbitration. Petitioner and respondent are members
of PCHC, thus they underwent arbitration proceedings.
The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules).
However, this is governed by Republic Act No. 876, also known as The
Arbitration Law[if !supportFootnotes][26][endif] and supplemented by the Rules of Court.[if !
Thus, we first thresh out the remedy of petition for review
availed of by the petitioner to appeal the order of the Arbitration Committee.
Sections 23, 24 and 29 of The Arbitration Law, and Section 13 of the

PCHC Rules, provide:
SEC. 23. Confirmation of award. At any time within one month after
the award is made, any party to the controversy which was
arbitrated may apply to the court having jurisdiction, as
provided in Section 28, for an order confirming the award;
and thereupon the court must grant such order unless the
award is vacated, modified or corrected, as prescribed
herein. Notice of such motion must be served upon the
adverse party or his attorney as prescribed by law for the
service of such notice upon an attorney in action in the same
court.
SEC. 24. Grounds for vacating award. In any one of the following cases,
the court must make an order vacating the award upon the
petition of any party to the controversy when such party proves
affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud or

other undue means; or
(b) That there was evident partiality or corruption in

the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in

refusing to postpone the hearing upon sufficient cause shown,
or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was
disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualification or of
any other misbehavior by which the rights of any party have
been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so

imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not
made.
xxxx
SEC. 25. Grounds for modifying or correcting award. In any one of the
following cases, the court must make an order modifying or
correcting the award, upon the application of any party to the
controversy which was arbitrated:
(a) Where there was an evident miscalculation of

figures, or an evident mistake in the description of any person,
thing or property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter

not submitted to them, not affecting the merits of the decision
upon the matter submitted; or
(c) Where the award is imperfect in a matter of form
not affecting the merits of the controversy, and if it had been a
commissioners report, the defect could have been amended or
disregarded by the court.
The order may modify and correct the award so as to

effect the intent thereof and promote justice between the
parties.
SEC. 29. Appeals. An appeal may be taken from an order made in a

proceeding under this Act, or from judgment entered upon an
award through certiorari proceedings, but such appeals shall
be limited to questions of law. The proceedings upon such an
appeal, including the judgment thereon shall be governed by
the Rules of Court insofar as they are applicable.
AMENDED ARBITRATION RULES OF PROCEDURE OF PCHC
Sec. 13. The findings of facts of the decision or award rendered by

the Arbitration Committee or by the sole Arbitrator as the
case may be shall be final and conclusive upon all the
parties in said arbitration dispute. The decision or award of
the Arbitration Committee or of the Sole Arbitrator or of the
Board of Directors, as the case may be, shall be appealable
only on questions of law to any of the Regional Trial
Courts in the National Capital Region where the Head
Office of any of the parties is located. The appellant shall
perfect his appeal by filing a notice of appeal to the Arbitration
Secretariat and filing a Petition with the Regional Trial Court of
the National Capital Region for the review of the decision or
award of the committee or sole arbitrator or of the Board of
Directors, as the case may be, within a non-extendible period
of fifteen (15) days from and after its receipt of the order
denying or granting said motion for reconsideration or new
trial had been filed, within a non-extendible period of fifteen
(15) days from and after its receipt of the order denying or
granting said motion for reconsideration or of the decision
rendered after the new trial if one had been granted.
x x x x. (Emphasis supplied)
As provided in the PCHC Rules, the findings of facts of the decision or

award rendered by the Arbitration Committee shall be final and conclusive
upon all the parties in said arbitration dispute. [if !supportFootnotes][28][endif] Under Article
2044[if !supportFootnotes][29][endif] of the New Civil Code, the validity of any stipulation on
the finality of the arbitrators award or decision is recognized. However, where
the conditions described in Articles 2038,[if !supportFootnotes][30][endif] 2039[if !supportFootnotes]
[31][endif]
and 2040[if !supportFootnotes][32][endif] applicable to both compromises and
arbitrations are obtaining, the arbitrators award may be annulled or rescinded.
Consequently, the decision of the Arbitration Committee is
subject to judicial review.
Furthermore, petitioner had several judicial remedies available at its

disposal after the Arbitration Committee denied its Motion for Reconsideration.
It may petition the proper RTC to issue an order vacating the award on the
grounds provided for under Section 24 of the Arbitration Law. [if !supportFootnotes][34][endif]
Petitioner likewise has the option to file a petition for review under Rule 43 of
the Rules of Court with the Court of Appeals on questions of fact, of law, or
mixed questions of fact and law.[if !supportFootnotes][35][endif] Lastly, petitioner may file a
petition for certiorari under Rule 65 of the Rules of Court on the ground that
the Arbitrator Committee acted without or in excess of its jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction. Since this
case involves acts or omissions of a quasi-judicial agency, the petition should
be filed in and cognizable only by the Court of Appeals.[if !supportFootnotes][36][endif]
In this instance, petitioner did not avail of any of the abovementioned remedies
available to it. Instead it filed a petition for review with the RTC where Civil
Case No. 92-145 is pending pursuant to Section 13 of the PCHC Rules to
sustain its action. Clearly, it erred in the procedure it chose for judicial review
of the arbitral award.
Having established that petitioner failed to avail of the abovementioned

remedies, we now discuss the issue of the jurisdiction of the trial court with
respect to the petition for review filed by petitioner.
Jurisdiction is the authority to hear and determine a cause - the right

to act in a case.[if !supportFootnotes][37][endif] Jurisdiction over the subject matter is the
power to hear and determine the general class to which the proceedings in
question belong. Jurisdiction over the subject matter is conferred by law and
not by the consent or acquiescence of any or all of the parties or by erroneous
belief of the court that it exists.[if !supportFootnotes][38][endif]
In the instant case, petitioner and respondent have agreed that the
PCHC Rules would govern in case of controversy. However, since the PCHC
Rules came about only as a result of an agreement between and among
member banks of PCHC and not by law, it cannot confer jurisdiction to the
RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to
review arbitral awards, only on questions of law, cannot be given effect.
Consequently, the proper recourse of petitioner from the denial of its

motion for reconsideration by the Arbitration Committee is to file either a
motion to vacate the arbitral award with the RTC, a petition for review with the
Court of Appeals under Rule 43 of the Rules of Court, or a petition for
certiorari under Rule 65 of the Rules of Court. In the case at bar, petitioner
filed a petition for review with the RTC when the same should have been filed
with the Court of Appeals under Rule 43 of the Rules of Court. Thus, the RTC
of Makati did not err in dismissing the petition for review for lack of jurisdiction
but not on the ground that petitioner should have filed a separate case from
Civil Case No. 92-145 but on the necessity of filing the correct petition in the
proper court. It is immaterial whether petitioner filed the petition for review in
Civil Case No. 92-145 as an appeal of the arbitral award or whether it filed a
separate case in the RTC, considering that the RTC will only have jurisdiction
over an arbitral award in cases of motions to vacate the same. Otherwise, as
elucidated herein, the Court of Appeals retains jurisdiction in petitions for
review or in petitions for certiorari. Consequently, petitioners arguments, with
respect to the filing of separate action from Civil Case No. 92-145 resulting in a
multiplicity of suits, cannot be given due course.
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. [if !supportFootnotes][39][endif] It must be
borne in mind that arbitration proceedings are mainly governed by the
Arbitration Law and suppletorily by the Rules of Court.
WHEREFORE, in light of the foregoing, the petition is DENIED. The November

9, 1999 Order of the Regional Trial Court of Makati City, Branch 135, in Civil
Case No. 92-145 which dismissed the petition for review for lack of jurisdiction
and the February 1, 2000 Order denying its reconsideration, are AFFIRMED.
SO ORDERED.
Gr. No. 176657 (DFA & BSP)

Supreme Court
Manila
FIRST DIVISION
DEPARTMENT OF FOREIGN AFFAIRS and G.R. No. 176657

BANGKO SENTRAL NG PILIPINAS,
Petitioners,
Present:
- versus - CORONA, C.J.,

Chairperson,
VELASCO, JR.,
HON. FRANCO T. FALCON, IN HIS CAPACITY LEONARDO-DE CASTRO,
AS THE PRESIDING JUDGE OF BRANCH 71 OF DEL CASTILLO, and
THE REGIONAL TRIAL COURT IN PASIG CITY PEREZ, JJ.
and BCA INTERNATIONAL CORPORATION,
Respondents.
Promulgated:
September 1, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
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 Order [if !supportFootnotes][1][endif] 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, 2007[if !supportFootnotes][2][endif]
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), [if !
the Philippines has to comply with the commitments and
standards set forth in ICAO Document No. 9303[if !supportFootnotes][4][endif] which
requires the ICAO member states to issue machine readable travel documents
(MRTDs)[if !supportFootnotes][5][endif] 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-and-Transfer (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 pre-qualified 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, [if !supportFootnotes][6][endif] 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 Agreement [if !supportFootnotes][7][endif]

(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.[if !supportFootnotes][8][endif]
On April 5, 2002, former DFA Secretary Teofisto T. Guingona and

Bonifacio Sumbilla, this time as BCA President, signed an Amended BOT
Agreement[if !supportFootnotes][9][endif] in order to reflect the change in the designation of
the parties and to harmonize Section 11.3 with Section 11.8 [if !supportFootnotes][10][endif]
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.[if !supportFootnotes][11][endif]
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 Agreement [if !supportFootnotes][12][endif] 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.[if !supportFootnotes]
[13][endif]
(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, [if !supportFootnotes][14][endif] 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, 2004 [if !
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 letter [if !supportFootnotes][16][endif] to

BCA, through its project company PPC, invoking BCAs financial warranty
under Section 5.02(A) of the Amended BOT Agreement.[if !supportFootnotes][17][endif] 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.[if !supportFootnotes][18][endif]
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 notices[if !supportFootnotes][19][endif] 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. [if !supportFootnotes][20][endif] 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.[if !
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 Termination [if !

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)[if !supportFootnotes][23][endif] effective
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 letter [if !supportFootnotes][24][endif] 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, 2005 [if !
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
Agreement[if !supportFootnotes][26][endif] 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, 2006 [if !supportFootnotes][27][endif] 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.[if !supportFootnotes][28][endif]
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 at
P50,000,000.00 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.[if !supportFootnotes][29][endif]
PDRCI, through a letter dated April 26, 2006, [if !supportFootnotes][30][endif] 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, [if !supportFootnotes][31][endif]
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,[if !supportFootnotes][32][endif] 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 hoc arbitration 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, [if !supportFootnotes][33][endif] 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.[if !supportFootnotes][34][endif]
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 e-Passport Project by the BSP and the DFA
would render BCAs remedies moot inasmuch as the e-Passport Project would
then be replacing the MRP/V Project which BCA was carrying out for the DFA.
Thus, BCA filed a Petition for Interim Relief[if !supportFootnotes][35][endif] under Section 28
of the Alternative Dispute Resolution Act of 2004 (R.A. No. 9285), [if !supportFootnotes]
[36][endif]
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.[if !supportFootnotes][37][endif]
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,[if !supportFootnotes][38][endif] 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. [if !
The trial court also set for hearing BCAs application for
preliminary injunction.
Consequently, the DFA filed a Motion for Reconsideration [if !supportFootnotes][40][endif] 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, [if
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.[if !supportFootnotes][42][endif] The DFA and the BSP filed their
separate Replies (to BCAs Omnibus Comment) dated February 9, 2007 [if !
and February 13, 2007,[if !supportFootnotes][44][endif] 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.[if !supportFootnotes][45][endif]
On February 16, 2007, BCA filed an Amended Petition, [if !supportFootnotes][46][endif]

wherein paragraphs 3.3(b) and 4.3 were modified to add language to the effect
that unless petitioners were enjoined from awarding the e-Passport 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
Certiorari[if !supportFootnotes][47][endif] 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. [if
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,[if !supportFootnotes][49][endif] 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, [if !
to which the DFA and the BSP filed their Reply dated August
14, 2007.
In a Resolution dated June 4, 2007,[if !supportFootnotes][52][endif] 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,[if !supportFootnotes][53][endif] 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:
[if !supportLists](I) [endif]RESPONDENT BCA HAS NOT

ESTABLISHED A CLEAR RIGHT THAT CAN BE PROTECTED BY AN
INJUNCTION; AND
[if !supportLists](II) [endif]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.[IF !SUPPORTFOOTNOTES][54][ENDIF]
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,[if !supportFootnotes][55][endif] 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 for
certiorari 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.[if !supportFootnotes][56][endif] (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.[if !supportFootnotes][57][endif] 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.[if !supportFootnotes][58][endif] 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. [if !
In other words, the Court may suspend or even disregard
rules when the demands of justice so require.[if !supportFootnotes][60][endif]
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:
[if !supportLists](a) [endif]Acquisition, clearance and

development of the right-of-way and/or site or location of any
national government project;
[if !supportLists](b) [endif]Bidding or awarding of contract/project of the

national government as defined under Section 2 hereof;
[if !supportLists](c) [endif]Commencement, prosecution, execution,

implementation, operation of any such contract or project;
[if !supportLists](d) [endif]Termination or rescission of any such

contract/project; and
[if !supportLists](e) [endif]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:
[if !supportLists](a) [endif]current and future national government
infrastructure projects, engineering works and service contracts, including
projects undertaken by government-owned and controlled corporations;
[if !supportLists](b) [endif]all projects covered by R.A. No. 6975, as

amended by R.A. No. 7718, or the Build-Operate-and-Transfer ( BOT) Law;
and
[if !supportLists](c) [endif]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, !supportFootnotes][61][endif] private sector infrastructure or development
[if
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
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.
In contrast, Republic Act No. 9184,[if !supportFootnotes][62][endif] 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. 2038 [if !supportFootnotes][63][endif]
(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 e-Passport
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}).[if !supportFootnotes][64][endif]
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.[if !supportFootnotes][65][endif] (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. [if !supportFootnotes][66][endif] This
is evident when the legislative definition is expressly made for the purposes of
the statute containing such definition.[if !supportFootnotes][67][endif]
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:
[if !supportLists](a) [endif]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, geo-spatial 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.[if !supportFootnotes][68][endif]
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
Project[if !supportFootnotes][69][endif] from the BSP website and the newspaper clipping [if !
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.[if !supportFootnotes][71][endif] In petitioners Manifestation dated July 29,
2008[if !supportFootnotes][72][endif] and the Erratum[if !supportFootnotes][73][endif] thereto, 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, 2008[if !supportFootnotes][74][endif] 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 30.4 [if !supportFootnotes][75][endif] 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,[if !supportFootnotes][76][endif] 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.
[if !supportLists](a) [endif]The following rules on interim or provisional
relief shall be observed:
[if !supportLists](1) [endif]Any party may request that provisional relief

be granted against the adverse party.
[if !supportLists](2) [endif]Such relief may be granted:
[if !supportLists](i) [endif]to prevent irreparable loss or injury;
[if !supportLists](ii) [endif]to provide security for the performance of

any obligation;
[if !supportLists](iii) [endif]to produce or preserve any evidence; or

[if !supportLists](iv) [endif]to compel any other appropriate act or
omission.
[if !supportLists](3) [endif]The order granting provisional relief may be

conditioned upon the provision of security or any act or omission specified in
the order.
[if !supportLists](4) [endif]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.
[if !supportLists](5) [endif]The order shall be binding upon the parties.
[if !supportLists](6) [endif]Either party may apply with the Court for
assistance in implementing or enforcing an interim measure ordered by an
arbitral tribunal.
[if !supportLists](7) [endif]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 e-Passport
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:
[if !supportLists]A. [endif]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,
[if !supportLists]B. [endif]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
[if !supportLists]C. [endif]Take-over the MRP/V Facility and

assume all attendant liabilities thereof.
[if !supportLists]D. [endif]In all cases of termination due to the

default of the BCA, it shall pay DFA liquidated damages equivalent 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:
[if !supportLists]A. [endif]Be obligated to take over the MRP/V

Facility on an as is, where is basis, and shall forthwith assume attendant
liabilities thereof; and
[if !supportLists]B. [endif]Pay liquidated damages to the BCA

equivalent to the following amounts, which may be charged to the insurance
proceeds referred to in Article 12:
[if !supportLists](1) [endif]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.
[if !supportLists](2) [endif]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, [if !supportFootnotes][77][endif] 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,[if !supportFootnotes][78][endif] 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.
As the Court explained previously in Philippine Airlines, Inc. v. National Labor

Relations Commission[if !supportFootnotes][79][endif]:
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. [if !supportFootnotes][80][endif] 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.
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,[if !supportFootnotes][81][endif] police power,[if !supportFootnotes][82][endif] or its
power of eminent domain.[if !supportFootnotes][83][endif]
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.[if !supportFootnotes][84][endif] In Philippine National Bank v. Ritratto
Group, Inc.,[if !supportFootnotes][85][endif] 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.
Gr. No. 175404 (Cargill)

Supreme Court
Manila
SECOND DIVISION
CARGILL PHILIPPINES, INC., G.R. No. 175404

Petitioner,
Present:
CARPIO, J., Chairperson,

- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
SAN FERNANDO REGALA TRADING, INC., Promulgated:

Respondent.
January 31, 2011
x--------------------------------------------------x
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set aside
the Decision[if !supportFootnotes][1][endif] dated July 31, 2006 and the Resolution [if !
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 Damages[if !supportFootnotes][3][endif] 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,[if !supportFootnotes][4][endif] 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.[if !
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 6[if !supportFootnotes][6][endif] and 7[if !supportFootnotes][7][endif] 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, [if !supportFootnotes][8][endif]

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. [if !
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
Order[if !supportFootnotes][10][endif] 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.[if !supportFootnotes][11][endif] 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 Manifestation[if !supportFootnotes][12][endif] 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
Gonzales case, 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.[if !supportFootnotes][13][endif] (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 certiorari under 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 certiorari should 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.[if !supportFootnotes][14][endif]
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,[if !supportFootnotes][15][endif] 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.[if !supportFootnotes][16][endif] R.A. No. 876[if !
authorizes arbitration of domestic disputes. Foreign
arbitration, as a system of settling commercial disputes of an international
character, is likewise recognized.[if !supportFootnotes][18][endif] 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. [if !
A contract is required for arbitration to take place and to be binding. [if !

Submission to arbitration is a contract [if !supportFootnotes][21][endif] and
a clause in a contract providing that all matters in dispute between the parties
shall be referred to arbitration is a contract. [if !supportFootnotes][22][endif] 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. [if !supportFootnotes][23][endif]
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.
However, the Gonzales case,[if !supportFootnotes][25][endif] 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.[if !supportFootnotes][26][endif]
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.[if !
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. 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. [if !
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.[if !supportFootnotes][29][endif]
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.
Gr. No. 182248 (Equitable)

SUPREME COURT
Manila
SECOND DIVISION
EQUITABLE PCI BANKING G.R. No. 182248

CORPORATION,[if !supportFootnotes][1][endif]
GEORGE L. GO, PATRICK D. GO, Present:
GENEVIEVE W.J. GO,
FERDINAND MARTIN G. QUISUMBING, J., Chairperson,
ROMUALDEZ, CARPIO MORALES,
OSCAR P. LOPEZ-DEE, TINGA,
RENE J. BUENAVENTURA, VELASCO, JR., and
GLORIA L. TAN-CLIMACO, BRION, JJ.
ROGELIO S. CHUA,
FEDERICO C. PASCUAL,
LEOPOLDO S. VEROY,
WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER,
ANTHONY F. CONWAY,
ROMULAD U. DY TANG,
WALTER C. WESSMER, and
ANTONIO N. COTOCO,
Petitioners,
- versus -
Promulgated:
RCBC CAPITAL CORPORATION,
Respondent. December 18, 2008
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal
of the January 8, 2008[if !supportFootnotes][2][endif] and March 17, 2008[if !supportFootnotes][3][endif]
Orders of the Regional Trial Court (RTC), Branch 148 in Makati City in SP Proc.
Case No. 6046, entitled In the Matter of ICC Arbitration Ref. No.
13290/MS/JB/JEM Between RCBC Capital Corporation, (Claimant), and
Equitable PCI Banking Corporation, Inc. et al., (Respondents). The assailed
January 8, 2008 Order confirmed the Partial Award dated September 27,
2007[if !supportFootnotes][4][endif] rendered by the International Chamber of Commerce-
International Court of Arbitration (ICC-ICA) in Case No. 13290/MS/JB/JEM,
entitled RCBC Capital Corporation (Philippines) v. Equitable PCI Bank, Inc. &
Others (Philippines). The March 17, 2008 Order denied petitioners motion for
reconsideration of the January 8, 2008 Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the
individual shareholders of Bankard, Inc., as sellers, and respondent RCBC
Capital Corporation (RCBC), as buyer, executed a Share Purchase Agreement[if !
(SPA) for the purchase of petitioners interests in Bankard,
representing 226,460,000 shares, for the price of PhP 1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the conduct of a due
diligence audit on the financial status of Bankard.
Under the SPA, RCBC undertakes, on the date of contract execution, to

deposit, as downpayment, 20% of the purchase price, or PhP 357,353,880, in
an escrow account. The escrowed amount, the SPA stated, should be released
to petitioners on an agreed-upon release date and the balance of the purchase
price shall be delivered to the share buyers upon the fulfillment of certain
conditions agreed upon, in the form of a managers check.
The other relevant provisions of the SPA are:
Section 5. Sellers Representations and Warranties
The SELLERS jointly and severally represent and

warrant to the BUYER that:
xxxx
The Financial Condition of Bankard
g. The audited financial statements of Bankard for the

three (3) fiscal years ended December 31, 1997, 1998 and
1999, and the unaudited financial statements for the first
quarter ended 31 March 2000, are fair and accurate, and
complete in all material respects, and have been prepared in
accordance with generally accepted accounting principles
consistently followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31
December 1999, as prepared and certified by SGV &
Co. (SGV), and the unaudited balance sheet for the
first quarter ended 31 March 2000, present a fair and
accurate statement as of those dates, of Bankards
financial condition and of all its assets and liabilities,
and is complete in all material respects; and
ii) the statements of Bankards profit and loss accounts for the fiscal
years 1996 to 1999, as prepared and certified by SGV,
and the unaudited profit and loss accounts for the first
quarter ended 31 March 2000, fairly and accurately
present the results of the operations of Bankard for
the periods indicated, and are complete in all material
respects.
h. Except as disclosed in the Disclosures, and except

to the extent set forth or reserved in the audited financial
statements of Bankard as of 31 December 1999 and its
unaudited financial statements as of 31 March 2000, Bankard,
as of such dates and up to 31 May 2000, had and shall have
no liabilities, omissions or mistakes in its records which will
have material adverse effect on the net worth or financial
condition of Bankard to the extent of more than One Hundred
Million Pesos (P100,000,000.00) in the aggregate. In the event
such material adverse effect on the net worth or financial
condition of Bankard exceeds One Hundred Million Pesos
(P100,000,000.00), the Purchase Price shall be reduced in
accordance with the following formula:
Reduction in Purchase Price = X multiplied by

226,460,000
where
Amount by which negative
adjustment exceeds P100 Million
X = ------------------------------------------- (1.925)
338,000,000
xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any

or all of the SELLERS or the BUYER (the Defaulting Party)
contained in Sections 5 and 6 shall be found to be untrue
when made and/or as of the Closing Date, the other party, i.e.,
the BUYER if the Defaulting Party is any or all of the SELLERS
and the SELLERS if the Defaulting Party is the BUYER
(hereinafter referred to as the Non-Defaulting Party) shall have
the right to require the Defaulting Party, at the latters expense,
to cure such breach, and/or seek damages, by providing notice
or presenting a claim to the Defaulting Party, reasonably
specifying therein the particulars of the breach. The foregoing
remedies shall be available to the Non-Defaulting Party only if
the demand therefor is presented in writing to the Defaulting
Party within three (3) years from the Closing Date except that
the remedy for a breach of the SELLERS representation and
warrant in Section 5 (h) shall be available only if the demand
therefor is presented to the Defaulting Party in writing together
with schedules and to substantiate such demand, within six
(6) months from the Closing Date.[if !supportFootnotes][6][endif]
On June 2, 2000, RCBC deposited the stipulated downpayment

amount in an escrow account after which it was given full management and
operational control of Bankard. June 2, 2000 is also considered by the parties
as the Closing Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share Purchase

Agreement (ASPA) dated September 19, 2000.[if !supportFootnotes][7][endif] Its paragraph
2(e) provided that:
2. Notwithstanding any provisions to the contrary in

the Share Purchase Agreement and/or any agreement,
instrument or document entered into or executed by the
Parties in relation thereto (the Related Agreements), the Parties
hereby agree that:
xxxx
e) Notwithstanding the provisions of Sec. 7 of the

Share Purchase Agreement to the contrary, the remedy for a
breach of the SELLERS representation and warranty in
Section 5(h) of the Share Purchase Agreement shall be
available if the demand therefor is presented to the
SELLERS in writing together with schedules and data to
substantiate such demand, on or before 31 December 2000.
(Emphasis added.)
Sometime in September 2000, RCBC had Bankards accounts audited,

creating for the purpose an audit team led by a certain Rubio, the Vice-
President for Finance of RCBC at the time. Rubios conclusion was that the
warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h] hereinafter),
was correct.
On December 28, 2000, RCBC paid the balance of the contract price.
The corresponding deeds of sale for the shares in question were executed in
January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its
having overpaid the purchase price of the subject shares, claiming that there
was an overstatement of valuation of accounts amounting to PhP 478 million,
resulting in the overpayment of over PhP 616 million. Thus, RCBC claimed that
petitioners violated their warranty, as sellers, embodied in Sec. 5(g) of the SPA
(Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in accordance

with Sec. 10 of the SPA, filed a Request for Arbitration dated May 12, 2004[if !
with the ICC-ICA. In the request, RCBC charged Bankard with
deviating from, contravening and not following generally accepted accounting
principles and practices in maintaining their books. Due to these improper
accounting practices, RCBC alleged that both the audited and unaudited
financial statements of Bankard prior to the stock purchase were far from fair
and accurate and, hence, violated the representations and warranties of
petitioners in the SPA. Per RCBC, its overpayment amounted to PhP 556
million. It thus prayed for the rescission of the SPA, restitution of the purchase
price, payment of actual damages in the amount of PhP 573,132,110, legal
interest on the purchase price until actual restitution, moral damages, and
litigation and attorneys fees. As alternative to rescission and restitution, RCBC
prayed for damages in the amount of at least PhP 809,796,092 plus legal
interest.
To the Request for Arbitration, petitioners filed an Answer dated July

28, 2004,[if !supportFootnotes][9][endif] denying RCBCs inculpatory averments and setting
up the following affirmative allegations: the period for filing of the asserted
claim had already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to
rescission having had ample opportunity and reasonable time to file a claim
against petitioners; RCBC is not entitled to its alternative prayer of damages,
being guilty of laches and failing to set out the details of the breach as required
under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the
arbitration tribunal consisting of retired Justice Santiago M. Kapunan,
nominated by petitioners; Neil Kaplan, RCBCs nominee; and Sir Ian Barker,
appointed by the ICC-ICA.
After drawn out proceedings with each party alleging deviation and
non-compliance by the other with arbitration rules, the tribunal, with Justice
Kapunan dissenting, rendered a Partial Award dated September 27, 2007, [if !
the dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by

way of Partial Award:
(a) The Claimants claim is not time-barred under the

provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the

equitable doctrine of laches from pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has

established the following breaches by the Respondents of
clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were overstated by
reason of its policy on and recognition of Late Payment
Fees;
ii) reported receivables were higher than their

realizable values by reason of the bucketing method,
thus overstating Bankards assets; and
iii) the relevant Bankard statements were

inadequate and misleading in that their disclosures
caused readers to be misinformed about Bankards
accounting policies on revenue and receivables.
(d) Subject to proof of loss the Claimant is entitled to

damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the

SPA.
(f) All other issues, including any issue relating to

costs, will be dealt with in a further or final award.
15.2 A further Procedural Order will be necessary

subsequent to the delivery of this Partial Award to deal with
the determination of quantum and in particular, whether there
should be an Expert appointed by the Tribunal under Article
20(4) of the ICC Rules to assist the Tribunal in this regard.
15.3 This Award is delivered by a majority of the
Tribunal (Sir Ian Barker and Mr. Kaplan). Justice Kapunan is
unable to agree with the majoritys conclusion on the claim of
estoppel brought by the respondents.
On the matter of prescription, the tribunal held that RCBCs claim is

not time-barred, the claim properly falling under the contemplation of Sec. 5(g)
and not Sec. 5(h). As such, the tribunal concluded, RCBCs claim was filed
within the three (3)-year period under Sec. 5(g) and that the six (6)-month
period under Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter having
sought relief within the three (3)-year period prescribed in the SPA. On the
matter of estoppel suggested in petitioners answer, the tribunal stated in par.
10.27 of the Partial Award the following:
10.27 Clearly, there has to be both an admission or

representation by (in this case) the Claimant [RCBC], plus
reliance upon it by (in this case) the Respondents [herein
petitioners]. The Tribunal cannot find as proved any
admission/representation that the Claimant was abandoning a
5(g) claim, any reliance by the Respondents on an admission,
and any detriment to the Respondents such as would entitle
them to have the Claimant deprived of the benefit of clause
5(g). These aspects of the claim for estoppels are rejected. [if !
Notably, the tribunal considered the rescission of the SPA and ASPA as
impracticable and totally out of the question.[if !supportFootnotes][12][endif]
In his Dissenting Opinion[if !supportFootnotes][13][endif] which he submitted to and

which was received on September 24, 2007 by the ICC-ICA, Justice Kapunan
stated the observation that RCBCs claim is time-barred, falling as such claim
did under Sec. 5(h), which prescribes a comparatively shorter prescriptive
period, not 5(g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of P431

million on account of alleged overvaluation of the net worth of
Bankard, allegedly for improper accounting practices resulting
in its book value per share as of 31 December 1999 [being]
overstated. Claimants witness, Dean Echanis asserts that the
inadequate provisioning for Bankards doubtful accounts
result[ed] in an overstatement of its December 31, 1999 total
assets and net worth of by [sic] least P418.2 million.
In addition, Claimants demand letter addressed to the
Respondents alleged that we overpaid for the Shares to the
extent of the impact of the said overstatement on the Book
Value per share.
These circumstances establish beyond dispute that the

Claim is based on the alleged overstatement of the 1999 net
worth of Bankard, which the parties relied on in setting the
purchase price of the shares. Moreover, it is clear that there
was an overstatement because of improper accounting
practices which led Claimant to overpay for the shares.
Ultimately, the Claim is one for recovery of

overpayment in the purchase price of the shares. x x x
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubios findings merely corroborated the

disclosures made in the Information Memorandum that
Claimant received from the Respondents prior to the execution
of the SPA. In this connection, I note that Bankards policy on
provisioning and setting of allowances using the Bucketed
Method and income recognition from AR/Principal,
AR/Interest and AR/LPFs were disclosed in the Information
Memorandum. Thus, these alleged improper accounting
practices were known to the Claimant even prior to the
execution of the SPA.
Thus, when Claimant paid the balance of the purchase
price, it did so with full knowledge of these accounting
practices of Bankard that it now assails. By paying the balance
of the purchase price without taking exception or objecting to
the accounting practices disclosed through Mr. Rubio s review
and the Information Memorandum, Claimant is deemed to
have accepted such practices as correctly reporting the 1999
net worth. x x x
xxxx
As last point, I note that my colleagues invoke a

principle that for estoppels to apply there must be positive
indication that the right to sue was waived. I am of the view
that there is no such principle under Philippine law. What is
applicable is the holding in Knecht and in Coca- Cola that
prior knowledge of an unfavorable fact is binding on the party
who has such knowledge; when the purchaser proceeds to
make investigations by himself, and the vendor does nothing to
prevent such investigation from being as complete as the
former might wish, the purchaser cannot later allege that the
vendor made false representations to him (Cf. Songco v.
Sellner, 37 Phil 254 citations omitted).
Applied to this case, the Claimant cannot seek relief

on the basis that when it paid the purchase price in December
2000, it was unaware that the accounting practices that went
into the reporting of the 1999 net worth as amounting to
P1,387,275,847 were not in conformity with GAAP [generally
accepted accounting principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to Confirm
Partial Award. On the same day, petitioners countered with a Motion to Vacate
the Partial Award. On November 9, 2007, petitioners again filed a Motion to
Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order

confirming the Partial Award and denying the adverted separate motions to
vacate and to suspend and inhibit. From this order, petitioners sought
reconsideration, but their motion was denied by the RTC in the equally
assailed second order of March 17, 2008.
From the assailed orders, petitioners came directly to this Court

through this petition for review.
The Issues
This petition seeks the review, reversal and setting

aside of the orders Annexes A and B and, in lieu of them, it
seeks judgment vacating the arbitrators liability award, Annex
C, on these grounds:
[if !supportLists](a) [endif]
[if !supportLists](b) [endif]

[if !supportLists](c) [endif]
The Courts Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICAs Partial Award dated September 27, 2007 was
confirmed by the RTC in its first assailed order of January 8, 2008. Thereafter,
the RTC, by order of March 17, 2008, denied petitioners motion for
reconsideration. Therefrom, petitioners came directly to this Court on a petition
for review under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who erroneously bypassed the Court
of Appeals (CA) in pursuit of its appeal. While this procedural gaffe has not
been raised by RCBC, still we would be remiss in not pointing out the proper
mode of appeal from a decision of the RTC confirming, vacating, setting aside,
modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the proper mode of appeal
assailing the decision of the RTC confirming as arbitral award is an appeal
before the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285, otherwise
known as the Alternative Dispute Resolution Act of 2004, or completely, 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, promulgated on April 2, 2004 and became effective on April 28,
2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC
decision of an assailed arbitral award is appealable to the CA and may further
be appealed to this Court, thus:
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an

aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or
corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of
the Regional Trial Court confirming, vacating, setting aside,
modifying or correcting an arbitral award may be appealed to
the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate
court to post a counterbond executed in favor of the prevailing
party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before

this Court through a petition for review under Rule 45 of the
Rules of Court.[if !supportFootnotes][15][endif]
It is clear from the factual antecedents that RA 9285 applies to the instant
case. This law was already effective at the time the arbitral proceedings were
commenced by RCBC through a request for arbitration filed before the ICC-ICA
on May 12, 2004. Besides, the assailed confirmation order of the RTC was
issued on March 17, 2008. Thus, petitioners clearly took the wrong mode of
appeal and the instant petition can be outright rejected and dismissed.
Even if we entertain the petition, the outcome will be the same.
The Court Will Not Overturn an Arbitral Award

Unless It Was Made in Manifest Disregard of the Law
In Asset Privatization Trust v. Court of Appeals,[if !supportFootnotes][16][endif] the

Court passed on similar issues as the ones tendered in the instant petition. In
that case, the arbitration committee issued an arbitral award which the trial
court, upon due proceedings, confirmed despite the opposition of the losing
party. Motions for reconsideration by the losing party were denied. An appeal
interposed by the losing party to the CA was denied due course. On appeal to
this Court, we established the parameters by which an arbitral award may be
set aside, to wit:
As a rule, the award of an arbitrator cannot be set aside for mere errors of
judgment either as to the law or as to the facts. Courts are without power
to amend or overrule merely because of disagreement with matters of law
or facts determined by the arbitrators. They will not review the findings of
law and fact contained in an award, and will not undertake to substitute
their judgment for that of the arbitrators, since any other rule would
make an award the commencement, not the end, of litigation. Errors of
law and fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an award fairly
and honestly made. Judicial review of an arbitration is, thus, more limited
than judicial review of a trial.
Nonetheless, the arbitrators awards is not absolute

and without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement. The parties to
such an agreement are bound by the arbitrators award only to
the extent and in the manner prescribed by the contract and
only if the award is rendered in conformity thereto. Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for
vacating, rescinding or modifying an arbitration award. Where
the conditions described in Articles 2038, 2039 and 2040 of
the Civil Code applicable to compromises and arbitration are
attendant, the arbitration award may also be annulled.
xxxx
Finally, it should be stressed that while a court is

precluded from overturning an award for errors in
determination of factual issues, nevertheless, if an
examination of the record reveals no support whatever for the
arbitrators determinations, their award must be vacated. In
the same manner, an award must be vacated if it was made
in manifest disregard of the law.[if !supportFootnotes][17][endif]
Following Asset Privatization Trust, errors in law and fact would not
generally justify the reversal of an arbitral award. A party asking for the
vacation of an arbitral award must show that any of the grounds for vacating,
rescinding, or modifying an award are present or that the arbitral award was
made in manifest disregard of the law. Otherwise, the Court is duty-bound to
uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard of the law
by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros [if !
expounded on the phrase manifest disregard of the law in the
following wise:
This court has emphasized that manifest disregard of

the law is a very narrow standard of review. Anaconda Co. v.
District Lodge No. 27, 693 F.2d 35 (6 th Cir.1982). A mere error in
interpretation or application of the law is insufficient.
Anaconda, 693 F.2d at 37-38. Rather, the decision must fly in
the face of clearly established legal precedent. When faced with
questions of law, an arbitration panel does not act in manifest
disregard of the law unless (1) the applicable legal principle is
clearly defined and not subject to reasonable debate; and (2)
the arbitrators refused to heed that legal principle.
Thus, to justify the vacation of an arbitral award on account of

manifest disregard of the law, the arbiters findings must clearly and
unequivocally violate an established legal precedent. Anything less would not
suffice.
In the present case, petitioners, in a bid to establish that the arbitral

award was issued in manifest disregard of the law, allege that the Partial Award
violated the principles of prescription, due process, and estoppel. A review of
petitioners arguments would, however, show that their arguments are bereft of
merit. Thus, the Partial Award dated September 27, 2007 cannot be vacated.
RCBCs Claim Is Not Time-Barred
Petitioners argue that RCBCs claim under Sec. 5(g) is based on

overvaluation of Bankards revenues, assets, and net worth, hence, for price
reduction falling under Sec. 5(h), in which case it was belatedly filed, for RCBC
presented the claim to petitioners on May 5, 2003, when the period for
presenting it under Sec. 5(h) expired on December 31, 2000. As a counterpoint,
RCBC asserts that its claim clearly comes under Sec. 5(g) in relation to Sec. 7
which thus gave it three (3) years from the closing date of June 2, 2000, or
until June 1, 2003, within which to make its claim. RCBC contends having
acted within the required period, having presented its claim-demand on May 5,
2003.
To make clear the issue at hand, we highlight the pertinent portions of

Secs. 5(g), 5(h), and 7 bearing on what petitioners warranted relative to the
financial condition of Bankard and the remedies available to RCBC in case of
breach of warranty:
[if !supportLists]g. [endif]
[if !supportLists]i) [endif]
[if !supportLists]ii) [endif]
[if !supportLists]h. [endif]

xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or all of the

SELLERS or the BUYER (the Defaulting Party) contained in
Sections 5 and 6 shall be found to be untrue when made
and/or as of the Closing Date, the other party, i.e., the BUYER
if the Defaulting is any of the SELLERS and the SELLERS if
the Defaulting Party is the BUYER (hereinafter referred to as
the Non-Defaulting Party) shall have the right to require the
Defaulting Party, at the latters expense, to cure such
breach, and/or seek damages, by providing notice or
presenting a claim to the Defaulting Party, reasonably
specifying therein the particulars of the breach. The foregoing
remedies shall be available to the Non-Defaulting Party only if
the demand therefor is presented in writing to the
Defaulting Party within three (3) years from the Closing
Date, except that the remedy for a breach of the SELLERS
representation and warranty in Section 5 (h) shall be
available only if the demand therefor is presented to the
Defaulting Party in writing together with schedules and data to
substantiate such demand, within six (6) months from the
Closing Date. (Emphasis supplied.)
Before we address the issue put forward by petitioners, there is a

necessity to determine the nature and application of the reliefs provided under
Sec. 5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price reduction as said
section explicitly states that the Purchase Price shall be reduced in accordance
with the following formula x x x. In addition, Sec. 7 gives the aggrieved party
the right to ask damages based on the stipulation that the non-defaulting party
shall have the right to require the Defaulting Party, at the latters expense, to
cure such breach and/or seek damages.
On the other hand, the remedy under Sec. 5(g) in conjunction with
Sec. 7 can include specific performance, damages, and other reliefs excluding
price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements (AFS)
for the three (3) years ending December 31, 1997 to 1999 and the unaudited
financial statements (UFS) for the first quarter ending March 31, 2000. On the
other hand, the Sec. 5(h) warranty refers only to the AFS for the year ending
December 31, 1999 and the UFS up to May 31, 2000. It is undenied that Sec.
5(h) refers to price reduction as it covers only the most up-to-date audited and
unaudited financial statements upon which the price must have been based. [if !
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty
shall exclude the disclosures and reservations made in AFS of Bankard as of
December 31, 1999 and its UFS up to May 31, 2000. No such exclusions were
made under Sec. 5(g) with respect to the warranty of petitioners in the AFS and
UFS of Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse effect in the
net worth in excess of PhP 100 million and it provides a formula for price
reduction.[if !supportFootnotes][20][endif] On the other hand, Sec. 5(g) can be the basis for
remedies like specific performance, damages, and other reliefs, except price
reduction, even if the overvaluation is less or above PhP 100 million and there
is no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written demand
to the defaulting party within three (3) years from closing date. Under Sec. 5(h),
the written demand shall be presented within six (6) months from closing date.
In accordance with par. 2(c) of the ASPA, the deadline to file the demand under
Sec. 5(h) was extended to December 31, 2000.
From the above determination, it becomes clear that the aggrieved party is
entitled to two (2) separate alternative remedies under Secs. 5 and 7 of the SPA,
thus:
1. A claim for price reduction under Sec. 5(h) and/or damages based on the
breach of warranty by Bankard on the absence of liabilities, omissions and
mistakes on the financial statements as of 31 December 1999 and the UFS as
of 31 May 2000, provided that the material adverse effect on the net worth
exceeds PhP 100M and the written demand is presented within six (6) months
from closing date (extended to 31 December 2000); and
2. An action to cure the breach like specific performance

and/or damages under Sec. 5(g) based on Bankards breach of
warranty involving its AFS for the three (3) fiscal years ending
31 December 1997, 1998, and 1999 and the UFS for the first
quarter ending 31 March 2000 provided that the written
demand shall be presented within three (3) years from closing
date.
Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on the
aggrieved parties to avail themselves of any remedy mentioned above. They may
choose one and dispense with the other. Of course, the relief for price reduction
under Sec. 5(h) will have to conform to the prerequisites and time frame of six
(6) months; otherwise, it is waived.
Preliminarily, petitioners basic posture that RCBCs claim is for the recovery of
overpayment is specious. The records show that in its Request for Arbitration
dated May 12, 2004, RCBC prayed for the rescission of the SPA, restitution of
the whole purchase price, and damages not for reduction of price or for the
return of any overpayment. Even in its May 5, 2000 letter, [if !supportFootnotes][21][endif]
RCBC did not ask for the recovery of any overpayment or reduction of price,
merely stating in it that the accounts of Bankard, as reflected in its AFS for
1999, were overstated which, necessarily, resulted in an overpayment situation.
RCBC was emphatic and unequivocal that petitioners violated their warranty
covered by Sec. 5(g) of the SPA.
It is thus evident that RCBC did not avail itself of the option under Sec. 5(h),
i.e., for price reduction or the return of any overpayment arising from the
overvaluation of Bankards financial condition. Clearly, RCBC invoked Sec. 5(g)
to claim damages from petitioners which is one of the alternative reliefs granted
under Sec. 7 in addition to rescission and restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g) which
is anchored on the material overstatement or overvaluation of Bankards
revenues, assets, and net worth and, hence, the overstatement of the purchase
price. They, however, assert that such claim for overpayment is actually a claim
under Sec. 5(h) of the SPA for price reduction which it forfeited after December
31, 2000.
We cannot sustain petitioners position.

It cannot be disputed that an overstatement or overvaluation of Bankards
financial condition as of closing date translates into a misrepresentation not
only of the accuracy and truthfulness of the financial statements under Sec.
5(g), but also as to Bankards actual net worth mentioned in Sec. 5(h).
Overvaluation presupposes mistakes in the entries in the financial statements
and amounts to a breach of petitioners representations and warranties under
Sec. 5. Consequently, such error in the financial statements would impact on
the figure representing the net worth of Bankard as of closing date. An
overvaluation means that the financial condition of Bankard as of closing date,
i.e., June 2, 2000, is overstated, a situation that will definitely result in a
breach of EPCIBs representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA
would indicate the following remedies available to RCBC should it be
discovered, as of closing date, that there is overvaluation which will constitute
breach of the warranty clause under either Sec. 5(g) or (h), to wit:
(1) An overvaluation of Bankards actual financial condition as of

closing date taints the veracity and accuracy of the AFS for 1997, 1998, and
1999 and the UFS for the first quarter of 2000 and is an actionable breach of
petitioners warranties under Sec. 5(g).
(2) An overvaluation of Bankards financial condition as of May 31,

2000, encompassing the warranted financial condition as of December 31,
1999 through the AFS for 1999 and as of March 31, 2000 through the UFS for
the first quarter of 2000, is a breach of petitioners representations and
warranties under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies in case of an

overvaluation of Bankards financial condition. It may invoke Sec. 5(h) when the
conditions of the threshold aggregate overvaluation and the claim made within
the six-month time-bar are present. In the alternative, it may invoke Sec. 5(g)
when it finds that a claim for curing the breach and/or damages will be more
advantageous to its interests provided it is filed within three (3) years from
closing date. Since it has two remedies, RCBC may opt to exercise either one.
Of course, the exercise of either one will preclude the other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and
bereft of any ambiguity. The SPAs stipulations reveal that the non-use or waiver
of Sec. 5(h) does not preclude RCBC from availing itself of the second relief
under Sec. 5(g). Article 1370 of the Civil Code is explicit that if terms of a
contract are clear and leave no doubt upon the intention of the contracting
parties the literal meaning of its stipulations shall control. Since the terms of a
contract have the force of law between the parties, [if !supportFootnotes][22][endif] then the
parties must respect and strictly conform to it. Lastly, it is a long held cardinal
rule that when the terms of an agreement are reduced to writing, it is deemed
to contain all the terms agreed upon and no evidence of such terms can be
admitted other than the contents of the agreement itself. [if !supportFootnotes][23][endif]
Since the SPA is unambiguous, and petitioners failed to adduce evidence to the
contrary, then they are legally bound to comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the

SELLERS is deemed to be a separate representation and
warranty, and the BUYER has placed complete reliance
thereon in agreeing to the Purchase Price and in entering into
this Agreement. The representations and warranties of the
SELLERS shall be correct as of the date of this Agreement and
as of the Closing Date with the same force and effect as though
such representations and warranties had been made as of the
Closing Date.[if !supportFootnotes][24][endif] (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec. 5(g) of the
SPA is a free standing warranty and not constricted by Sec. 5(h) of the said
agreement.
Upon the foregoing premises and in the light of the undisputed facts on
record, RCBCs claim for rescission of the SPA and damages due to
overvaluation of Bankards accounts was properly for a breach of the warranty
under Sec. 5(g) and was not time-barred. To repeat, RCBC presented its written
claim on May 5, 2003, or a little less than a month before closing date, well
within the three (3)-year prescriptive period provided under Sec. 7 for the
exercise of the right provided under Sec. 5(g).
Petitioners bemoan the fact that the arbitrators liability award (a)
disregarded the 6-month contractual limitation for RCBCs overprice claim,
and [b] substituted in its place the 3-year limitation under the contract for
other claims,[if !supportFootnotes][25][endif] adopting in that regard the interpretation of
the SPA made by arbitral tribunal member, retired Justice Kapunan, in his
Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of

overpayment in the purchase price of the shares. And it is in
this context, that I respectfully submit that Section 5(h) and
not Section 5(g), applies to the present controversy.[if !supportFootnotes]
[26][endif]
xxxx
True, without Section 5(h), the Claim for price recovery

would fall under Section 5(g). The recovery of the pecuniary
loss of the Claimant in the form of the excess price paid would
be in the nature of a claim for actual damages by way of
compensation. In that situation, all the accounts in the 1999
financial statements would be the subject of the warranty in
Section 5(g).
However, since the parties explicitly included Section

5(h) in their SPA, which assures the Claimant that there were
no omissions or mistakes in the records that would misstate
the 1999 net worth account, I am left with no other
conclusion but that the accuracy of the net worth was the
subject of the warranty in Section 5(h), while the accuracy
or correctness of the other accounts that did not bear on,
or affect Bankards net worth, were guaranteed by Section
5(g).
xxxx
This manner of reconciling the two provisions is

consistent with the principle in Rule 130, Section 12 of the
Rules of Court that when a general and a particular provision
are inconsistent, the latter is paramount to the former [so] a
particular intent will control a general one that is inconsistent
with it. This is also consistent with existing doctrines on
statutory construction, the application of which is illustrated
in the case of Commissioner of Customs vs. Court of Tax
Appeals, GR No. L-41861, dated March 23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by way of actual damages.[if !
x x x (Emphasis supplied.)
Justice Kapunan noted that without Sec. 5(h), RCBCs claim would fall
under Sec. 5(g), impliedly admitting that both provisions could very well cover
RCBCs claim, except that Sec. 5(h) excludes the situation contemplated in it
from the general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a warranty on the

accuracy of the Bankards net worth while Sec. 5(g), as also couched, is a
warranty on the veracity, accuracy, and completeness of the AFS in all material
respects as prepared in accordance with generally accepted accounting
principles consistently followed throughout the period audited, yet both
warranties boil down to the same thing and stem from the same accounts as
summarized in the AFS. Since the net worth is the balance of Bankards
assets less its liabilities, it necessarily includes all the accounts under the
AFS. In short, there are no accounts in the AFS that do not bear on the
net worth of Bankard. Moreover, as earlier elucidated, any overvaluation of
Bankards net worth is necessarily a misrepresentation of the veracity,
accuracy, and completeness of the AFS and also a breach of the warranty
under Sec. 5(g). Thus, the subject of the warranty in Sec. 5(h) is also covered
by the warranty in Sec. 5(g), and Sec. 5(h) cannot exclude such breach from the
ambit of Sec. 5(g). There is no need to rely on Sec. 12, Rule 130 of the Rules of
Court for both Sec. 5(g) and Sec. 5(h) as alternative remedies are of equal
footing and one need not categorize one section as a general provision and the
other a particular provision.
More importantly, a scrutiny of the four corners of the SPA does not
explicitly reveal any stipulation nor even impliedly that the parties intended to
limit the scope of the warranty in Sec. 5(g) or gave priority to Sec. 5(h) over Sec.
5(g).
The arbitral tribunal did not find any legal basis in the SPA that Sec.
5(h) somehow cuts down the scope of Sec. 5(g), thus:
9.10 In the opinion of the Tribunal, there is nothing

in the wording used in the SPA to give priority to one
warranty over the other. There is nothing in the wording
used to indicate that the parties intended to limit the
scope of the warranty in 5(g). If it be contended that, on a
true construction of the two warranties, 5(h) somehow cuts
down the scope of 5(g), the Tribunal can find no justification
for such conclusion on the wording used. Furthermore, the
Tribunal is of the view that very clear words would be needed
to cut down the scope of the 5(g) warranty.[if !supportFootnotes][28][endif]
The Court upholds the conclusion of the tribunal and rules that the
claim of RCBC under Sec. 5(g) is not time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of the

accounts of Bankard which in turn were used by its experts to conclude that
Bankard improperly recorded its receivables and committed material deviations
from GAAP requirements.[if !supportFootnotes][29][endif] Later, petitioners would assert that
the arbitrators partial award admitted and used the Summaries as evidence,
and held on the basis of the information contained in them that petitioners
were in breach of their warranty in GAAP compliance.
To petitioners, the ICC-ICAs use of such summaries but without

presenting the source documents violates their right to due process. Pressing
the point, petitioners had moved, but to no avail, for the exclusion of the said
summaries. Petitioners allege that they had reserved the right to cross-examine
the witnesses of RCBC who testified on the summaries, pending the resolution
of their motion to exclude. But, according to them, they were effectively denied
the right to cross-examine RCBCs witnesses when the ICC-ICA admitted the
summaries of RCBC as evidence.
Petitioners position is bereft of merit.
Anent the use but non-presentation of the source documents as the

jumping board for a claim of denial of due process, petitioners cite Compania
Maritima v. Allied Free Workers Union. [if !supportFootnotes][30][endif] It may be stated,
however, that such case is not on all fours with the instant case and, therefore,
cannot be applied here considering that it does not involve an administrative
body exercising quasi-judicial function but rather the regular court.
In a catena of cases, we have ruled that [t]he essence of due process is

the opportunity to be heard. What the law prohibits is not the absence of
previous notice but the absolute absence thereof and the lack of opportunity to
be heard.[if !supportFootnotes][31][endif]
We also explained in Lastimoso v. Asayo that [d]ue process in an

administrative context does not require trial type proceedings similar to those
in courts of justice. Where an opportunity to be heard either through oral
arguments or through pleadings is accorded, there is no denial of procedural
due process.[if !supportFootnotes][32][endif]
Were petitioners afforded the opportunity to refute the summaries and

pieces of evidence submitted by RCBC which became the bases of the experts
opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the challenged

Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for Arbitration
dated May 12, 2004 from RCBC seeking rescission of the SPA and restitution of
all the amounts paid by RCBC to petitioners, with actual and moral damages,
interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request for

Arbitration dated July 28, 2004, setting up a counterclaim for USD 300,000 for
actual and exemplary damages.
RCBC filed its Reply[if !supportFootnotes][33][endif] dated August 31, 2004 to

petitioners Answer to the Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of Reference. [if !
At the same time, the chairperson of the arbitral tribunal
issued a provisional timetable[if !supportFootnotes][35][endif] for the arbitration.
On October 25, 2004, as previously agreed upon in the meeting on

October 4, 2004, petitioners filed a Motion to Dismiss [if !supportFootnotes][36][endif] while
RCBC filed a Claimants Position Paper (Re: [Petitioners] Assertion that RCBC
CAPITAL CORPORATIONs Present Claim Is Time Barred).[if !supportFootnotes][37][endif]
Then, the tribunal issued Procedural Order No. 1 dated January 12,
2005, denying the motion to dismiss and setting the initial
hearing of the case on April 11, 2005.
In a letter dated February 9, 2005, [if !supportFootnotes][39][endif] petitioners

requested that the tribunal direct RCBC to produce certain documents. At the
same time, petitioners sought the postponement of the hearing on April 11,
2005 to March 21, 2005, in light of their own request.
On February 11, 2005, petitioners received RCBCs brief of evidence

and supporting documentation in accordance with the provisional timetable. [if !
In the brief of evidence, RCBC provided summaries of the
accounts of Bankard, which petitioners now question.
Later, in a letter dated February 14, 2005, [if !supportFootnotes][41][endif] petitioners

complained to the tribunal with regard to their lack of access to RCBCs
external auditor. Petitioners sought an audit by an accounting firm of the
records of Bankard with respect to the claims of RCBC. By virtue of such
requests, petitioners also sought a rescheduling of the provisional timetable,
despite their earlier assurance to the tribunal that if they received the
documents that they requested on February 9, 2005 on or before February 21,
2005, they would abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated February

18, 2005,[if !supportFootnotes][42][endif] in which it allowed the discovery and inspection of
the documents requested by petitioners that were also scheduled on February
18, 2005. The request for an audit of Bankards accounts was denied without
prejudice to the conduct of such audit during the course of the hearings.
Consequently, the tribunal amended the provisional timetable, extending the
deadline for petitioners to file their brief of evidence and documents to March
21, 2005. The date of the initial hearing, however, remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the documents that

they requested RCBC.[if !supportFootnotes][43][endif] The parties also agreed to meet again
on February 23, 2005 to provide petitioners with a walk-through of Bankards
Statistical Analysis System and to provide petitioners with a soft copy of all of
Bankards cardholders.[if !supportFootnotes][44][endif]
During the February 23, 2005 meeting, EPCIBs

counsels/representatives were accompanied to the Bankards Credit-MIS
Group. There, Bankards representative, Amor Lazaro, described and explained
to petitioners representatives the steps involved in procuring and translating
raw data on customer transactions. Lazaro explained that Bankard captures
cardholder information and transactions through encoding or electronic data
capture. Thereafter, such data are transmitted to its main credit card
administration system. Such raw data are then sent to Bankards Information
Technology Group. Using a proprietary software called SAS, the raw data is
then converted into SAS files which may be viewed, handled, and converted
into Excel files for reporting purposes. During the walk-through, petitioners
representatives asked questions which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L. Sincoegue,

accompanied two auditors/representatives of petitioners to examine the journal
vouchers and supporting documents of Bankard consisting of several boxes.
The auditors randomly sifted through the boxes which they had earlier
requested to be inspected.
In addition, petitioners were furnished with an electronic copy of the

details of all cardholders, including relevant data for aging of receivables for the
years 2000 to 2003, as well as data containing details of written-off accounts
from 1999 to March 2000 contained in compact discs.[if !supportFootnotes][45][endif]
On March 4, 2005, petitioners sent a letter [if !supportFootnotes][46][endif] to the

tribunal requesting for a postponement of the April 11, 2005 hearing of the
case. Petitioners claim that they could not confirm the summaries prepared by
RCBC, considering that RCBC allegedly did not cooperate in providing data
that would facilitate their verification. Petitioners specifically mentioned the
following data: (1) list of names of cardholders whose accounts are sources of
data gathered or calculated in the summaries; (2) references to the basic
cardholder documents from which such data were collected; and (3) access to
the underlying cardholder documents at a time and under conditions mutually
convenient to the parties. As regards the compact discs of information provided
to petitioners, it is claimed that such information could not be accessed as the
software necessary for the handling of the data could not be made immediately
available to them.
In Procedural Order No. 3 dated March 11 2005,[if !supportFootnotes][47][endif] the
initial hearing was moved to June 13 to 16, 2005, considering that petitioners
failed to pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on costs. [if !
On April 22, 2005, petitioners sent the tribunal a letter, [if !supportFootnotes][49]
[endif]
requesting for the postponement of the hearing scheduled on June 13 to
16, 2005 on the ground that they could not submit their witness statements
due to the volume of data that they acquired from RCBC.
In a letter dated April 25, 2005,[if !supportFootnotes][50][endif] petitioners

demanded from RCBC that they be allowed to examine the journal vouchers
earlier made available to them during the February 23, 2005 meeting. This
demand was answered by RCBC in a letter dated April 26, 2005, [if !supportFootnotes][51]
[endif]
stating that such demand was being denied by virtue of Procedural Order
No. 2, in which it was ruled that further requests for discovery would not be
made except with leave of the chairperson of the tribunal.
In Procedural Order No. 4,[if !supportFootnotes][52][endif] the tribunal granted

petitioners request for the postponement of the hearing on June 13, 2005 and
rescheduled it to November 21, 2005 in light of the pending motions filed by
EPCIB with the RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was agreed
that petitioners would be provided with hard and soft copies of the inventory of
the journal vouchers earlier presented to its representatives, while making the
journal vouchers available to petitioners for two weeks for examination and
photocopying.[if !supportFootnotes][53][endif]
On September 2, 2005, petitioners applied for the postponement of the

November 21, 2005 hearing due to the following: (1) petitioners had earlier filed
a motion dated August 11, 2005 with the RTC, in which the issue of whether
the non-Filipino members of the tribunal were illegally practicing law in the
Philippines by hearing their case, which was still pending; and (2) the
gathering and processing of the data and documents made available by RCBC
would require 26 weeks.[if !supportFootnotes][54][endif] Such application was denied by the
tribunal in Procedural Order No. 5 dated September 16, 2005. [if !supportFootnotes][55]
[endif]
On October 21, 2005, the tribunal issued Procedural Order No. 6, [if !
postponing the November 21, 2005 hearing by virtue of an
order issued by the RTC in Makati City directing the tribunal to reset the
hearing for April 21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006, [if !supportFootnotes][57][endif]

petitioners wrote the tribunal requesting that RCBC be directed to: (1) provide
petitioners with information identifying the journal vouchers and other
supporting documents that RCBC used to arrive at the figures set out in the
summaries and other relevant information necessary to enable them to
reconstruct and/or otherwise understand the figures or amounts in each
summary; and (2) submit to petitioners the requested pieces of information as
soon as these are or have become available, or in any case not later than five
days.
In response to such letter, RCBC addressed a letter dated January 31,

2006 to the tribunal claiming that the pieces of information
that petitioners requested are already known to petitioners considering that
RCBC merely maintained the systems that they inherited when it bought
Bankard from petitioners. RCBC added that the documents that EPCIB
originally transmitted to it when RCBC bought Bankard were all being made
available to petitioners; thus, any missing supporting documents from these
files were never transmitted to them in the first place.
Later, petitioners sent to the tribunal a letter dated February 10, 2006,
asking that it direct RCBC to provide petitioners with the
supporting documents that RCBC mentioned in its letter dated January 31,
2006. Petitioners wrote that should RCBC fail to present such documents,
RCBCs summaries should be excluded from the records.
In a letter dated March 10, 2006,[if !supportFootnotes][60][endif] petitioners

requested that they be given an additional period of at least 47 days within
which to submit their evidence-in-chief with the corresponding request for the
cancellation of the hearing on April 24, 2006. Petitioners submit that should
such request be denied, RCBCs summaries should be excluded from the
records.
On April 6, 2006, petitioners filed their arbitration briefs and witness

statements. By way of reply, on April 17, 2006, RCBC submitted Volumes IV
and V of its exhibits and Volume II of its evidence-in-chief.[if !supportFootnotes][61][endif]
On April 18, 2006, petitioners requested the tribunal that they be

allowed to file rejoinder briefs, or otherwise exclude RCBCs reply brief and
witness statements.[if !supportFootnotes][62][endif] In this request, petitioners also
requested that the hearing set for April 24, 2006 be moved. These requests
were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted

hearings on the case.[if !supportFootnotes][63][endif]
On December 4, 2006, petitioners submitted rejoinder affidavits,
raising new issues for the first time, to which RCBC submitted Volume III of its
evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously submitted their

memoranda. On January 26, 2007, both parties simultaneously filed their
reply to the others memorandum.[if !supportFootnotes][64][endif]
Thus, on September 27, 2007, the Partial Award was rendered by the
Tribunal.
Later, petitioners moved to vacate the said award before the RTC. Such
motion was denied by the trial court in the first assailed order dated January
8, 2008. Petitioners then moved for a reconsideration of such order, but their
motion was also denied in the second assailed order dated March 17, 2008.
The foregoing events unequivocally demonstrate ample opportunity for

petitioners to verify and examine RCBCs summaries, accounting records, and
reports. The pleadings reveal that RCBC granted petitioners requests for
production of documents and accounting records. More so, they had more than
three (3) years to prepare for their defense after RCBCs submission of its brief
of evidence. Finally, it must be emphasized that petitioners had the opportunity
to appeal the Partial Award to the RTC, which they in fact did. Later, petitioners
even moved for the reconsideration of the denial of their appeal. Having been
able to appeal and move for a reconsideration of the assailed rulings,
petitioners cannot claim a denial of due process.[if !supportFootnotes][65][endif]
Petitioners right to due process was not breached.

As regards petitioners claim that its right to due process was violated
when they were allegedly denied the right to cross-examine RCBCs witnesses,
their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:
Section 15. Hearing by arbitrators. Arbitrators may, at

the commencement of the hearing, ask both parties for brief
statements of the issues in controversy and/or an agreed
statement of facts. Thereafter the parties may offer such
evidence as they desire, and shall produce such additional
evidence as the arbitrators shall require or deem necessary to
an understanding and determination of the dispute. The
arbitrators shall be the sole judge of the relevancy and
materiality of the evidence offered or produced, and shall
not be bound to conform to the Rules of Court pertaining
to evidence. Arbitrators shall receive as exhibits in
evidence any document which the parties may wish to
submit and the exhibits shall be properly identified at the
time of submission. All exhibits shall remain in the custody of
the Clerk of Court during the course of the arbitration and
shall be returned to the parties at the time the award is made.
The arbitrators may make an ocular inspection of any matter
or premises which are in dispute, but such inspection shall be
made only in the presence of all parties to the arbitration,
unless any party who shall have received notice thereof fails to
appear, in which event such inspection shall be made in the
absence of such party. (Emphasis supplied.)
The well-settled rule is that administrative agencies exercising quasi-

judicial powers shall not be fettered by the rigid technicalities of procedure,
albeit they are, at all times required, to adhere to the basic concepts of fair play.
The Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
While administrative tribunals exercising quasi-

judicial powers, like the NLRC and Labor Arbiters, are free
from the rigidity of certain procedural requirements, they are
nonetheless bound by law and practice to observe the
fundamental and essential requirements of due process. The
standard of due process that must be met in administrative
tribunals allows a certain degree of latitude as long as fairness
is not ignored. Hence, it is not legally objectionable, for being
violative of due process, for the Labor Arbiter to resolve a case
based solely on the position papers, affidavits or documentary
evidence submitted by the parties. The affidavits of witnesses
in such case may take the place of their direct testimony. [if !
Of the same tenor is our holding in Quiambao v. Court of Appeals:
In resolving administrative cases, conduct of full-blown

trial is not indispensable to dispense justice to the parties. The
requirement of notice and hearing does not connote full
adversarial proceedings. Submission of position papers may be
sufficient for as long as the parties thereto are given the
opportunity to be heard. In administrative proceedings, the
essence of due process is simply an opportunity to be
heard, or an opportunity to explain ones side or
opportunity to seek a reconsideration of the action or
ruling complained of. This constitutional mandate is
deemed satisfied if a person is granted an opportunity to
seek reconsideration of an action or a ruling. It does not
require trial-type proceedings similar to those in the courts of
justice. Where opportunity to be heard either through oral
arguments or through pleadings is accorded, there is no denial
of procedural due process.[if !supportFootnotes][67][endif] (Emphasis
supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry denial of due process
when they were allegedly denied the right to cross-examine the witnesses
presented by RCBC. It is true that in Vertudes, we stated: The right of a party
to confront and cross-examine opposing witnesses in a judicial litigation, be it
criminal or civil in nature, or in proceedings before administrative tribunals
with quasi-judicial powers, is a fundamental right which is part of due process.
It is, however, equally true that:
[T]he right is a personal one which may be waived

expressly or impliedly by conduct amounting to a renunciation
of the right of cross-examination. Thus, where a party has
had the opportunity to cross-examine a witness but failed
to avail himself of it, he necessarily forfeits the right to
cross-examine and the testimony given on direct
examination of the witness will be received or allowed to
remain in the record.[if !supportFootnotes][69][endif] (Emphasis supplied.)
We also held in one case:
However, the right has always been understood as requiring not

necessarily an actual cross-examination but merely an opportunity to
exercise the right to cross-examine if desired. What is proscribed by
statutory norm and jurisprudential precept is the absence of the
opportunity to cross-examine. The right is a personal one and may be waived
expressly or impliedly. There is an implied waiver when the party was given the
opportunity to confront and cross-examine an opposing witness but failed to
take advantage of it for reasons attributable to himself alone. If by his
actuations, the accused lost his opportunity to cross-examine wholly or in part
the witnesses against him, his right to cross-examine is impliedly waived.[if !
And later in Velez v. De Vera, the Court En Banc expounded on the

above rulings, adding that in administrative proceedings, cross-examination is
not indispensable, thus:
Due process of law in administrative cases is not

identical with judicial process for a trial in court is not always
essential to due process. While a day in court is a matter of
right in judicial proceedings, it is otherwise in administrative
proceedings since they rest upon different principles. The due
process clause guarantees no particular form of procedure and
its requirements are not technical. Thus, in certain
proceedings of administrative character, the right to a notice or
hearing [is] not essential to due process of law. The
constitutional requirement of due process is met by a fair
hearing before a regularly established administrative agency or
tribunal. It is not essential that hearings be had before the
making of a determination if thereafter, there is available trial
and tribunal before which all objections and defenses to the
making of such determination may be raised and considered.
One adequate hearing is all that due process requires. What is
required for hearing may differ as the functions of the
administrative bodies differ.
The right to cross-examine is not an indispensable aspect of due process.

x x x (Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a fundamental

right of a party, may be waived. Petitioners themselves admit having had the
opportunity to cross-examine RCBCs witnesses during the hearings before the
tribunal, but declined to do so by reserving such right at a later time. Having
had the opportunity to cross-examine RCBCs witnesses, petitioners were not
denied their right to due process.
RCBC Is Not Estopped from Questioning

the Financial Condition of Bankard
On estoppel, petitioners contend that RCBC already knew the

recording of the Bankard accounts before it paid the balance of the purchase
price and could no longer challenge the financial statements of Bankard.
RCBC, they claim, had full control of the operations of Bankard since June 2,
2000 and RCBCs audit team reviewed the accounts in September 2000. Thus,
RCBC is now precluded from denying the fairness and accuracy of said
accounts since it did not seek price reduction under Sec. 5(h). Lastly, they
asseverate that RCBC continued with Bankards accounting policies and
practices and found them to conform to the generally accepted accounting
principles, contrary to RCBCs allegations.
It also bears stating that in his dissent, retired Justice Kapunan, an

arbitral tribunal member, argued that Bankards accounting practices were
disclosed in the information memorandum provided to RCBC; hence, RCBC
was supposed to know such accounting practices and to have accepted their
propriety even before the execution of the SPA. He then argued that when it
paid the purchase price on December 29, 2000, RCBC could no longer claim
that the accounting practices that went into the reporting of the 1999 AFS of
Bankard were not in accord with generally accepted accounting principles. He
pointed out that RCBC was bound by the audit conducted by a certain Rubio
prior to the full payment of the purchase price of Bankard. Anchored on these
statements by Justice Kapunan, petitioners conclude that RCBC is estopped
from claiming that the former violated their warranties under the SPA.
Petitioners contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel, provides:

Through estoppel an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against the person
relying thereon.
The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith, and justice; and its purpose is to forbid one to speak
against ones own acts, representations, or commitments to the injury of one to
whom they were directed and who reasonably relied on them.[if !supportFootnotes][72][endif]
We explained the principle of estoppel in Philippine Savings Bank v.

Chowking Food Corporation:
x x x The equitable doctrine of estoppel was explained

by this Court in Caltex (Philippines), Inc. v. Court of Appeals:
Under the doctrine of estoppel, an admission or

representation is rendered conclusive upon the person making
it, and cannot be denied or disproved as against the person
relying thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied
upon them. In the law of evidence, whenever a party has, by
his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, to
act upon such belief, he cannot, in any litigation arising out of
such declaration, act, or omission, be permitted to falsify it.
The principle received further elaboration in

Maneclang v. Baun:
In estoppel by pais, as related to the party

sought to be estopped, it is necessary that there be a
concurrence of the following requisites: (a) conduct
amounting to false representation or concealment of
material facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (b) intent, or at least expectation
that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge,
actual or constructive of the actual facts.
Estoppel may vary somewhat in definition, but all

authorities agree that a party invoking the doctrine must
have been misled to ones prejudice. That is the final and, in
reality, most important of the elements of equitable estoppel. It
is this element that is lacking here. [if !supportFootnotes][73][endif]
The elements of estoppel pertaining to the party estopped are:
(1) conduct which amounts to a false representation or concealment of material

facts, or, at least, which calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (2) intention, or at least expectation, that such conduct
shall be acted upon by the other party; and (3) knowledge, actual or
constructive, of the actual facts.[if !supportFootnotes][74][endif]
In the case at bar, the first element of estoppel in relation to the party
sought to be estopped is not present. Petitioners claim that RCBC
misrepresented itself when RCBC made it appear that they considered
petitioners to have sufficiently complied with its warranties under Sec. 5(g) and
5(h), in relation to Sec. 7 of the SPA. Petitioners position is that RCBC was
aware of the manner in which the Bankard accounts were recorded, well before
it consummated the SPA by taking delivery of the shares and paying the
outstanding 80% balance of the contract price.[if !supportFootnotes][75][endif]
Petitioners, therefore, theorize that in this case, the first element of

estoppel in relation to the party sought to be estopped is that RCBC made a
false representation that it considered Bankards accounts to be in order and,
thus, RCBC abandoned any claim under Sec. 5(g) and 5(h) by its inaction.
Such contention is incorrect.
It must be emphasized that it was only after a second audit that RCBC
presented its claim to petitioners for violation of Sec. 5(g), within the three (3)-
year period prescribed. In other words, RCBC, prior to such second audit, did
not have full and thorough knowledge of the correctness of Bankards accounts,
in relation to Sec. 5(g). RCBC, therefore, could not have misrepresented itself
considering that it was still in the process of verifying the warranties covered
under Sec. 5(g). Considering that there must be a concurrence of the elements
of estoppel for it to arise, on this ground alone such claim is already negated.
As will be shown, however, all the other elements of estoppel are likewise
absent in the case at bar.
As to the second element, in order to establish estoppel, RCBC must

have intended that petitioners would act upon its actions. This element is also
missing. RCBC by its actions did not mislead petitioners into believing that it
waived any claim for violation of a warranty. The periods under Sec. 5(g) and
5(h) were still available to RCBC.
The element that petitioners relied on the acts and conduct of RCBC is
absent. The Court finds that there was no reliance on the part of petitioners on
the acts of RCBC that would lead them to believe that the RCBC will forego the
filing of a claim under Sec. 5(g). The allegation that RCBC knew that the
Bankard accounts did not comply with generally accepted accounting
principles before payment and, hence, it cannot question the financial
statements of Bankard is meritless. Precisely, the SPA explicitly provides that
claims for violation of the warranties under Sec. 5(g) can still be filed within
three (3) years from the closing date. Petitioners contention that RCBC had full
control of Bankard operations after payment of the price and that an audit
undertaken by the Rubio team did not find anything wrong with the accounts
could not have plausibly misled petitioners into believing that RCBC will waive
its right to file a claim under Sec. 5(g). After all, the period to file a claim under
Sec. 5(g) is three (3) years under Sec. 7, much longer than the six (6)-month
period under Sec. 5(h). Petitioners are fully aware that the warranties under
Sec. 5(g) (1997 up to March 2000) are of a wider scope than that of Sec. 5(h)
(AFS of 1999 and UFS up to May 31, 2000), necessitating a longer audit period
than the six (6)-month period under Sec. 5(h).
The third element of estoppel in relation to the party sought to be

estopped is also absent considering that, as stated, RCBC was still in the
process of verifying the correctness of Bankards accounts prior to presenting
its claim of overvaluation to petitioners. RCBC, therefore, had no sufficient
knowledge of the correctness of Bankards accounts.
On another issue, RCBC could not have immediately changed the

Bankard accounting practices until it had conducted a more extensive and
thorough audit of Bankards voluminous records and transactions to uncover
any irregularities. That would be the only logical explanation why Bankards
alleged irregular practices were maintained for more than two (2) years from
closing date. The fact that RCBC continued with the audit of Bankards AFS
and records after the termination of the Rubio audit can only send the clear
message to petitioners that RCBC is still entertaining the possibility of filing a
claim under Sec. 5(g). It cannot then be said that petitioners reliance on RCBCs
acts after full payment of the price could have misled them into believing that
no more claim will be presented by RCBC.
The Arbitral Tribunal explained in detail why estoppel is not present in

the case at bar, thus:
10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio was
clearly not one comprehensive enough to have
discovered the problems later unearthed by Dr. Laya
and Dean Ledesma. x x x
10.19 Although the powers of the TC [Transition Committee] may have

been widely expressed in the view of Mr. Rogelio Chua,
then in charge of Bankard x x x the TC conducted
meetings only to get updated on the status and
progress of Bankards operations. Commercially, one
would expect that an unpaid vendor expecting to
receive 80% of a large purchase price would not be
receptive to a purchaser making vast policy changes in
the operation of the business until the purchaser has
paid up its money. It is more likely that, until the
settlement date, there was a practice of maintaining
the status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in the
Tribunals view, which would have given the
Respondents the impression that they were being
relieved over the next three years of susceptibility to a
claim under clause 5(g). Maybe the TC could have been
more proactive in commissioning further or more in-
depth audits but it was not. It did not have to be. It is
commercially unlikely that it have been done so, with
the necessary degree of attention to detail, within the
relatively short time between the appointment of the
TC and the ultimate settlement date of the purchase a
period of some three months. An interim arrangement
was obviously sensible to enable the Claimant and its
staff to become familiar with the practices and
procedures of Bankard.
10.21 The core consideration weighing with the Tribunal in assessing

these claims for estoppel is that the SPA allowed two
types of claim; one within six months under 5(h) and
one within three years under 5(g). The Tribunal has
already held the present claim is not barred by clause
5(h). It must therefore have been within the reasonable
contemplation of the parties that a 5(g) claim could
surface within the three-year period and that it could
be somewhat differently assessed than the claim
under 5(h). The Tribunal cannot find estoppel by
conduct either from the formation of the TC or from
the limited auditing exercise done by Mr. Rubio and
Mr. Legaspi. The onus proving estoppel is on the
Respondents and it has not been discharged.
10.22 If the parties had wished the avenues of relief for

misrepresentation afforded to the Claimant to have
been restricted to a claim under Clause 5(h), then they
could have said so. The special audit may have
provided an answer to any claim based on clause 5(h)
but it cannot do so in respect of a claim based on
Clause 5(g). Clause 5(g) imposed a positive obligation
on the Respondents from which they cannot be
excused, simply by reason of either the formation and
conduct of the TC or of the limited audit.
10.23 The three-year limitation period obviously contemplated that it

could take some time to ascertain whether there had
been a breach of the GAAP standards, etc. Such was
the case. A six-month limitation period under Clause
5(h), in contrast, presaged a somewhat less stringent
enquiry of the kind carried out by Mr. Rubio and Mr.
Legaspi.
10.24 Clause 2(3) of the Amendment to the SPA strengthens the

conclusion that the parties were concerned only with a
5(h) claim during the TCs reign. The focus of the audit
however intense it was conducted by Mr. Rubio and
Mr. Legaspi, was on establishing possible liability
under that section and thus as a possible reduction in
the price to be paid on settlement.
10.25 The fact that the purchase price was paid over in full without
any deduction in terms of clause 5(h) is not a bar to
the Claimant bringing a claim under 5(g) within the
three-year period. The fact that payment was made
can be, as the Tribunal has held, a barrier to a claim
for rescission and restitution ad inegrum. A claim for
estoppel needs a finding of representation by words of
conduct or a shared presumption that a right would
not be relied upon. The party relying on estoppel has
to show reliance to its detriment or that, otherwise, it
would be unconscionable to resile from the provision.
10.26 Article 1431 of the Civil Code states:
Through estoppel an admission or representation is rendered

conclusive upon the person making it, and cannot be
denied or disproved as against the person relying
thereon.
10.27 Clearly, there has to both an admission or representation by (in

this case) the Claimant, plus reliance upon it by (in
this case) the Respondents. The Tribunal cannot find
as proved any admission/representation that the
Claimant was abandoning a 5(g) claim, any reliance by
Respondents on an admission, and any detriment to
the Respondents such as would entitle them to have
the Claimant deprived of the benefit of clause 5(g).
These aspects of the claim of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for deciding whether
there have been any regulatory or ethical infractions
by Bankard and/or the Claimant in setting the buy-
back price. It has no bearing on whether the Claimant
must be considered as having waived its right to claim
against the Respondents.
10.43 In the Tribunals view, neither any infraction by Bankard in

failing to advise the Central Bank of the experts
findings, nor a failure to put a tag on the accounts nor
to have said something to the shareholders in the buy-
back exercise operates as a technical knock-out of
Claimants claim.
10.44 The Tribunal notes that the conciliation process mandated by

the SPA took most of 2003 and this may explain a part
of the delay in commencing arbitral proceedings.
10.45 Whatever the status of Mr. Rubios and Mr. Legaspis enquiries in
late 2000, the Claimant was quite entitled to
commission subsequent reports from Dr. Laya and Dr.
Echanis and, on the basis of those reports, make a
timeous claim under clause 5(g) of the SPA.
10.46 In the Tribunals view, therefore, there is no merit in

Respondents various submissions that the Claimant is
debarred from prosecuting its claims on the grounds of
estoppel. There is just no proof of the necessary
representation to the Respondent, nor any detriment
to the Respondent proved. The grounds of delay and
laches are not substantiated.
In summary, the tribunal properly ruled that petitioners failed to prove

that the formation of the Transition Committee and the conduct of the audit by
Rubio and Legaspi were admissions or representations by RCBC that it would
not pursue a claim under Sec. 5(g) and that petitioners relied on such
representation to their detriment. We agree with the findings of the tribunal
that estoppel is not present in the situation at bar.
Additionally, petitioners claim that in Knecht v. Court of Appeals[if !

and Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals
(Coca-Cola), this Court ruled that the absence of the element
of reliance by a party on the representation of another does not negate the
principle of estoppel. Those cases are, however, not on all fours with and
cannot be applied to this case.
In Knecht, the buyer had the opportunity of knowing the conditions of

the land he was buying early on in the transaction, but proceeded with the sale
anyway. According to the Court, the buyer was estopped from claiming that the
vendor made a false representation as to the condition of the land. This is not
true in the instant case. RCBC did not conduct a due diligence audit in relation
to Sec.5(g) prior to the sale due to petitioners express representations and
warranties. The examination conducted by RCBC, through Rubio, after the
execution of the SPA on June 2, 2000, was confined to finding any breach
under Sec. 5(h) for a possible reduction of the purchase price prior to the
payment of its balance on December 31, 2000. Further, the parties clearly
agreed under Sec. 7 of the SPA to a three (3)-year period from closing date
within which to present a claim for damages for violation of the warranties
under the SPA. Hence, Knecht is not a precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of the

nature and situation of the land relative to its intended use prior to the signing
of the contract. Its subsequent assertion that the land was not suited for the
purpose it was leased was, therefore, cast aside for being unmeritorious. Such
circumstance does not obtain in the instant case. There was no prior due
diligence audit conducted by RCBC, it having relied, as earlier stated, on the
warranties of petitioners with regard to the financial condition of Bankard
under Sec. 5(g). As such, Sec. 5(g) guaranteed RCBC that it could file a claim
for damages for any mistakes in the AFS and UFS of Bankard. Clearly, Coca-
Cola also cannot be applied to the instant case.
It becomes evident from all of the foregoing findings that the ICC-ICA is
not guilty of any manifest disregard of the law on estoppel. As shown above, the
findings of the ICC-ICA in the Partial Award are well-supported in law and
grounded on facts. The Partial Award must be upheld.
We close this disposition with the observation that a member of the

three-person arbitration panel was selected by petitioners, while another was
respondents choice. The respective interests of the parties, therefore, are very
much safeguarded in the arbitration proceedings. Any suggestion, therefore, on
the partiality of the arbitration tribunal has to be dismissed.
WHEREFORE, the instant petition is hereby DENIED. The assailed January 8,

2008 and March 17, 2008 Orders of the RTC, Branch 148 in Makati City are
hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Gr. No. 146717 (Transfield)

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 146717 November 22, 2004
TRANSFIELD PHILIPPINES, INC., petitioner,

vs.
LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING
GROUP LIMITED and SECURITY BANK CORPORATION, respondents.
DECISION
TINGA, J.:
Subject of this case is the letter of credit which has evolved as the ubiquitous
and most important device in international trade. A creation of commerce and
businessmen, the letter of credit is also unique in the number of parties
involved and its supranational character.
Petitioner has appealed from the Decision1 of the Court of Appeals in CA-G.R.
SP No. 61901 entitled "Transfield Philippines, Inc. v. Hon. Oscar Pimentel, et
al.," promulgated on 31 January 2001.2
On 26 March 1997, petitioner and respondent Luzon Hydro Corporation

(hereinafter, LHC) entered into a Turnkey Contract3 whereby petitioner, as
Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-
Megawatt hydro-electric power station at the Bakun River in the provinces of
Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole
responsibility for the design, construction, commissioning, testing and
completion of the Project.4
The Turnkey Contract provides that: (1) the target completion date of the
Project shall be on 1 June 2000, or such later date as may be agreed upon
between petitioner and respondent LHC or otherwise determined in accordance
with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of
time (EOT) for reasons enumerated in the Turnkey Contract, among which are
variations, force majeure, and delays caused by LHC itself.5 Further, in case of
dispute, the parties are bound to settle their differences through mediation,
conciliation and such other means enumerated under Clause 20.3 of the
Turnkey Contract.6
To secure performance of petitioner's obligation on or before the target

completion date, or such time for completion as may be determined by the
parties' agreement, petitioner opened in favor of LHC two (2) standby letters of
credit both dated 20 March 2000 (hereinafter referred to as "the Securities"), to
wit: Standby Letter of Credit No. E001126/8400 with the local branch of
respondent Australia and New Zealand Banking Group Limited (ANZ Bank)7
and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank
Corporation (SBC)8 each in the amount of US$8,988,907.00.9
In the course of the construction of the project, petitioner sought various EOT
to complete the Project. The extensions were requested allegedly due to several
factors which prevented the completion of the Project on target date, such as
force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC
denied the requests, however. This gave rise to a series of legal actions between
the parties which culminated in the instant petition.
The first of the actions was a Request for Arbitration which LHC filed before the
Construction Industry Arbitration Commission (CIAC) on 1 June 1999.10 This
was followed by another Request for Arbitration, this time filed by petitioner
before the International Chamber of Commerce (ICC)11 on 3 November 2000.
In both arbitration proceedings, the common issues presented were: [1)
whether typhoon Zeb and any of its associated events constituted force majeure
to justify the extension of time sought by petitioner; and [2) whether LHC had
the right to terminate the Turnkey Contract for failure of petitioner to complete
the Project on target date.
Meanwhile, foreseeing that LHC would call on the Securities pursuant to the
pertinent provisions of the Turnkey Contract,12 petitionerin two separate
letters13 both dated 10 August 2000advised respondent banks of the
arbitration proceedings already pending before the CIAC and ICC in connection
with its alleged default in the performance of its obligations. Asserting that
LHC had no right to call on the Securities until the resolution of disputes
before the arbitral tribunals, petitioner warned respondent banks that any
transfer, release, or disposition of the Securities in favor of LHC or any person
claiming under LHC would constrain it to hold respondent banks liable for
liquidated damages.
As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner

that pursuant to Clause 8.214 of the Turnkey Contract, it failed to comply with
its obligation to complete the Project. Despite the letters of petitioner, however,
both banks informed petitioner that they would pay on the Securities if and
when LHC calls on them.15
LHC asserted that additional extension of time would not be warranted;

accordingly it declared petitioner in default/delay in the performance of its
obligations under the Turnkey Contract and demanded from petitioner the
payment of US$75,000.00 for each day of delay beginning 28 June 2000 until
actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey
Contract. At the same time, LHC served notice that it would call on the
securities for the payment of liquidated damages for the delay.16
On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction,

with prayer for temporary restraining order and writ of preliminary injunction,
against herein respondents as defendants before the Regional Trial Court (RTC)
of Makati.17 Petitioner sought to restrain respondent LHC from calling on the
Securities and respondent banks from transferring, paying on, or in any
manner disposing of the Securities or any renewals or substitutes thereof. The
RTC issued a seventy-two (72)-hour temporary restraining order on the same
day. The case was docketed as Civil Case No. 00-1312 and raffled to Branch
148 of the RTC of Makati.
After appropriate proceedings, the trial court issued an Order on 9 November

2000, extending the temporary restraining order for a period of seventeen (17)
days or until 26 November 2000.18
The RTC, in its Order19 dated 24 November 2000, denied petitioner's

application for a writ of preliminary injunction. It ruled that petitioner had no
legal right and suffered no irreparable injury to justify the issuance of the writ.
Employing the principle of "independent contract" in letters of credit, the trial
court ruled that LHC should be allowed to draw on the Securities for liquidated
damages. It debunked petitioner's contention that the principle of "independent
contract" could be invoked only by respondent banks since according to it
respondent LHC is the ultimate beneficiary of the Securities. The trial court
further ruled that the banks were mere custodians of the funds and as such
they were obligated to transfer the same to the beneficiary for as long as the
latter could submit the required certification of its claims.
Dissatisfied with the trial court's denial of its application for a writ of
preliminary injunction, petitioner elevated the case to the Court of Appeals via
a Petition for Certiorari under Rule 65, with prayer for the issuance of a
temporary restraining order and writ of preliminary injunction.20 Petitioner
submitted to the appellate court that LHC's call on the Securities was
premature considering that the issue of its default had not yet been resolved
with finality by the CIAC and/or the ICC. It asserted that until the fact of delay
could be established, LHC had no right to draw on the Securities for liquidated
damages.
Refuting petitioner's contentions, LHC claimed that petitioner had no right to

restrain its call on and use of the Securities as payment for liquidated
damages. It averred that the Securities are independent of the main contract
between them as shown on the face of the two Standby Letters of Credit which
both provide that the banks have no responsibility to investigate the
authenticity or accuracy of the certificates or the declarant's capacity or
entitlement to so certify.
In its Resolution dated 28 November 2000, the Court of Appeals issued a

temporary restraining order, enjoining LHC from calling on the Securities or
any renewals or substitutes thereof and ordering respondent banks to cease
and desist from transferring, paying or in any manner disposing of the
Securities.
However, the appellate court failed to act on the application for preliminary
injunction until the temporary restraining order expired on 27 January 2001.
Immediately thereafter, representatives of LHC trooped to ANZ Bank and
withdrew the total amount of US$4,950,000.00, thereby reducing the balance
in ANZ Bank to US$1,852,814.00.
On 2 February 2001, the appellate court dismissed the petition for certiorari.
The appellate court expressed conformity with the trial court's decision that
LHC could call on the Securities pursuant to the first principle in credit law
that the credit itself is independent of the underlying transaction and that as
long as the beneficiary complied with the credit, it was of no moment that he
had not complied with the underlying contract. Further, the appellate court
held that even assuming that the trial court's denial of petitioner's application
for a writ of preliminary injunction was erroneous, it constituted only an error
of judgment which is not correctible by certiorari, unlike error of jurisdiction.
Undaunted, petitioner filed the instant Petition for Review raising the following
issues for resolution:
WHETHER THE "INDEPENDENCE PRINCIPLE" ON LETTERS OF CREDIT MAY

BE INVOKED BY A BENEFICIARY THEREOF WHERE THE BENEFICIARY'S
CALL THEREON IS WRONGFUL OR FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES
BEFORE THE RESOLUTION OF PETITIONER'S AND LHC'S DISPUTES BY THE
APPROPRIATE TRIBUNAL.
WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING

THE AMOUNTS DUE UNDER THE SECURITIES DESPITE BEING NOTIFIED
THAT LHC'S CALL THEREON IS WRONGFUL.
WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE

DAMAGE IN THE EVENT THAT:
A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND
SECURITY BANK ARE ALLOWED TO RELEASE, THE REMAINING BALANCE
OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES
BETWEEN PETITIONER AND LHC.
B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN

FROM THE SECURITIES.21
Petitioner contends that the courts below improperly relied on the

"independence principle" on letters of credit when this case falls squarely
within the "fraud exception rule." Respondent LHC deliberately misrepresented
the supposed existence of delay despite its knowledge that the issue was still
pending arbitration, petitioner continues.
Petitioner asserts that LHC should be ordered to return the proceeds of the
Securities pursuant to the principle against unjust enrichment and that, under
the premises, injunction was the appropriate remedy obtainable from the
competent local courts.
On 25 August 2003, petitioner filed a Supplement to the Petition22 and
Supplemental Memorandum,23 alleging that in the course of the proceedings
in the ICC Arbitration, a number of documentary and testimonial evidence
came out through the use of different modes of discovery available in the ICC
Arbitration. It contends that after the filing of the petition facts and admissions
were discovered which demonstrate that LHC knowingly misrepresented that
petitioner had incurred delays notwithstanding its knowledge and admission
that delays were excused under the Turnkey Contractto be able to draw
against the Securities. Reiterating that fraud constitutes an exception to the
independence principle, petitioner urges that this warrants a ruling from this
Court that the call on the Securities was wrongful, as well as contrary to law
and basic principles of equity. It avers that it would suffer grave irreparable
damage if LHC would be allowed to use the proceeds of the Securities and not
ordered to return the amounts it had wrongfully drawn thereon.
In its Manifestation dated 8 September 2003,24 LHC contends that the

supplemental pleadings filed by petitioner present erroneous and misleading
information which would change petitioner's theory on appeal.
In yet another Manifestation dated 12 April 2004,25 petitioner alleges that on

18 February 2004, the ICC handed down its Third Partial Award, declaring
that LHC wrongfully drew upon the Securities and that petitioner was entitled
to the return of the sums wrongfully taken by LHC for liquidated damages.
LHC filed a Counter-Manifestation dated 29 June 2004,26 stating that

petitioner's Manifestation dated 12 April 2004 enlarges the scope of its Petition
for Review of the 31 January 2001 Decision of the Court of Appeals. LHC notes
that the Petition for Review essentially dealt only with the issue of whether
injunction could issue to restrain the beneficiary of an irrevocable letter of
credit from drawing thereon. It adds that petitioner has filed two other
proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled "Transfield
Philippines Inc. v. Luzon Hydro Corporation," in which the parties made claims
and counterclaims arising from petitioner's performance/misperformance of its
obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled
"Transfield Philippines, Inc. v. Luzon Hydro Corporation" before Branch 56 of
the RTC of Makati, which is an action to enforce and obtain execution of the
ICC's partial award mentioned in petitioner's Manifestation of 12 April 2004.
In its Comment to petitioner's Motion for Leave to File Addendum to Petitioner's

Memorandum, LHC stresses that the question of whether the funds it drew on
the subject letters of credit should be returned is outside the issue in this
appeal. At any rate, LHC adds that the action to enforce the ICC's partial award
is now fully within the Makati RTC's jurisdiction in Civil Case No. 04-332. LHC
asserts that petitioner is engaged in forum-shopping by keeping this appeal
and at the same time seeking the suit for enforcement of the arbitral award
before the Makati court.
Respondent SBC in its Memorandum, dated 10 March 200327 contends that
the Court of Appeals correctly dismissed the petition for certiorari. Invoking the
independence principle, SBC argues that it was under no obligation to look into
the validity or accuracy of the certification submitted by respondent LHC or
into the latter's capacity or entitlement to so certify. It adds that the act sought
to be enjoined by petitioner was already fait accompli and the present petition
would no longer serve any remedial purpose.
In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March

200328 posits that its actions could not be regarded as unjustified in view of
the prevailing independence principle under which it had no obligation to
ascertain the truth of LHC's allegations that petitioner defaulted in its
obligations. Moreover, it points out that since the Standby Letter of Credit No.
E001126/8400 had been fully drawn, petitioner's prayer for preliminary
injunction had been rendered moot and academic.
At the core of the present controversy is the applicability of the "independence

principle" and "fraud exception rule" in letters of credit. Thus, a discussion of
the nature and use of letters of credit, also referred to simply as "credits,"
would provide a better perspective of the case.
The letter of credit evolved as a mercantile specialty, and the only way to
understand all its facets is to recognize that it is an entity unto itself. The
relationship between the beneficiary and the issuer of a letter of credit is not
strictly contractual, because both privity and a meeting of the minds are
lacking, yet strict compliance with its terms is an enforceable right. Nor is it a
third-party beneficiary contract, because the issuer must honor drafts drawn
against a letter regardless of problems subsequently arising in the underlying
contract. Since the bank's customer cannot draw on the letter, it does not
function as an assignment by the customer to the beneficiary. Nor, if properly
used, is it a contract of suretyship or guarantee, because it entails a primary
liability following a default. Finally, it is not in itself a negotiable instrument,
because it is not payable to order or bearer and is generally conditional, yet the
draft presented under it is often negotiable.29
In commercial transactions, a letter of credit is a financial device developed by

merchants as a convenient and relatively safe mode of dealing with sales of
goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to
part with his goods before he is paid, and a buyer, who wants to have control of
the goods before paying.30 The use of credits in commercial transactions
serves to reduce the risk of nonpayment of the purchase price under the
contract for the sale of goods. However, credits are also used in non-sale
settings where they serve to reduce the risk of nonperformance. Generally,
credits in the non-sale settings have come to be known as standby credits.31
There are three significant differences between commercial and standby

credits. First, commercial credits involve the payment of money under a
contract of sale. Such credits become payable upon the presentation by the
seller-beneficiary of documents that show he has taken affirmative steps to
comply with the sales agreement. In the standby type, the credit is payable
upon certification of a party's nonperformance of the agreement. The
documents that accompany the beneficiary's draft tend to show that the
applicant has not performed. The beneficiary of a commercial credit must
demonstrate by documents that he has performed his contract. The beneficiary
of the standby credit must certify that his obligor has not performed the
contract.32
By definition, a letter of credit is a written instrument whereby the writer

requests or authorizes the addressee to pay money or deliver goods to a third
person and assumes responsibility for payment of debt therefor to the
addressee.33 A letter of credit, however, changes its nature as different
transactions occur and if carried through to completion ends up as a binding
contract between the issuing and honoring banks without any regard or
relation to the underlying contract or disputes between the parties thereto.34
Since letters of credit have gained general acceptability in international trade

transactions, the ICC has published from time to time updates on the Uniform
Customs and Practice (UCP) for Documentary Credits to standardize practices
in the letter of credit area. The vast majority of letters of credit incorporate the
UCP.35 First published in 1933, the UCP for Documentary Credits has
undergone several revisions, the latest of which was in 1993.36
In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,37 this

Court ruled that the observance of the UCP is justified by Article 2 of the Code
of Commerce which provides that in the absence of any particular provision in
the Code of Commerce, commercial transactions shall be governed by usages
and customs generally observed. More recently, in Bank of America, NT & SA v.
Court of Appeals,38 this Court ruled that there being no specific provisions
which govern the legal complexities arising from transactions involving letters
of credit, not only between or among banks themselves but also between banks
and the seller or the buyer, as the case may be, the applicability of the UCP is
undeniable.
Article 3 of the UCP provides that credits, by their nature, are separate
transactions from the sales or other contract(s) on which they may be based
and banks are in no way concerned with or bound by such contract(s), even if
any reference whatsoever to such contract(s) is included in the credit.
Consequently, the undertaking of a bank to pay, accept and pay draft(s) or
negotiate and/or fulfill any other obligation under the credit is not subject to
claims or defenses by the applicant resulting from his relationships with the
issuing bank or the beneficiary. A beneficiary can in no case avail himself of
the contractual relationships existing between the banks or between the
applicant and the issuing bank.
Thus, the engagement of the issuing bank is to pay the seller or beneficiary of
the credit once the draft and the required documents are presented to it. The
so-called "independence principle" assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and precludes
the issuing bank from determining whether the main contract is actually
accomplished or not. Under this principle, banks assume no liability or
responsibility for the form, sufficiency, accuracy, genuineness, falsification or
legal effect of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon, nor do they assume any
liability or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of the
goods, or any other person whomsoever.39
The independent nature of the letter of credit may be: (a) independence in toto
where the credit is independent from the justification aspect and is a separate
obligation from the underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect like in a commercial
letter of credit or repayment standby, which is identical with the same
obligations under the underlying agreement. In both cases the payment may be
enjoined if in the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.40
Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not apply to the instant
case and assuming it is so, it is a defense available only to respondent banks.
LHC, on the other hand, contends that it would be contrary to common sense
to deny the benefit of an independent contract to the very party for whom the
benefit is intended. As beneficiary of the letter of credit, LHC asserts it is
entitled to invoke the principle.
As discussed above, in a letter of credit transaction, such as in this case, where

the credit is stipulated as irrevocable, there is a definite undertaking by the
issuing bank to pay the beneficiary provided that the stipulated documents are
presented and the conditions of the credit are complied with.41 Precisely, the
independence principle liberates the issuing bank from the duty of ascertaining
compliance by the parties in the main contract. As the principle's
nomenclature clearly suggests, the obligation under the letter of credit is
independent of the related and originating contract. In brief, the letter of credit
is separate and distinct from the underlying transaction.
Given the nature of letters of credit, petitioner's argumentthat it is only the

issuing bank that may invoke the independence principle on letters of credit
does not impress this Court. To say that the independence principle may only
be invoked by the issuing banks would render nugatory the purpose for which
the letters of credit are used in commercial transactions. As it is, the
independence doctrine works to the benefit of both the issuing bank and the
beneficiary.
Letters of credit are employed by the parties desiring to enter into commercial
transactions, not for the benefit of the issuing bank but mainly for the benefit
of the parties to the original transactions. With the letter of credit from the
issuing bank, the party who applied for and obtained it may confidently
present the letter of credit to the beneficiary as a security to convince the
beneficiary to enter into the business transaction. On the other hand, the other
party to the business transaction, i.e., the beneficiary of the letter of credit, can
be rest assured of being empowered to call on the letter of credit as a security
in case the commercial transaction does not push through, or the applicant
fails to perform his part of the transaction. It is for this reason that the party
who is entitled to the proceeds of the letter of credit is appropriately called
"beneficiary."
Petitioner's argument that any dispute must first be resolved by the parties,
whether through negotiations or arbitration, before the beneficiary is entitled to
call on the letter of credit in essence would convert the letter of credit into a
mere guarantee. Jurisprudence has laid down a clear distinction between a
letter of credit and a guarantee in that the settlement of a dispute between the
parties is not a pre-requisite for the release of funds under a letter of credit. In
other words, the argument is incompatible with the very nature of the letter of
credit. If a letter of credit is drawable only after settlement of the dispute on the
contract entered into by the applicant and the beneficiary, there would be no
practical and beneficial use for letters of credit in commercial transactions.
Professor John F. Dolan, the noted authority on letters of credit, sheds more
light on the issue:
The standby credit is an attractive commercial device for many of the same
reasons that commercial credits are attractive. Essentially, these credits are
inexpensive and efficient. Often they replace surety contracts, which tend to
generate higher costs than credits do and are usually triggered by a factual
determination rather than by the examination of documents.
Because parties and courts should not confuse the different functions of the
surety contract on the one hand and the standby credit on the other, the
distinction between surety contracts and credits merits some reflection. The
two commercial devices share a common purpose. Both ensure against the
obligor's nonperformance. They function, however, in distinctly different ways.
Traditionally, upon the obligor's default, the surety undertakes to complete the
obligor's performance, usually by hiring someone to complete that
performance. Surety contracts, then, often involve costs of determining whether
the obligor defaulted (a matter over which the surety and the beneficiary often
litigate) plus the cost of performance. The benefit of the surety contract to the
beneficiary is obvious. He knows that the surety, often an insurance company,
is a strong financial institution that will perform if the obligor does not. The
beneficiary also should understand that such performance must await the
sometimes lengthy and costly determination that the obligor has defaulted. In
addition, the surety's performance takes time.
The standby credit has different expectations. He reasonably expects that he
will receive cash in the event of nonperformance, that he will receive it
promptly, and that he will receive it before any litigation with the obligor (the
applicant) over the nature of the applicant's performance takes place. The
standby credit has this opposite effect of the surety contract: it reverses the
financial burden of parties during litigation.
In the surety contract setting, there is no duty to indemnify the beneficiary

until the beneficiary establishes the fact of the obligor's performance. The
beneficiary may have to establish that fact in litigation. During the litigation,
the surety holds the money and the beneficiary bears most of the cost of delay
in performance.
In the standby credit case, however, the beneficiary avoids that litigation
burden and receives his money promptly upon presentation of the required
documents. It may be that the applicant has, in fact, performed and that the
beneficiary's presentation of those documents is not rightful. In that case, the
applicant may sue the beneficiary in tort, in contract, or in breach of warranty;
but, during the litigation to determine whether the applicant has in fact
breached the obligation to perform, the beneficiary, not the applicant, holds the
money. Parties that use a standby credit and courts construing such a credit
should understand this allocation of burdens. There is a tendency in some
quarters to overlook this distinction between surety contracts and standby
credits and to reallocate burdens by permitting the obligor or the issuer to
litigate the performance question before payment to the beneficiary.42
While it is the bank which is bound to honor the credit, it is the beneficiary
who has the right to ask the bank to honor the credit by allowing him to draw
thereon. The situation itself emasculates petitioner's posture that LHC cannot
invoke the independence principle and highlights its puerility, more so in this
case where the banks concerned were impleaded as parties by petitioner itself.
Respondent banks had squarely raised the independence principle to justify

their releases of the amounts due under the Securities. Owing to the nature
and purpose of the standby letters of credit, this Court rules that the
respondent banks were left with little or no alternative but to honor the credit
and both of them in fact submitted that it was "ministerial" for them to honor
the call for payment.43
Furthermore, LHC has a right rooted in the Contract to call on the Securities.
The relevant provisions of the Contract read, thus:
4.2.1. In order to secure the performance of its obligations under this Contract,
the Contractor at its cost shall on the Commencement Date provide security to
the Employer in the form of two irrevocable and confirmed standby letters of
credit (the "Securities"), each in the amount of US$8,988,907, issued and
confirmed by banks or financial institutions acceptable to the Employer. Each
of the Securities must be in form and substance acceptable to the Employer
and may be provided on an annually renewable basis.44
8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay
to the Employer by way of liquidated damages ("Liquidated Damages for Delay")
the amount of US$75,000 for each and every day or part of a day that shall
elapse between the Target Completion Date and the Completion Date, provided
that Liquidated Damages for Delay payable by the Contractor shall in the
aggregate not exceed 20% of the Contract Price. The Contractor shall pay
Liquidated Damages for Delay for each day of the delay on the following day
without need of demand from the Employer.
8.7.2 The Employer may, without prejudice to any other method of recovery,
deduct the amount of such damages from any monies due, or to become due to
the Contractor and/or by drawing on the Security."45
A contract once perfected, binds the parties not only to the fulfillment of what
has been expressly stipulated but also to all the consequences which according
to their nature, may be in keeping with good faith, usage, and law.46 A careful
perusal of the Turnkey Contract reveals the intention of the parties to make the
Securities answerable for the liquidated damages occasioned by any delay on
the part of petitioner. The call upon the Securities, while not an exclusive
remedy on the part of LHC, is certainly an alternative recourse available to it
upon the happening of the contingency for which the Securities have been
proffered. Thus, even without the use of the "independence principle," the
Turnkey Contract itself bestows upon LHC the right to call on the Securities in
the event of default.
Next, petitioner invokes the "fraud exception" principle. It avers that LHC's call
on the Securities is wrongful because it fraudulently misrepresented to ANZ
Bank and SBC that there is already a breach in the Turnkey Contract knowing
fully well that this is yet to be determined by the arbitral tribunals. It asserts
that the "fraud exception" exists when the beneficiary, for the purpose of
drawing on the credit, fraudulently presents to the confirming bank,
documents that contain, expressly or by implication, material representations
of fact that to his knowledge are untrue. In such a situation, petitioner insists,
injunction is recognized as a remedy available to it.
Citing Dolan's treatise on letters of credit, petitioner argues that the

independence principle is not without limits and it is important to fashion
those limits in light of the principle's purpose, which is to serve the commercial
function of the credit. If it does not serve those functions, application of the
principle is not warranted, and the commonlaw principles of contract should
apply.
It is worthy of note that the propriety of LHC's call on the Securities is largely
intertwined with the fact of default which is the self-same issue pending
resolution before the arbitral tribunals. To be able to declare the call on the
Securities wrongful or fraudulent, it is imperative to resolve, among others,
whether petitioner was in fact guilty of delay in the performance of its
obligation. Unfortunately for petitioner, this Court is not called upon to rule
upon the issue of defaultsuch issue having been submitted by the parties to
the jurisdiction of the arbitral tribunals pursuant to the terms embodied in
their agreement.47
Would injunction then be the proper remedy to restrain the alleged wrongful
draws on the Securities?
Most writers agree that fraud is an exception to the independence principle.

Professor Dolan opines that the untruthfulness of a certificate accompanying a
demand for payment under a standby credit may qualify as fraud sufficient to
support an injunction against payment.48 The remedy for fraudulent abuse is
an injunction. However, injunction should not be granted unless: (a) there is
clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the
independent purpose of the letter of credit and not only fraud under the main
agreement; and (c) irreparable injury might follow if injunction is not granted or
the recovery of damages would be seriously damaged.49
In its complaint for injunction before the trial court, petitioner alleged that it is
entitled to a total extension of two hundred fifty-three (253) days which would
move the target completion date. It argued that if its claims for extension would
be found meritorious by the ICC, then LHC would not be entitled to any
liquidated damages.50
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. The issuance of the writ of
preliminary injunction as an ancillary or preventive remedy to secure the rights
of a party in a pending case is entirely within the discretion of the court taking
cognizance of the case, the only limitation being that this discretion should be
exercised based upon the grounds and in the manner provided by law.51
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.52 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.53 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.54
In the instant case, petitioner failed to show that it has a clear and
unmistakable right to restrain LHC's call on the Securities which would justify
the issuance of preliminary injunction. By petitioner's own admission, the right
of LHC to call on the Securities was contractually rooted and subject to the
express stipulations in the Turnkey Contract.55 Indeed, the Turnkey Contract
is plain and unequivocal in that it conferred upon LHC the right to draw upon
the Securities in case of default, as provided in Clause 4.2.5, in relation to
Clause 8.7.2, thus:
4.2.5 The Employer shall give the Contractor seven days' notice of calling upon
any of the Securities, stating the nature of the default for which the claim on
any of the Securities is to be made, provided that no notice will be required if
the Employer calls upon any of the Securities for the payment of Liquidated
Damages for Delay or for failure by the Contractor to renew or extend the
Securities within 14 days of their expiration in accordance with Clause
4.2.2.56
8.7.2 The Employer may, without prejudice to any other method of recovery,
deduct the amount of such damages from any monies due, or to become due,
to the Contractor and/or by drawing on the Security.57
The pendency of the arbitration proceedings would not per se make LHC's
draws on the Securities wrongful or fraudulent for there was nothing in the
Contract which would indicate that the parties intended that all disputes
regarding delay should first be settled through arbitration before LHC would be
allowed to call upon the Securities. It is therefore premature and absurd to
conclude that the draws on the Securities were outright fraudulent given the
fact that the ICC and CIAC have not ruled with finality on the existence of
default.
Nowhere in its complaint before the trial court or in its pleadings filed before
the appellate court, did petitioner invoke the fraud exception rule as a ground
to justify the issuance of an injunction.58 What petitioner did assert before the
courts below was the fact that LHC's draws on the Securities would be
premature and without basis in view of the pending disputes between them.
Petitioner should not be allowed in this instance to bring into play the fraud
exception rule to sustain its claim for the issuance of an injunctive relief.
Matters, theories or arguments not brought out in the proceedings below will
ordinarily not be considered by a reviewing court as they cannot be raised for
the first time on appeal.59 The lower courts could thus not be faulted for not
applying the fraud exception rule not only because the existence of fraud was
fundamentally interwoven with the issue of default still pending before the
arbitral tribunals, but more so, because petitioner never raised it as an issue in
its pleadings filed in the courts below. At any rate, petitioner utterly failed to
show that it had a clear and unmistakable right to prevent LHC's call upon the
Securities.
Of course, prudence should have impelled LHC to await resolution of the

pending issues before the arbitral tribunals prior to taking action to enforce the
Securities. But, as earlier stated, the Turnkey Contract did not require LHC to
do so and, therefore, it was merely enforcing its rights in accordance with the
tenor thereof. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.60 More
importantly, pursuant to the principle of autonomy of contracts embodied in
Article 1306 of the Civil Code,61 petitioner could have incorporated in its
Contract with LHC, a proviso that only the final determination by the arbitral
tribunals that default had occurred would justify the enforcement of the
Securities. However, the fact is petitioner did not do so; hence, it would have to
live with its inaction.
With respect to the issue of whether the respondent banks were justified in
releasing the amounts due under the Securities, this Court reiterates that
pursuant to the independence principle the banks were under no obligation to
determine the veracity of LHC's certification that default has occurred. Neither
were they bound by petitioner's declaration that LHC's call thereon was
wrongful. To repeat, respondent banks' undertaking was simply to pay once the
required documents are presented by the beneficiary.
At any rate, should petitioner finally prove in the pending arbitration

proceedings that LHC's draws upon the Securities were wrongful due to the
non-existence of the fact of default, its right to seek indemnification for
damages it suffered would not normally be foreclosed pursuant to general
principles of law.
Moreover, in a Manifestation,62 dated 30 March 2001, LHC informed this

Court that the subject letters of credit had been fully drawn. This fact alone
would have been sufficient reason to dismiss the instant petition.
Settled is the rule that injunction would not lie where the acts sought to be
enjoined have already become fait accompli or an accomplished or
consummated act.63 In Ticzon v. Video Post Manila, Inc.64 this Court ruled
that where the period within which the former employees were prohibited from
engaging in or working for an enterprise that competed with their former
employerthe very purpose of the preliminary injunction has expired, any
declaration upholding the propriety of the writ would be entirely useless as
there would be no actual case or controversy between the parties insofar as the
preliminary injunction is concerned.
In the instant case, the consummation of the act sought to be restrained had
rendered the instant petition mootfor any declaration by this Court as to
propriety or impropriety of the non-issuance of injunctive relief could have no
practical effect on the existing controversy.65 The other issues raised by
petitioner particularly with respect to its right to recover the amounts
wrongfully drawn on the Securities, according to it, could properly be threshed
out in a separate proceeding.
One final point. LHC has charged petitioner of forum-shopping. It raised the
charge on two occasions. First, in its Counter-Manifestation dated 29 June
200466 LHC alleges that petitioner presented before this Court the same claim
for money which it has filed in two other proceedings, to wit: ICC Case No.
11264/TE/MW and Civil Case No. 04-332 before the RTC of Makati. LHC
argues that petitioner's acts constitutes forum-shopping which should be
punished by the dismissal of the claim in both forums. Second, in its Comment
to Petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum
dated 8 October 2004, LHC alleges that by maintaining the present appeal and
at the same time pursuing Civil Case No. 04-332wherein petitioner pressed
for judgment on the issue of whether the funds LHC drew on the Securities
should be returnedpetitioner resorted to forum-shopping. In both instances,
however, petitioner has apparently opted not to respond to the charge.
Forum-shopping is a very serious charge. It exists when a party repetitively

avails of several judicial remedies in different courts, simultaneously or
successively, all substantially founded on the same transactions and the same
essential facts and circumstances, and all raising substantially the same
issues either pending in, or already resolved adversely, by some other court.67
It may also consist in the act of a party against whom an adverse judgment has
been rendered in one forum, of seeking another and possibly favorable opinion
in another forum other than by appeal or special civil action of certiorari, or
the institution of two or more actions or proceedings grounded on the same
cause on the supposition that one or the other court might look with favor
upon the other party.68 To determine whether a party violated the rule against
forum-shopping, the test applied is whether the elements of litis pendentia are
present or whether a final judgment in one case will amount to res judicata in
another.69 Forum-shopping constitutes improper conduct and may be
punished with summary dismissal of the multiple petitions and direct
contempt of court.70
Considering the seriousness of the charge of forum-shopping and the severity

of the sanctions for its violation, the Court will refrain from making any
definitive ruling on this issue until after petitioner has been given ample
opportunity to respond to the charge.
WHEREFORE, the instant petition is DENIED, with costs against petitioner.
Petitioner is hereby required to answer the charge of forum-shopping within

fifteen (15) days from notice.
SO ORDERED.

ADR Cases - Finals

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ADR Cases Finals

Gr. No. 185582 (Tuna Processing)

TUNA PROCESSING, INC., G.R. No. 185582

PHILIPPINE KINGFORD, INC., Promulgated:

Can a foreign corporation not licensed to do business in the

In this Petition for Review on Certiorari under Rule 45,[if !supportFootnotes][1][endif]

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as

[if !supportLists]1. [endif]Background and objectives. The

The Sponsors wish to be licensed under the aforementioned patents in

4. Establishment of Tuna Processors, Inc. The parties hereto agree to

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor.

The parties likewise executed a Supplemental Memorandum of Agreement [if !

Due to a series of events not mentioned in the petition, the licensees,

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition

At Branch 150, respondent Kingford filed a Motion to Dismiss. [if !

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No

There is no doubt, therefore, in the mind of this Court

The petitioner counters, however, that it is entitled to seek for the

In the present case, enforcement has been effectively refused on a

Simply put, how do we reconcile the provisions of the Corporation Code

Korugas invocation of the provisions of the Corporation

The Corporation Code, however, is a

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential

Without doubt, the Corporation Code is the general law

Inasmuch as the Alternative Dispute Resolution Act of 2004, a

In particular, the Alternative Dispute Resolution Act of 2004

SEC. 42. Application of the New York Convention. - The

SEC. 45. Rejection of a Foreign Arbitral Award. - A party

It also expressly adopted the Model Law, to wit:

Now, does a foreign corporation not licensed to do business in the

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that

1. Recognition and enforcement of the award may be refused, at the

2. Recognition and enforcement of an arbitral award may also be refused

(a) The subject matter of the difference is not capable of settlement by

(b) The recognition or enforcement of the award would be contrary to the

Pertinent provisions of the Special Rules of Court on Alternative Dispute

Indeed, it is in the best interest of justice that in the enforecement of a

xxx Arbitration, as an alternative mode of settlement, is

Clearly, on the matter of capacity to sue, a foreign arbitral award

The remaining arguments of respondent Kingford are likewise

First. There is no need to consider respondents contention that petitioner TPI

[I]t must be remembered that [the principle of hierarchy

Sec. 2. Declaration of Policy. - It is hereby declared the

27. xxx Upon confirmation with the Regional Trial

All considered, petitioner TPI, although a foreign corporation not

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial

Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and

To enforce the award, Petitioner TPI filed a Petition for Confirmation,

Whether or not a foreign corporation not licensed to do business in the

YES. Petitioner TPI, although not licensed to do business in the Philippines,

The Resolution of the RTC is REVERSED and SET ASIDE.

1. Recognition and enforcement of the award may be refused, at the request of

2. Recognition and enforcement of an arbitral award may also be refused if the

b. The recognition or enforcement of the award would be contrary to the public

Not one of the abovementioned exclusive grounds touched on the capacity to

Pertinent provisions of the Special Rules of Court on Alternative Dispute

Indeed, it is in the best interest of justice that in the enforcement of a

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in

Clearly, on the matter of capacity to sue, a foreign arbitral award should be

Gr. No. 141833 (LM Power)

G.R. No. 141833 March 26, 2003