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Republic of the Philippines been missing for more than seven (7) years. It was granted on
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 135362 December 13, 1999
HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D.
SALAS for herself and as legal guardian of the minor
FABRICE CYRILL D. SALAS, MA. CRISTINA S. LESACA,
and KARINA TERESA D. SALAS, petitioners,
vs.
LAPERAL REALTY CORPORATION, ROCKWAY REAL
ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC.,
MAHARAMI DEVELOPMENT CORPORATION, Spouses
THELMA D. ABRAJANO and GREGORIO ABRAJANO,
OSCAR DACILLO, Spouses VIRGINIA D. LAVA and RODEL
LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ,
JESUS VICENTE B. CAPELLAN, and the REGISTER OF
DEEDS FOR LIPA CITY, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Order 1 of
Branch 85 of the Regional Trial Court of Lipa City 2 dismissing
petitioners' complaint 3 for rescission of several sale
transactions involving land owned by Augusto L. Salas, Jr.,
their predecessor-in-interest, on the ground that they failed to
first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in
Lipa City, Batangas spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor
Agreement 4 (hereinafter referred to as the Agreement) with
respondent Laperal Realty Corporation (hereinafter referred to
as Laperal Realty) to render and provide complete (horizontal)
construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power
of Attorney in favor of respondent Laperal Realty to exercise
general control, supervision and management of the sale of his
land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a
business trip to Nueva Ecija. He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the Regional
Trial Court of Makati City a verified petition for the declaration of
presumptive death of her husband, Salas, Jr., who had then
1
December 12, 1996. 5
Meantime, respondent Laperal Realty subdivided the land of
Salas, Jr. and sold subdivided portions thereof to respondents
Rockway Real Estate Corporation and South Ridge Village, Inc.
on February 22, 1990; to respondent spouses Abrajano and
Lava and Oscar Dacillo on June 27, 1991; and to respondents
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capalan on June 4, 1996 (all of whom are hereinafter referred
to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in
the Regional Trial Court of Lipa City a Complaint 6 for
declaration of nullity of sale, reconveyance, cancellation of
contract, accounting and damages against herein respondents
which was docketed as Civil Case No. 98-0047.
On April 24, 1998, respondent Laperal Realty filed a Motion to
Dismiss 7 on the ground that petitioners failed to submit their
grievance to arbitration as required under Article VI of the
Agreement which provides:
Art. VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNER'S
representative shall be referred to the committee represented
by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and
CONTRACTOR. 8
On May 5, 1998, respondent spouses Abrajano and Lava and
respondent Dacillo filed a Joint Answer with Counterclaim and
Crossclaim 9 praying for dismissal of petitioners' Complaint for
the same reason.
On August 9, 1998, the trial court issued the herein assailed
Order dismissing petitioners' Complaint for non-compliance with
the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners' causes of action did not emanate from the
Owner-Contractor Agreement.
The petitioners' causes of action for cancellation of contract and
accounting are covered by the exception under the Arbitration
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Law. The petitioners' contention is without merit. For while

rescission, as a general rule, is an arbitrable issue, 20 they
Failure to arbitrate is not a ground for dismissal. 10 impleaded in the suit for rescission the respondent lot buyers
who are neither parties to the Agreement nor the latter's
assigns or heirs. Consequently, the right to arbitrate as
In a catena of cases 11 inspired by Justice Malcolm's
provided in Article VI of the Agreement was never vested in
provocative dissent in Vega v. San Carlos Milling Co. 12, this
respondent lot buyers.
Court has recognized arbitration agreements as valid, binding,
enforceable and not contrary to public policy so much so that
when there obtains a written provision for arbitration which is Respondent Laperal Realty, as a contracting party to the
not complied with, the trial court should suspend the Agreement, has the right to compel petitioners to first arbitrate
proceedings and order the parties to proceed to arbitration in before seeking judicial relief. However, to split the proceedings
accordance with the terms of their into arbitration for respondent Laperal Realty and trial for the
respondent lot buyers, or to hold trial in abeyance pending
arbitration between petitioners and respondent Laperal Realty,
agreement 13. Arbitration is the "wave of the future" in dispute
would in effect result in multiplicity of suits, duplicitous
resolution. 14 To brush aside a contractual agreement calling for
procedure and unnecessary delay. On the other hand, it would
arbitration in case of disagreement between parties would be a
be in the interest of justice if the trial court hears the complaint
step backward. 15
against all herein respondents and adjudicates petitioners'
rights as against theirs in a single and complete proceeding.
Nonetheless, we grant the petition.
WHEREFORE, the instant petition is hereby GRANTED. The
A submission to arbitration is a contract. 16 As such, the Order dated August 19, 1998 of Branch 85 of the Regional Trial
Agreement, containing the stipulation on arbitration, binds the Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said
parties thereto, as well as their assigns and heirs. 17 But only court is hereby ordered to proceed with the hearing of Civil
they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Case No. 98-0047.
Realty are certainly bound by the Agreement. If respondent
Laperal Realty had assigned its rights under the Agreement to
Costs against private respondents.
a third party, making the former, the assignor, and the latter, the
assignee, such assignee would also be bound by the arbitration
provision since assignment involves such transfer of rights as to SO ORDERED.
vest in the assignee the power to enforce them to the same
extent as the assignor could have enforced them against the Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.
debtor 18 or in this case, against the heirs of the original party to
the Agreement. However, respondents Rockway Real Estate Footnotes
Corporation, South Ridge Village, Inc., Maharami Development
Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo,
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capellan are not assignees of the rights of respondent Laperal
Realty under the Agreement to develop Salas, Jr.'s land and 1 Annex "A" of the Petition, Rollo, pp. 19-20.
sell the same. They are, rather, buyers of the land that
respondent Laperal Realty was given the authority to develop 2 Presided by Hon. Judge Avelino G. Demetria.
and sell under the Agreement. As such, they are not "assigns"
contemplated in Art. 1311 of the New Civil Code which provides 3 Rollo, p. 32.
that "contracts take effect only between the parties, their
assigns and heirs". 4 Annex "B" of the Petition, Rollo, p. 22.

Petitioners claim that they suffered lesion of more than one- 5 Decision of Branch 59 of the Regional Trial Court of Makati
fourth (1/4) of the value of Salas, Jr.'s land when respondent City in SP. PROC. No. M-4394 marked as Annex "C" of the
Laperal Realty subdivided it and sold portions thereof to Petition, Rollo, pp. 29-31.
respondent lot buyers. Thus, they instituted action 19 against
both respondent Laperal Realty and respondent lot buyers for
6 Annex "D" of the Petition, Rollo, pp. 32-49.
rescission of the sale transactions and reconveyance to them of
the subdivided lots. They argue that rescission, being their
cause of action, falls under the exception clause in Sec. 2 of 7 Annex "E" of the Petition, Rollo, pp. 50-56.
Republic Act No. 876 which provides that "such submission [to]
or contract [of arbitration] shall be valid, enforceable and 8 Owner-Contractor Agreement, p. 6, Rollo, p. 27.
irrevocable, save upon such grounds as exist at law for the
revocation of any contract".
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9 Annex "F" of the Petition, Rollo, pp. 58-73.
10 Petition, pp. 7, 9-10, Rollo, pp. 9, 11-12.
11 Mindanao Portland Cement Corporation v. McDonough
Construction Company of Florida, 19 SCRA 808, 815 (1967);
Bengson v. Chan, 78 SCRA 113, 119 (1977); Chung Fu
Industries (Phils.), Inc. v. Court of Appeals, 206 SCRA 545,
549-552 (1992); Puromines, Inc. v. Court of Appeals, 220
SCRA 281, 289-290 (1993); National Power Corporation v.
Court of Appeals, 254 SCRA 116, 125 (1996).
12 51 Phil. 908, 916-920 (1924).
13 Bengson v. Chan, supra.
14 B.F. Corporation v. Court of Appeals, et al., 288 SCRA 267,
286 (1998).
15 Ibid.
16 Manila Electric Company v. Pasay Transportation Co., 57
Phil. 600, 603 (1932).
17 Art. 1311, Civil Code.
18 Tolentino, Arturo M., Commentaries and Jurisprudence on
the Civil Code of the Philippines, Vol. 5 (1992), p. 188.
19 Complaint dated February 2, 1998 marked as Annex "D" of
the Petition, Rollo, pp. 32-48.
20 Santiago v. Gonzalez, 79 SCRA 494, 500 (1977).
3
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 120105 March 27, 1998
BF CORPORATION, petitioner,
vs.
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC.,
RUFO B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G.
LICAUCO III and BENJAMIN C. RAMOS, respondents.
ROMERO, J.:
The basic issue in this petition for review on certiorari is
whether or not the contract for the construction of the EDSA
Plaza between petitioner BF Corporation and respondent
Shangri-la Properties, Inc. embodies an arbitration clause in
case of disagreement between the parties in the
implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI)
entered into an agreement whereby the latter engaged the
former to construct the main structure of the "EDSA Plaza
Project," a shopping mall complex in the City of Mandaluyong.
The construction work was in progress when SPI decided to
expand the project by engaging the services of petitioner again.
Thus, the parties entered into an agreement for the main
contract works after which construction work began.
However, petitioner incurred delay in the construction work that
SPI considered as "serious and substantial." On the other
1
hand, according to petitioner, the construction works
"progressed in faithful compliance with the First Agreement until
a fire broke out on November 30, 1990 damaging Phase I" of
the Project. Hence, SPI proposed the re-negotiation of the
2
agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into
a written agreement denominated as "Agreement for the
Execution of Builder's Work for the EDSA Plaza Project." Said
agreement would cover the construction work on said project as
of May 1, 1991 until its eventual completion.
According to SPI, petitioner "failed to complete the construction
works and abandoned the project." This resulted in
3
disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPI's
initiative, the parties' respective representatives met in
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conference but they failed to come to an agreement. 4 It appears from the said document that in the letter-agreement
Barely two days later or on July 14, 1993, petitioner filed with
the Regional Trial Court of Pasig a complaint for collection of
the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of
directors namely, Alfredo C. Ramos, Rufo B. Calayco, Antonio
B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to
suspend proceedings instead of filing an answer. The motion
was anchored on defendants' allegation that the formal trade
contract for the construction of the project provided for a clause
requiring prior resort to arbitration before judicial intervention
could be invoked in any dispute arising from the contract. The
following day, SPI submitted a copy of the conditions of the
contract containing the arbitration clause that it failed to append
to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no
formal contract between the parties although they entered into
an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement did
not provide for arbitration and therefore the court could not be
deprived of jurisdiction conferred by law by the mere allegation
of the existence of an arbitration clause in the agreement
between the parties.
In reply to said opposition, SPI insisted that there was such an
arbitration clause in the existing contract between petitioner and
SPI. It alleged that suspension of proceedings would not
necessarily deprive the court of its jurisdiction over the case
and that arbitration would expedite rather than delay the
settlement of the parties' respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was
no arbitration clause in the contract between the parties. It
averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer
proper. It added that defendants should be declared in default
for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of
petitioner's admission of the due execution of the "Articles of
Agreement." Thus, on page D/6 thereof, the signatures of Rufo
B. Colayco, SPI president, and Bayani Fernando, president of
petitioner appear, while page D/7 shows that the agreement is
a public document duly notarized on November 15, 1991 by
Notary Public Nilberto R. Briones as document No. 345, page
70, book No. LXX, Series of 1991 of his notarial register. 5
Thereafter, upon a finding that an arbitration clause indeed
exists, the lower court denied the motion to suspend
6 defendants to invoke arbitration." It quoted the following
proceedings, thus:
4
dated May 30, 1991 (Annex C, Complaint), plaintiff BF and
defendant Shangri-La Properties, Inc. agreed upon the terms
and conditions of the Builders Work for the EDSA Plaza Project
(Phases I, II and Carpark), subject to the execution by the
parties of a formal trade contract. Defendants have submitted a
copy of the alleged trade contract, which is entitled "Contract
Documents For Builder's Work Trade Contractor" dated 01 May
1991, page 2 of which is entitled "Contents of Contract
Documents" with a list of the documents therein contained, and
Section A thereof consists of the abovementioned Letter-
Agreement dated May 30, 1991. Section C of the said Contract
Documents is entitled "Articles of Agreement and Conditions of
Contract" which, per its Index, consists of Part A (Articles of
Agreement) and B (Conditions of Contract). The said Articles of
Agreement appears to have been duly signed by President
Rufo B. Colayco of Shangri-La Properties, Inc. and President
Bayani F. Fernando of BF and their witnesses, and was
thereafter acknowledged before Notary Public Nilberto R.
Briones of Makati, Metro Manila on November 15, 1991. The
said Articles of Agreement also provides that the "Contract
Documents" therein listed "shall be deemed an integral part of
this Agreement", and one of the said documents is the
"Conditions of Contract" which contains the Arbitration Clause
relied upon by the defendants in their Motion to Suspend
Proceedings.
This Court notes, however, that the 'Conditions of Contract'
referred to, contains the following provisions:
3. Contract Document.
Three copies of the Contract Documents referred to in the
Articles of Agreement shall be signed by the parties to the
contract and distributed to the Owner and the Contractor for
their safe keeping." (emphasis supplied).
And it is significant to note further that the said "Conditions of
Contract" is not duly signed by the parties on any page thereof
although it bears the initials of BF's representatives (Bayani
F. Fernando and Reynaldo M. de la Cruz) without the initials
thereon of any representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said
Conditions of Contract was not duly executed or signed by the
parties, and the failure of the defendants to submit any signed
copy of the said document, this Court entertains serious doubt
whether or not the arbitration clause found in the said
Conditions of Contract is binding upon the parties to the Articles
of Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the arbitration
clause was valid and binding, still, it was "too late in the day for
provision of the arbitration clause:
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Notice of the demand for arbitration of a dispute shall be filed in
writing with the other party to the contract and a copy filed with
the Project Manager. The demand for arbitration shall be made
within a reasonable time after the dispute has arisen and
attempts to settle amicably have failed; in no case, however,
shall the demand he made be later than the time of final
payment except as otherwise expressly stipulated in the
contract.
Against the above backdrop, the lower court found that per the
May 30, 1991 agreement, the project was to be completed by
October 31, 1991. Thereafter, the contractor would pay
P80,000 for each day of delay counted from November 1, 1991
with "liquified (sic) damages up to a maximum of 5% of the total
contract price."
The lower court also found that after the project was completed
in accordance with the agreement that contained a provision on
"progress payment billing," SPI "took possession and started
operations thereof by opening the same to the public in
November, 1991." SPI, having failed to pay for the works,
petitioner billed SPI in the total amount of P110,883,101.52,
contained in a demand letter sent by it to SPI on February 17,
1993. Instead of paying the amount demanded, SPI set up its
own claim of P220,000,000.00 and scheduled a conference on
that claim for July 12, 1993. The conference took place but it
proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that "Notice of the demand
for arbitration of a dispute shall be filed in writing with the other
party . . . . in no case . . . . later than the time of final payment .
. . "which apparently, had elapsed, not only because
defendants had taken possession of the finished works and the
plaintiff's billings for the payment thereof had remained pending
since November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed to file
any written notice of any demand for arbitration during the said
long period of one year and eight months, this Court finds that it
cannot stay the proceedings in this case as required by Sec. 7
of Republic Act No. 876, because defendants are in default in
proceeding with such arbitration.
The lower court denied SPI's motion for reconsideration for lack
of merit and directed it and the other defendants to file their
responsive pleading or answer within fifteen (15) days from
notice.
Instead of filing an answer to the complaint, SPI filed a petition
for certiorari under Rule 65 of the Rules of Court before the
Court of Appeals. Said appellate court granted the petition,
annulled and set aside the orders and stayed the proceedings
in the lower court. In so ruling, the Court of Appeals held:
5
The reasons given by the respondent Court in denying
petitioners' motion to suspend proceedings are untenable.
1. The notarized copy of the articles of agreement attached as
Annex A to petitioners' reply dated August 26, 1993, has been
submitted by them to the respondent Court (Annex G, petition).
It bears the signature of petitioner Rufo B. Colayco, president of
petitioner Shangri-La Properties, Inc., and of Bayani Fernando,
president of respondent Corporation (Annex G-1, petition). At
page D/4 of said articles of agreement it is expressly provided
that the conditions of contract are "deemed an integral part"
thereof (page 188, rollo). And it is at pages D/42 to D/44 of the
conditions of contract that the provisions for arbitration are
found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No.
35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall
arise between the Owner or the Project Manager on his behalf
and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction
of this Contract or as to any matter or thing of whatsoever
nature arising thereunder or in connection therewith (including
any matter or being left by this Contract to the discretion of the
Project Manager or the withholding by the Project Manager of
any certificate to which the Contractor may claim to be entitled
or the measurement and valuation mentioned in clause 30 (5)
(a) of these Conditions' or the rights and liabilities of the parties
under clauses 25, 26, 32 or 33 of these Conditions), the Owner
and the Contractor hereby agree to exert all efforts to settle
their differences or dispute amicably. Failing these efforts then
such dispute or difference shall be referred to Arbitration in
accordance with the rules and procedures of the Philippine
Arbitration Law.
The fact that said conditions of contract containing the
arbitration clause bear only the initials of respondent
Corporation's representatives, Bayani Fernando and Reynaldo
de la Cruz, without that of the representative of petitioner
Shangri-La Properties, Inc. does not militate against its
effectivity. Said petitioner having categorically admitted that the
document, Annex A to its reply dated August 26, 1993 (Annex
G, petition), is the agreement between the parties, the initial or
signature of said petitioner's representative to signify conformity
to arbitration is no longer necessary. The parties, therefore,
should be allowed to submit their dispute to arbitration in
accordance with their agreement.
2. The respondent Court held that petitioners "are in default in
proceeding with such arbitration." It took note of "the fact that
under the supposed Arbitration Clause invoked by defendants,
it is required that "Notice of the demand for arbitration of a
dispute shall be filed in writing with the other party . . . in no
case . . . later than the time of final payment," which apparently,
had elapsed, not only because defendants had taken
possession of the finished works and the plaintiff's billings for
the payment thereof had remained pending since November,
1991 up to the filing of this case on July 14, 1993, but also for
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the reason that defendants have failed to file any written notice
of any demand for arbitration during the said long period of one
year and eight months, . . . ."
Respondent Court has overlooked the fact that under the
arbitration
clause
Notice of the demand for arbitration dispute shall be filed in
writing with the other party to the contract and a copy filed with
the Project Manager. The demand for arbitration shall be made
within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed; in no case, however,
shall the demand be made later than the time of final payment
except as otherwise expressly stipulated in the contract
(emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court
there said, after the final demand to pay the amount of
P110,883,101.52, instead of paying, petitioners set up its own
claim against respondent Corporation in the amount of
P220,000,000.00 and set a conference thereon on July 12,
1993. Said conference proved futile. The next day, July 14,
1993, respondent Corporation filed its complaint against
petitioners. On August 13, 1993, petitioners wrote to
respondent Corporation requesting arbitration. Under the
circumstances, it cannot be said that petitioners' resort to
arbitration was made beyond reasonable time. Neither can they
be considered in default of their obligation to respondent
Corporation.
Hence, this petition before this Court. Petitioner assigns the
following errors:
A
THE COURT OF APPEALS ERRED IN ISSUING THE
EXTRAORDINARY WRIT OF CERTIORARI ALTHOUGH THE
REMEDY OF APPEAL WAS AVAILABLE TO RESPONDENTS.
B certiorari."
THE COURT OF APPEALS ERRED IN FINDING GRAVE
ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF
THE TRIAL COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT
TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE
AGREEMENT TO ARBITRATE, RESPONDENTS ARE
ALREADY IN DEFAULT IN INVOKING THE AGREEMENT TO
ARBITRATE.
6
On the first assigned error, petitioner contends that the Order of
the lower court denying the motion to suspend proceedings "is
a resolution of an incident on the merits." As such, upon the
continuation of the proceedings, the lower court would
appreciate the evidence adduced in their totality and thereafter
render a decision on the merits that may or may not sustain the
existence of an arbitration clause. A decision containing a
finding that the contract has no arbitration clause can then be
elevated to a higher court "in an ordinary appeal" where an
adequate remedy could be obtained. Hence, to petitioner, the
Court of Appeals should have dismissed the petition for
certiorari because the remedy of appeal would still be available
to private respondents at the proper time. 7
The above contention is without merit.
The rule that the special civil action of certiorari may not be
invoked as a substitute for the remedy of appeal is succinctly
reiterated in Ongsitco v. Court of Appeals as follows:
8
. . . . Countless times in the past, this Court has held that
"where appeal is the proper remedy, certiorari will not lie." The
writs of certiorari and prohibition are remedies to correct lack or
excess of jurisdiction or grave abuse of discretion equivalent to
lack of jurisdiction committed by a lower court. "Where the
proper remedy is appeal, the action for certiorari will not be
entertained. . . . Certiorari is not a remedy for errors of
judgment. Errors of judgment are correctible by appeal, errors
of jurisdiction are reviewable by certiorari."
Rule 65 is very clear. The extraordinary remedies of certiorari,
prohibition and mandamus are available only when "there is no
appeal or any plain, speedy and adequate remedy in the
ordinary course of law . . . ." That is why they are referred to as
"extraordinary." . . . .
The Court has likewise ruled that "certiorari will not be issued to
cure errors in proceedings or correct erroneous conclusions of
law or fact. As long as a court acts within its jurisdiction, any
alleged errors committed in the exercise of its jurisdiction will
amount to nothing more than errors of judgment which are
reviewable by timely appeal and not by a special civil action of
9
This is not exactly so in the instant case. While this Court does
not deny the eventual jurisdiction of the lower court over the
controversy, the issue posed basically is whether the lower
court prematurely assumed jurisdiction over it. If the lower court
indeed prematurely assumed jurisdiction over the case, then it
becomes an error of jurisdiction which is a proper subject of a
petition for certiorari before the Court of Appeals. And if the
lower court does not have jurisdiction over the controversy,
then any decision or order it may render may be annulled and
set aside by the appellate court.
However, the question of jurisdiction, which is a question of law
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depends on the determination of the existence of the arbitration
clause, which is a question of fact. In the instant case, the lower
court found that there exists an arbitration clause. However, it
ruled that in contemplation of law, said arbitration clause does
not exist.
The issue, therefore, posed before the Court of Appeals in a
petition for certiorari is whether the Arbitration Clause does not
in fact exist. On its face, the the question is one of fact which is
not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in
fact exist. In resolving said question of fact, the Court of
Appeals interpreted the construction of the subject contract
documents containing the Arbitration Clause in accordance with
Republic Act No. 876 (Arbitration Law) and existing
jurisprudence which will be extensively discussed hereunder. In
effect, the issue posed before the Court of Appeals was
likewise a question of law. Being a question of law, the private
respondents rightfully invoked the special civil action of
certiorari.
It is that mode of appeal taken by private respondents before
the Court of Appeals that is being questioned by the petitioners
before this Court. But at the heart of said issue is the question
of whether there exists an Arbitration Clause because if an
Arbitration Clause does not exist, then private respondents took
the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether
private respondents took the proper mode of appeal, which,
incidentally, is a question of law, then it has to answer the core
issue of whether there exists an Arbitration Clause which,
admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari
cannot be a substitute for appeal will result in a manifest failure
or miscarriage of justice, the provisions of the Rules of Court
which are technical rules may be relaxed. As we shall show
10
hereunder, had the Court of Appeals dismissed the petition for
certiorari, the issue of whether or not an arbitration clause
exists in the contract would not have been resolved in
accordance with evidence extant in the record of the case.
Consequently, this would have resulted in a judicial rejection of
a contractual provision agreed by the parties to the contract.
In the same vein, this Court holds that the question of the
existence of the arbitration clause in the contract between
petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.
Petitioner, while not denying that there exists an arbitration
clause in the contract in question, asserts that in contemplation
of law there could not have been one considering the following
points. First, the trial court found that the "conditions of
contract" embodying the arbitration clause is not duly signed by
7
the parties. Second, private respondents misrepresented before
the Court of Appeals that they produced in the trial court a
notarized duplicate original copy of the construction agreement
because what were submitted were mere photocopies thereof.
The contract(s) introduced in court by private respondents were
therefore "of dubious authenticity" because: (a) the Agreement
for the Execution of Builder's Work for the EDSA Plaza Project
does not contain an arbitration clause, (b) private respondents
"surreptitiously attached as Annexes "G-3" to "G-5" to their
petition before the Court of Appeals but these documents are
not parts of the Agreement of the parties as "there was no
formal trade contract executed," (c) if the entire compilation of
documents "is indeed a formal trade contract," then it should
have been duly notarized, (d) the certification from the Records
Management and Archives Office dated August 26, 1993
merely states that "the notarial record of Nilberto Briones . . . is
available in the files of (said) office as Notarial Registry Entry
only," (e) the same certification attests that the document
entered in the notarial registry pertains to the Articles of
Agreement only without any other accompanying documents,
and therefore, it is not a formal trade contract, and (f) the
compilation submitted by respondents are a "mere hodge-
podge of documents and do not constitute a single intelligible
agreement."
In other words, petitioner denies the existence of the arbitration
clause primarily on the ground that the representatives of the
contracting corporations did not sign the "Conditions of
Contract" that contained the said clause. Its other contentions,
specifically that insinuating fraud as regards the alleged
insertion of the arbitration clause, are questions of fact that
should have been threshed out below.
This Court may as well proceed to determine whether the
arbitration clause does exist in the parties' contract. Republic
Act No. 876 provides for the formal requisites of an arbitration
agreement as follows:
Sec. 4. Form of arbitration agreement. A contract to arbitrate
a controversy thereafter arising between the parties, as well as
a submission to arbitrate an existing controversy, shall be in
writing and subscribed by the party sought to be charged, or by
his lawful agent.
The making of a contract or submission for arbitration described
in section two hereof, providing for arbitration of any
controversy, shall be deemed a consent of the parties of the
province or city where any of the parties resides, to enforce
such contract of submission. (Emphasis supplied.).
The formal requirements of an agreement to arbitrate are
therefore the following: (a) it must be in writing and (b) it must
be subscribed by the parties or their representatives. There is
no denying that the parties entered into a written contract that
was submitted in evidence before the lower court. To
"subscribe" means to write underneath, as one's name; to sign
at the end of a document. That word may sometimes be
11
ADR || First Batch
construed to mean to give consent to or to attest. 12
The Court finds that, upon a scrutiny of the records of this case,
these requisites were complied with in the contract in question.
The Articles of Agreement, which incorporates all the other
contracts and agreements between the parties, was signed by
representatives of both parties and duly notarized. The failure
of the private respondent's representative to initial the
"Conditions of Contract" would therefor not affect compliance
with the formal requirements for arbitration agreements
because that particular portion of the covenants between the
parties was included by reference in the Articles of Agreement.
Petitioner's contention that there was no arbitration clause
because the contract incorporating said provision is part of a
"hodge-podge" document, is therefore untenable. A contract
need not be contained in a single writing. It may be collected
from several different writings which do not conflict with each
other and which, when connected, show the parties, subject
matter, terms and consideration, as in contracts entered into by
correspondence. A contract may be encompassed in several
13
instruments even though every instrument is not signed by the
parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed
instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties,
is binding on both to the same extent as though there had been
only one copy of the agreement and both had signed it. 14
The flaw in petitioner's contentions therefore lies in its having
segmented the various components of the whole contract
between the parties into several parts. This notwithstanding,
petitioner ironically admits the execution of the Articles of
Agreement. Notably, too, the lower court found that the said
Articles of Agreement "also provides that the 'Contract
Documents' therein listed 'shall be deemed an integral part of
this Agreement,' and one of the said documents is the
'Conditions of Contract' which contains the Arbitration Clause.'"
It is this Articles of Agreement that was duly signed by Rufo B.
Colayco, president of private respondent SPI, and Bayani F.
Fernando, president of petitioner corporation. The same
agreement was duly subscribed before notary public Nilberto R.
Briones. In other words, the subscription of the principal
agreement effectively covered the other documents
incorporated by reference therein.
This Court likewise does not find that the Court of Appeals
erred in ruling that private respondents were not in default in
invoking the provisions of the arbitration clause which states
that "(t)he demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to
settle amicably had failed." Under the factual milieu, private
respondent SPI should have paid its liabilities tinder the
contract in accordance with its terms. However,
misunderstandings appeared to have cropped up between the
parties ostensibly brought about by either delay in the
completion of the construction work or by force majeure or the
8
fire that partially gutted the project. The almost two-year delay
in paying its liabilities may not therefore be wholly ascribed to
private respondent SPI.
Besides, private respondent SPI's initiative in calling for a
conference between the parties was a step towards the agreed
resort to arbitration. However, petitioner posthaste filed the
complaint before the lower court. Thus, while private
respondent SPI's request for arbitration on August 13, 1993
might appear an afterthought as it was made after it had filed
the motion to suspend proceedings, it was because petitioner
also appeared to act hastily in order to resolve the controversy
through the courts.
The arbitration clause provides for a "reasonable time" within
which the parties may avail of the relief under that clause.
"Reasonableness" is a relative term and the question of
whether the time within which an act has to be done is
reasonable depends on attendant circumstances. This Court
15
finds that under the circumstances obtaining in this case, a
one-month period from the time the parties held a conference
on July 12, 1993 until private respondent SPI notified petitioner
that it was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the court
to claim what was due it under the contract. However, we find
its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint
before the lower court.
In this connection, it bears stressing that the lower court has not
lost its jurisdiction over the case. Section 7 of Republic Act No.
876 provides that proceedings therein have only been stayed.
After the special proceeding of arbitration has been pursued
16
and completed, then the lower court may confirm the award 17
made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been
held valid and constitutional. Even before the approval on June
19, 1953 of Republic Act No. 876, this Court has countenanced
the settlement of disputes through arbitration. Republic Act
18
No. 876 was adopted to supplement the New Civil Code's
provisions on arbitration. 19 Its potentials as one of the
alternative dispute resolution methods that are now rightfully
vaunted as "the wave of the future" in international relations, is
recognized worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement between the
parties would therefore be a step backward.
WHEREFORE, the questioned Decision of the Court of Appeals
is hereby AFFIRMED and the petition for certiorari DENIED.
This Decision is immediately executory. Costs against
petitioner.
SO ORDERED.
Narvasa, C.J., Kapunan and Purisima, JJ., concur.
ADR || First Batch
Footnotes
1 Rollo, p. 75.
2 Ibid., p. 9.
3 Ibid., p. 76.
4 Ibid.
5 Annexes G-1 and G-2 of Reply to Opposition to Motion to
Suspend Proceedings; Rollo in CA-G.R. SP No. 33412, pp.
190-191.
6 Presided by Judge Domingo R. Garcia.
7 Rollo, pp. 16-17.
8 325 Phil. 1069, 1076 (1996).
9 Commissioner of Internal Revenue v. Court of Appeals, 327
Phil. 1, 41-42 (1996).
10 Sps. Mejares v. Hon. Reyes, 324 Phil. 710, 718 (1996).
11 Gamido v. New Bilibid Prisons Officials, 312 Phil. 100, 104.
12 2 BOUVIER'S LAW DICTIONARY, 3rd revision, p. 3171.
13 17 C.J.S. 727-728.
14 Ibid., pp. 728 & 729.
15 MORENO, PHILIPPINE LAW DICTIONARY, 3rd ed., p. 790.
16 Sec. 22, Rep. Act No. 876.
17 Sec. 23 of Rep. Act No. 876 provides: "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
twenty-eight, for an order confirming the award; and thereupon
the court must grant such order unless the ward is vacated,
modified or corrected, as prescribed herein. Notice of such
motion shall 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.
18 Puromines, Inc. v. Court of Appeals, G.R. No. 91228, March
22, 1993, 220 SCRA 281, 289-290.
19 Chung Fu Industries (Phils.), Inc. v. Court of Appeals, G.R.
No. 96283, February 25, 1992, 206 SCRA 545, 551.
9
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 110434 December 13, 1993
HI-PRECISION STEEL CENTER, INC., petitioner,
vs.
LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION, respondents.
Felix Q. Vinluan and Siguion Reyna, Montecillo & Ongsiako for
petitioner.
De Castro & Cagampang Law Offices for Lim Kim teel Builders,
Inc.
RESOLUTION
FELICIANO, J.:
On 18 June 1993, a "Petition for Extension to File Petition for
Review" 1 was filed before the Court, petitioner Hi-Precision
Steel Center, Inc. ("Hi-Precision") stating that it intended to file
a Petition for Review on Certiorari in respect of the 13
November 1992 Award 2 and 13 May 1993 Order 3 of public
respondent Construction Industry Arbitration Commission
("CIAC") in Arbitration Case No. 13-90. The Petition (really a
Motion) prayed for an extension of thirty (30) days or until 21
July 1993 within which to file a Petition for Review.
An opposition 4 to the Motion was filed by private respondent
Lim Kim Steel Builders, Inc. ("Steel Builders") on 5 July 1993.
On the same day, however, the Court issued a Resolution 5
granting the Motion with a warning that no further extension
would be given.
The Opposition, the subsequent Reply 6 of petitioner filed on 20
July 1993 and the Petition for Review 7 dated 21 July 1993,
were noted by the Court in its Resolution 8 of 28 July 1993. The
Court also required private respondent Steel Builders to file a
Comment on the Petition for Review and Steel Builders
complied.
The Petition prays for issuance of a temporary restraining order
9 to stay the execution of the assailed Order and Award in favor
of Steel Builders, which application the Court merely noted, as
it did subsequent Urgent Motions for a temporary restraining
order. 10
ADR || First Batch
Petitioner Hi-Precision entered into a contract with private
respondent Steel Builders under which the latter as Contractor
was to complete a P21 Million construction project owned by
the former within a period of 153 days, i.e. from 8 May 1990 to
8 October 1990. The project completion date was first moved to
4 November 1990. On that date, however, only 75.8674% of
the project was actually completed. Petitioner attributed this
non-completion to Steel Builders which allegedly had frequently
incurred delays during the
original contract period and the extension period. Upon the
other hand, Steel Builders insisted that the delays in the project
were either excusable or due to Hi-Precision's own fault and
issuance of change orders. The project was taken over on 7
November 1990, and eventually completed on February 1991,
by Hi-Precision.
Steel Builders filed a "Request for Adjudication" with public
respondent CIAC. In its Complaint filed with the CIAC, Steel
Builders sought payment of its unpaid progress buildings,
alleged unearned profits and other receivables. Hi-Precision,
upon the other hand, in its Answer and Amended Answer,
claimed actual and liquidated damages, reimbursement of
alleged additional costs it had incurred in order to complete the
project and attorney's fees.
The CIAC formed an Arbitral Tribunal with three (3) members,
two (2) being appointed upon nomination of Hi-Precision and
Steel Builders, respectively; the third member (the Chairman)
was appointed by the CIAC as a common nominee of the two
(2) parties. On the Chairman was a lawyer. After the arbitration
proceeding, the Arbitral Tribunal rendered a unanimous Award
dated 13 November 1992, the dispositive portion of which reads
as follows:
WHEREFORE, premises considered, the Owner [petitioner Hi-
Precision] is ordered to pay the Contractor [private respondent
Steel Builders] the amount of P6,400,717.83 and all other
claims of the parties against each other are deemed
compensated and offset. No pronouncement as to costs.
The Parties are enjoined to abide by the award. 11
Upon motions for reconsideration filed, respectively, by Hi-
Precision and Steel Builders, the Arbitral Tribunal issued an
Order dated 13 May 1993 which reduced the net amount due to
contractor Steel Builders to P6,115,285.83. 12
In its Award, the Arbitral Tribunal stated that it was guided by
Articles 1169, 1192 and 2215 of the Civil Code. With such
guidance, the arbitrators concluded that (a) both parties were at
fault, though the Tribunal could not point out which of the
parties was the first infractor; and (b) the breaches by one party
affected the discharge of the reciprocal obligations of the other
party. With mutual fault as a principal premise, the Arbitral
Tribunal denied (a) petitioner's claims for the additional costs
10
allegedly incurred to complete the project; and (b) private
respondent's claim for profit it had failed to earn because of
petitioner's take over of the project.
The Tribunal then proceeded to resolve the remaining specific
claims of the parties. In disposing of these multiple, detailed
claims the Arbitral Tribunal, in respect of one or more of the
respective claims of the parties: (a) averaged out the conflicting
amounts and percentages claimed by the parties; 13 (b) found
neither basis nor justification for a particular claim; 14 (c) found
the evidence submitted in support of particular claims either
weak or non-existent; 15 (d) took account of the admissions of
liability in respect of particular claims; 16 (e) relied on its own
expertise in resolving particular claims; 17 and (f) applied a
"principle of equity" in requiring each party to bear its own loss
resulting or arising from mutual fault or delay (compensation
morae). 18
Petitioner Hi-Precision now asks this Court to set aside the
Award, contending basically that it was the contractor Steel
Builders who had defaulted on its contractual undertakings and
so could not be the injured party and should not be allowed to
recover any losses it may have incurred in the project.
Petitioner Hi-Precision insists it is still entitled to damages, and
claims that the Arbitral Tribunal committed grave abuse of
discretion when it allowed certain claims by Steel Builders and
offset them against claims of Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral
Tribunal has not been impleaded as a respondent in the
Petition at bar. The CIAC has indeed been impleaded;
however, the Arbitral Award was not rendered by the CIAC, but
rather by the Arbitral Tribunal. Moreover, under Section 20 of
Executive Order No. 1008, dated 4 February 1985, as
amended, it is the Arbitral Tribunal, or the single Arbitrator, with
the concurrence of the CIAC, which issues the writ of execution
requiring any sheriff or other proper officer to execute the
award. We consider that the Arbitral Tribunal which rendered
the Award sought to be reviewed and set aside, should be
impleaded even though the defense of its Award would
presumably have to be carried by the prevailing party.
Petitioner Hi-Precision apparently seeks review of both under
Rule 45 and Rule 65 of the Rules of Court. 19 We do not find it
necessary to rule which of the two: a petition for review under
Rule 45 or a petition for certiorari under Rule 65 is necessary
under Executive Order No. 1008, as amended; this issue was,
in any case, not squarely raised by either party and has not
been properly and adequately litigated.
In its Petition, Hi-Precision purports to raise "legal issues," and
in presenting these issues, prefaced each with a creative
formula:
(1)
ADR || First Batch
The public respondent [should be the "Arbitral Tribunal']
committed serious error in law, if not grave abuse of discretion,
when it failed to strictly apply Article 1191, New Civil Code,
against the
contractor . . .;
(2)
The public respondent committee serious error in law, if not
grave abuse of discretion, when it failed to rule in favor of the
owner, now petitioner herein, all the awards it claimed on
arbitration, and when it nonetheless persisted in its awards of
damages in favor of the
respondent. . . .;
(3)
The public respondent committed serious error in law, if not
grave abuse of discretion, for its abject failure to apply the
doctrine of waiver, estoppel against the contractor, the private
respondent herein, when it agreed on November 16, 1990 to
award termination of the contract and the owner's takeover of
the project . . .;
(4)
The public respondent committed serious error in law, if not
grave abuse of discretion, when it did not enforce the law
between the parties, the "technical specification[s]" which is one
of the contract documents, particularly to par. (a), sub-part 3.01,
part 3, Sec. 2b, which expressly requires that major site work
activities like stripping, removal and stockpiling of top soil shall
be done "prior to the start of regular excavation or backfiling
work", the principal issue in arbitration being non-compliance
with the contract documents;
(5)
The public respondent committed serious error in law, if not
grave abuse of discretion, when it found, in the May 13, 1993
Order, the petitioner "guilty of estoppel" although it is claimed
that the legal doctrine of estoppel does not apply with respect
to the required written formalities in the issuance of change
order . . .;
(6)
The exceptional circumstances in Remalante vs. Tibe, 158
SCRA 138, where the Honorable Supreme Court may review
findings of facts, are present in the instant case, namely; (a)
when the inference made is manifestly absurd, mistaken or
impossible (Luna vs. Linatoc, 74 Phil. 15); (2) when there is
grave abuse of discretion in the appreciation of facts (Buyco vs.
11
People, 95 Phil. 253); (3) when the judgment is premised on a
misapprehension of facts (De la Cruz v. Sosing, 94 Phil. 26 and
Castillo vs. CA, 124 SCRA 808); (4) when the findings of fact
are conflicting (Casica v. Villaseca, 101 Phil. 1205); (5) when
the findings are contrary to the admissions of the parties
(Evangelista v. Alto Surety, 103 Phil. 401), and therefore, the
findings of facts of the public respondent in the instant case
may be reviewed by the Honorable Supreme Court. 20
(Emphasis partly applied and partly in the original)
From the foregoing, petitioner Hi-Precision may be seen to be
making two (2) basic arguments:
(a) Petitioner asks this Court to correct legal errors committed
by the Arbitral Tribunal, which at the same time constitute grave
abuse of discretion amounting to lack of jurisdiction on the part
of the Arbitral Tribunal; and
(b) Should the supposed errors petitioner asks us to correct be
characterized as errors of fact, such factual errors should
nonetheless be reviewed because there was "grave abuse of
discretion" in the misapprehension of facts on the part of the
Arbitral Tribunal.
Executive Order No. 1008, as amended, provides, in its Section
19, as follows:
Sec. 19. Finality of Awards. The arbitral award shall be
binding upon the parties. It shall be final and inappealable
except on questions of law which shall be appealable to the
Supreme Court.
Section 19 makes it crystal clear that questions of fact cannot
be raised in proceedings before the Supreme Court which is
not a trier of facts in respect of an arbitral award rendered
under the aegis of the CIAC. Consideration of the animating
purpose of voluntary arbitration in general, and arbitration under
the aegis of the CIAC in particular, requires us to apply
rigorously the above principle embodied in Section 19 that the
Arbitral Tribunal's findings of fact shall be final and
inappealable.
Voluntary arbitration involves the reference of a dispute to an
impartial body, the members of which are chosen by the parties
themselves, which parties freely consent in advance to abide by
the arbitral award issued after proceedings where both parties
had the opportunity to be heard. The basic objective is to
provide a speedy and inexpensive method of settling disputes
by allowing the parties to avoid the formalities, delay, expense
and aggravation which commonly accompany ordinary
litigation, especially litigation which goes through the entire
hierarchy of courts. Executive Order No. 1008 created an
arbitration facility to which the construction industry in the
Philippines can have recourse. The Executive Order was
enacted to encourage the early and expeditious settlement of
disputes in the construction industry, a public policy the
ADR || First Batch
implementation of which is necessary and important for the
realization of national development goals. 21
Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that
matter, the Court will not assist one or the other or even both
parties in any effort to subvert or defeat that objective for their
private purposes. The Court will not review the factual findings
of an arbitral tribunal upon the artful allegation that such body
had "misapprehended the facts" and will not pass upon issues
which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as "legal questions." The parties here
had recourse to arbitration and chose the arbitrators
themselves; they must have had confidence in such arbitrators.
The Court will not, therefore, permit the parties to relitigate
before it the issues of facts previously presented and argued
before the Arbitral Tribunal, save only where a very clear
showing is made that, in reaching its factual conclusions, the
Arbitral Tribunal committed an error so egregious and hurtful to
one party as to constitute a grave abuse of discretion resulting
in lack or loss of jurisdiction. 22 Prototypical examples would be
factual conclusions of the Tribunal which resulted in deprivation
of one or the other party of a fair opportunity to present its
position before the Arbitral Tribunal, and an award obtained
through fraud or the corruption of arbitrators. 23 Any other, more
relaxed, rule would result in setting at naught the basic
objective of a voluntary arbitration and would reduce arbitration
to a largely inutile institution.
Examination of the Petition at bar reveals that it is essentially
an attempt to re-assert and re-litigate before this Court the
detailed or itemized factual claims made before the Arbitral
Tribunal under a general averment that the Arbitral Tribunal had
"misapprehended the facts" submitted to it. In the present
Petition, too, Hi-Precision claims that the Arbitral Tribunal had
committed grave abuse of discretion amounting to lack of
jurisdiction in reaching its factual and legal conclusions.
The first "legal issue" submitted by the Petition is the claimed
misapplication by the Arbitral Tribunal of the first and second
paragraphs of Article 1911 of the Civil Code. 24 Article 1191
reads:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
12
persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.
Hi-Precision contends energetically that it is the injured party
and that Steel Builders was the obligor who did not comply with
what was incumbent upon it, such that Steel Builders was the
party in default and the entity guilty of negligence and delay. As
the injured party, Hi-Precision maintains that it may choose
between the fulfillment or rescission of the obligation in
accordance with Article 1191, and is entitled to damages in
either case. Thus, Hi-Precision continues, when the contractor
Steel Builders defaulted on the 153rd day of the original
contract period, Hi-Precision opted for specific performance and
gave Steel Builders a 30-day extension period with which to
complete the project.
What petitioner Hi-Precision, in its above argument, disregards
is that the determination of whether Hi-Precision or Steel
Builders was the "injured party" is not to be resolved by an
application of Article 1191. That determination is eminently a
question of fact, for it requires ascertainment and identification
of which the two (2) contending parties had first failed to comply
with what is incumbent upon it. In other words, the supposed
misapplication of Article 1191, while ostensibly a "legal issue,"
is ultimately a question of fact, i.e., the determination of the
existence or non-existence of a fact or set of facts in respect of
which Article 1191 may be properly applied. Thus, to ask this
Court to correct a claimed misapplication or non-application of
Article 1191 is to compel this Court to determine which of the
two (2) contending parties was the "injured party" or the "first
infractor." As noted earlier, the Arbitral Tribunal after the
prolonged arbitration proceeding, was unable to make that
factual determination and instead concluded that both parties
had committed breaches of their respective obligations. We will
not review, and much less reverse, that basic factual finding of
the Arbitral Tribunal.
A second "legal issue" sought to be raised by petitioner Hi-
Precision relates to the supposed failure of the Arbitral Tribunal
to apply the doctrines of estoppel and waiver as against Steel
Builders. 25 The Arbitral Tribunal, after declaring that the parties
were mutually at fault, proceeded to enumerate the faults of
each of the parties. One of the faults attributed to petitioner Hi-
Precision is that it had failed to give the contractor Steel
Builders the required 15-day notice for termination of the
contract. 26 This was clearly a finding of fact on the part of the
Tribunal, supported by the circumstance that per the record,
petitioner had offered no proof that it had complied with such
15-day notice required under Article 28.01 of the General
Conditions of Contract forming part of the Contract Documents.
Petitioner Hi-Precision's argument is that a written Agreement
dated 16 November 1990 with Steel Builders concerning the
take over of the project by Hi-Precision, constituted waiver on
the part of the latter of its right to a 15-day notice of contract
termination. Whether or not that Agreement dated 16
November 1990 (a document not submitted to this Court) is
properly characterized as constituting waiver on the part of
ADR || First Batch 13

Steel Builders, may be conceded to be prima facie a question 12.8. -do- 7 503,836.53
of law; but, if it is, and assuming arguendo that the Arbitral
Tribunal had erred in resolving it, that error clearly did not 12.9. -do- 8 216,138.75
constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction on the part of the Tribunal.
12.10. -do- 9 101,621.40

A third "legal issue" posed by Hi-Precision relates to the

12.11. -do- 10 7,200.00
supposed failure on the part of the Arbitral Tribunal "to uphold
the supremacy of 'the
12.12. -do- 11 0.00
law between the parties' and enforce it against private
respondent [Steel Builders]." 27 The "law between that parties" 12.13. -do- 12 7,800.00
here involved is the "Technical Specifications" forming part of
the Contract Documents. Hi-Precision asserts that the Arbitral 12.14. -do- 13 49,250.00
Tribunal did not uphold the "law between the parties," but
instead substituted the same with "its [own] absurd inference 12.15. -do- 14 167,952.00
and 'opinion' on mud." Here again, petitioner is merely
disguising a factual question as a "legal issue," since petitioner 12.16. -do- 15 445,600.00
is in reality asking this Court to review the physical operations
relating, e.g., to site preparation carried out by the contractor
12.17. -do- 16 92,457.30
Steel Builders and to determine whether such operations were
in accordance with the Technical Specifications of the project.
The Arbitral Tribunal resolved Hi-Precision's claim by finding 12.18. -do- 17 1,500.00
that Steel Builders had complied substantially with the
Technical Specifications. This Court will not pretend that it has 12.19. 20,240.00
the technical and engineering capability to review the resolution
of that factual issue by the Arbitral Tribunal. 12.20. 63,518.00

Finally, the Petition asks this Court to "review serious errors in 12.21. 0.00
the findings of fact of the [Arbitral Tribunal]." 28 In this section of
its Petition, 12.22. 0.00

Hi-Precision asks us to examine each item of its own claims 12.23. 0.00
which the Arbitral Tribunal had rejected in its Award, and each
claim of the contractor Steel Builders which the Tribunal had
granted. In respect of each item of the owner's claims and each 12.24. 0.00
item of the contractor's claims, Hi-Precision sets out its
arguments, to all appearances the same arguments it had 12.25. 0.00
raised before the Tribunal. As summarized in the Arbitral
Award, Contractor's Claims were as follows: 12.26. 730,201.57

12.1. Unpaid Progress Billing 1,812,706.95 12.27. 1,130,722.70

12.2. Change Order 1 0.00 12.28. 0.00

12.3. -do- 2 10,014.00 12.29. 273,991.00

12.4. -do- 3 320,000.00 12.30. 0.00

12.5. -do- 4 112,300.70

12.6. -do- 5 398,398.00 12.31. 7,318,499.28 29

12.7. -do- 6 353,050.38 =============

ADR || First Batch 14

Upon the other hand, the petitioner's claims we are asked to (P24.1326%) 2,027,138.40
review and grant are summarized as follows:
b. Due to Huey Commercial
1. Actual Damages
used for HSCI Project 51,110.40
Advance Downpayment
IC Additional construction expenses
[at] signing of Contract
a. Increases in prices since Oct. 5,272,096.81
which is subject to 40%
b. Cost of money of (a) 873,535.49
deduction every progress
ID Installation of machinery
billing (40% of Contract Price) P8,406,000.00
a. Foreign exchange loss 11,565,048.37
Progress Billings 5,582,585.55
b. Cost of money (a) 2,871,987.01
Advances made to Lim Kim
I[E] Raw Materials
a) prior to take-over 392,781.45
a. Foreign exchange loss 4,155,982.18
b) after the take-over
b. Cost of money (a) 821,242.72
Civil Works 1,158,513.88
c. Additional import levy of 5% 886,513.33
Materials 4,213,318.72
d. Cost of money (c) 170,284.44
Labor 2,155,774.79
e. Cost of money on marginal
Equipment Rental 1,448,208.90
deposit on Letter of Credit 561,195.25

IF Cost of money on holding to CRC INTY 3,319,609.63

P8,974,816.45
Total Actual Damages 35,295,927.32
Total Amount Paid for Construction 23,650,183.00
2. Liquidated Damages 2,436,000.00
Less: Contract Price (21,000,000.00)
3. Attorney's Fees 500,000.00
IA Excess of amount paid

over contract price 2,650,163.29
P38,231,927.32 30
IB Other items due from Lim
=============
Kim Steel Builders
We consider that in asking this Court to go over each individual
a. Amount not yet deducted claim submitted by it and each individual countering claim
submitted by Steel Builders to the Arbitral Tribunal, petitioner
from Downpayment due Hi-Precision is asking this Court to pass upon claims which are
either clearly and directly factual in nature or require previous
determination of factual issues. This upon the one hand. Upon
to non-completion of Project
the other hand, the Court considers that petitioner Hi-Precision
ADR || First Batch 15

has failed to show any serious errors of law amounting to grave
abuse of discretion resulting in lack of jurisdiction on the part of
the Arbitral Tribunal, in either the methods employed or the
results reached by the Arbitral Tribunal, in disposing of the
detailed claims of the respective parties.
16 Claims concerning Change Order No. 10; Change Order No.
17.
17 Claims concerning Change Order No. 7; Change Order No.
12; Change Order

WHEREFORE, for all the foregoing, the Petition is hereby
DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.
Bidin, Romero, Melo and Vitug, JJ., concur
No. 13; Change Order No. 14.
18 Claims concerning Contractor's Claim No. 19; Contractor's
Claim No. 20; Contractor's Claim No. 21; Contractor's Claim
No. 22; Contractor's Claim No. 23; Contractor's Claim No. 24;
Contractor's Claim No. 25; Contractor's Claim No. 27;
Contractor's Claim No. 28; Contractor's Claim No. 29;
Contractor's Claim No. 30; Owner's Claim No. 3.

# Footnotes 19 The Petition said, inter alia: "[t]he prevalence of grave abuse
of discretion in the May 13, 1993 Order on appeal in this
Petition under Rule 45 is made more manifest in the November
1 Rollo, pp. 2-9.
13, 1992 Arbitral Award, the principal resolution subject of the
motion for reconsideration denied by the May 13, 1993 Order,
2 Id., pp. 137-181. and thus, it becomes procedurally appropriate and necessary,
in the interest of truth and justice, to respectfully pray the
3 Id., pp. 11-23. Honorable Court to likewise review on certiorari under Rule 65,
the November 13, 1992 award." (Emphasis supplied)
4 Id., pp. 24-26.
20 Rollo, pp. 74-76.
5 Id., p. 23-a.
21 See first three (3) Whereas clauses and Section 2 of
6 Id., pp. 29-32. Executive Order No. 1008, as amended.

7 Id., pp. 42-136. 22 See: Asian Construction and Development Corporation v.

Construction Industry Arbitration Commission, et al., 218 SCRA
8 Id., p. 181-a. 529 (1993); Chung Fu v. Court of Appeals, 206 SCRA 545
(1992); Primary Structures Corp. v. Victor P. Lazatin, etc., et al.,
G.R. No. 101258, July 13, 1992 (unsigned resolution); A.C.
9 Id., p. 89; Rollo, p. 131.
Enterprises, Inc. v. Construction Industry Arbitration
Commission, et al., G.R. No. 101444, February 10, 1992
10 Urgent Motions for the Issuance of a Temporary Restraining (unsigned resolution); and Sime Darby Pilipinas, Inc. v.
Order dated 5 August 1993; 25 August 1993; 20 September Magsalin, 180 SCRA 177 (1989).
1993; 21 October 1993.
23 It is noteworthy that Section 24 of R.A. No. 876 known as
11 Rollo, pp. 180-181. "An Act to Authorize the Making of Arbitration and Submission
Agreements, to Provide for the Appointment of Arbitrators and
12 Id., p. 23. the Procedure for Arbitration in Civil Controversies, and for
Other Purposes" (approved on 29 June 1953) sets out the
13 Claims concerning Contractor's Claim No. 1; Owner's Claim following grounds for vacating an arbitral award:
No. 1; Unpaid Progressive Billing; Change Order No. 6; Change
Order No. 8. "Sec. 24. Grounds for vacating award. In any one of the
following cases, the court must make an order vacating award
14 Claims concerning Change Order No. 1. upon the petition of any party to the controversy when such
party proved affirmatively that in the arbitration proceedings;
15 Claims concerning Change Order No. 2; Change Order No.
3; Change Order No. 4; Change Order No. 5; Change Order (a) The award was procured by corruption, fraud or other undue
No. 11; Change Order No. 16. means; or
ADR || First Batch 16

(b) That there was evident partiality or corruption in the Republic of the Philippines
arbitrators or any of them; or SUPREME COURT
Manila
(c) That the arbitrators were guilty of misconduct in refusing to SECOND DIVISION
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 G.R. No. 115412 November 19, 1999
to act as such under section nine hereof, and willfully refrained
from disclosing such disqualifications or of any other HOME BANKERS SAVINGS AND TRUST COMPANY,
misbehavior by which the rights of any party have been petitioner,
materially prejudiced; or
vs.
(d) That the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the
COURT OF APPEALS and FAR EAST BANK & TRUST CO.,
subject matter submitted to them was not made.
INC. respondents.

xxx xxx xxx

24 Petition, Rollo, pp. 93-97.

BUENA, J.:

25 Id., Rollo, pp. 77-80.

This appeal by certiorari under Rule 45 of the Rules of Court
seeks to annul and set aside the decision 1 of the Court of
26 Arbitral Award, Rollo, p. 153. Appeals 2 dated January 21, 1994 in CA-G.R. SP No. 29725,
dismissing the petition for certiorari filed by petitioner to annul
27 Petition, Rollo, pp. 80-90. the two (2) orders issued by the Regional Trial Court of Makati 3
in Civil Case No. 92-145, the first, dated April 30, 1992, denying
28 Id., Rollo, p. 97 et seq. petitioner's motion to dismiss and the second, dated October 1,
1992 denying petitioner's motion for reconsideration thereof.
29 Rollo, pp. 111-112.
The pertinent facts may be briefly stated as follows: Victor
Tancuan, one of the defendants in Civil Case No. 92-145,
30 Id., pp. 131-133.
issued Home Bankers Savings and Trust Company (HBSTC)
check No. 193498 for P25,250,000.00 while Eugene
Arriesgado issued Far East Bank and Trust Company (FEBTC)
check Nos. 464264, 464272 and 464271 for P8,600,000.00,
P8,500,000.00 and P8,100,000.00, respectively, the three
checks amounting to P25,200,000.00. Tancuan and Arriesgado
exchanged each other's checks and deposited them with their
respective banks for collection. When FEBTC presented
Tancuan's HBSTC check for clearing, HBSTC dishonored it for
being "Drawn Against Insufficient Funds." On October 15, 1991,
HBSTC sent Arriesgado's three (3) FEBTC checks through the
Philippine Clearing House Corporation (PCHC) to FEBTC but
was returned on October 18, 1991 as "Drawn Against
Insufficient Funds." HBSTC received the notice of dishonor on
October 21, 1991 but refused to accept the checks and on
October 22, 1991, returned them to FEBTC through the PCHC
for the reason "Beyond Reglementary Period," implying that
HBSTC already treated the three (3) FEBTC checks as cleared
and allowed the proceeds thereof to be withdrawn. 4 FEBTC
demanded reimbursement for the returned checks and inquired
from HBSTC whether it had permitted any withdrawal of funds
against the unfunded checks and if so, on what date. HBSTC,
however, refused to make any reimbursement and to provide
FEBTC with the needed information.
ADR || First Batch
Thus, on December 12, 1991, FEBTC submitted the dispute for
arbitration before the PCHC Arbitration Committee, 5 under the
PCHC's Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional
clearing operations administered by the PCHC. 6
On January 17, 1992, while the arbitration proceeding was still
pending, FEBTC filed an action for sum of money and damages
with preliminary
attachment 7 against HBSTC, Robert Young, Victor Tancuan
and Eugene Arriesgado with the Regional Trial Court of Makati,
Branch 133. A motion to dismiss was filed by HBSTC claiming
that the complaint stated no cause of action and accordingly ". .
. should be dismissed because it seeks to enforce an arbitral
award which as yet does not exist." 8 The trial court issued an
omnibus order dated April 30, 1992 denying the motion to
dismiss and an order dated October 1, 1992 denying the
motion for reconsideration.
On December 16, 1992, HBSTC filed a petition for certiorari
with the respondent Court of Appeals contending that the trial
court acted with grave abuse of discretion amounting to lack of
jurisdiction in denying the motion to dismiss filed by HBSTC.
In a Decision 9 dated January 21, 1994, the respondent court
dismissed the petition for lack of merit and held that "FEBTC
can reiterate its cause of action before the courts which it had
already raised in the arbitration case" 10 after finding that the
complaint filed by FEBTC ". . . seeks to collect a sum of money
from HBT [HBSTC] and not to enforce or confirm an arbitral
award." 11 The respondent court observed that "[i]n the
Complaint, FEBTC applied for the issuance of a writ of
preliminary attachment over HBT's [HBSTC] property" 12 and
citing section 14 of Republic Act No. 876, otherwise known as
the Arbitration Law, maintained that "[n]ecessarily, it has to
reiterate its main cause of action for sum of money against HBT
[HBSTC]," 13 and that "[t]his prayer for conservatory relief [writ
of preliminary attachment] satisfies the requirement of a cause
of action which FEBTC may pursue in the courts." 14
Furthermore, the respondent court ruled that based on section
7 of the Arbitration Law and the cases of National Union Fire
Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines,
Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition
requiring prior submission to arbitration before the institution of
a court action, the complaint is not to be dismissed but should
be suspended for arbitration." 17 Finding no merit in HBSTC's
contention that section 7 of the Arbitration Law ". . .
contemplates a situation in which a party to an arbitration
agreement has filed a court action without first resorting to
arbitration, while in the case at bar, FEBTC has initiated
arbitration proceedings before filing a court action," the
respondent court held that ". . . if the absence of a prior
arbitration may stay court action, so too and with more reason,
should an arbitration already pending as obtains in this case
stay the court action. A party to a pending arbitral proceeding
17
may go to court to obtain conservatory reliefs in connection with
his cause of action although the disposal of that action on the
merits cannot as yet be obtained." 18 The respondent court
discarded Puromines, Inc. vs. Court of Appeals, 19 stating that ".
. . perhaps Puromines may have been decided on a different
factual basis." 20
In the instant petition, 21 petitioner contends that first, "no party
litigant can file a non-existent complaint," 22 arguing that ". . .
one cannot file a complaint in court over a subject that is
undergoing arbitration." 23 Second, petitioner submits that
"[s]ince arbitration is a special proceeding by a clear provision
of law, 24 the civil suit filed below is, without a shadow of doubt,
barred by litis pendentia and should be dismissed de plano
insofar as HBSTC is concerned." 25 Third, petitioner insists that
"[w]hen arbitration is agreed upon and suit is filed without
arbitration having been held and terminated, the case that is
filed should be dismissed," 26 citing Associated Bank vs. Court
of Appeals, 27 Puromines, Inc. vs. Court of Appeals, 28 as and
Ledesma vs. Court of Appeals. 29 Petitioner demurs that the
Puromines ruling was deliberately not followed by the
respondent court which claimed that:
xxx xxx xxx
It would really be much easier for Us to rule to dismiss the
complaint as the petitioner here seeks to do, following
Puromines. But with utmost deference to the Honorable
Supreme Court, perhaps Puromines may have been decided
on a different factual basis.
xxx xxx xxx 30
Petitioner takes exception to FEBTC's contention that
Puromines cannot modify or reverse the rulings in National
Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen
Philippines, Inc., 31 and Bengson vs. Chan, 32 where this Court
suspended the action filed pending arbitration, and argues that
"[s]ound policy requires that the conclusion of whether a
Supreme Court decision has or has not reversed or modified [a]
previous doctrine, should be left to the Supreme Court itself;
until then, the latest pronouncement should prevail." 33 Fourth,
petitioner alleges that the writ of preliminary attachment issued
by the trial court is void considering that the case filed before it
"is a separate action which cannot exist," 34 and ". . . there is
even no need for the attachment as far as HBSTC is concerned
because such automatic debit/credit procedure 35 may be
regarded as a security for the transactions involved and, as
jurisprudence confirms, one requirement in the issuance of an
attachment [writ of preliminary attachment] is that the debtor
has no sufficient security." 36 Petitioner asserts further that a
writ of preliminary attachment is unwarranted because no
ground exists for its issuance. According to petitioner, ". . . the
only allegations against it [HBSTC] are that it refused to refund
the amounts of the checks of FEBTC and that it knew about the
fraud perpetrated by the other defendants," 37 which, at best,
constitute only "incidental fraud" and not causal fraud which
ADR || First Batch
justifies the issuance of the writ of preliminary attachment.
Private respondent FEBTC, on the other hand, contends that ".
. . the cause of action for collection [of a sum of money] can
coexist in the civil suit and the arbitration [proceeding]" 38 citing
section 7 of the Arbitration Law which provides for the stay of
the civil action until an arbitration has been had in accordance
with the terms of the agreement providing for arbitration. Private
respondent further asserts that following section 4(3), article
VIII 39 of the 1987 Constitution, the subsequent case of
Puromines does not overturn the ruling in the earlier cases of
National Union Fire Insurance Company of Pittsburg vs. Stolt-
Nielsen Philippines, Inc., 40 and Bengson vs. Chan, 41 hence,
private respondent concludes that the prevailing doctrine is that
the civil action must be stayed rather than dismissed pending
arbitration.
In this petition, the lone issue presented for the consideration of
this Court is:
WHETHER OR NOT PRIVATE RESPONDENT WHICH
COMMENCED AN ARBITRATION PROCEEDING UNDER
THE AUSPICES OF THE PHILIPPINE CLEARING HOUSE
CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT
MATTER OF ARBITRATION DESPITE THE PENDENCY OF
THAT ARBITRATION, SIMPLY TO OBTAIN THE
PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE
BANK THE ADVERSE PARTY IN THE ARBITRATION
PROCEEDING. 42
We find no merit in the petition. Section 14 of Republic Act 876,
otherwise known as the Arbitration Law, allows any party to the
arbitration proceeding to petition the court to take measures to
safeguard and/or conserve any matter which is the subject of
the dispute in arbitration, thus:
Sec. 14. Subpoena and subpoena duces tecum. Arbitrators
shall have the power to require any person to attend a hearing
as a witness. They shall have the power to subpoena witnesses
and documents when the relevancy of the testimony and the
materiality thereof has been demonstrated to the arbitrators.
Arbitrators may also require the retirement of any witness
during the testimony of any other witness. All of the arbitrators
appointed in any controversy must attend all the hearings in
that matter and hear all the allegations and proofs of the
parties; but an award by the majority of them is valid unless the
concurrence of all of them is expressly required in the
submission or contract to arbitrate. The arbitrator or arbitrators
shall have the power at any time, before rendering the award,
without prejudice to the rights of any party to petition the court
to take measures to safeguard and/or conserve any matter
which is the subject of the dispute in arbitration. (emphasis
supplied)
Petitioner's exposition of the foregoing provision deserves scant
consideration. Section 14 simply grants an arbitrator the power
18
to issue subpoena and subpoena duces tecum at any time
before rendering the award. The exercise of such power is
without prejudice to the right of a party to file a petition in court
to safeguard any matter which is the subject of the dispute in
arbitration. In the case at bar, private respondent filed an action
for a sum of money with prayer for a writ of preliminary
attachment. Undoubtedly, such action involved the same
subject matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from private
respondent in what is known in banking as a "kiting scheme."
However, the civil action was not a simple case of a money
claim since private respondent has included a prayer for a writ
of preliminary attachment, which is sanctioned by section 14 of
the Arbitration Law.
Petitioner cites the cases of Associated Bank vs. Court of
Appeals, 43 Puromines, Inc. vs. Court of Appeals, 44 and
Ledesma vs. Court of Appeals 45 in contending that "[w]hen
arbitration is agreed upon and suit is filed without arbitration
having been held and terminated, the case that is filed should
be dismissed." 46 However, the said cases are not in point. In
Associated Bank, we affirmed the dismissal of the third-party
complaint filed by Associated Bank against Philippine
Commercial International Bank, Far East Bank & Trust
Company, Security Bank and Trust Company, and Citytrust
Banking Corporation for lack of jurisdiction, it being shown that
the said parties were bound by the Clearing House Rules and
Regulations on Arbitration of the Philippine Clearing House
Corporation. In Associated Bank, we declared that:
. . . . . .. Under the rules and regulations of the Philippine
Clearing House Corporation (PCHC), the mere act of
participation of the parties concerned in its operations in effect
amounts to a manifestation of agreement by the parties to
abide by its rules and regulations. As a consequence of such
participation, a party cannot invoke the jurisdiction of the courts
over disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the arbitration
processes laid out by the body. 47 (emphasis supplied)
And thus we concluded:
Clearly therefore, petitioner Associated Bank, by its voluntary
participation and its consent to the arbitration rules cannot go
directly to the Regional Trial Court when it finds it convenient to
do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to
all the parties in the third party complaint under their obligation
to first seek redress of their disputes and grievances with the
PCHC before going to the trial court. 48 (emphasis supplied)
Simply put, participants in the regional clearing operations of
the Philippine Clearing House Corporation cannot bypass the
arbitration process laid out by the body and seek relief directly
from the courts. In the case at bar, undeniably, private
respondent has initiated arbitration proceedings as required by
the PCHC rules and regulations, and pending arbitration has
ADR || First Batch 19

sought relief from the trial court for measures to safeguard 8 Rollo, p. 131.
and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise 9 Ibid., at p. 127.
not shown to be contrary to the PCHC rules and regulations.
10 Ibid., at p. 135.
Likewise, in the case of Puromines, Inc. vs. Court of Appeals, 49
we have ruled that:
11 Ibid., at p. 131.

In any case, whether the liability of respondent should be based

12 Ibid., at p. 136.
on the sales contract or that of the bill of lading, the parties are
nevertheless obligated to respect the arbitration provisions on
the sales contract and/or bill of lading. Petitioner being a 13 Ibid.
signatory and party to the sales contract cannot escape from
his obligation under the arbitration clause as stated therein. 14 Ibid., at p. 138.

In Puromines, we found the arbitration clause stated in the 15 184 SCRA 682 (1990).
sales contract to be valid and applicable, thus, we ruled that the
parties, being signatories to the sales contract, are obligated to 16 78 SCRA 113 (1977).
respect the arbitration provisions on the contract and cannot
escape from such obligation by filing an action for breach of 17 Rollo, p. 139.
contract in court without resorting first to arbitration, as agreed
upon by the parties.
18 Ibid., at p. 140.
At this point, we emphasize that arbitration, as an alternative
19 220 SCRA 281 (1993).
method of dispute resolution, is encouraged by this Court.
Aside from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes. 50 The Court looks with favor 20 Rollo, p. 141.
upon such amicable arrangement and will only interfere with
great reluctance to anticipate or nullify the action of the 21 Petitioner's memorandum was filed on February 17, 1995.
arbitrator. 51
22 Rollo, p. 314.
WHEREFORE, premises considered, the petition is hereby
DISMISSED and the decision of the court a quo is AFFIRMED. 23 Ibid., at p. 315.

SO ORDERED. 24 Petitioner referring to section 22 of Republic Act. No. 876.

Bellosillo, Mendoza, Quisumbing and De Leon, Jr., JJ., concur. 25 Rollo, p. 318.

Footnotes 26 Ibid.

1 Penned by Justice Cesar D. Francisco and concurred in by 27 233 SCRA 137 (1994).
Justices Manuel C. Herrera and Cancio C. Garcia.
28 220 SCRA 281 (1993).
2 Special Fifth Division.
29 211 SCRA 753 (1992).
3 Branch 133. Presided by Judge Buenaventura J. Guerrero,
now Associate Justice of the Court of Appeals. 30 Rollo, p. 141.

4 Rollo, p. 128. 31 184 SCRA 682 (1990).

5 Docketed as PCHC Arbitration Case No. 91-069. 32 78 SCRA 113 (1977).

6 Ibid., at p. 129. 33 Rollo, p. 320.

7 Docketed as Civil Case No. 92-145.

ADR || First Batch 20

34 Ibid., at p. 323. Republic of the Philippines

SUPREME COURT
35 Under the arbitration system of the PCHC, an award results Manila
in a mere automatic debit/credit procedure. THIRD DIVISION

36 Rollo, p. 324. Citation omitted. G.R. No. 141833 March 26, 2003

37 Ibid. LM POWER ENGINEERING CORPORATION, petitioner,

38 Ibid., p. 278. vs.

39 Art. VIII, section 4(3) provides: CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC.,
respondent.
. . . . . .; Provided that no doctrine or principle of law laid down
by the court in a decision rendered en banc or in division may PANGANIBAN, J.:
be modified or reversed except by the court sitting en banc.
Alternative dispute resolution methods or ADRs -- like
40 184 SCRA 682 (1990). arbitration, mediation, negotiation and conciliation -- are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that are
41 78 SCRA 113 (1977).
less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships.1
42 Rollo, pp. 310-311.
The Case
43 233 SCRA 137 (1994).
Before us is a Petition for Review on Certiorari2 under Rule 45
44 220 SCRA 281 (1993). 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.
45 211 SCRA 753 (1992). This case involves the application of 54232. The dispositive portion of the Decision reads as follows:
the Katarungang Pambarangay Law (P.D. 1508).
"WHEREFORE, the judgment appealed from is REVERSED
46 Rollo, p. 318. and SET ASIDE. The parties are ORDERED to present their
dispute to arbitration in accordance with their Sub-contract
47 Associated Bank vs. Court of Appeals, 233 SCRA 137, 142- Agreement. The surety bond posted by [respondent] is
143 (1994). [d]ischarged."4

48 Ibid., at p. 145. The Facts

49 220 SCRA 281 (1993). On February 22, 1983, Petitioner LM Power Engineering
Corporation and Respondent Capitol Industrial Construction
50 Allied Banking Corporation vs. Court of Appeals, 294 SCRA Groups Inc. entered into a "Subcontract Agreement" involving
803, 812 (1998). electrical work at the Third Port of Zamboanga.5

51 Puromines, Inc. vs. Court of Appeals, 220 SCRA 281, 290 On April 25, 1985, respondent took over some of the work
(1993). 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.
ADR || First Batch
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:
21
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
ADR || First Batch
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]
22
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
ADR || First Batch
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
23
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.
Puno, (Chairman), Sandoval-Gutierrez, Corona and Carpio-
Morales, JJ., concur.
Footnotes
1 See Panganiban, A Centenary of Justice, 2001 ed., p. 83.
2 Rollo, pp. 7-17.
3 Seventh Division. Written by Justice Portia Alio-
Hormachuelos and concurred in by Justices Corona Ibay-
Somera (Division chairman) and Wenceslao I. Agnir Jr.
(member).
4 Assailed CA Decision, pp. 21-22; rollo, pp. 40-41.
5See Pay Item Nos. 7.01 to 7.26 of the Bill of Quantities;
Records, pp. 16-25.
6See Letters dated March 15, 1985 and April 25, 1985, pp. 63-
64.
7 See Letter dated March 7, 1985, p. 62.
ADR || First Batch 24
8 See Letter dated September 30, 1986, p. 65. 29Moses H. Cone Hospital v. Mercury Construction Co., 460
US 1, February 23, 1983; Metro Industrial Painting Corp. v.
9 Records, pp. 68-69. Terminal Construction Co., 287 F2d 382 (US Court of Appeals,
2nd Circuit), February 16, 1961.
10 Id., pp. 1-3.
30 209 SCRA 440, May 29, 1992.
11 Id., pp. 32-34.
31These were promulgated by the CIAC on June 21, 1991 and
August 25, 1993, respectively.
12 Presided by Judge Phinney C. Araquil.
32 GR No. 125706, September 30, 1996.
13 Records, p. 41.
33 318 SCRA 255, November 17, 1999.
14Transferred to Makati, Branch 64. Presided by Judge Delia H.
Panganiban.
34 Id., p. 268, per Davide Jr., CJ.
15 Assailed CA Decision, pp. 20-21; rollo, pp. 39-40.
35Toyota Motor Philippines Corporation v. Court of Appeals,
216 SCRA 236, December 7, 1992.
16This case was deemed submitted for decision on October 25,
2001, upon this Courts receipt of respondents Memorandum
signed by Atty. Henry S. Rojas. Petitioners Memorandum, filed
36 See 6 of RA 876.
on October 10, 2001, was signed by Atty. Eleazar G. Ferry.
37 "SEC. 7. Stay of Civil Action. If any suit or proceeding be
17Petitioners Memorandum, p. 5; rollo, p. 223. Original in upper brought upon an issue arising out of an agreement providing for
case. the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue
involved in such suit or proceeding is referable to arbitration,
18 Bengson v. Chan, 78 SCRA 113, July 29, 1977.
shall stay the action or proceeding until an arbitration has been
had in accordance with the terms of the agreement: Provided,
19 Subcontract Agreement, p. 10; rollo, p. 52. Italics supplied. That the applicant for the stay is not in default in proceeding
with such arbitration."
20 Subcontract Agreement, p. 6; rollo, p. 47.

21 Id., pp. 7-8 & 48-49. Italics supplied.

22 Id., pp. 8 & 49.

23 Id., pp. 3-10 & 44-51.

24Del Monte Corporation-USA v. Court of Appeals, 351 SCRA

373, February 7, 2001; Eastboard Navigation, Ltd. v. Juan
Ysmael and Co., Inc., 102 Phil. 1, September 10, 1957.

25Home Bankers Savings and Trust Company v. Court of

Appeals, 318 SCRA 558, November 19, 1999.

26Heirs of Augusto L. Salas Jr. v. Laperal Realty Corporation,

320 SCRA 610, December 13, 1999; BF Corporation v. Court of
Appeals, 288 SCRA 267, March 27, 1998.

27 Ibid.

28Seaboard Coastline Railroad Co. v. National Rail Passenger

Corporation, 554 F2d 657 (US Court of Appeals, 5th Circuit),
June 22, 1977.
ADR || First Batch
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 152878 May 5, 2003
RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
MAGWIN MARKETING CORPORATION, NELSON TIU,
BENITO SY and ANDERSON UY, respondents.
BELLOSILLO, J.:
WE ARE PERTURBED that this case should drag this Court in
the banal attempts to decipher the hazy and confused intent of
the trial court in proceeding with what would have been a
simple, straightforward and hardly arguable collection case.
Whether the dismissal without prejudice for failure to prosecute
was unconditionally reconsidered, reversed and set aside to
reinstate the civil case and have it ready for pre-trial are matters
which should have been clarified and resolved in the first
instance by the court a quo. Unfortunately, this feckless
imprecision of the trial court became the soup stock of the
parties and their lawyers to further delay the case below when
they could have otherwise put things in proper order efficiently
and effectively.
On 4 March 1999 petitioner Rizal Commercial Banking
Corporation (RCBC) filed a complaint for recovery of a sum of
money with prayer for a writ of preliminary attachment against
respondents Magwin Marketing Corporation, Nelson Tiu, Benito
Sy and Anderson Uy.1 On 26 April 1999, the trial court issued a
writ of attachment.2 On 4 June 1999 the writ was returned
partially satisfied since only a parcel of land purportedly owned
by defendant Benito Sy was attached.3 In the meantime,
summons was served on each of the defendants, respondents
herein, who filed their respective answers, except for defendant
Gabriel Cheng who was dropped without prejudice as party-
defendant as his whereabouts could not be located.4 On 21
September 1999 petitioner moved for an alias writ of
attachment which on 18 January 2000 the court a quo denied.5
Petitioner did not cause the case to be set for pre-trial.6 For
about six (6) months thereafter, discussions between petitioner
and respondents Magwin Marketing Corporation, Nelson Tiu,
Benito Sy and Anderson Uy, as parties in Civil Case No. 99-
518, were undertaken to restructure the indebtedness of
respondent Magwin Marketing Corporation.7 On 9 May 2000
petitioner approved a debt payment scheme for the corporation
which on 15 May 2000 was communicated to the latter by
means of a letter dated 10 May 2000 for the conformity of its
officers, i.e., respondent Nelson Tiu as President/General
Manager of Magwin Marketing Corporation and respondent
25
Benito Sy as Director thereof.8 Only respondent Nelson Tiu
affixed his signature on the letter to signify his agreement to the
terms and conditions of the restructuring.9
On 20 July 2000 the RTC of Makati City, on its own initiative,
issued an Order dismissing without prejudice Civil Case No. 99-
518 for failure of petitioner as plaintiff therein to "prosecute its
action for an unreasonable length of time . . .."10 On 31 July
2000 petitioner moved for reconsideration of the Order by
informing the trial court of respondents' unremitting desire to
settle the case amicably through a loan restructuring program.11
On 22 August 2000 petitioner notified the trial court of the
acquiescence thereto of respondent Nelson Tiu as an officer of
Magwin Marketing Corporation and defendant in the civil
case.12
On 8 September 2000 the court a quo issued an Order
reconsidering the dismissal without prejudice of Civil Case No.
99-518 -
Acting on plaintiff's "Motion for Reconsideration" of the Order
dated 20 July 2000 dismissing this case for failure to prosecute,
it appearing that there was already conformity to the
restructuring of defendants' indebtedness with plaintiff by
defendant Nelson Tiu, President of defendant corporation per
"Manifestation and Motion" filed by plaintiff on 22 August 2000,
there being probability of settlement among the parties, as
prayed for, the Order dated 20 July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within
15 days from receipt hereof. Failure on the part of plaintiff to
submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case.13
On 27 July 2000 petitioner filed in Civil Case No. 99-518 a
Manifestation and Motion to Set Case for Pre-Trial Conference
alleging that "[t]o date, only defendant Nelson Tiu had affixed
his signature on the May 10, 2000 letter which informed the
defendants that plaintiff [herein petitioner] already approved
defendant Magwin Marketing Corporations request for
restructuring of its loan obligations to plaintiff but subject to the
terms and conditions specified in said letter."14 This motion was
followed on 5 October 2000 by petitioner's Supplemental
Motion to Plaintiffs Manifestation and Motion to Set Case for
Pre-Trial Conference affirming that petitioner "could not submit
a compromise agreement because only defendant Nelson Tiu
had affixed his signature on the May 10, 2000 letter . . .."15
Respondent Anderson Uy opposed the foregoing submissions
of petitioner while respondents Magwin Marketing Corporation,
Nelson Tiu and Benito Sy neither contested nor supported
them.16
The trial court, in an undated Order (although a date was later
inserted in the Order), denied petitioner's motion to calendar
Civil Case No. 99-518 for pre-trial stating that -
ADR || First Batch
Acting on plaintiff's [herein petitioner] "Manifestation and Motion
to Set Case for Pre-Trial Conference," the "Opposition" filed by
defendant Uy and the subsequent "Supplemental Motion" filed
by plaintiff; defendant Uy's "Opposition," and plaintiff's "Reply;"
for failure of the plaintiff to submit a compromise agreement
pursuant to the Order dated 8 September 2000 plaintiff's motion
to set case for pre-trial conference is hereby denied.17
On 15 November 2000 petitioner filed its Notice of Appeal from
the 8 September 2000 Order of the trial court as well as its
undated Order in Civil Case No. 99-518. On 16 November 2000
the trial court issued two (2) Orders, one of which inserted the
date "6 November 2000" in the undated Order rejecting
petitioner's motion for pre-trial in the civil case, and the other
denying due course to the Notice of Appeal on the ground that
the "Orders dated 8 September 2000 and 6 November 2000
are interlocutory orders and therefore, no appeal may be taken
. . .."18
On 7 December 2000 petitioner elevated the Orders dated 8
September 2000, 6 November 2000 and 16 November 2000 of
the trial court to the Court of Appeals in a petition for certiorari
under Rule 65 of the Rules of Civil Procedure.19 In the main,
petitioner argued that the court a quo had no authority to
compel the parties in Civil Case No. 99-518 to enter into an
amicable settlement nor to deny the holding of a pre-trial
conference on the ground that no compromise agreement was
turned over to the court a quo.20
On 28 September 2001 the appellate court promulgated its
Decision dismissing the petition for lack of merit and affirming
the assailed Orders of the trial court21 holding that -
. . . although the language of the September 8, 2000 Order may
not be clear, yet, a careful reading of the same would clearly
show that the setting aside of the Order dated July 20, 2000
which dismissed petitioner's complaint . . . for failure to
prosecute its action for an unreasonable length of time is
dependent on the following conditions, to wit: a) The
submission of the compromise agreement by petitioner within
fifteen (15) days from notice; and b) Failure of petitioner to
submit the said compromise agreement shall cause the
imposition of the payment of the required docket fees for the re-
filing of the case; so much so that the non-compliance by
petitioner of condition no. 1 would make condition no. 2
effective, especially that petitioner's manifestation and motion
to set case for pre-trial conference and supplemental motion . .
. [were] denied by the respondent judge in his Order dated
November 6, 2000, which in effect means that the Order dated
July 20, 2000 was ultimately not set aside considering that a
party need not pay docket fees for the re-filing of a case if the
original case has been revived and reinstated.22
On 2 April 2002 reconsideration of the Decision was denied;
hence, this petition.
In the instant case, petitioner maintains that the trial court
26
cannot coerce the parties in Civil Case No. 99-518 to execute a
compromise agreement and penalize their failure to do so by
refusing to go forward with the pre-trial conference. To hold
otherwise, so petitioner avers, would violate Art. 2029 of the
Civil Code which provides that "[t]he court shall endeavor to
persuade the litigants in a civil case to agree upon some fair
compromise," and this Court's ruling in Goldloop Properties,
Inc. v. Court of Appeals23 where it was held that the trial court
cannot dismiss a complaint for failure of the parties to submit a
compromise agreement.
On the other hand, respondent Anderson Uy filed his comment
after several extensions asserting that there are no special and
important reasons for undertaking this review. He also alleges
that petitioner's attack is limited to the Order dated 8
September 2000 as to whether it is conditional as the Court of
Appeals so found and the applicability to this case of the ruling
in Goldloop Properties, Inc. v. Court of Appeals. Respondent
Uy claims that the Order reconsidering the dismissal of Civil
Case No. 99-518 without prejudice is on its face contingent
upon the submission of the compromise agreement which in
the first place was the principal reason of petitioner to justify the
withdrawal of the Order declaring his failure to prosecute the
civil case. He further contends that the trial court did not force
the parties in the civil case to execute a compromise
agreement, the truth being that it dismissed the complaint
therein for petitioner's dereliction.
Finally, respondent Uy contests the relevance of Goldloop
Properties, Inc. v. Court of Appeals, and refers to its
incongruence with the instant case, i.e., that the complaint of
petitioner was dismissed for failure to prosecute and not for its
reckless disregard to present an amicable settlement as was
the situation in Goldloop Properties, Inc., and that the dismissal
was without prejudice, in contrast with the dismissal with
prejudice ordered in the cited case. For their part, respondents
Magwin Marketing Corporation, Nelson Tiu and Benito Sy
waived their right to file a comment on the instant petition and
submitted the same for resolution of this Court.24
The petition of Rizal Commercial Banking Corporation is
meritorious. It directs our attention to questions of substance
decided by the courts a quo plainly in a way not in accord with
applicable precedents as well as the accepted and usual
course of judicial proceedings; it offers special and important
reasons that demand the exercise of our power of supervision
and review. Furthermore, petitioner's objections to the
proceedings below encompass not only the Order of 8
September 2000 but include the cognate Orders of the trial
court of 6 and 16 November 2000. This is evident from the
prayer of the instant petition which seeks to reverse and set
aside the Decision of the appellate court and to direct the trial
court to proceed with the pre-trial conference in Civil Case No.
99-518. Evidently, the substantive issue involved herein is
whether the proceedings in the civil case should progress, a
question which at bottom embroils all the Orders affirmed by
the Court of Appeals.
ADR || First Batch
On the task at hand, we see no reason why RTC-Br. 135 of
Makati City should stop short of hearing the civil case on the
merits. There is no substantial policy worth pursuing by
requiring petitioner to pay again the docket fees when it has
already discharged this obligation simultaneously with the filing
of the complaint for collection of a sum of money. The
procedure for dismissed cases when re-filed is the same as
though it was initially lodged, i.e., the filing of answer, reply,
answer to counter-claim, including other foot-dragging
maneuvers, except for the rigmarole of raffling cases which is
dispensed with since the re-filed complaint is automatically
assigned to the branch to which the original case pertained.25 A
complaint that is re-filed leads to the re-enactment of past
proceedings with the concomitant full attention of the same trial
court exercising an immaculate slew of jurisdiction and control
over the case that was previously dismissed,26 which in the
context of the instant case is a waste of judicial time, capital
and energy.
What judicial benefit do we derive from starting the civil case all
over again, especially where three (3) of the four (4)
defendants, i.e., Magwin Marketing Corporation, Nelson Tiu
and Benito Sy, have not contested petitioner's plea before this
Court and the courts a quo to advance to pre-trial conference?
Indeed, to continue hereafter with the resolution of petitioner's
complaint without the usual procedure for the re-filing thereof,
we will save the court a quo invaluable time and other
resources far outweighing the docket fees that petitioner would
be forfeiting should we rule otherwise.
Going over the specifics of this petition and the arguments of
respondent Anderson Uy, we rule that the Order of 8
September 2000 did not reserve conditions on the
reconsideration and reversal of the Order dismissing without
prejudice Civil Case No. 99-518. This is quite evident from its
text which does not use words to signal an intent to impose
riders on the dispositive portion -
Acting on plaintiff's "Motion for Reconsideration" of the Order
dated 20 July 2000 dismissing this case for failure to prosecute,
it appearing that there was already conformity to the
restructuring of defendants' indebtedness with plaintiff by
defendant Nelson Tiu, President of defendant corporation per
"Manifestation and Motion" filed by plaintiff on 22 August 2000,
there being probability of settlement among the parties, as
prayed for, the Order dated 20 July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within
15 days from receipt hereof. Failure on the part of plaintiff to
submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case.27
Contrary to respondent Uy's asseverations, the impact of the
second paragraph upon the first is simply to illustrate what the
trial court would do after setting aside the dismissal without
prejudice: submission of the compromise agreement for the
consideration of the trial court. Nothing in the second paragraph
27
do we read that the reconsideration is subject to two (2)
qualifications. Certainly far from it, for in Goldloop Properties,
Inc. v. Court of Appeals28 a similar directive, i.e., "[t]he parties
are given a period of fifteen (15) days from today within which
to submit a Compromise Agreement," was held to mean that
"should the parties fail in their negotiations the proceedings
would continue from where they left off." Goldloop Properties,
Inc. further said that its order, or a specie of it, did not constitute
an agreement or even an expectation of the parties that should
they fail to settle their differences within the stipulated number
of days their case would be dismissed.
The addition of the second sentence in the second paragraph
does not change the absolute nullification of the dismissal
without prejudice decreed in the first paragraph. The sentence
"[f]ailure on the part of plaintiff to submit the said agreement
shall cause the imposition of payment of the required docket
fees for re-filing of this case" is not a directive to pay docket
fees but only a statement of the event that may result in its
imposition. The reason for this is that the trial court could not
have possibly made such payment obligatory in the same civil
case, i.e., Civil Case No. 99-518, since docket fees are
defrayed only after the dismissal becomes final and executory
and when the civil case is re-filed.
It must be emphasized however that once the dismissal attains
the attribute of finality, the trial court cannot impose legal fees
anew because a final and executory dismissal although without
prejudice divests the trial court of jurisdiction over the civil case
as well as any residual power to order anything relative to the
dismissed case; it would have to wait until the complaint is
docketed once again.29 On the other hand, if we are to concede
that the trial court retains jurisdiction over Civil Case No. 99-518
for it to issue the assailed Orders, a continuation of the hearing
thereon would not trigger a disbursement for docket fees on the
part of petitioner as this would obviously imply the setting aside
of the order of dismissal and the reinstatement of the complaint.
Indubitably, it is speculative to reckon the effectivity of the
Order of dismissal without prejudice to the presentation of the
compromise agreement. If we are to admit that the efficacy of
the invalidation of the Order of dismissal is dependent upon this
condition, then we must inquire: from what date do we count
the fifteen (15)-day reglementary period within which the
alleged revival of the order of dismissal began to run? Did it
commence from the lapse of the fifteen (15) days provided for
in the Order of 8 September 2000? Or do we count it from the 6
November 2000 Order when the trial court denied the holding of
a pre-trial conference? Or must it be upon petitioner's receipt of
the 16 November 2000 Order denying due course to its Notice
of Appeal? The court a quo could not have instituted an Order
that marked the proceedings before it with a shadow of
instability and chaos rather than a semblance of constancy and
firmness.
The subsequent actions of the trial court also belie an intention
to revive the Order of dismissal without prejudice in the event
ADR || First Batch
that petitioner fails to submit a compromise agreement. The
Orders of 6 and 16 November 2000 plainly manifest that it was
retaining jurisdiction over the civil case, a fact which would not
have been possible had the dismissal without prejudice been
resuscitated. Surely, the court a quo could not have denied on
6 November 2000 petitioner's motion to calendar Civil Case No.
99-518 for pre-trial if the dismissal had been restored to life in
the meantime. By then the dismissal without prejudice would
have already become final and executory so as to effectively
remove the civil case from the docket of the trial court.
The same is true with the Order of 16 November 2000 denying
due course to petitioner's Notice of Appeal. There would have
been no basis for such exercise of discretion because the
jurisdiction of the court a quo over the civil case would have
been discharged and terminated by the presumed dismissal
thereof. Moreover, we note the ground for denying due course
to the appeal: the "Orders dated 8 September 2000 and 6
November 2000 are interlocutory orders and therefore, no
appeal may be taken from . . .."30 This declaration strongly
suggests that something more was to be accomplished in the
civil case, thus negating the claim that the Order of dismissal
without prejudice was resurrected upon the parties' failure to
yield a compromise agreement. A "final order" issued by a court
has been defined as one which disposes of the subject matter
in its entirety or terminates a particular proceeding or action,
leaving nothing else to be done but to enforce by execution
what has been determined by the court, while an "interlocutory
order" is one which does not dispose of a case completely but
leaves something more to be decided upon.31
Besides the semantic and consequential improbabilities of
respondent Uy's argument, our ruling in Goldloop Properties,
Inc., is decisive of the instant case. In Goldloop Properties, Inc.,
we reversed the action of the trial court in dismissing the
complaint for failure of the plaintiff to prosecute its case, which
was in turn based on its inability to forge a compromise with the
other parties within fifteen (15) days from notice of the order to
do so and held -
Since there is nothing in the Rules that imposes the sanction of
dismissal for failing to submit a compromise agreement, then it
is obvious that the dismissal of the complaint on the basis
thereof amounts no less to a gross procedural infirmity
assailable by certiorari. For such submission could at most be
directory and could not result in throwing out the case for failure
to effect a compromise. While a compromise is encouraged,
very strongly in fact, failure to consummate one does not
warrant any procedural sanction, much less an authority to
jettison a civil complaint worth P4,000,000.00 . . . Plainly,
submission of a compromise agreement is never mandatory,
nor is it required by any rule.32
As also explained therein, the proper course of action that
should have been taken by the court a quo, upon manifestation
of the parties of their willingness to discuss a settlement, was to
suspend the proceedings and allow them reasonable time to
28
come to terms (a) If willingness to discuss a possible
compromise is expressed by one or both parties; or (b) If it
appears that one of the parties, before the commencement of
the action or proceeding, offered to discuss a possible
compromise but the other party refused the offer, pursuant to
Art. 2030 of the Civil Code. If despite efforts exerted by the trial
court and the parties the negotiations still fail, only then should
the action continue as if no suspension had taken place.33
Ostensibly, while the rules allow the trial court to suspend its
proceedings consistent with the policy to encourage the use of
alternative mechanisms of dispute resolution, in the instant
case, the trial court only gave the parties fifteen (15) days to
conclude a deal. This was, to say the least, a passive and
paltry attempt of the court a quo in its task of persuading
litigants to agree upon a reasonable concession.34 Hence, if
only to inspire confidence in the pursuit of a middle ground
between petitioner and respondents, we must not interpret the
trial court's Orders as dismissing the action on its own motion
because the parties, specifically petitioner, were anxious to
litigate their case as exhibited in their several manifestations
and motions.
We reject respondent Uy's contention that Goldloop Properties,
Inc. v. Court of Appeals is irrelevant to the case at bar on the
dubious reasoning that the complaint of petitioner was
dismissed for failure to prosecute and not for the non-
submission of a compromise agreement which was the bone of
contention in that case, and that the dismissal imposed in the
instant case was without prejudice, in contrast to the dismissal
with prejudice decreed in the cited case. To begin with, whether
the dismissal is with or without prejudice if grievously erroneous
is detrimental to the cause of the affected party; Goldloop
Properties, Inc. does not tolerate a wrongful dismissal just
because it was without prejudice. More importantly, the facts in
Goldloop Properties, Inc. involve, as in the instant case, a
dismissal for failure to prosecute on the ground of the parties'
inability to come up with a compromise agreement within fifteen
(15) days from notice of the court's order therein. All told, the
parallelism between them is unmistakable.
Even if we are to accept on face value respondent's
understanding of Goldloop Properties, Inc. as solely about the
failure to submit a compromise agreement, it is apparent that
the present case confronts a similar problem. Perhaps initially
the issue was one of failure to prosecute, as can be observed
from the Order dated 20 July 2000, although later reversed and
set aside. But thereafter, in the Order of 6 November 2000, the
trial court refused to proceed to pre-trial owing to the "failure of
the plaintiff to submit a compromise agreement pursuant to the
Order dated 8 September 2000." When the civil case was
stalled on account of the trial court's refusal to call the parties to
a pre-trial conference, the reason or basis therefor was the
absence of a negotiated settlement - a circumstance that takes
the case at bar within the plain ambit of Goldloop Properties,
Inc. In any event, given that the instant case merely revolves
around the search for a reasonable interpretation of the several
ADR || First Batch
Orders of the trial court, i.e., as to whether the dismissal without
prejudice was revived upon petitioner's helplessness to perfect
an out-of-court arrangement, with more reason must we employ
the ruling in Goldloop Properties, Inc. to resolve the parties'
differences of opinion.
We also find nothing in the record to support respondent Uy's
conclusion that petitioner has been mercilessly delaying the
prosecution of Civil Case No. 99-518 to warrant its dismissal. A
complaint may be dismissed due to plaintiff's fault: (a) if he fails
to appear during a scheduled trial, especially on the date for the
presentation of his evidence in chief, or when so required at the
pre-trial; (b) if he neglects to prosecute his action for an
unreasonable length of time; or (c) if he does not comply with
the rules or any order of the court. None of these was obtaining
in the civil case.
While there was a lull of about six (6) months in the prosecution
of Civil Case No. 99-518, it must be remembered that
respondents themselves contributed largely to this delay. They
repeatedly asked petitioner to consider re-structuring the debt
of respondent Magwin Marketing Corporation to which
petitioner graciously acceded. Petitioner approved a new debt
payment scheme that was sought by respondents, which it then
communicated to respondent Corporation through a letter for
the conformity of the latter's officers, i.e., respondent Nelson
Tiu as President/General Manager and respondent Benito Sy
as Director thereof. Regrettably, only respondent Nelson Tiu
affixed his signature on the letter to signify his concurrence with
the terms and conditions of the arrangement. The momentary
lag in the civil case was aggravated when respondent Benito Sy
for unknown and unexplained reasons paid no heed to the
adjustments in the indebtedness although curiously he has not
opposed before this Court or the courts a quo petitioner's desire
to go ahead with the pre-trial conference.
Admittedly, delay took place in this case but it was not an
interruption that should have entailed the dismissal of the
complaint even if such was designated as without prejudice. To
constitute a sufficient ground for dismissal, the inattention of
plaintiff to pursue his cause must not only be prolonged but
also be unnecessary and dilatory resulting in the trifling of
judicial processes. In the instant case, the adjournment was not
only fleeting as it lasted less than six (6) months but was also
done in good faith to accommodate respondents' incessant
pleas to negotiate. Although the dismissal of a case for failure
to prosecute is a matter addressed to the sound discretion of
the court, that judgment however must not be abused. The
availability of this recourse must be determined according to the
procedural history of each case, the situation at the time of the
dismissal, and the diligence of plaintiff to proceed therein.35
Stress must also be laid upon the official directive that courts
must endeavor to convince parties in a civil case to
consummate a fair settlement36 and to mitigate damages to be
paid by the losing party who has shown a sincere desire for
such give-and-take.37 All things considered, we see no
compelling circumstances to uphold the dismissal of petitioner's
29
complaint regardless of its characterization as being without
prejudice.
In fine, petitioner cannot be said to have lost interest in fighting
the civil case to the end. A court may dismiss a case on the
ground of non prosequitur but the real test of the judicious
exercise of such power is whether under the circumstances
plaintiff is chargeable with want of fitting assiduousness in not
acting on his complaint with reasonable promptitude. Unless a
party's conduct is so indifferent, irresponsible, contumacious or
slothful as to provide substantial grounds for dismissal, i.e.,
equivalent to default or non-appearance in the case, the courts
should consider lesser sanctions which would still amount to
achieving the desired end.38 In the absence of a pattern or
scheme to delay the disposition of the case or of a wanton
failure to observe the mandatory requirement of the rules on the
part of the plaintiff, as in the case at bar, courts should decide
to dispense rather than wield their authority to dismiss.39
Clearly, another creative remedy was available to the court a
quo to attain a speedy disposition of Civil Case No. 99-518
without sacrificing the course of justice. Since the failure of
petitioner to submit a compromise agreement was the refusal of
just one of herein respondents, i.e., Benito Sy, to sign his name
on the conforme of the loan restructure documents, and the
common concern of the courts a quo was dispatch in the
proceedings, the holding of a pre-trial conference was the best-
suited solution to the problem as this stage in a civil action is
where issues are simplified and the dispute quickly and
genuinely reconciled. By means of pre-trial, the trial court is
fully empowered to sway the litigants to agree upon some fair
compromise.
Dismissing the civil case and compelling petitioner to re-file its
complaint is a dangerous, costly and circuitous route that may
end up aggravating, not resolving, the disagreement. This case
management strategy is frighteningly deceptive because it does
so at the expense of petitioner whose cause of action, perhaps,
may have already been admitted by its adverse parties as
shown by three (3) of four (4) defendants not willing to contest
petitioner's allegations, and more critically, since this approach
promotes the useless and thankless duplication of hard work
already undertaken by the trial court. As we have aptly
observed, "[i]nconsiderate dismissals, even if without prejudice,
do not constitute a panacea nor a solution to the congestion of
court dockets. While they lend a deceptive aura of efficiency to
records of individual judges, they merely postpone the ultimate
reckoning between the parties. In the absence of clear lack of
merit or intention to delay, justice is better served by a brief
continuance, trial on the merits, and final disposition of the
cases before the court."40
WHEREFORE, the Petition for Review is GRANTED. The
Decision dated 28 September 2001 and Resolution dated 2
April 2002 of the Court of Appeals in CA-G.R. SP No. 62102
are REVERSED and SET ASIDE.
ADR || First Batch 30

The Orders dated 8 September 2000, 6 November 2000 and 16 13 Order issued by Judge Francisco B. Ibay; CA Record, p. 24.
November 2000 of the Regional Trial Court, Branch 135, of
Makati City, docketed as Civil Case No. 99-518, are also 14 Rollo, p. 8.
REVERSED and SET ASIDE insofar as these Orders are
interpreted to impose upon and collect anew from petitioner 15 Ibid.
RIZAL COMMERCIAL BANKING CORPORATION docket or
legal fees for its complaint, or to dismiss without prejudice Civil
Case No. 99-518, or to preclude the trial court from calling the
16 Id. at 9.
parties therein to pre-trial conference, or from proceeding
thereafter with dispatch to resolve the civil case. 17 Order issued by Judge Francisco B. Ibay, CA Record, p. 25.

Civil Case No. 99-518 is deemed REINSTATED in, as it was
never taken out from, the dockets of the Regional Trial Court,
Branch 135, of Makati City. The trial court is ORDERED to
exercise its jurisdiction over Civil Case No. 99-518, to
CONDUCT the pre-trial conference therein with dispatch, and
to UNDERTAKE thereafter such other proceedings as may be
relevant, without petitioner being charged anew docket or other
legal fees in connection with its reinstatement. Costs against
respondents.
SO ORDERED.
18 CA Record, pp. 32-33.
19Docketed as CA-G.R. SP No. 62102, Rizal Commercial
Banking Corporation v. Hon. Judge Francisco B. Ibay, et al.
20 Id. at 11-13.
21Decision penned by Associate Justice Mercedes Gozo-
Dadole and concurred in by then Presiding Justice (now
Associate Justice of this Court) Ma. Alicia Austria-Martinez and
Associate Justice Jose L. Sabio Jr.; Rollo, pp. 26-35.

Quisumbing, Austria-Martinez and Callejo, Sr., JJ ., concur. 22 Id. at 34.

23 G.R. No. 99431, 11 August 1992, 212 SCRA 498.

Footnotes 24 Resolution dated 18 September 2002; Rollo, p. 43.

1 Docketed as Civil Case No. 99-518, Rizal Commercial 25 The 2002 Revised Manual for Clerks of Courts, Vol. I, p. 223.
Banking Corporation v. Magwin Marketing Corporation, et al.,
which was raffled to RTC-Br. 135, Makati City; Rollo, p. 4.
Baares II v. Balising, G.R. No. 132624, 13 March 2000, 328
26

SCRA 36.
2 CA Record, p. 234.
27 Issued by Judge Francisco B. Ibay; CA Record, p. 24.
3 Id. at 237.
28 See Note 22 at 506.
4 Id. at 7.
29Ortigas & Company Limited Partnership v. Velasco, G.R. No.
5 Id. at 237. 109645, 25 July 1994, 234 SCRA 455; Aquizap v. Basilio, No.
L-21293, 29 December 1967, 21 SCRA 1434.
6 Id. at 234.
30 CA Record, pp. 32-33.
7 Rollo, p. 6; CA Record, p. 136.
31 See Note 26.
8 Id. at 6; id. at 42-43.
32 See Note 22 at 506.
9 Rollo, p. 7.
33 Ibid.
10 Ibid.
34Civil Code, art. 2029; see SC Adm. Order No. 21-01; see also
11 CA Record, p. 242. A.M. No. 99-6-01-SC.

12 Rollo, p. 7. 35 Calalang v. Court of Appeals, G.R. No. 103185, 22 January

ADR || First Batch 31

1993, 217 SCRA 462. Republic of the Philippines

SUPREME COURT
36 See Note 34. Manila
FIRST DIVISION
37 Civil Code, art. 2031.
G.R. No. 141897 September 24, 2001
38Bank of the Philippine Islands v. Court of Appeals, G.R. No.
117385, 11 February 1999, 303 SCRA 19. METRO CONSTRUCTION, INC., petitioner,

39 Ibid. vs.

40 Macasa v. Herrera, 101 Phil. 44, 48 (1957). CHATHAM PROPERTIES, INC., respondent.

DAVIDE, JR., C.J.:

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

Respondent Chatham Properties, Inc. (CHATHAM) and

petitioner Metro Construction, Inc. (MCI) entered into a contract
for the construction of a multi-storey building known as the
Chatham House located at the corner of Herrera and Valero
Streets, Salcedo Village, Makati City, Metro Manila. In April
1998, MCI sought to collect from CHATHAM a sum of money
for unpaid progress billings and other charges and instituted a
request for adjudication of its claims with the CIAC. The case
was docketed as CIAC Case No. 10-98. The arbitral tribunal
was composed of Joven B. Joaquin as Chairman, and Beda G.
Fajardo and Loreto C. Aquino as members.

The preliminary conference before the CIAC started in June

1998 and was concluded a month after with the signing of the
Terms of Reference (TOR) of the Case.1 The hearings
immediately started with the presentation of MCI's witnesses,
namely: Ms. Ma. Suzette S. Nucum, Chief Accountant; Ms.
Isabela Redito, Office Engineer; Mr. John Romulo, Field
Manager; and Dr. John Y. Lai, President. CHATHAM's
witnesses were: Engr. Ruperto Kapunan III, Managing Director
of RK Development and Construction Co., Inc. (RKDCCI),
which was the Construction Manager firm hired by CHATHAM
to oversee the construction work of the Chatham House; Engr.
Alex Bautista, Area Manager of RKDCCI; Mr. Avelino M.
Mercado, CHATHAM's Project Manager; and Engr. Jose T.
Infante.

In the meantime, the TOR was amended and finalized on 19

August 1998.2

The facts, as admitted by the parties before the CIAC and

incorporated in the original TOR, are as follows:

1. On 21 April 1994, the parties formally entered into a . . .

contract for the construction of the "Chatham House" . . . for the
contract price of price of P50,000,000.00 inclusive of value-
ADR || First Batch
added tax, subject to adjustments in accordance with Article 9
of the contract. Construction of the project, however,
commenced on 15 April 1994 upon the release by CHATHAM
of the down payment
2. On 12 July 1994, a Supplemental Contract was executed by
and between the parties whereby CHATHAM authorized MCI to
procure in behalf of the former materials, equipment, tools,
fixtures, refurbishing, furniture, and accessories necessary for
the completion of the project.
3. Under Section I.04 of the Supplemental Contract, the total
amount of procurement and transportation cost[s] and
expenses which may be reimbursed by MCI from CHATHAM
shall not exceed the amount of P75, 000,000.00.
4. In the course of the construction, Change Orders No. 1, 4,
8A, 11, 12 and 13 were implemented, payment of which were
recommended by x x x RKDCCI and approved by one of
CHATHAM's Project Managers, Romulo F. Sugay.
5. On 15 September 1995, CHATHAM through its Project
Manager, Romulo F. Sugay, agreed to give P20,000 per floor
for five (5) floors, or a total of P100,000.00 as bonus/incentive
pay to MCI's construction workers for the completion of each
floor on schedule. CHATHAM reimbursed MCI the amount of
P60,000.00 corresponding to bonuses advanced to its workers
by the latter for the 14th, 16th, and 17th floors.
6. CHATHAM's payments to MCI totaled P104,875,792.37,
representing payments for portions of MCI's progress billings
and x x x additional charges.
The parties then stipulated on the following issues, again, as
set forth in the TOR:
1. Is MCI entitled to its claims for unpaid progress billings
amounting to P21,062,339.76?
2. Were the approved Change Orders 1, 4, 8a, 11, 12 and 13
fully paid by CHATHAM? If not, is MCI entitled to its claim for
the unpaid balance?
3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15,
16, 17, 19 and 20?
4. Were the CHB works from the 8th to the 31st floors part of
the original contract or in the nature of extra/additional works?
Is CHATHAM liable for the same? If so, how much?
5. Is MCI entitled to an additional reimbursement of P40,000.00
for bonuses granted to workers as an incentive for the early
completion of each floor?
6. Were the deductions in the amount of P1,393,458.84 made
32
by CHATHAM in MCI's progress billing reasonable?
7. Is MCI's claim of P1,646,502.00 for labor escalation valid?
8. Is MCI entitled to payment of attendance fee? To what extent
and how much?
9. Did MCI fail to complete and/or deliver the project within the
approved completion period? If so, is MCI liable for liquidated
damages and how much?
10. Whether or not CHATHAM is entitled to claim x x x actual
damages? If so, to what extent and how much?
11. Whether or not CHATHAM is entitled to x x x additional
counterclaims as follows:
11.1. Core testing expenses and penalty for concrete strength
failure P3,630,587.38.
11.2. Expenses to rectify structural steel works for the
foundation P1,331,139.74.
11.3. Cost of additional materials (concrete & rebars) supplied
by CPI P5,761,457.91.
12. Are the parties entitled to their respective claims for
attorney's fees and cost of litigation? If so, how much?3
In the resolution of these issues, the CIAC discovered
significant data, which were not evident or explicit in the
documents and records but otherwise revealed or elicited
during the hearings, which the CIAC deemed material and
relevant to the complete adjudication of the case. In its decision
of 19 October 1998, 4 the CIAC made the following findings
and conclusions:
It was established during the hearing that the contract was
awarded to MCI through negotiation as no bidding was
conducted, x x x It was also revealed that two agreements were
entered into, one is labeled Construction Contract for the total
fixed amount of P50,000,000.00 and the other a Supplemental
Contract for an amount not to exceed P75,000,000.00. The
latter is supposed to cover the procurement of materials for the
project. The Construction Contract provides for monthly
progress billings and payments based on actual
accomplishments of the various phases of work. The
Supplemental Contract provides for; reimbursement of [the]
total amount of procurement and transportation costs and
expenses, upon MCI's presentation of suppliers'
invoices/receipts.
However, from testimonies of witnesses from both parties, it
was revealed that the two distinct manner(s) of payment to MCI
was set aside. The earlier attempt by CHATHAM to prove that
ADR || First Batch
MCI was remiss in submitting suppliers' invoices and/or
receipts in support of its billings against the Supplemental
Contract was in fact later on abandoned when CHATHAM's
witness Mercado admitted that the matter of adherence to the
payment provision of the Supplemental Contract is a 'non-
issue.' This was borne out by the fact that progress billings and
payments under both contracts were made on the basis of
percentage of project completion.
Both documentary and testimonial evidence prove that,
effectively, the construction contract and supplemental contract
is but one agreement for a lump sum contract amount of
P125,000,000.00.
xxx xxx xxx
There was also the admitted fact that the contract was
negotiated and awarded in the absence of a complete
construction plan. In any case, in support of the total contract
amount of P125 million, is a Cost Breakdown (Exh. 17-L),
where the estimated quantities of owner furnished materials
(OFM) are indicated. It is however, understood that these
quantities are estimates, based on (an) incomplete set of
construction plans. It is likewise understood that except for the
OFM, all the other costs in the Cost Breakdown form the basis
for the lump-sum agreement under the contract, subject to
adjustment only if there are any significant changes in the
contract plans.
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4),
informed MCI that it was confirming the agreement allegedly
accepted by Dr. Lai that the Building Committee will take over
the management of the construction operations (of the project)
albeit under certain conditions. Specifically, the take over was
for an interim period and will extend only after concreting of up
to basement level 5 or up to 30 May 1995 whichever is later.
The letter also stated that the Building Committee . . . will be
responsible for management and direction including
management of MCI engineers at the site, sequencing of work,
additional labor, additional equipment and management of the
yard and staging area. The letter, however, emphasized that
the intent is not a take over of the contract or take over of the
entire work and in fact, it was mentioned that MCI will still be
responsible for earth anchoring and steel fabrication work.
CHATHAM claims that the interim take-over was necessitated
by MCI's delay in the progress of its work, due allegedly to
MCI's lack of manpower and equipment. During the hearings of
this case, this claim of MCI's lack of manpower, necessary
equipment, qualified engineers and inefficient construction
management was testified to by both Mr. Mercado [of
CHATHAM] and Engr. Kapunan of RKDCCI. CHATHAM's
witnesses, however, testified that in spite of these alleged
deficiencies, MCI was nevertheless allowed to continue to take
full control of the operations. When asked why termination of
the contract was not resorted to if truly, MCI was not performing
its contracted obligations, witnesses Mercado and Kapunan
33
cited "special relations" between the owner of MCI (Dr. John
Lai) and the president of CHATHAM (Mr. Lamberto Ocampo)
as the reason.
On the other hand, Dr. Lai contends that, as explained in his
letter to CHATHAM dated 17 February 1995, (Exh. 4-A) MCI's
work was on schedule. During the hearings, Dr. Lai also
insisted that beginning 15 February 1995, MCI was relieved of
full control of the construction operations, that it was relegated
to (be) a mere supplier of labor, materials and equipment, and
that the alleged interim takeover actually extended through the
completion of the project. Dr. Lai cited CHATHAM's purchases
of materials, fielding labor force and sub-contracting works
allegedly for the project without his knowledge and consent as
proof that CHATHAM had taken full control of the project.
To the above allegation of MCI that CHATHAM went ahead and
procured materials, hired labor and entered into sub-contract
agreements with the intention of eventually charging the costs
thereof to MCI, witness Mercado countered, that CHATHAM
has the right to do this under the provisions of Article 27 of the
contract, dealing with 'Recision, Cancellation, Termination of
Contract.'
By way of responding to the various counterclaims of
CHATHAM, MCI referred to a letter of the former addressed to
MCI dated 18 January 1997 (Exhibit E-1) the first paragraph of
which reads as follows:
After evaluating all the documents issued and received from
both Chatham Properties Inc. and Metro Construction, Inc., the
Building Committee of Chatham Properties, Inc. evaluated
them. The Building Committee finds the total receivable of
Metro Construction is in the amount of EIGHT MILLION PESOS
(P8,000,000.00) only.
When queried by the Tribunal if the said amount already took
into account the costs and expenses, (Chatham) claims to have
incurred for the account of MCI, Mr. Mercado answered in the
affirmative. When queried further how the amount was arrived
at, Mr. Mercado replied that it was the sum the Building
Committee figured it was willing to pay MCI simply to close the
issue.
Mr. Mercado even added that while MCI is not actually entitled
to this amount, it was out of a friendship" that CHATHAM
offered this sum to MCI as final settlement under the contract.
It is with the above attendant circumstances that this Tribunal
will be guided in the resolution of issues brought before it for
adjudication. From what this Tribunal finds as peculiar
circumstances surrounding the contracting and implementation
of the CHATHAM House Project. it arrived at the following
fundamental conclusions:
1. That indeed 'special friendly relations' were present between
ADR || First Batch
the parties in this case, although decisions by either party on
any particular issue were made not purely on the basis of such
special relations. For example, this Tribunal believes that,
contrary to the allegation of (CHATHAM's) witnesses, the
decision not to terminate the contract was not due to the
admitted 'special relations' only, but also due to the greater
problems the project would be faced with by terminating the
MCI contract and mobilizing another contractor.
2. That while there was no official termination of the contract,
the manner by which CHATHAM had taken upon themselves
the procurement of materials, the fielding of labor, the control
over MCI's engineers, and the subcontracting of various phases
of work on its own, is considered by this Tribunal as implied
termination of the contract. The idea of allowing MCI to remain
on the project in spite of what CHATHAM claims. (to be) MCI's
shortcomings, and MCI's agreement to stay on the project
under conditions set by CHATHAM, is believed a matter of
mutual benefit to both parties.
3. That CHATHAM's invoking its rights under the provisions of
Article 27 of the construction contract is believed out of place,
as it failed to observe the required antecedent acts before it can
exercise its prerogative under the said contract provision.
4. That there is no reason to believe, either party was in any
way guilty of bad faith in acting as it did on certain relevant
matters. However, this Tribunal is of the belief that due perhaps
to the eagerness on the part particularly of CHATHAM's
representatives to take such steps it considered necessary to
insure completion of the project within the period desired by
CHATHAM, it deviated from some generally accepted
procedures in the construction industry in dealing with MCI.
One example was not giving MCI the opportunity to rectify
some of what CHATHAM considered as construction
deficiencies and instead engaging the services of other parties
to undertake the corrective works and later on charging the
costs thereof to MCI.
In addition to the above conclusions resulting from what this
Tribunal considered peculiar of circumstances surrounding the
implementation of the project that were revealed during the
proceedings of this case, this Tribunal finds the necessity of
establishing a cut-off date with regard to the fiscal liability of
one party towards the other.
Mr. Avelino Mercado of CHATHAM presented a list of what he
claims as its Payments to MCI (Exhibit 7) summarized as
follows:
a. Down payment (Paid in two equal trances
b. Cash Advance for Mobilization
c. Payments of Progress Billings up to Billing No. 19
d. Other Payments (Mar 1994 to Apr. 1996)
e. Advances on MCI Payrolls (April 1996 to March 1997)
Total
The records of this case show that the last progress payment to
34
MCI was in January 1996 representing payment of Progress
Billing No. 19 for the period ending 31 December 1995. The
percentage of completion claimed then by MCI was 80.02%,
the amount evaluated and eventually paid to MCI was the
equivalent of 77.15% work accomplishment. No further
progress payments were made thereafter, other than for
advances to cover MCI payrolls from April 1996 to March 1997
in the amount of P8,196,755.51 and for various advances and
payments of approved change orders in the amount of
P5,474,419.67.
In the meantime, up to Billing No. 23 for the period ending 30
April 1996, MCI billed CHATHAM a total accomplishment of
95.29%. This billing was however, evaluated by CHATHAM,
and in its letter to MCI dated 27 May 1996 (Exhibit E) it
confirmed that MCI's remaining balance of work stands at
P7,374,201.15 as of 23 May 1996. This amount, percentage-
wise, equals roughly 5.88% of the contract amount as testified
to by Engr. Jose Infante. (Exhibit 22-B). Therefore, what was
computed as MCI's work accomplishment as of 23 May 1996
was 94.12% and it is this evaluation which this Tribunal
believes MCI is entitled to as of said date.
Applying this percentage of completion of 94.12% to the
P125,000,000.00 contract amount gives a total accomplishment
equivalent to P117,650,000.00 as of 23 May 1996. Add to this
amount the sum of P5,353,091.08 representing the total of
approved Change Orders as of 31 December 1995 gives a total
MCI accomplishment of P123,003,091.08, as CHATHAM saw
it. Of this amount, CHATHAM admitted having paid MCI the
total sum of P104,752,358.42 only (Exhibit 7) up to March 15,
1997, leaving a balance of P18,250,732.66. It should be noted
that of the total payment of P104,752,358.42, the sum of
P5,750,000.00 was paid after May 1996 so that as of 25 May
1996, CHATHAM's total payment to MCI was P99,002,358.42.
Effectively, therefore, the amount due MCI as of 23 May 1996
amounted to P24,005,732.66 computed as follows:
Total accomplishment as of 23 May 1996 at 94.12%
Add approved change orders
Total
Less payments up to 23 May 1996
Balance due MCI as of 23 May 1996
Of the above balance of P24,005,732.66 as of 23 May 1996,
the only payments made by CHATHAM to MCI is the sum of
P5,750,000.00 from June 1996 onwards, allegedly to cover MCI
payrolls. It is of course noted that CHATHAM's suspension of
further payments to MCI was because it had been undertaking
on its own, the further procurement of materials and sub-
contracting of various phases of works on the project.
P 20,000,000.00
800,000.00
In consideration of the above facts, this Tribunal's conclusion
71,081,183.44
that there5,474,419.67
was in fact an implied take over of the project is
further confirmed. Furthermore, this Tribunal additionally
8,196,755.51
concludesP that
104,752,358.42date for purposes of delineating the
the cut-off
financial obligations of the parties between them should be 23
ADR || First Batch 35

May 1996, the date when CHATHAM evaluated MCI's as follows:

accomplishment at 94.10% but nevertheless suspended all
further progress payments to MCI. 1/4 x 1/3[(1/10 x P125,000,000.00) 1%] x 294 =
P3,062,498.78.6
MCI presented further documentary evidence (Exhibit E-6) the
subject of which is a PUNCHLISTING-CIVIL STRUCTURAL." The CIAC then decreed:
In this particular document which bears the signatures of
representatives of both MCI and RKDCCI, MCI tried to prove
Accordingly, as presented below, all the amounts due MCI are
that as of 30 August 1996 it had actually attained 99.16% work
first listed and added up and the total payment is deducted
accomplishment. While it may be true that as of that date the
therefrom. The admitted total payment figure as reflected in the
project had reached 99.16% completion, there is no
Terms of Reference is the amount applied instead of the total
incontrovertible evidence showing that MCI was responsible for
reflected in CHATHAM's Summary of Payments which
such accomplishment. This was in fact actually testified to by
incidentally reflected a lesser amount. From the 'Balance Due
Engr. Alex Bautista of RKDCCI, when he said that it was an
MCI' the 'Amounts CPI is Held Entitled To' is deducted and the
evaluation of the project's completion stage, not necessarily
'Net Amount Due MCI' is arrived at.
MCI's work accomplishment. This Tribunal therefore stands firm
on its conclusion that MCI's accomplishment is only up to the
extent of 94.10%.5 A. AMOUNTS HELD CPI IS ENTITLED TO:
A.1. From the original contract: P
With those findings, the CIAC disposed of the specific money
claims by either granting or reducing them. On Issue No. 9, i.e., 94.12% of P125,000,000.00
whether CHATHAM failed to complete and/or deliver the project A.2. Approved Change Orders 5
within the approved completion period and, if so, whether A.3 Pending Change Orders 1
CHATHAM is liable for liquidated damages and how much, the A.4 CHB Works 1
CIAC ruled in this wise: A.5 Workers Bonus -
A.6 Disputed Deductions 9
A.7 Labor Escalation 1
This Tribunal holds that the provision of the contract insofar as
A.8 Attendance Fee 5
the Overall Schedule is concerned cannot justifiably be applied
Total P
in the instant case in view of the implied take-over of the
Less: Total payments - Item 11-6 of TOR 1
Chatham House project by CHATHAM. Accordingly, this
Balance Due MCI P
Tribunal finds no necessity to resolve whether or not MCI
B. AMOUNTS HELD CPI IS ENTITLED TO:
complete[d] and/or deliver[ed] the project within the approved
B.1. liquidated Damages P
completion period. In fact, Mr. Mercado testified that it was
B.2. Actual Damages 3
CHATHAM who ultimately completed the project, with
B.3. Penalties 1
assistance of the construction managers.
B.4. Cash Payments in Behalf of MCI 2
Total Amount Due CPI 7
In any case, this Tribunal finds merit in RKDCCI's claim that C. NET AMOUNT DUE MCI (A minus B) P
MCI was in delay in the concreting milestone and that [it] is WHEREFORE, judgment is hereby rendered in favor of the
liable for liquidated damages therefor. This, notwithstanding Claimant [MCI] directing Respondent [CHATHAM] to pay
MCI's invoking that Chatham is estopped from claiming Claimant [MCI] the net sum of SIXTEEN MILLION ONE
liquidated damages after it failed to deduct the alleged HUNDRED TWENTY SIX THOUSAND NINE HUNDRED
liquidated damages from MCI's progress billings. This Tribunal TWENTY TWO & 91/100 (16,126,922.91) PESOS.
holds that such failure to deduct, which CHATHAM claims it did
in order not to hamper progress of work in the project, is an
SO ORDERED.7
option which [it] may or may not exercise.
Impugning the decision of the CIAC, CHATHAM instituted a
However, this Tribunal finds that CHATHAM's Exh. 11-A where
petition for review with the Court of Appeals, which was
the liquidated damages on delays in concreting milestone was
docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM
applied is not consistent with [its] own Exhibit 3-I. This Tribunal
alleged that:
notes that in Exh. 11-A, CHATHAM included a projected delay
of 85 days for the Helipad Concreting works, while no such
projected delay was included in Exh. 3-I as it should be. The Arbitral Tribunal grossly erred in failing to indicate specific
reference to the evidence presented or to the transcript of
stenographic notes in arriving at its questioned Decision, in
This Tribunal holds that Exh. 3-I showing a delay of 294 days in
violation of the cardinal rule under Section 1, Rule 36 of the
concreting milestones should rightfully be used in computing
Revised Rules of Civil Procedure that a judgment must state
liquidated damages. Accordingly, this Tribunal holds that MCI is
clearly and definitely the facts and the law on which it is based.
liable for liquidated damages in the amount of P3,062,498.78
ADR || First Batch
The Tribunal's conclusions are grounded entirely on
speculations, surmises and conjectures.
The Arbitral Tribunal grossly erred in failing to consider the
evidence presented by CHATHAM and the testimony of its
witnesses.
The Arbitral Tribunal gravely abused its discretion in
considering arbitrarily that there was an implied takeover
contrary to the facts and evidence submitted.
The Arbitral Tribunal committed grave error and gross
misapprehension of facts in holding that CHATHAM is not
entitled to liquidated damages despite failure of MCI to meet
the over-all schedule of completion.
The Arbitral Tribunal manifestly erred in holding that MCI is
entitled to its claim for unpaid progress billings.
The Arbitral Tribunal committed gross and reversible error in
equating the percentage of MCI's work accomplishment with
the entire work in place, despite evidence to the contrary.
The Arbitral Tribunal gravely erred in making 23 May 1996 as
the cut-off date for purposes of delineating the financial
obligations of the parties.
The Arbitral Tribunal erred in denying CHATHAM its claim for
actual damages pursuant to Article 27.8 of the Construction
Contract.
The facts set forth in CHATHAM's Answer with Compulsory
Counterclaim as well as its documentary and testamentary
evidence were not overturned or controverted by any contrary
evidence.8
In its decision of 30 September 1999, 9 the Court of Appeals
simplified the assigned errors into one core issue, namely, the
"propriety" of the CIAC's factual findings and conclusions. In
upholding the decision of the CIAC, the Court of Appeals
confirmed the jurisprudential principle that absent any showing
of arbitrariness, the CIAC's findings as an administrative
agency and quasi judicial body should not only be accorded
great respect but also given the stamp of finality. However, the
Court of Appeals found exception in the CIAC's disquisition of
Issue No.9 on the matter of liquidated damages.
The Court of Appeals disagreed with the CIAC's finding that
there was an implied takeover by CHATHAM of the project and
that it was unnecessary for the CIAC to rule on whether MCI
completed and/or delivered the project within the approved
completion schedule of the project since CHATHAM failed to
observe the antecedent acts required for the termination of the
contract, as set forth in the Construction Agreement.
36
The Court of Appeals ascertained that the evidence
overwhelmingly proved that there was no takeover by
CHATHAM and that MCI exercised complete control, authority
and responsibility over the construction. In support of this
conclusion, the appellate court pointed to the following
evidentiary bases:10
1. Testimony of CHATHAM's Engr. Kapunan that the interim
takeover for the works on the basement was triggered by lack
of manpower and delays as early as February 1995, as
evidenced by their assessment11 and that the interim takeover
was only with respect to the direction or management of the
field operations and was limited only to works on the basement
and intended to assist MCI to catch up with the schedule of
completion, since at that time the project was very much
delayed; thereafter, the MCI was back in full control of the
project.12
2. Testimony of Engr. Bautista that the takeover was only
partial and temporary and limited to the management portion on
the basement only and that MCI was always in control of the
project.13
3. Testimony of Engr. Infante that MCI personnel were
constantly present in the project and the "intervention" (not
takeover) by CHATHAM was justified to ensure completion of
the project on time.14
4. Documentary exhibits evincing the nature and extent of
MCI's work during the takeover period which belied its claims
that it was not in control of the project because of the takeover
thus:
Exhibit "4" Letter dated 15 February 1995 of Engr. Kapunan
of RKDCCI to John Lai of MCI stating that the takeover of
directions or management of the field operations is interim, i.e.
while the takeover is effective immediately it will extend only
after concreting Level B-1 or approximately until 30 May 1995
which ever is later.
Exhibit "4-A" Letter dated 17 February 1995 written by Dr.
Lai of MCI to Engr. Kapunan in response to the latter's 15
February 1995 letter stating that "[Also we were assured that
we will not be responsible for any errors or accidents that may
occur during this INTERIM period," indicating that Dr. Lai was
very much aware of the interim period.
Exhibit "4-C" Letter dated 18 February 1995 written by Engr.
Ben C. Ruiz of RKDCCI to Dr. Lai containing the reasons for
the takeover.
Exhibit "8A" Letter dated 5 September 1995 written by Dr.
E.G. Tabujara to Dr. Lai/Romy Laron (Project Manager of MCI)
requesting for an engineer of MCI to accompany the inspector
of RKDCCI to witness batching procedures. By so doing, Dr.
E.G. Tabujara acknowledged that Dr. Lai was in control of the
ADR || First Batch
project.
Exhibit "8" Letter dated 4 September 1995 by Engr. Romulo
R Sugay to Dr. Lai offering an incentive to the workers of MCI
to exert (their) best effort for topping off by the end of
December; another clear indication that Dr. Lai was in control of
the project.
Exhibit "4-D" Letter dated 4 January 1996 indicating that Mr.
H.T. Go offered Dr Lai an incentive of P1,800,000 on the
condition that MCI meets the new schedule/milestones. MCI's
acceptance of the incentive offer likewise shows that MCI was
in control of the Project.
Exhibits "5," "3-1," "3-M," "3-N," "3-W-1," 3-X," "3-Y," and "3-Z"
among others containing reminders to MCI of its duties and
shortcomings, likewise attest to the fact that MCI was in control
(of) and responsible for the Project, although markedly
deficient.
Exhibits "5," "5-A," "5-B," "5-C," "5-D," "5-E," "5-F," "5-O," "C-7,"
and "E-9" evidencing that MCI continued to manage other
works on the project even during the time of the interim
takeover of the basement works, as seen in the series of
communications between CHATHAM or RKDCCI and MCI
within the period beginning February 1995 to 30 May 1995.
5. Respondent's Request for Adjudication, Annex G, Records,
Folder No. 6 which incorporated Change Order No. 12,
among others, dated 28 August 1995, recommended by the
RKDCCI and accepted by Dr. Lai, and which request for an
extension of 25 days readily showed that even after 30 May
1995, after the close of the supposed takeover period, MCI was
still the contractor in complete control of the project for it would
not have otherwise accepted the said change order if it (were)
no longer the Contractor of the project due to the termination of
the Construction agreement as of said date on account of the
alleged takeover.
6. Exhibits "3-J," "3-M," "3-Q," "3-R," "3-V," "3- W-1," "3-W-2,"
"5-F," "5-1," "6," "12-II," "12-JJ," "12-MM," and "12-NN"
tending to prove that RKDCCI monitored the work from start to
finish and had zealously pointed out to MCI the defects or
improper execution of the construction works, and gave MCI all
the opportunity to rectify the construction deficiencies and
complete the works of the project.
The Court of Appeals concluded that the interim takeover was
necessitated by CHATHAM's insistence to meet its own
turnover dates with the buyers of the project's units. Thus,
CHATHAM was constrained to hire subcontractors with
sufficient manpower and supervision and incur various
expenses to facilitate the completion of the project and/or assist
MCI in making up for its delay.
The Court of Appeals then considered it imperative to
37
determine whether MCI failed to complete the project on time
for which it may be held liable for liquidated damages based on
the delays in the overall schedule of completion pursuant to Art.
13.5 of the Construction Agreement, to wit:
13.5. Over-All Schedule For not meeting the final completion
date of the PROJECT, the OWNER will deduct from the
Contract Sum or amounts due the CONTRACTOR, the amount
equivalent to 1/10 of 1% of the Contract Sum for every calendar
day of delay, provided, however, that the maximum penalty
should not exceed 25% of the fee payable to the
CONTRACTOR as stipulated in the Bill of Quantities. Penalties
from concreting milestones shall be deducted from the penalty
of Over-All Schedule.15
The Court of Appeals disposed of the controversy in this wise:
As is extant from the records, the completion date of the Project
under the Construction Contract or under the revised
construction schedule was never met by reason of [MCI's] lack
of manpower, necessary equipment, qualified engineers and
inefficient management of construction works on the Project.
Thus, under the Contract (Exhibit '1'), [MCI] had 780 days, or
until 22 January 1996, from starting date, or April 12, 1994, to
finish the project. The completion date, however, was not
followed and was revised as early as December 17, 1994,
extending the milestone dates up to March 15, 1996 (Exhibits
'3-G' and '3-H'). As of December 25, 1995, the number of days
delayed was already 294 days. Thus, on February 22, 1996,
the contract milestones were again revised, inclusive of 53 days
extension, to May 23, 1996 (Exhibits '3-I' and '3-O'). The May
23, 1996 turnover milestone nor the July 22, 1996 turnover of
the whole project were neither met (Exhibits '3-P', '3-R', '3-S'
and '3-T' but [CHATHAM] was again constrained to allow [MCI]
to continue working on the Project to complete the balance of
the works (Exhibit 'M'). And all throughout the construction of
the Project, [CHATHAM] had to assist [MCI] along the way to
expedite the execution and completion of the Project (Exhibits
'3-K' and '3-V').
From the foregoing disquisitions, it is clear that [MCI] is liable
for liquidated damages, as per Article 13.5 of the Construction
Contract, for its failure to complete the project within the period
stipulated in the Construction Contract and even despite an
extension of 53 days from the original schedule or of the overall
schedule of completion. [MCI] should therefore pay
[CHATHAM] the amount of liquidated damages equivalent to
P24,125,000.00 for 193 days of delay in the overall schedule of
completion counted from overall completion date on July 22,
1996 up to the date of completion on February 15, 1997, as
stated in the Certificate of Occupancy, computed as follows, to
wit:
1/10[1%(P125,000,000.00)] per day x 193 days
= [1/10 (P1,250,000.00)] per day x 193 days
ADR || First Batch
= P125,000.00 per day x 193 days
= P24,125,000.00
IN VIEW OF ALL THE FOREGOING, judgment is hereby
rendered partially granting [CHATHAM's] claim for liquidated
damages. The Tribunal's Decision dated 19 October 1998 is
hereby AFFIRMED with the modification on [MCI's] liability for
liquidated damages in the amount of P24,125,000.00. Thus,
A. AMOUNT [MCI] IS ENTITLED TO:
A.1. From the original contract:
94.12% of P125,000,000.00
A.2 Approved Change Orders
A.3 Pending Change Orders
A.4 CHB Works
A.5 Workers Bonus
A.6 Disputed Deductions
A.7 Labor Escalation
A.8 Attendance Fee
Total
Less: Total payments-item 11-6 of TOR
Balance Due Respondent
B. AMOUNTS [CHATHAM] IS ENTITLED TO:
B.1. liquidated Damages
B.2. Actual Damages
B.3. Penalties
B.4. Cash Payments in behalf of MCI
Total Amount Due CPI
C. NET AMOUNT DUE [CHATHAM] (B minus A)
Correspondingly, Respondent [MCI] is hereby directed to pay
the Petitioner [CHATHAM] the net sum of FOUR MILLION
NINE HUNDRED THIRTY-FIVE THOUSAND FIVE HUNDRED
SEVENTY-EIGHT & 31/100 (P4,935,578.31) PESOS.16
MCI promptly filed on 25 October 1999 a motion for
reconsideration. In its Resolution of 4 February 2000, the Court
of Appeals denied MCI's motion for reconsideration for lack of
merit, as well as CHATHAM's Motion to Lift Garnishment and
Levy Pending Appeal, filed on 13 October 1999, for being
premature.17
Thus, MCI filed the instant petition for review to challenge the
decision of the Court of Appeals. MCI alleges that the Court of
Appeals erred in reviewing and reversing the CIAC's factual
findings, that there was an implied takeover by CHATHAM of
the project, and that MCI was not in delay in the overall
schedule. In so doing, the Court of Appeals contravened
Section 19 of Executive Order (E.O.) No. 1008,18 which limits
the review of an Arbitral Award to only questions of law, thus:
SECTION 19. Finality of Awards The arbitral award shall be
binding upon the parties. It shall be final and inappealable (sic),
except on questions of law which shall be appealable to the
Supreme Court.
38
MCI then asserts that as signatories to the contract, it and
CHATHAM complied with this legal provision when they
included as part of their TOR the stipulation that "[t]he decision
of the Arbitral Tribunal shall be final and non-appealable except
on questions of law." Accordingly, the binding character of this
provision upon the parties is conclusive and final.
MCI also contends that while it may be argued that recent (1)
issuances by the Supreme Court, specifically, Circular No. 1-
91, which eventually became Revised Administrative Circular
No. 1-95; (2) legislation in particular, Republic Act No. 7902,
which amended Batas Pambansa Blg. 129; and (3)
117,650,000.00
amendments to the Rules on Civil Procedure, modifying E.O.
No. 1008 in the sense that "questions of facts, of law, or mixed
questions of facts and law may be the subject of an appeal of
the CIAC's 5,353,091.08
decision to the Court of Appeals," it is still E.O. No.
1008 which1,648,560.46
remains to be the fundamental and substantive law
that endows 1,248,654.71
parties to an arbitral controversy the right to
-0- the provisions on appeal of E.O. No. 1008
appeal. Hence,
should be 909,484.70
controlling, i.e., only questions of law should be
entertained.076,256.00
Therefore, the only effect of these rules on E.O.
No. 1008 is508,162.73
the transfer of the appeal forum from the Supreme
Court to theP128,394,209.68
Court of Appeals.
104,875,792.37
P23,518,417.31
MCI further asserts that, even assuming that the CIAC's
findings of facts are reviewable on appeal, the Court of Appeals
P24,125,000.00
gravely abused its discretion when it accepted "hook, line and
335,994.50
sinker" CHATHAM's contention that MCI was in delay, and
1,778,285.44
ignored competent, clear and substantial evidence that prove
I2,214,715.68
the contrary, and that CHATHAM is not entitled to liquidated
P28,453,995.62
damages.
For its part, CHATHAM avers that the evolution on the rules
governing appeals from judgments, decisions, resolutions,
orders or awards of the CIAC convincingly discloses that E.O.
No. 1008 has already been superseded. With the power of the
Supreme Court to promulgate rules concerning the protection
and enforcement of constitutional rights, pleadings, practice,
and procedure in all courts, its issuances and amendments to
the Rules on Civil Procedure, not to mention R A. No. 7902, as
enacted by Congress, effectively modified E.O. No. 1008.
Accordingly, the judgments, awards, decisions, resolutions,
orders or awards of the CIAC are now appealable to the Court
of Appeals on questions of facts, mixed questions of facts and
law, and questions of law, and no longer with the Supreme
Court on exclusively questions of law. Further, the TOR cannot
limit the expanded jurisdiction of the Court of Appeals based on
the latest rules. Thus, the Court of Appeals did not err in
reviewing the factual findings of the CIAC.
CHATHAM also contends that, even if the Court of Appeals can
only review questions of law, said court did not err in rendering
the questioned decision as the conclusions therein, drawn as
they were from factual determinations, can be considered
questions of law. .
Finally, CHATHAM asseverates that the Court of Appeals did
ADR || First Batch
not commit grave abuse of discretion in reversing the CIAC's
ascertainment on the implied take-over and liquidated
damages.
This Court shall now resolve the primary issue raised in this
case.
EO. No. 1008 vest upon the CIAC original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof.19 By express provision of Section 19 thereof, the
arbitral award of the CIAC is final and unappealable, except on
questions of law, which are appealable to the Supreme Court.
The parties, however, disagree on whether the subsequent
Supreme Court issuances on appellate procedure and R.A. No.
7902 removed from the Supreme Court its appellate jurisdiction
in Section 19 of E.O. No. 1008 and vested the same in the
Court of Appeals, and whether appeals from CISC awards are
no longer confined to questions of law.
On 27 February 1991, this Court issued Circular No. 1-91,
which prescribes the Rules Governing Appeals to the Court of
Appeals from Final Orders or Decisions of the Court of Tax
Appeals and Quasi-Judicial Agencies. Pertinent portions
thereof read as follows:
1. Scope. These rules shall apply to appeals from final
orders or decisions of the Court of Tax Appeals. They shall also
apply to appeals from final orders or decisions of any quasi-
judicial agency from which an appeal is now allowed by statute
to the Court of Appeals or the Supreme Court. Among these
agencies are the Securities and Exchange Commission, Land
Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications
Commission, Secretary of Agrarian Reform and Special
Agrarian Courts under RA. No. 6657, Government Service
Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission and
Philippine Atomic Energy Commission.
2. Cases not Covered. These rules shall not apply to
decisions and interlocutory orders of the National Labor
Relations Commission or the Secretary of Labor and
Employment under the Labor Code of the Philippines, the
Central Board of Assessment Appeals, and other quasi-judicial
agencies from which no appeal to the courts is prescribed or
allowed by statute.
3. Who may appeal and where to appeal. The appeal of a
party affected by a final order, decision, or judgment of the
Court of Tax Appeals or a quasi judicial agency shall be taken
39
to the Court of Appeals within the period and in the manner
herein provided, whether the appeal involves questions of fact
or of law or mixed questions of fact and law. From final
judgments or decisions of the Court of Appeals, the aggrieved
party may appeal by certiorari to the Supreme Court as
provided in Rule 45 of the Rules of Court.
Subsequently, on 23 February 1995, RA. No. 7902 was
enacted. It expanded the jurisdiction of the Court of Appeals
and amended for that purpose Section 9 of B.P. Blg. 129,
otherwise known as the Judiciary Reorganization Act of 1980.20
Section 9(3) thereof reads:
SECTION 9. Jurisdiction. The Court of Appeals shall
exercise:
xxx xxx xxx
(3) Exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial
Courts and quasi-judicial agencies, instrumentalities, boards or
commissions, including the Securities and Exchange
Commission, the Social Security Commission, the Employees
Compensation Commission and the Civil Service Commission,
except those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor
Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of subparagraph (1) of
the third paragraph and subparagraph (4) of the fourth
paragraph of Section 17 of the Judiciary Act of 1948.
The Court of Appeals shall have the power to try cases and
conduct hearings, receive evidence and perform any and all
acts necessary to resolve factual issues raised in cases falling
within its original and appellate jurisdiction, including the power
to grant and conduct new trials or further proceedings. x x x
Then this Court issued Administrative Circular No. 1-95,21 which
revised Circular No. 1-91. Relevant portions of the former reads
as follows:
1. Scope. These rules shall apply to appeals from judgments
or final orders of the Court of Tax Appeals and from awards,
judgments, final orders or resolutions of any quasi-judicial
agency from which an appeal is authorized to be taken to the
Court of Appeals or the Supreme Court. Among these agencies
are the Securities and Exchange Commission, Land
Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunication
Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
ADR || First Batch
Commission, Board of Investments, and Construction Industry
Arbitration Commission.
SECTION 2. Cases Not Covered. These rules shall not
apply to judgments or final orders issued under the Labor Code
of the Philippines, Central Board of Assessment Appeals, and
by other quasi-judicial agencies from which no appeal to the
court is prescribed or allowed.
SECTION 3. Where to Appeal. An appeal under these rules
may be taken to the Court of Appeals within the period and in
the manner herein provided, whether the appeal involves
questions of fact, of law, or mixed questions of fact and law.
Thereafter, this Court promulgated the 1997 Rules on Civil
Procedure. Sections 1, 2 and 3 of Rule 43 thereof provides:
SECTION 1. Scope. This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of or authorized
by any quasi-judicial agency in the exercise of its quasi-judicial
functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities
and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications
Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry
Arbitration Commission, and voluntary arbitrators authorized by
law.
SECTION 2. Cases Not Covered. This Rule shall not apply
to judgments or final orders issued under the Labor Code of the
Philippines.
SECTION 3. Were to Appeal. An appeal under this Rule may
be taken to the Court of Appeals within the period and in the
manner herein provided, whether the appeal involves question
of fact, of law, or mixed questions of fact and law.
Through Circular No. 1-91, the Supreme Court intended to
establish a uniform procedure for the review of the final orders
or decisions of the Court of Tax Appeals and other quasi
judicial agencies provided that an appeal therefrom is then
allowed under existing statutes to either the Court of Appeals or
the Supreme Court. The Circular designated the Court of
Appeals as the reviewing body to resolve questions of fact or of
law or mixed questions of fact and law.
It is clear that Circular No. 1-91 covers the CIAC. In the first
place, it is a quasi judicial agency. A quasi-judicial agency or
40
body has been defined as an organ of government other than a
court and other than a legislature, which affects the rights of
private parties through either adjudication or rule-making.22 The
very definition of an administrative agency includes its being
vested with quasi judicial powers. The ever increasing variety of
powers and functions given to administrative agencies
recognizes the need for the active intervention of administrative
agencies in matters calling for technical knowledge and speed
in countless controversies which cannot possibly be handled by
regular courts.23 The CIAC's primary function is that of a quasi-
judicial agency, which is to adjudicate claims and/or determine
rights in accordance with procedures set forth in E.O. No. 1008.
In the second place, the language of Section 1 of Circular No.
1-91 emphasizes the obvious inclusion of the CIAC even if it is
not named in the enumeration of quasi-judicial agencies. The
introductory words "[a] among these agencies are" preceding
the enumeration of specific quasi-judicial agencies only
highlight the fact that the list is not exclusive or conclusive.
Further, the overture stresses and acknowledges the existence
of other quasi-judicial agencies not included in the enumeration
but should be deemed included. In addition, the CIAC is
obviously excluded in the catalogue of cases not covered by
the Circular and mentioned in Section 2 thereof for the reason
that at the time the Circular took effect, E.O. No. 1008 allows
appeals to the Supreme Court on questions of law.
In sum, under Circular No. 1-91, appeals from the arbitral
awards of the CIAC may be brought to the Court of Appeals,
and not to the Supreme Court alone. The grounds for the
appeal are likewise broadened to include appeals on questions
of facts and appeals involving mixed questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final
orders or decisions of the CIAC is further fortified by the
amendments to B.P. Blg. 129, as introduced by RA. No. 7902.
With the amendments, the Court of Appeals is vested with
appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of Regional Trial Courts and
quasi-judicial agencies, instrumentalities, boards or
commissions, except "those within the appellate jurisdiction of
the Supreme Court in accordance with the Constitution, the
Labor Code of the Philippines under Presidential Decree No.
442, as amended, the provisions of this Act, and of
subparagraph (1) of the third paragraph and subparagraph (4)
of the fourth paragraph of Section 17 of the Judiciary Act of
1948."
While, again, the CIAC was not specifically named in said
provision, its inclusion therein is irrefutable. The CIAC was not
expressly covered in the exclusion. Further, it is a quasi-judicial
agency or instrumentality. The decision in Luzon Development
Bank v. Luzon Development Bank Employees24 sheds light on
the matter, thus:
Assuming arguendo that the voluntary arbitrator or the panel of
voluntary arbitrators may not strictly be considered as a quasi-
ADR || First Batch
judicial agency, board or commission, still both he and the
panel are comprehended within the concept of a 'quasi-judicial
instrumentality.' It may even be stated that it was to meet the
very situation presented by the quasi-judicial functions of the
voluntary arbitrators here, as well as the subsequent
arbitrator/arbitral tribunal operating under the Construction
Industry Arbitration Commission, that the broader term
'instrumentalities' was purposely included in [Section 9 of B.P.
Blg. 129 as amended by RA. No. 7902].
An instrumentality' is anything used as a means or agency.
Thus, the terms governmental 'agency' or 'instrumentality' are
synonymous in the sense that either of them is a means by
which a government acts, or by which a certain government act
or function is performed. The word 'instrumentality,' with respect
to a state, contemplates an authority to which the state
delegates governmental power for the performance of a state
function.
Any remaining doubt on the procedural mutation of the
provisions on appeal in E.O. No. 1008, vis-a-vis Circular No. 1-
91 and R A. No. 7902, was completely removed with the
issuance by the Supreme Court of Revised Administrative
Circular No. 1-95 and the 1997 Rules of Civil Procedure. Both
categorically include the CIAC in the enumeration of quasi-
judicial agencies comprehended therein. Section 3 of the
former and Section 3, Rule 43 of the latter, explicitly expand the
issues that may be raised in an appeal from quasi judicial
agencies or instrumentalities to the Court of Appeals within the
period and in the manner therein provided. Indisputably, the
review of the CIAC award may involve either questions of fact,
of law, or of fact and law.
In view of all the foregoing, we reject MCI's submission that
Circular No. 1-91, B.P. Blg. 129, as amended by RA. 7902,
Revised Administrative Circular 1-95, and Rule 43 of the 1997
Rules of Civil Procedure failed to efficaciously modify the
provision on appeals in E.O. No. 1008. We further discard
MCI's claim that these amendments have the effect of merely
changing the forum for appeal from the Supreme Court to the
Court of Appeals.
There is no controversy on the principle that the right to appeal
is statutory. However, the mode or manner by which this right
may be exercised is a question of procedure which may be
altered and modified provided that vested rights are not
impaired. The Supreme Court is bestowed by the Constitution
with the power and prerogative, inter alia, to promulgate rules
concerning pleadings, practice and procedure in all courts, as
well as to review rules of procedure of special courts and quasi-
judicial bodies, which, however, shall remain in force until
disapproved by the Supreme Court.25 This power is
constitutionally enshrined to enhance the independence of the
Supreme Court.26
The right to appeal from judgments, awards, or final orders of
the CIAC is granted in E.O. No. 1008. The procedure for the
41
exercise or application of this right was initially outlined in E.O.
No. 1008. While R. A. No. 7902 and circulars subsequently
issued by the Supreme Court and its amendments to the 1997
Rules on Procedure effectively modified the manner by which
the right to appeal ought to be exercised, nothing in these
changes impaired vested rights. The new rules do not take
away the right to appeal allowed in E.O. No. 1008. They only
prescribe a new procedure to enforce the right.27 No litigant has
a vested right in a particular remedy, which may be changed by
substitution without impairing vested rights; hence, he can have
none in rules of procedure which relate to remedy."28
The foregoing discussion renders academic MCI's assertion on
the binding effect of its stipulation with CHATHAM in the TOR
that the decision of the CIAC shall be final and non-appealable
except on questions of law. The agreement merely adopted
Section 19 of E.O. No. 1008, which, as shown above, had been
modified.
The TOR, any contract or agreement of the parties cannot
amend, modify, limit, restrict or circumscribe legal remedies or
the jurisdiction of courts. Rules of procedure are matters of
public order and interest and unless the rules themselves so
allow, they cannot be altered, changed or regulated by
agreements between or stipulations of the parties for their
singular convenience.29
Having resolved the existence of the authority of the Court of
Appeals to review the decisions, awards, or final orders of the
CIAC, the Court shall now determine whether the Court of
Appeals erred in rendering the questioned decision of30
September 1999.
Settled is the general rule that the findings of facts of the Court
of Appeals are binding on us. There are recognized exceptions
to the rule, such as when the findings are contrary to those of
the trial court 30 as in this case. Hence, we have to take a
closer reexamination of this case.
The CIAC is certain that the evidence overwhelmingly tended to
prove that the manner by which CHATHAM took charge in the
procurement of materials, fielding of labor, control of MCI
engineers and the subcontracting of various phases of the
work, constituted an implied takeover of the project. The CIAC
then concludes that the cut-off date for delineating the fiscal
liabilities of the parties is 23 May 1996 when CHATHAM
evaluated MCI's work accomplishment at 94.12% and then
suspended all further progress payments to MCI. For these
reasons, the CIAC found it trifling to determine whether MCI
was in delay based on the Overall Schedule. However, the
CIAC discovered that MCI was in delay for 294 days in the
concreting milestone and held the latter liable for liquidated
damages in the amount of P3,062,498.78.
The Court of Appeals made a contrary conclusion and declared
that MCI was in delay for 193 days based on the overall
schedule of completion of the project and should incur
ADR || First Batch
liquidated damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals found
MCI liable for liquidated damages but on different premises.
Based on the CIAC's assessment, MCI's responsibility was
anchored on its delay in the concreting milestone, while the
Court of Appeal's evaluation concentrated on MCI's delay in
completing the project based on the overall schedule of work.
The variance in the evaluation spells a staggering difference in
the party who should ultimately be held liable and the net
amount involved.
A study of the final computation of the net amount due in both
the final disquisition of the CIAC and the Court of Appeals
shows that all the other figures therein are constant, save for
the amount of liquidated damages for which MCI should be
accountable. If this Court concurs with the CIAC's conclusions,
MCI's responsibility for liquidated damages is, as already
stated, P3,062,498.78. Setting this off against CHATHAM's
overall fiscal accountability would bring the latter's total liability
to MCI to P16,126,922.91. If the Court of Appeals is correct,
MCI would be held liable for a much higher P24,125,000
liquidated damages. Setting this off against CHATHAM's
monetary responsibilities, MCI would still have to pay
CHATHAM P4,935,578.31.
After painstakingly combing through the voluminous records,
we affirm the findings of the CIAC. The evidence taken as a
whole or in their totality reveals that there was an implied
takeover by CHATHAM on the completion of the project. The
evidence that appears to accentuate the Court of Appeals'
decision ironically bolstered the CIAC's conclusion. The
testimonies of Engr. Kapunan, Engr. Bautista, Dr. Lai, and the
letter of Engr. Ruiz,31 acknowledging the "temporary takeover"
by CHATHAM of the project, underscore the palpable fact that
there was indeed a takeover. We confer particular credit to Dr.
Lai's testimony that as of 15 February 1995, MCI was relieved
of full control of the construction operations, that it was
relegated to a mere supplier of labor, materials and equipment,
and that the alleged interim takeover actually extended through
the completion of the project. Even CHATHAM admits the
takeover but sugarcoated the same with words like "interim" did
"charging the costs to MCI." With these glaring admissions, we
can even consider that the takeover was not implied but
blatant.
Exhibits "4," "4-A," "4-C," "8A," "8," "4-D," '43," "3-I," "3-M," "3-
N," "3-W-1," "3-X," "3-Y," "3-Z," "5,""5-A," "5-B," "5-C," "5-D," "5-
E," "5-F," "5-O," "C-7," "E-9," etc.,32 relied upon by the Court of
Appeals when considered by themselves and singly, seemingly
and initially evince MCI's control over the project. However,
they eventually lose evidentiary puissance to support the Court
of Appeals' conclusion when reckoned against the totality of the
evidence that CHATHAM took charge of the completion of the
project, particularly, the fact that CHATHAM suspended all
progress billing payments to MCI. The continued presence and
participation of MCI in the project was, as found by the CIAC, a
42
matter of mutual benefit to and convenience of the parties.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the
assailed 30 September 1999 decision of the Court of Appeals
in CA-G.R SP No. 49429 is hereby PARTIALLY MODIFIED by
setting aside the order directing Metro Construction, Inc. to pay
Chatham Properties, Inc. the amount of P4,935,578.31. The
arbitral award of the Construction Industry Arbitration
Commission in CIAC Case 10-98, promulgated on 19 October
1998, directing Chatham Properties, Inc. to pay Metro
Construction, Inc. the sum of SIXTEEN MILLION ONE
HUNDRED TWENTY-SIX THOUSAND NINE HUNDRED
TWENTY-TWO & 91/100 (P16,126,922.91) PESOS, is
accordingly REINSTATED.
No pronouncement as to costs.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ ., concur.
Footnotes
1 Rollo, 101-107; Annex "C".
2 Id., 108-110; Annex "C-1." All references to the owner and
claimant or contractor were changed to CHATHAM and MCI,
respectively.
3 Rollo, 103-107.
4 Decision of the CIAC, Rollo, 276-325; Annex "E."
5 Rollo, 280-285.
6 Rollo, Decision of CIAC, 304-305.
7 Id., 324-325.
8MCI's Petition for Review with the Court of Appeals, 8-9; OR,
15-16.
9 Per Rivera, J., with Abad Santos, Jr. and Salas, B., JJ.,
concurring.
10 See Decision of the Court of Appeals, Rollo, 88-90.
11 Exhibit 19-Q and 19-R; TSN 5 August 1998, 82-83.
12 TSN, 5 August 1998, 84-85.
13 TSN, 19 August 19 1998, 173-182.
ADR || First Batch 43
14 TSN, 7 September 1998 62-63. Republic of the Philippines
SUPREME COURT
15 OR, 487-488. Manila
THIRD DIVISION
16 Rollo, 91-92.
G.R. No. 132848-49 June 26, 2001
17 Id., 94-99
PHILROCK, INC., petitioner,
18 Entitled a "Creating an Arbitration Machinery for the
Philippine Construction Industry," which took effect on 4 vs.
February 1985.
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION
19See National Irrigation Administration v. Court of Appeals, and Spouses VICENTE and NELIA CID, respondents.
318 SCRA 255, 266 [1999].
PANGANIBAN, J.:
20 B.P. Blg. 129 was signed into law on 14 August 1981.
Courts encourage the use of alternative methods of dispute
21 This took effect on 1 June 1995. resolution. When parties agree to settle their disputes arising
from or connected with construction contracts, the Construction
Industry Arbitration Commission (CIAC) acquires primary
22 See The Presidential Anti-Dollar Salting Task Force v. Court
jurisdiction. It may resolve not only the merits of such
of Appeals, 171 SCRA 348 [1989].
controversies; when appropriate, it may also award damages,
interests, attorneys fees and expenses of litigation.
23See Tropical Homa v. National Housing Authority, 152 SCRA
540 [1987]; See also Antipolo Realty Corp. v. NHA, 153 SCRA
399 119871; Solid Homa, Inc. v. Payawal, 177 SCRA 572 The Case
[19891]
Before us is a Petition for Review under Rule 45 of the Rules of
Court. The Petition seeks the reversal of the July 9, 1997
24 249 SCRA 162 [1995].
Decision1 and the February 24, 1998 Resolution of the Court of
Appeals (CA) in the consolidated cases docketed as CA-GR SP
25 Article VIII, Section 5 of the 1987 Constitution. Nos. 39781 and 42443. The assailed Decision disposed as
follows:
26See Echegaray v. Secretary of Justice, 301 SCRA 96 [1991];
also GSIS v. Court of Appeals, 222 SCRA 685 [19931]. "WHEREFORE, judgment is hereby rendered DENYING the
petitions and, accordingly, AFFIRMING in toto the CIACs
27 Fabian v. Desierto, 295 SCRA 470119981. decision. Costs against petitioner."2

28 Ibid., The assailed Resolution ruled in this wise:

29See Republic of the Philippines v. Hernandez, 253 SCRA 509
119961.
30 Litonjua v. Court of Appeals, 286 SCRA 136 [1998]; Rosario
v. Court of Appeals, 310 SCRA 464 [1999]; Republic v. Court of
Appeals, 314 SCRA 230 [1999].
"Considering that the matters raised and discussed in the
motion for reconsideration filed by appellants counsel are
substantially the same arguments which the Court had passed
upon and resolved in the decision sought to be reconsidered,
and there being no new issue raised, the subject motion is
hereby DENIED."3

31 Decision of the Court of Appeals, Rollo, 88-90. The Facts

32 Id. The undisputed facts of the consolidated cases are

summarized by the CA as follows:

"On September 14, 1992, the Cid spouses, herein private

respondents, filed a Complaint for damages against Philrock
and seven of its officers and engineers with the Regional Trial
Court of Quezon City, Branch 82.
ADR || First Batch
"On December 7, 1993, the initial trial date, the trial court
issued an Order dismissing the case and referring the same to
the CIAC because the Cid spouses and Philrock had filed an
Agreement to Arbitrate with the CIAC.
"Thereafter, preliminary conferences were held among the
parties and their appointed arbitrators. At these conferences,
disagreements arose as to whether moral and exemplary
damages and tort should be included as an issue along with
breach of contract, and whether the seven officers and
engineers of Philrock who are not parties to the Agreement to
Arbitrate should be included in the arbitration proceedings. No
common ground could be reached by the parties, hence, on
April 2, 1994, both the Cid spouses and Philrock requested that
the case be remanded to the trial court. On April 13, 1994, the
CIAC issued an Order stating, thus:
'x x x the Arbitral Tribunal hereby formally dismisses the above-
captioned case for referral to Branch 82 of the Regional Trial
Court, Quezon City where it first originated.
SO ORDERED.'
"The Cid spouses then filed with said Branch of the Regional
Trial Court of Quezon City a Motion To Set Case for Hearing
which motion was opposed by Philrock.
"On June 13, 1995, the trial court declared that it no longer had
jurisdiction over the case and ordered the records of the case to
be remanded anew to the CIAC for arbitral proceedings.
"Pursuant to the aforementioned Order of the Regional Trial
C[o]urt of Quezon City, the CIAC resumed conducting
preliminary conferences. On August 21, 1995, herein
[P]etitioner Philrock requested to suspend the proceedings until
the court clarified its ruling in the Order dated June 13, 1995.
Philrock argued that said Order was based on a mistaken
premise that 'the proceedings in the CIAC fell through because
of the refusal of [Petitioner] Philrock to include the issue of
damages therein,' whereas the true reason for the withdrawal of
the case from the CIAC was due to Philrock's opposition to the
inclusion of its seven officers and engineers, who did not give
their consent to arbitration, as party defendants. On the other
hand, private respondent Nelia Cid manifested that she was
willing to exclude the seven officers and engineers of Philrock
as parties to the case so as to facilitate or expedite the
proceedings. With such manifestation from the Cid spouses,
the Arbitral Tribunal denied Philrock's request for the
suspension of the proceedings. Philrock's counsel agreed to
the continuation of the proceedings but reserved the right to file
a pleading elucidating the position he [had] raised regarding the
Court's Order dated June 13, 1995. The parties then proceeded
to finalize, approve and sign the Terms of Reference. Philrock's
counsel and representative, Atty. Pericles C. Consunji affixed
his signature to said Terms of Reference which stated that 'the
parties agree that their differences be settled by an Arbitral
Tribunal x x x x' (p. 9, Terms of Reference, p. 200, Rollo).
44
"On September 12, 1995, [P]etitioner Philrock filed its Motion to
Dismiss, alleging therein that the CIAC had lost jurisdiction to
hear the arbitration case due to the parties' withdrawal of their
consent to arbitrate. The motion was denied by x x x CIAC per
Order dated September 22, 1995. On November 8, public
respondent ordered the parties to appear before it on
November 28, 1995 for the continuation of the arbitral
proceedings, and on February 7, 1996, public respondent
directed [P]etitioner Philrock to set two hearing dates in the
month of February to present its evidence and to pay all fees
assessed by it, otherwise x x x Philrock would be deemed to
have waived its right to present evidence.
"Hence, petitioner instituted the petition for certiorari but while
said petition was pending, the CIAC rendered its Decision
dated September 24, 1996, the dispositive portion of which
reads, as follows:
'WHEREFORE, judgment is hereby rendered in favor of the
Claimant, directing Respondent to pay Claimant as follows:
1. P23,276.25 representing the excess cash payment for
materials ordered by the Claimants, (No. 7 of admitted facts)
plus interests thereon at the rate of 6% per annum from
September 26, 1995 to the date payment is made.
2. P65,000.00 representing retrofitting costs.
3. P13,404.54 representing refund of the value of delivered but
unworkable concrete mix that was laid to waste.
4. P50,000.00 representing moral damages.
5. P50,000.00 representing nominal damages.
6. P50,000.00 representing attorney's fees and expenses of
litigation.
7. P144,756.80 representing arbitration fees, minus such
amount that may already have been paid to CIAC by
respondent.
"Let a copy of this Decision be furnished the Honorable
Salvador C. Ceguera, presiding judge, Branch 82 of Regional
Trial Court of Quezon City who referred this case to the
Construction Industry Arbitration Commission for arbitration and
proper disposition.' (pp. 44-45, Rollo, CA-G.R. SP No. 42443) "4
Before the CA, petitioner filed a Petition for Review, docketed
as CA-GR SP No. 42443, contesting the jurisdiction of the
CIAC and assailing the propriety of the monetary awards in
favor of respondent spouses. This Petition was consolidated by
the CA with CA-GR SP No. 39781, a Petition for Certiorari
earlier elevated by petitioner questioning the jurisdiction of the
CIAC.
ADR || First Batch
Ruling of the Court of Appeals
The CA upheld the jurisdiction of the CIAC5 over the dispute
between petitioner and private respondent. Under Executive
Order No. 1008, the CIAC acquires jurisdiction when the parties
agree to submit their dispute to voluntary arbitration. Thus, in
the present case, its jurisdiction continued despite its April 13,
1994 Order referring the case back to the Regional Trial Court
(RTC) of Quezon City, Branch 82, the court of origin. The
CIACs action was based on the principle that once acquired,
jurisdiction remains "until the full termination of the case unless
a law provides the contrary." No such "full termination" of the
case was evident in the said Order; nor did the CIAC or private
respondents intend to put an end to the case.
Besides, according to Section 3 of the Rules of Procedure
Governing Construction Arbitration, technical rules of law or
procedure are not applicable in a single arbitration or arbitral
tribunal. Thus, the "dismissal" could not have divested the CIAC
of jurisdiction to ascertain the facts of the case, arrive at a
judicious resolution of the dispute and enforce its award or
decision.
Since the issues concerning the monetary awards were
questions of fact, the CA held that those awards were
inappropriate in a petition for certiorari. Such questions are final
and not appealable according to Section 19 of EO 1008, which
provides that "arbitral awards shall be x x x final and
[u]nappealable except on questions of law which shall be
appealable to the Supreme Court x x x." Nevertheless, the CA
reviewed the records and found that the awards were
supported by substantial evidence. In matters falling under the
field of expertise of quasi-judicial bodies, their findings of fact
are accorded great respect when supported by substantial
evidence.
Hence, this Petition.6
Issues
The petitioner, in its Memorandum, raises the following issues:
"A.
Whether or not the CIAC could take jurisdiction over the case of
Respondent Cid spouses against Petitioner Philrock after the
case had been dismissed by both the RTC and the CIAC.
"B.
Whether or not Respondent Cid spouses have a cause of
action against Petitioner Philrock.
"C.
45
Whether or not the awarding of the amount of P23,276.75 for
materials ordered by Respondent Spouses Cid plus interest
thereon at the rate of 6% from 26 September 1995 is proper.
"D.
Whether or not the awarding of the amount of P65,000.00 as
retrofitting costs is proper.
"E.
Whether or not the awarding of the amount of P1,340,454 for
the value of the delivered but the allegedly unworkable
concrete which was wasted is proper.
"F.
Whether or not the awarding o[f] moral and nominal damages
and attorney's fees and expenses of litigation in favor of
respondents is proper.
"G.
Whether or not Petitioner Philrock should be held liable for the
payment of arbitration fees."7
In sum, petitioner imputes reversible error to the CA (1) for
upholding the jurisdiction of the CIAC after the latter had
dismissed the case and referred it to the regular court, (2) for
ruling that respondent spouses had a cause of action against
petitioner, and (3) for sustaining the award of damages.
This Courts Ruling
The Petition has no merit.
First Issue:
Jurisdiction
Petitioner avers that the CIAC lost jurisdiction over the
arbitration case after both parties had withdrawn their consent
to arbitrate. The June 13, 1995 RTC Order remanding the case
to the CIAC for arbitration was allegedly an invalid mode of
referring a case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly
vests in the CIAC original and exclusive jurisdiction over
disputes arising from or connected with construction contracts
entered into by parties that have agreed to submit their dispute
to voluntary arbitration.8
It is undisputed that the parties submitted themselves to the
jurisdiction of the Commission by virtue of their Agreement to
ADR || First Batch
Arbitrate dated November 24, 1993. Signatories to the
Agreement were Atty. Ismael J. Andres and Perry Y. Uy
(president of Philippine Rock Products, Inc.) for petitioner, and
Nelia G. Cid and Atty. Esteban A. Bautista for respondent
spouses.9
Petitioner claims, on the other hand, that this Agreement was
withdrawn by respondents on April 8, 1994, because of the
exclusion of the seven engineers of petitioners in the arbitration
case. This withdrawal became the basis for the April 13, 1994
CIAC Order dismissing the arbitration case and referring the
dispute back to the RTC. Consequently, the CIAC was divested
of its jurisdiction to hear and decide the case.
This contention is untenable. First, private respondents
removed the obstacle to the continuation of the arbitration,
precisely by withdrawing their objection to the exclusion of the
seven engineers. Second, petitioner continued participating in
the arbitration even after the CIAC Order had been issued. It
even concluded and signed the Terms of Reference10 on
August 21, 1995, in which the parties stipulated the
circumstances leading to the dispute; summarized their
respective positions, issues, and claims; and identified the
composition of the tribunal of arbitrators. The document clearly
confirms both parties intention and agreement to submit the
dispute to voluntary arbitration. In view of this fact, we fail to
see how the CIAC could have been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner
maneuvered to avoid the RTCs final resolution of the dispute
by arguing that the regular court also lost jurisdiction after the
arbitral tribunals April 13, 1994 Order referring the case back to
the RTC. In so doing, petitioner conceded and estopped itself
from further questioning the jurisdiction of the CIAC. The Court
will not countenance the effort of any party to subvert or defeat
the objective of voluntary arbitration for its own private motives.
After submitting itself to arbitration proceedings and actively
participating therein, petitioner is estopped from assailing the
jurisdiction of the CIAC, merely because the latter rendered an
adverse decision.11
Second Issue:
Cause of Action
Petitioner contends that respondent spouses were negligent in
not engaging the services of an engineer or architect who
should oversee their construction, in violation of Section 308 of
the National Building Code. It adds that even if the concrete it
delivered was defective, respondent spouses should bear the
loss arising from their illegal operation. In short, it alleges that
they had no cause of action against it.
We disagree. Cause of action is defined as an act or omission
by which a party violates the right of another.12 A complaint is
deemed to have stated a cause of action provided it has
46
indicated the following: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or the
omission of the defendant in violation of the said legal right.13
The cause of action against petitioner was clearly established.
Respondents were purchasers of ready-mix concrete from
petitioner. The concrete delivered by the latter turned out to be
of substandard quality. As a result, respondents sustained
damages when the structures they built using such cement
developed cracks and honeycombs. Consequently, the
construction of their residence had to be stopped.
Further, the CIAC Decision clearly spelled out respondents
cause of action against petitioner, as follows:
"Accordingly, this Tribunal finds that the mix was of the right
proportions at the time it left the plant. This, however, does not
necessarily mean that all of the concrete mix delivered had
remained workable when it reached the jobsite. It should be
noted that there is no evidence to show that all the transit
mixers arrived at the site within the allowable time that would
ensure the workability of the concrete mix delivered.
"On the other hand, there is sufficiently strong evidence to
show that difficulties were encountered in the pouring of
concrete mix from certain transit mixers necessitating the
[addition] of water and physically pushing the mix, obviously
because the same [was] no longer workable. This Tribunal
holds that the unworkability of said concrete mix has been
firmly established.
"There is no dispute, however, to the fact that there are defects
in some areas of the poured structures. In this regard, this
Tribunal holds that the only logical reason is that the
unworkable concrete was the one that was poured in the
defective sections."14
Third Issue:
Monetary Awards
Petitioner assails the monetary awards given by the arbitral
tribunal for alleged lack of basis in fact and in law. The solicitor
general counters that the basis for petitioners assigned errors
with regard to the monetary awards is purely factual and
beyond the review of this Court. Besides, Section 19, EO 1008,
expressly provides that monetary awards by the CIAC are final
and unappealable.
We disagree with the solicitor general. As pointed out earlier,
factual findings of quasi-judicial bodies that have acquired
expertise are generally accorded great respect and even
finality, if they are supported by substantial evidence.15 The
Court, however, has consistently held that despite statutory
provisions making the decisions of certain administrative
agencies "final," it still takes cognizance of petitions showing
want of jurisdiction, grave abuse of discretion, violation of due
ADR || First Batch
process, denial of substantial justice or erroneous interpretation
of the law.16 Voluntary arbitrators, by the nature of their
functions, act in a quasi-judicial capacity, such that their
decisions are within the scope of judicial review.17
Petitioner protests the award to respondent spouses of
P23,276.25 as excess payment with six percent interest
beginning September 26, 1995. It alleges that this item was
neither raised as an issue by the parties during the arbitration
case, nor was its justification discussed in the CIAC Decision. It
further contends that it could not be held liable for interest,
because it had earlier tendered a check in the same amount to
respondent spouses, who refused to receive it.
Petitioners contentions are completely untenable. Respondent
Nelia G. Cid had already raised the issue of overpayment even
prior to the formal arbitration. In paragraph 9 of the Terms of
Reference, she stated:
"9. Claimants were assured that the problem and her demands
had been the subject of several staff meetings and that Arteche
was very much aware of it, a memorandum having been
submitted citing all the demands of [c]laimants. This assurance
was made on July 31, 1992 when Respondents Secillano,
Martillano and Lomibao came to see Claimant Nelia Cid and
offered to refund P23,276.25, [t]he difference between the
billing by Philrocks Marketing Department in the amount of
P125,586.25 and the amount charged by Philrock's Batching
Plant Department in the amount of only P102,586.25, which
[c]laimant refused to accept by saying, Saka na lang."18
The same issue was discussed during the hearing before the
arbitration tribunal on December 19, 1995.19 It was also
mentioned in that tribunals Decision dated September 24,
1996.20
The payment of interest is based on Article 2209 of the Civil
Code, which provides that if the obligation consists of the
payment of a sum of money, and the debtor incurs delay, the
indemnity for damages shall be the payment of legal interest
which is six per cent per annum, in the absence of a stipulation
of the rate.
Awards for Retrofitting Costs, Wasted Unworkable But
Delivered Concrete, and Arbitration Fees
Petitioner maintains that the defects in the concrete structure
were due to respondent spouses failure to secure the services
of an engineer or architect to supervise their project. Hence, it
claims that the award for retrofitting cost was without legal
basis. It also denies liability for the wasted unworkable but
delivered concrete, for which the arbitral court awarded
P13,404.54. Finally, it complains against the award of litigation
expenses, inasmuch as the case should not have been
instituted at all had respondents complied with the requirements
of the National Building Code.
47
We are unconvinced. Not only did respondents disprove the
contention of petitioner; they also showed that they sustained
damages due to the defective concrete it had delivered. These
were items of actual damages they sustained due to its breach
of contract.
Moral and Nominal Damages, Attorneys Fees and Costs
Petitioner assails the award of moral damages, claiming no
malice or bad faith on its part.
We disagree. Respondents were deprived of the comfort and
the safety of a house and were exposed to the agony of
witnessing the wastage and the decay of the structure for more
than seven years. In her Memorandum, Respondent Nelia G.
Cid describes her familys sufferings arising from the
unreasonable delay in the construction of their residence, as
follows: "The family lives separately for lack of space to stay in.
Mrs. Cid is staying in a small dingy bodega, while her son
occupies another makeshift room. Their only daughter stayed
with her aunt from 1992 until she got married in 1996. x x x."21
The Court also notes that during the pendency of the case,
Respondent Vicente Cid died without seeing the completion of
their home.22 Under the circumstances, the award of moral
damages is proper.
Petitioner also contends that nominal damages should not have
been granted, because it did not breach its obligation to
respondent spouses.
Nominal damages are recoverable only if no actual or
substantial damages resulted from the breach, or no damage
was or can be shown.23 Since actual damages have been
proven by private respondents for which they were amply
compensated, they are no longer entitled to nominal damages.
Petitioner protests the grant of attorneys fees, arguing that
respondent spouses did not engage the services of legal
counsel. Also, it contends that attorneys fees and litigation
expenses are awarded only if the opposing party acted in gross
and evident bad faith in refusing to satisfy plaintiffs valid, just
and demandable claim.
We disagree. The award is not only for attorneys fees, but also
for expenses of litigation. Hence, it does not matter if
respondents represented themselves in court, because it is
obvious that they incurred expenses in pursuing their action
before the CIAC, as well as the regular and the appellate
courts. We find no reason to disturb this award. 1wphi1.nt
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED; however, the award of nominal damages
is DELETED for lack of legal basis. Costs against petitioner.
SO ORDERED.
ADR || First Batch 48

Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur. 10 Annex "F"; CA rollo for GR SP No. 39781, pp. 188-203.

11See Spouses Benitez v. Court of Appeals, 266 SCRA 242,

Footnote
1Penned by Justice Ramon A. Barcelona with the concurrence
of Justices Jesus M. Elbinias, Division chairman; and
Maximiano C. Asuncion, member. By the time the assailed
Resolution was promulgated, Justice Asuncion had died and
had thus been replaced by Justice Jorge S. Imperial.[1]
2 CA Decision, p. 10; rollo, p. 55.
January 16, 1997.
12Camara v. Court of Appeals, 310 SCRA 608, 618, July 20,
1999; Delos Reyes v. Court of Appeals, 285 SCRA 81, 85,
January 27, 1998; Leberman Realty Corporation v. Typingco,
293 SCRA 316, 327, July 29, 1998.
13Baluyot v. Court of Appeals, 311 SCRA 29, 45, July 22, 1999;
Vergara v. Court of Appeals, 319 SCRA 323, 327, November
26, 1999; Leberman v. Typinco, ibid., p. 328.

3 Rollo, p. 44.
14CIAC Decision dated September 24, 1996; CA rollo for GR
SP No. 42443, p. 42.
4 CA Decision, pp. 1-5; rollo, pp. 46-50.
15Villaflor v. Court of Appeals, 280 SCRA 297, 330, October 9,
1997; Philippine Merchant Marine School, Inc. v. Court of
5 The Arbitral Tribunal was composed of Joven B. Joaquin,
Appeals, 244 SCRA 770, 785, June 2, 1995; COCOFED v.
chairman; Atty. Alfredo F. Tadiar and Engr. Loreto C. Aquino,
Trajano, 241 SCRA 262, 268, February 15, 1995.
members.
16Villaflor v. CA, ibid.; De Ysasi III v. National Labor Relations
6 This case was deemed submitted for decision upon this
Commission, 231 SCRA 173, 185, March 11, 1994.
Courts receipt on October 21, 1999, of the Memorandum filed
and personally signed by Respondent Nelia Cid; Vicente, her
husband, had died in the meantime. The Memorandum for
17Chung Fu Industries (Phils.), Inc. v. Court of Appeals, 206
petitioner was signed by Atty. Pericles C. Consunji of Ponce SCRA 545, 556, February 25, 1992.
Enrile Reyes & Manalastas, while the Memorandum for Public
Respondent was signed by Assistant Solicitor General Carlos 18 CA rollo for GR SP No. 39781, p. 195.
N. Ortega and Solicitor Geraldine C. Fiel-Macaraig.
19 Ibid., pp. 118-120.
7 Rollo, pp. 155-156.
20 CA rollo for GR SP No. 42443, p. 36.
8 "SECTION 4. Jurisdiction The CIAC shall have original and
exclusive jurisdiction over disputes arising from, or connected 21 Rollo, p. 198.
with, contracts entered into by parties involved in construction
in the Philippines, whether the dispute arises before or after the 22 Respondent Nelia Cids Explanation; rollo, pp. 184-186.
completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a
23 Go v. Intermediate Appellate Court, 197 SCRA 22, 28-29,
dispute must agree to submit the same to voluntary arbitration. May 13, 1991; Ventanilla v. Centeno, 1 SCRA 215, 220,
January 28, 1961; Robes-Francisco Realty v. Court of First
Instance, 86 SCRA 59, 65-66, October 30, 1978.
"The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or
application of contractual provisions; amount of damages and
penalties; commencement time and delays; maintenance and
defects; payment; default of employer or contractor and
changes in contract cost.

"Excluded from the coverage of this law are disputes arising

from employer-employee relationships which shall continue to
be covered by the Labor Code of the Philippines." (EO 1008)

9 Annex "C"; CA rollo for GR SP No. 39781, p. 29.

ADR || First Batch
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126212 March 2, 2000
SEA-LAND SERVICE, INC., petitioner,
vs.
COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and
MAERSK-TABACALERA SHIPPING AGENCY (FILIPINAS),
INC., respondents.
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set
aside the decision of the Court of Appeals dated September 29,
1995 in CA-G.R. SP No. 35777,1 dismissing the petition for
certiorari filed by petitioner to annul the two (2) orders issued by
the Regional Trial Court of Quezon City, Branch 216, in Civil
Case No. Q-92-12593.
The facts are as follows:
On April 29, 1991, petitioner Sea-Land Services, Inc. and
private respondent A.P. Moller/Maersk Line (hereinafter
referred to as "AMML"), both carriers of cargo in containerships
as well as common carriers, entered into a contract entitled,
"Co-operation in the Pacific"2 (hereinafter referred to as the
"Agreement"), a vessel sharing agreement whereby they
mutually agreed to purchase, share and exchange needed
space for cargo in their respective containerships. Under the
Agreement, they could be, depending on the occasion, either a
principal carrier (with a negotiable bill of lading or other contract
of carriage with respect to cargo) or a containership operator
(owner, operator or charterer of containership on which the
cargo is carried).
During the lifetime of the said Agreement, or on 18 May 1991,
Florex International, Inc. (hereinafter referred to as "Florex")
delivered to private respondent AMML cargo of various
foodstuffs, with Oakland, California as port of discharge and
San Francisco as place of delivery. The corresponding Bill of
Lading No. MAEU MNL110263 was issued to Florex by
respondent AMML. Pursuant to the Agreement, respondent
AMML loaded the subject cargo on MS Sealand Pacer, a
vessel owned by petitioner. Under this arrangement, therefore,
respondent AMML was the principal carrier while petitioner was
the containership operator.
The consignee refused to pay for the cargo, alleging that
delivery thereof was delayed. Thus, on June 26, 1992, Florex
filed a complaint against respondent Maersk-Tabacalera
Shipping Agency (Filipinas), Inc. for reimbursement of the value
49
of the cargo and other charges.3 According to Florex, the cargo
was received by the consignee only on June 28, 1991, since it
was discharged in Long Beach, California, instead of in
Oakland, California on June 5, 1991 as stipulated.
Respondent AMML filed its Answer4 alleging that even on the
assumption that Florex was entitled to reimbursement, it was
petitioner who should be liable. Accordingly, respondent AMML
filed a Third Party Complaint5 against petitioner on November
10, 1992, averring that whatever damages sustained by Florex
were caused by petitioner, which actually received and
transported Florex's cargo on its vessels and unloaded them.
On January 1, 1993, petitioner filed a Motion to Dismiss the
Third Party Complaint6 on the ground of failure to state a cause
of action and lack of jurisdiction, the amount of damages not
having been specified therein. Petitioner also prayed either for
dismissal or suspension of the Third Party Complaint on the
ground that there exists an arbitration agreement between it
and respondent AMML. On September 27, 1993, the lower
court issued an Order denying petitioner's Motion to Dismiss.
Petitioner's Motion for Reconsideration was likewise denied by
the lower court in its August 22, 1994 Order.
Undaunted, petitioner filed a petition for certiorari7 with the
Court of Appeals on November 23, 1994. Meanwhile, petitioner
also filed its Answer to the Third Party Complaint in the trial
court.
On September 29, 1995, respondent Court of Appeals
rendered the assailed Decision dismissing the petition for
certiorari. With the denial of its Motion for Reconsideration,
petitioner filed the instant petition for review, raising the
following issues
I.
THE COURT OF APPEALS DISREGARDED AN AGREEMENT
TO ARBITRATE IN VIOLATION OF STATUTE AND
SUPREME COURT DECISIONS HOLDING THAT
ARBITRATION IS A CONDITION PRECEDENT TO SUIT
WHERE SUCH AN AGREEMENT TO ARBITRATE EXISTS.
II.
THE COURT OF APPEALS HAS RULED IN A MANNER NOT
IN ACCORD WITH JURISPRUDENCE WHEN IT REFUSED
TO HAVE THE THIRD-PARTY COMPLAINT DISMISSED FOR
FAILURE TO STATE A CAUSE OF ACTION AND FOR
RULING THAT THE FAILURE TO STATE A CAUSE OF
ACTION MAY BE REMEDIED BY REFERENCE TO ITS
ATTACHMENTS.8
Resolving first the issue of failure to state a cause of action,
respondent Court of Appeals did not err in reading the
Complaint of Florex and respondent AMML's Answer together
ADR || First Batch
with the Third Party Complaint to determine whether a cause of
action is properly alleged. In Fil-Estate Golf and Development,
Inc. vs. Court of Appeals,9 this Court ruled that in the
determination of whether or not the complaint states a cause of
action, the annexes attached to the complaint may be
considered, they being parts of the complaint.
Coming now to the main issue of arbitration, the pertinent
clauses of the "Co-operation in the Pacific" contract entered
into by the parties provide:
16.2 For the purposes of this agreement the Containership
Operator shall be deemed to have issued to the Principal
Carrier for good consideration and for both loaded and empty
containers its non-negotiable memo bills of lading in the form
attached hereto as Appendix 6, consigned only to the Principal
Carrier or its agents, provisions of which shall govern the
liability between the Principal Carrier and the Containership
Operator and that for the purpose of determining the liability in
accordance with either Lines' memo bill of lading, the number of
packages or customary freight units shown on the bill of lading
issued by the Principal Carrier to its shippers shall be
controlling.
16.3 The Principal Carrier shall use all reasonable endeavours
to defend all in personam and in rem suits for loss of or damage
to cargo carried pursuant to bills of lading issued by it, or to
settle such suits for as low a figure as reasonably possible. The
Principal Carrier shall have the right to seek damages and/or an
indemnity from the Containership Operator by arbitration
pursuant to Clause 32 hereof. Notwithstanding the provisions of
the Lines' memo bills of lading or any statutory rules
incorporated therein or applicable thereto, the Principal Carrier
shall be entitled to commence such arbitration at any time until
one year after its liability has been finally determined by
agreement, arbitration award or judgment, such award or
judgment not being the subject of appeal, provided that the
Containership Operator has been given notice of the said claim
in writing by the Principal Carrier within three months of the
Principal Carrier receiving notice in writing of the claim. Further
the Principal Carrier shall have the right to grant extensions of
time for the commencement of suit to any third party interested
in the cargo without prior reference to the Containership
Operator provided that notice of any extension so granted is
given to the Containership Operator within 30 days of any such
extension being granted.
xxx xxx xxx
32. ARBITRATION
32.1 If at any time a dispute or claim arises out of or in
connection with the Agreement the Lines shall endeavour to
settle such amicably, failing which it shall be referred to
arbitration by a single arbitrator in London, such arbitrator to be
appointed by agreement between the Lines within 14 days after
service by one Line upon the other of a notice specifying the
50
nature of the dispute or claim and requiring reference of such
dispute or claim to arbitration pursuant to this Article.
32.2 Failing agreement upon an arbitrator within such period of
14 days, the dispute shall be settled by three Arbitrators, each
party appointing one Arbitrator, the third being appointed by the
President of the London Maritime Arbitrators Association.
32.3 If either of the appointed Arbitrators refuses or is incapable
of acting, the party who appointed him shall appoint a new
Arbitrator in his place.
32.4 If one of the parties fails to appoint an Arbitrator either
originally or by way of substitution for two weeks after the
other party having appointed his Arbitrator has sent the party
making default notice by mail, fax or telex to make the
appointment, the party appointing the third Arbitrator shall, after
application from the party having appointed his Arbitrator, also
appoint an Arbitrator in behalf of the party making default.
32.5 Any such arbitration shall be in accordance with the
Arbitration Act 1950 as amended by the Arbitration Act 1979 or
any other subsequent legislation and the arbitrator's award
shall be final and binding upon Lines. To the extent permitted
by the Arbitration Act 1979 the Lines hereto exclude pursuant
to S 3(1) of that Act the jurisdiction of the English High Court of
Justice to entertain any appeal or application under Section 1
and 2 of the Arbitration Act 1979. 10
From the foregoing, the following matters are clear: First,
disputes between the Principal Carrier and the Containership
Operator arising from contracts of carriage shall be governed
by the provisions of the bills of lading issued to the Principal
Carrier by the Containership Operator. Second, the Principal
Carrier shall use its best efforts to defend or settle all suits
against it for loss of or damage to cargo pursuant to bills of
lading issued by it. Third, the Principal Carrier shall have the
right to seek damages and/or indemnity from the Containership
Operator by arbitration, pursuant to Clause 32 of the
agreement. Fourth, the Principal Carrier shall have the right to
commence such arbitration any time until one year after its
liability has been finally determined by agreement, arbitration
award or judgment, provided that the Containership Operator
was given notice in writing by the Principal Carrier within three
months of the Principal Carrier receiving notice in writing of said
claim.
Prescinding from the foregoing matters, we find that both the
trial court and the Court of Appeals erred in denying petitioner's
prayer for arbitration.
To begin with, allowing respondent AMML's Third Party Claim
against petitioner to proceed would be in violation of Clause
16.2 of the Agreement. As summarized, the clause provides
that whatever dispute there may be between the Principal
Carrier and the Containership Operator arising from contracts
ADR || First Batch 51

of carriage shall be governed by the provisions of the bills of
lading deemed issued to the Principal Carrier by the
Containership Operator. On the other hand, to sustain the Third
Party Complaint would be to allow private respondent to hold
petitioner liable under the provisions of the bill of lading issued
by the Principal Carrier to Florex, under which the latter is suing
in its Complaint, not under the bill of lading petitioner, as
containership operator, issued to respondent AMML, as
Principal Carrier, contrary to what is contemplated in Clause
16.2.
The Court of Appeals ruled that the terms of the Agreement
"explicitly required that the principal carrier's claim against the
containership operator first be finally determined by, among
vaunted as "the wave of the future" in international relations,
and is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward. 12
WHEREFORE, premises considered, the instant Petition for
Review on Certiorari is GRANTED. The decision of the Court of
Appeals in CA-G.R. SP No. 35777 is REVERSED and SET
ASIDE. The Regional Trial Court of Quezon City, Branch 77, is
ordered to DISMISS Respondent AMML's Third Party
Complaint in Civil Case No. Q-92-12593. No pronouncement as
to costs.
SO ORDERED. 1wphi1.nt

others, a court judgment, before the right to arbitration

accrues." However, the Court of Appeals failed to consider that,
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.
precisely, arbitration is the mode by which the liability of the
Containership Operator may be finally determined. This is clear
from the mandate of Clause 16.3 that "(T)he Principal Carrier
shall have the right to seek damages and/or an indemnity from
the Containership Operator by arbitration" and that it "shall be Footnotes
entitled to commence such arbitration at any time until one year
after its liability has been finally determined by agreement, 1 Petition, Annex "A"; Rollo, pp. 71-83.
arbitration award or judgment".
2 Id., Annex "O" of Annex "L"; Rollo, pp. 298-352.
For respondent Court of Appeals to say that the terms of the
contract do not require arbitration as a condition precedent to 3 Id., Annex "D"; Rollo, pp. 88-110.
judicial action is erroneous. In the light of the Agreement
clauses aforequoted, it is clear that arbitration is the mode 4 Id., Annex "A-1" of Annex "E"; Rollo, pp. 122-125.
provided by which respondent AMML as Principal Carrier can
seek damages and/or indemnity from petitioner, as
Containership Operator. Stated differently, respondent AMML is
5 Id., Annex "E"; Rollo, pp. 111-127.
barred from taking judicial action against petitioner by the clear
terms of their Agreement. 6 Id., Annex "F"; Rollo, pp. 128-135.

As the Principal Carrier with which Florex directly dealt with, 7 Id., Annex "L"; Rollo, pp. 170-186.
respondent AMML can and should be held accountable by
Florex in the event that it has a valid claim against the former. 8 Id., p. 7; Rollo, p. 53.
Pursuant to Clause 16.3 of the Agreement, respondent AMML,
when faced with such a suit "shall use all reasonable 9 G.R. No. 120958, 265 SCRA 614 [1996].
endeavours to defend" itself or "settle such suits for as low a
figure as reasonably possible". In turn, respondent AMML can
seek damages and/or indemnity from petitioner as
10 Rollo, pp. 326-327, 336-337; emphasis provided.
Containership Operator for whatever final judgment may be
adjudged against it under the Complaint of Florex. The crucial 11Cruz vs. Court of Appeals, G.R. No. 126713, 293 SCRA 239
point is that collection of said damages and/or indemnity from [1998].
petitioner should be by arbitration.
12BF Corporation vs. Court of Appeals, G.R. No. 120105, 288
All told, when the text of a contract is explicit and leaves no SCRA 267, 286 [1998].
doubt as to its intention, the court may not read into it any other
intention that would contradict its plain import. 11 Arbitration
being the mode of settlement between the parties expressly
provided for by their Agreement, the Third Party Complaint
should have been dismissed.

This Court has previously held that arbitration is one of the

alternative methods of dispute resolution that is now rightfully
ADR || First Batch
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 129916 March 26, 2001
MAGELLAN CAPITAL MANAGEMENT CORPORATION and
MAGELLAN CAPITAL HOLDINGS CORPORATION,
petitioners,
vs.
ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in
his capacity as Presiding Judge of Branch 58 of the
Regional Trial Court of Cebu, 7th Judicial Region,
respondents.
BUENA, J.:
Under a management agreement entered into on March 18,
1994, Magellan Capital Holdings Corporation [MCHC]
appointed Magellan Capital Management Corporation [MCMC]
as manager for the operation of its business and affairs.1
Pursuant thereto, on the same month, MCHC, MCMC, and
private respondent Rolando M. Zosa entered into an
"Employment Agreement" designating Zosa as President and
Chief Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent
Zosa's employment shall be co-terminous with the
management agreement, or until March 1996,2 unless sooner
terminated pursuant to the provisions of the Employment
Agreement.3 The grounds for termination of employment are
also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHC's Board of Directors
decided not to re-elect respondent Zosa as President and Chief
Executive Officer of MCHC on account of loss of trust and
confidence4 arising from alleged violation of the resolution
issued by MCHC's board of directors and of the non-
competition clause of the Employment Agreement.5
Nevertheless, respondent Zosa was elected to a new position
as MCHC's Vice-Chairman/Chairman for New Ventures
Development.6
On September 26, 1995, respondent Zosa communicated his
resignation for good reason from the position of Vice-Chairman
under paragraph 7 of the Employment Agreement on the
ground that said position had less responsibility and scope than
President and Chief Executive Officer. He demanded that he be
given termination benefits as provided for in Section 8 (c) (i) (ii)
and (iii) of the Employment Agreement.7
In a letter dated October 20, 1995, MCHC communicated its
non-acceptance of respondent Zosa's resignation for good
52
reason, but instead informed him that the Employment
Agreement is terminated for cause, effective November 19,
1995, in accordance with Section 7 (a) (v) of the said
agreement, on account of his breach of Section 12 thereof.
Respondent Zosa was further advised that he shall have no
further rights under the said Agreement or any claims against
the Manager or the Corporation except the right to receive
within thirty (30) days from November 19, 1995, the amounts
stated in Section 8 (a) (i) (ii) of the Agreement.8
Disagreeing with the position taken by petitioners, respondent
Zosa invoked the Arbitration Clause of the Employment
Agreement, to wit:
"23. Arbitration. In the event that any dispute, controversy or
claim arises out of or under any provisions of this Agreement,
then the parties hereto agree to submit such dispute,
controversy or claim to arbitration as set forth in this Section
and the determination to be made in such arbitration shall be
final and binding. Arbitration shall be effected by a panel of
three arbitrators. The Manager, Employee and Corporation
shall designate one (1) arbitrator who shall, in turn, nominate
and elect who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of an
arbitration award, shall take place in Metro Manila. The
arbitrators shall interpret this Agreement in accordance with the
substantive laws of the Republic of the Philippines. The
arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of Agreement or to grant injunctive
relief of any nature. Any judgment upon the award of the
arbitrators may be entered in any court having jurisdiction
thereof, with costs of the arbitration to be borne equally by the
parties, except that each party shall pay the fees and expenses
of its own counsel in the arbitration."
On November 10, 1995, respondent Zosa designated his
brother, Atty. Francis Zosa, as his representative in the
arbitration panel9 while MCHC designated Atty. Inigo S. Fojas10
and MCMC nominated Atty. Enrique I. Quiason11 as their
respective representatives in the arbitration panel. However,
instead of submitting the dispute to arbitration, respondent
Zosa, on April 17, 1996, filed an action for damages against
petitioners before the Regional Trial Court of Cebu12 to enforce
his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss13 arguing
that (1) the trial court has no jurisdiction over the instant case
since respondent Zosa's claims should be resolved through
arbitration pursuant to Section 23 of the Employment
Agreement with petitioners; and (2) the venue is improperly laid
since respondent Zosa, like the petitioners, is a resident of
Pasig City and thus, the venue of this case, granting without
admitting that the respondent has a cause of action against the
petitioners cognizable by the RTC, should be limited only to
RTC-Pasig City.14
Meanwhile, respondent Zosa filed an amended complaint dated
ADR || First Batch
July 5, 1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an
Order denying petitioners motion to dismiss upon the findings
that (1) the validity and legality of the arbitration provision can
only be determined after trial on the merits; and (2) the amount
of damages claimed, which is over P100,000.00, falls within the
jurisdiction of the RTC.15 Petitioners filed a motion for
reconsideration which was denied by the RTC in an order dated
September 5, 1996.16
In the interim, on August 22, 1996, in compliance with the
earlier order of the court directing petitioners to file responsive
pleading to the amended complaint, petitioners filed their
Answer Ad Cautelam with counterclaim reiterating their position
that the dispute should be settled through arbitration and the
court had no jurisdiction over the nature of the action.17
On October 21, 1996, the trial court issued its pre-trial order
declaring the pre-trial stage terminated and setting the case for
hearing. The order states:
"ISSUES:
"The Court will only resolve one issue in so far as this case is
concerned, to wit:
"Whether or not the Arbitration Clause contained in Sec. 23 of
the Employment Agreement is void and of no effect: and, if it is
void and of no effect, whether or not the plaintiff is entitled to
damages in accordance with his complaint and the defendants
in accordance with their counterclaim.
"It is understood, that in the event the arbitration clause is valid
and binding between the parties, the parties shall submit their
respective claim to the Arbitration Committee in accordance
with the said arbitration clause, in which event, this case shall
be deemed dismissed."18
On November 18, 1996, petitioners filed their Motion Ad
Cautelam for the Correction, Addition and Clarification of the
Pre-trial Order dated November 15, 1996,19 which was denied
by the court in an order dated November 28, 1996.20
Thereafter, petitioners MCMC and MCHC filed a Motion Ad
Cautelam for the parties to file their Memoranda to support their
respective stand on the issue of the validity of the "arbitration
clause" contained in the Employment Agreement. In an order
dated December 13, 1996, the trial court denied the motion of
petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a
petition for certiorari and prohibition under Rule 65 of the Rules
of Court with the Court of Appeals, questioning the trial court
orders dated August 1, 1996, September 5, 1996, and
December 13, 1996.21
53
On March 21, 1997, the Court of Appeals rendered a decision,
giving due course to the petition, the decretal portion of which
reads:
"WHEREFORE, the petition is GIVEN DUE COURSE. The
respondent court is directed to resolve the issue on the validity
or effectivity of the arbitration clause in the Employment
Agreement, and to suspend further proceedings in the trial on
the merits until the said issue is resolved. The questioned
orders are set aside insofar as they contravene this Court's
resolution of the issues raised as herein pronounced.
"The petitioner is required to remit to this Court the sum of
P81.80 for cost within five (5) days from notice.
"SO ORDERED."22
Petitioners filed a motions for partial reconsideration of the CA
decision praying (1) for the dismissal of the case in the trial
court, on the ground of lack of jurisdiction, and (2) that the
parties be directed to submit their dispute to arbitration in
accordance with the Employment Agreement dated March
1994. The CA, in a resolution promulgated on June 20, 1997,
denied the motion for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18,
1997, rendered a decision declaring the "arbitration clause" in
the Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:
"WHEREFORE, premises considered, judgment is hereby
rendered partially declaring the arbitration clause of the
Employment Agreement void and of no effect, only insofar as it
concerns the composition of the panel of arbitrators, and
directing the parties to proceed to arbitration in accordance with
the Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants, and the
third to be chosen by both the plaintiff and defendants. The
other terms, conditions and stipulations in the arbitration clause
remain in force and effect."23
In view of the trial court's decision, petitioners filed this petition
for review on certiorari, under Rule 45 of the Rules of Court,
assigning the following errors for the Court's resolution:
"I. The trial court gravely erred when it ruled that the arbitration
clause under the employment agreement is partially void and of
no effect, considering that:
"A. The arbitration clause in the employment agreement dated
March 1994 between respondent Zosa and defendants MCHC
and MCMC is valid and binding upon the parties thereto.
"B. In view of the fact that there are three parties to the
employment agreement, it is but proper that each party be
represented in the arbitration panel.
ADR || First Batch
"C. The trial court grievously erred in its conclusion that
petitioners MCMC and MCHC represent the same interest.
"D. Respondent Zosa is estopped from questioning the validity
of the arbitration clause, including the right of petitioner MCMC
to nominate its own arbitrator, which he himself has invoked.
"II. In any event, the trial court acted without jurisdiction in
hearing the case below, considering that it has no jurisdiction
over the nature of the action or suit since controversies in the
election or appointment of officers or managers of a
corporation, such as the action brought by respondent Zosa,
fall within the original and exclusive jurisdiction of the Securities
and Exchange Commission.
"III. Contrary to respondent Zosa's allegation, the issue of the
trial court's jurisdiction over the case below has not yet been
resolved with finality considering that petitioners have expressly
reserved their right to raise said issue in the instant petition.
Moreover, the principle of the law of the case is not applicable
in the instant case.
"IV. Contrary to respondent Zosa's allegation, petitioners
MCMC and MCHC are not guilty of forum shopping.
"V. Contrary to respondent Zosa's allegation, the instant petition
for review involves only questions of law and not of fact."24
We rule against the petitioners.
It is error for the petitioners to claim that the case should fall
under the jurisdiction of the Securities and Exchange
Commission [SEC, for brevity]. The controversy does not in
anyway involve the election/appointment of officers of petitioner
MCHC, as claimed by petitioners in their assignment of errors.
Respondent Zosa's amended complaint focuses heavily on the
illegality of the Employment Agreement's "Arbitration Clause"
initially invoked by him in seeking his termination benefits under
Section 8 of the employment contract. And under Republic Act
No. 876, otherwise known as the "Arbitration Law," it is the
regional trial court which exercises jurisdiction over questions
relating to arbitration. We thus advert to the following
discussions made by the Court of Appeals, speaking thru
Justice Minerva P. Gonzaga-Reyes,25 in C.A.-G.R. S.P. No.
43059, viz.
"As regards the fourth assigned error, asserting that jurisdiction
lies with the SEC, which is raised for the first time in this
petition, suffice it to state that the Amended Complaint squarely
put in issue the question whether the Arbitration Clause is valid
and effective between the parties. Although the controversy
which spawned the action concerns the validity of the
termination of the service of a corporate officer, the issue on the
validity and effectivity of the arbitration clause is determinable
by the regular courts, and do not fall within the exclusive and
original jurisdiction of the SEC.
54
"The determination and validity of the agreement is not a matter
intrinsically connected with the regulation and internal affairs of
corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales vs.
SEC, 169 SCRA 121); it is rather an ordinary case to be
decided in accordance with the general laws, and do not
require any particular expertise or training to interpret and apply
(Viray vs. CA, 191 SCRA 308)."26
Furthermore, the decision of the Court of Appeals in CA-G.R.
SP No. 43059 affirming the trial court's assumption of
jurisdiction over the case has become the "law of the case"
which now binds the petitioners. The "law of the case" doctrine
has been defined as "a term applied to an established rule that
when an appellate court passes on a question and remands the
cause to the lower court for further proceedings, the question
there settled becomes the law of the case upon subsequent
appeal."27 To note, the CA's decision in CA-G.R. SP No. 43059
has already attained finality as evidenced by a Resolution of
this Court ordering entry of judgment of said case, to wit:
"ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a
decision/resolution rendered in the above-entitled case was
filed in this Office, the dispositive part of which reads as follows:
'G.R. No. 129615. (Magellan Capital Management Corporation,
et al. vs. Court of Appeals, Rolando Zosa, et al.). Considering
the petitioner's manifestation dated August 11, 1997 and
withdrawal of intention to file petition for review on certiorari, the
Court Resolved to DECLARE THIS CASE TERMINATED and
DIRECT the Clerk of Court to INFORM the parties that the
judgment sought to be reviewed has become final and
executory, no appeal therefore having been timely perfected.'
and that the same has, on September 17, 1997, become final
and executory and is hereby recorded in the Book of Entries of
Judgments."28
Petitioners, therefore, are barred from challenging anew,
through another remedial measure and in any other forum, the
authority of the regional trial court to resolve the validity of the
arbitration clause, lest they be truly guilty of forum-shopping
which the courts consistently consider as a contumacious
practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court,
via the instant petition, of the factual findings made by the trial
court that the composition of the panel of arbitrators would, in
all probability, work injustice to respondent Zosa. We have
repeatedly stressed that the jurisdiction of this Court in a
petition for review on certiorari under Rule 45 of the Revised
Rules of Court is limited to reviewing only errors of law, not of
fact, unless the factual findings complained of are devoid of
support by the evidence on record, or the assailed judgment is
based on misapprehension of facts.29
ADR || First Batch
Even if procedural rules are disregarded, and a scrutiny of the
merits of the case is undertaken, this Court finds the trial court's
observations on why the composition of the panel of arbitrators
should be voided, incisively correct so as to merit our approval.
Thus,
"From the memoranda of both sides, the Court is of the view
that the defendants [petitioner] MCMC and MCHC represent
the same interest. There is no quarrel that both defendants are
entirely two different corporations with personalities distinct and
separate from each other and that a corporation has a
personality distinct and separate from those persons
composing the corporation as well as from that of any other
legal entity to which it may be related.
"But as the defendants [herein petitioner] represent the same
interest, it could never be expected, in the arbitration
proceedings, that they would not protect and preserve their own
interest, much less, would both or either favor the interest of the
plaintiff. The arbitration law, as all other laws, is intended for the
good and welfare of everybody. In fact, what is being
challenged by the plaintiff herein is not the law itself but the
provision of the Employment Agreement based on the said law,
which is the arbitration clause but only as regards the
composition of the panel of arbitrators. The arbitration clause in
question provides, thus:
'In the event that any dispute, controversy or claim arise out of
or under any provisions of this Agreement, then the parties
hereto agree to submit such dispute, controversy or claim to
arbitration as set forth in this Section and the determination to
be made in such arbitration shall be final and binding.
Arbitration shall be effected by a panel of three arbitrators. The
Manager, Employee, and Corporation shall designate one (1)
arbitrator who shall, in turn, nominate and elect as who among
them shall be the chairman of the committee. Any such
arbitration, including the rendering of an arbitration award, shall
take place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no power
to add to, subtract from or otherwise modify the terms of this
Agreement or to grant injunctive relief of any nature. Any
judgment upon the award of the arbitrators may be entered in
any court having jurisdiction thereof, with costs of the arbitration
to be borne equally by the parties, except that each party shall
pay the fees and expenses of its own counsel in the arbitration.'
(Emphasis supplied).
"From the foregoing arbitration clause, it appears that the two
(2) defendants [petitioners] (MCMC and MCHC) have one (1)
arbitrator each to compose the panel of three (3) arbitrators. As
the defendant MCMC is the Manager of defendant MCHC, its
decision or vote in the arbitration proceeding would naturally
and certainly be in favor of its employer and the defendant
MCHC would have to protect and preserve its own interest;
hence, the two (2) votes of both defendants (MCMC and
MCHC) would certainly be against the lone arbitrator for the
55
plaintiff [herein defendant]. Hence, apparently, plaintiff
[defendant] would never get or receive justice and fairness in
the arbitration proceedings from the panel of arbitrators as
provided in the aforequoted arbitration clause. In fairness and
justice to the plaintiff [defendant], the two defendants (MCMC
and MCHC) [herein petitioners] which represent the same
interest should be considered as one and should be entitled to
only one arbitrator to represent them in the arbitration
proceedings. Accordingly, the arbitration clause, insofar as the
composition of the panel of arbitrators is concerned should be
declared void and of no effect, because the law says, "Any
clause giving one of the parties power to choose more
arbitrators than the other is void and of no effect" (Article 2045,
Civil Code).
"The dispute or controversy between the defendants (MCMC
and MCHC) [herein petitioners] and the plaintiff [herein
defendant] should be settled in the arbitration proceeding in
accordance with the Employment Agreement, but under the
panel of three (3) arbitrators, one (1) arbitrator to represent the
plaintiff, one (1) arbitrator to represent both defendants (MCMC
and MCHC) [herein petitioners] and the third arbitrator to be
chosen by the plaintiff [defendant Zosa] and defendants
[petitioners].
"xxx xxx xxx"30
In this connection, petitioners' attempt to put respondent in
estoppel in assailing the arbitration clause must be struck
down. For one, this issue of estoppel, as likewise noted by the
Court of Appeals, found its way for the first time only on appeal.
Well-settled is the rule that issues not raised below cannot be
resolved on review in higher courts.31 Secondly, employment
agreements such as the one at bar are usually contracts of
adhesion. Any ambiguity in its provisions is generally resolved
against the party who drafted the document. Thus, in the
relatively recent case of Phil. Federation of Credit
Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs.
NLRC and Victoria Abril,32 we had the occasion to stress that
"where a contract of employment, being a contract of adhesion,
is ambiguous, any ambiguity therein should be construed
strictly against the party who prepared it." And, finally,
respondent Zosa never submitted himself to arbitration
proceedings (as there was none yet) before bewailing the
composition of the panel of arbitrators. He in fact, lost no time in
assailing the "arbitration clause" upon realizing the inequities
that may mar the arbitration proceedings if the existing line-up
of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration
proceedings are designed to level the playing field among the
parties in pursuit of a mutually acceptable solution to their
conflicting claims. Any arrangement or scheme that would give
undue advantage to a party in the negotiating table is
anathema to the very purpose of arbitration and should,
therefore, be resisted.
ADR || First Batch 56

WHEREFORE, premises considered, the petition is hereby 20 Annex "DD," Rollo, p. 252.
DISMISSED and the decision of the trial court dated July 18,
1997 is AFFIRMED. 21 The issues submitted to the Court of Appeals are as follows:

SO ORDERED. "I.

Bellosillo, Mendoza and De Leon, Jr., JJ., concur. RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION
Quisumbing, J ., is on leave. WHEN IT ISSUED THE QUESTIONED ORDERS DATED 1
AUGUST 1996 (ANNEX 'A'), 05 SEPTEMBER 1996 (ANNEX
'B') AND 13 DECEMBER 1996 (ANNEX 'C') WHICH
DEFERRED THE RESOLUTION OF THE ISSUE REGARDING
THE VALIDITY OF THE ARBITRATION CLAUSE IN THE
Footnotes
EMPLOYMENT AGREEMENT UNTIL AFTER TRIAL ON THE
MERITS.
1Section 1 of Amended and Restated Management Agreement,
Annex, "B," Rollo p. 74.
"II.
2 par. 2 of the Pre-Trial Order dated October 21, 1996; Annex
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
"BB," Rollo, p. 241.
DISCRETION AMOUNTING TO LACK OF JURISDICTION
WHEN IT FAILED TO RULE THAT THE ARBITRATION
3 Annex "C" of Petition, Rollo, pp. 89-101; 217-229. CLAUSE UNDER THE EMPLOYMENT AGREEMENT IS
VALID AND BINDING ON THE PARTIES THERETO.
4 par. 5 of Petitioner's Memorandum, Rollo, p. 560.
"III.
5 par. 5.1 - 6.4, ibid., Rollo, pp. 560-562.
RESPONDENT COURT ACTED WITHOUT OR IN EXCESS
6 par. 4, ibid., Rollo, p. 559. OF JURISDICTION WHEN IT TOOK COGNIZANCE OF
RESPONDENT ZOSA'S AMENDED COMPLAINT INSTEAD
7 par. 6-7, Amended Complaint, Rollo, pp. 173-174; p. 562. OF REFERRING THE SAME IMMEDIATELY TO
ARBITRATION PURSUANT TO THE EMPLOYMENT
8 Annex "O" of Petition, Rollo, p. 130. AGREEMENT BETWEEN PETITIONERS AND RESPONDENT
ZOSA.
9 Annex "P", of Petition, Rollo, p. 131.
"IV.
10 Annex "R", of Petition, Rollo, p. 133.
IN ANY EVENT, RESPONDENT COURT ACTED AND IS
CONTINUING TO ACT WITHOUT JURISDICTION IN
11 Annex "Q", of Petition, Rollo, p. 132.
HEARING THE CASE BELOW, CONSIDERING THAT IT HAS
NO JURISDICTION OVER THE NATURE OF THE ACTION
12 Annex "BB," Rollo, p. 241. OR SUIT SINCE CONTROVERSIES IN THE ELECTION OR
APPOINTMENT OF OFFICERS OR MANAGERS OF A
13 Annex "S," Rollo, pp. 134-145. CORPORATION, SUCH AS THE ACTION BROUGHT BY
RESPONDENT ZOSA, FALL WITHIN THE ORIGINAL AND
14 Annex "U," Rollo, p. 179. EXCLUSIVE JURISDICTION OF THE SECURITIES AND
EXCHANGE COMMISSION.
15 Annex "X," Rollo, p. 185-186.
"V.
16 Annex "AA," Rollo, p. 240.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
17 Par. 9, Petitioner's Memorandum, Rollo, p. 566. DISCRETION AMOUNTING TO LACK OF JURISDICTION
WHEN IT REFUSED TO DISMISS THE ACTION BELOW FOR
IMPROPER VENUE.
18 Pre-trial Order, Annex "BB," Rollo, pp. 241-243.
"VI.
19 Annex "CC," Rollo, pp. 248; 566-567.
ADR || First Batch 57

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF Republic of the Philippines

DISCRETION AMOUNTING TO LACK OF JURISDICTION SUPREME COURT
WHEN IT FAILED TO DISMISS THE AMENDED COMPLAINT Manila
FOR LACK OF THE REQUISITE CERTIFICATION OF NON- SECOND DIVISION
FORUM SHOPPING."
G.R. No. 136154 February 7, 2001
Court of Appeals' Decision, pp. 5-6; Rollo, pp. 316-317.
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR.,
22 Ibid., pp. 329-330. DANIEL COLLINS and LUIS HIDALGO, petitioners,

23 Annex "A," RTC Decision, pp. 72-73. vs.

24 Rollo, pp. 571-573. COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his

capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro
25 Now Associate Justice of this Court. Manila, MONTEBUENO MARKETING, INC., LIONG LIONG C.
SY and SABROSA FOODS, INC., respondents.
26 Court of Appeals Decision, p. 16; Rollo, p. 321.
BELLOSILLO, J.:
Loevillo C. Agustin vs. Court of Appeals and Filinvest Finance
27

Corporation, 271 SCRA 457 [1997]. This Petition for Review on certiorari assails the 17 July 1998
Decision1 of the Court of Appeals affirming the 11 November
1997 Order2 of the Regional Trial Court which denied
28 Rollo, p. 350.
petitioners' Motion to Suspend Proceedings in Civil Case No.
2637-MN. It also questions the appellate court's Resolution3 of
Congregation of the Religious of the Virgin Mary vs. CA, 291
29
30 October 1998 which denied petitioners' Motion for
SCRA 385 [1998]. Reconsideration.
30 Rollo, pp. 71-72. On 1 July 1994, in a Distributorship Agreement, petitioner Del
Monte Corporation-USA (DMC-USA) appointed private
31Casolita, Sr. vs. Court of Appeals, 275 SCRA 257 [1997]; respondent Montebueno Marketing, Inc. (MMI) as the sole and
Manalili vs. Court of Appeals, 280 SCRA 400 [1997]. exclusive distributor of its Del Monte products in the Philippines
for a period of five (5) years, renewable for two (2) consecutive
32 G.R. No. 121071, December 11, 1998. five (5) year periods with the consent of the parties. The
agreement provided, among others, for an arbitration clause
which states

12. GOVERNING LAW AND ARBITRATION4

This Agreement shall be governed by the laws of the State of

California and/or, if applicable, the United States of America. All
disputes arising out of or relating to this Agreement or the
parties' relationship, including the termination thereof, shall be
resolved by arbitration in the City of San Francisco, State of
California, under the Rules of the American Arbitration
Association. The arbitration panel shall consist of three
members, one of whom shall be selected by DMC-USA, one of
whom shall be selected by MMI, and third of whom shall be
selected by the other two members and shall have relevant
experience in the industry x x x x

In October 1994 the appointment of private respondent MMI as

the sole and exclusive distributor of Del Monte products in the
Philippines was published in several newspapers in the country.
Immediately after its appointment, private respondent MMI
appointed Sabrosa Foods, Inc. (SFI), with the approval of
petitioner DMC-USA, as MMI's marketing arm to concentrate
ADR || First Batch
on its marketing and selling function as well as to manage its
critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMI's
Managing Director Liong Liong C. Sy (LILY SY) filed a
Complaint5 against petitioners DMC-USA, Paul E. Derby, Jr.,6
Daniel Collins7 and Luis Hidalgo,8 and Dewey Ltd.9 before the
Regional Trial Court of Malabon, Metro Manila. Private
respondents predicated their complaint on the alleged
violations by petitioners of Arts. 20,10 2111 and 2312 of the Civil
Code. According to private respondents, DMC-USA products
continued to be brought into the country by parallel importers
despite the appointment of private respondent MMI as the sole
and exclusive distributor of Del Monte products thereby causing
them great embarrassment and substantial damage. They
alleged that the products brought into the country by these
importers were aged, damaged, fake or counterfeit, so that in
March 1995 they had to cause, after prior consultation with
Antonio Ongpin, Market Director for Special Markets of Del
Monte Philippines, Inc., the publication of a "warning to the
trade" paid advertisement in leading newspapers. Petitioners
DMC-USA and Paul E. Derby, Jr., apparently upset with the
publication, instructed private respondent MMI to stop
coordinating with Antonio Ongpin and to communicate directly
instead with petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly
and surreptitiously continued to deal with the former in bad faith
by involving disinterested third parties and by proposing
solutions which were entirely out of their control. Private
respondents claimed that they had exhausted all possible
avenues for an amicable resolution and settlement of their
grievances; that as a result of the fraud, bad faith, malice and
wanton attitude of petitioners, they should be held responsible
for all the actual expenses incurred by private respondents in
the delayed shipment of orders which resulted in the extra
handling thereof, the actual expenses and cost of money for the
unused Letters of Credit (LCs) and the substantial opportunity
losses due to created out-of-stock situations and unauthorized
shipments of Del Monte-USA products to the Philippine Duty
Free Area and Economic zone; that the bad faith, fraudulent
acts and willful negligence of petitioners, motivated by their
determination to squeeze private respondents out of the
outstanding and ongoing Distributorship Agreement in favor of
another party, had placed private respondent LILY SY on
tenterhooks since then; and, that the shrewd and subtle
manner with which petitioners concocted imaginary violations
by private respondent MMI of the Distributorship Agreement in
order to justify the untimely termination thereof was a
subterfuge. For the foregoing, private respondents claimed,
among other reliefs, the payment of actual damages, exemplary
damages, attorney's fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend
Proceedings13 invoking the arbitration clause in their Agreement
with private respondents. 1wphi1.nt
58
In a Resolution14 dated 23 December 1996 the trial court
deferred consideration of petitioners' Motion to Suspend
Proceedings as the grounds alleged therein did not constitute
the suspension of the proceedings considering that the action
was for damages with prayer for the issuance of Writ of
Preliminary Attachment and not on the Distributorship
Agreement.
On 15 January 1997 petitioners filed a Motion for
Reconsideration to which respondents filed their
Comment/Opposition. On 31 January 1997 petitioners filed their
Reply. Subsequently, private respondents filed an Urgent
Motion for Leave to Admit Supplemental Pleading dated 2 April
1997. This Motion was admitted, over petitioners' opposition, in
an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint,
petitioners filed on 22 July 1997 a Manifestation adopting their
Motion to Suspend Proceedings of 17 October 1996 and
Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings
was denied by the trial court on the ground that it "will not serve
the ends of justice and to allow said suspension will only delay
the determination of the issues, frustrate the quest of the
parties for a judicious determination of their respective claims,
and/or deprive and delay their rights to seek redress."15
On appeal, the Court of appeals affirmed the decision of the
trial court. It held that the alleged damaging acts recited in the
Complaint, constituting petitioners' causes of action, required
the interpretation of Art. 21 of the Civil Code16 and that in
determining whether petitioners had violated it "would require a
full blown trial" making arbitration "out of the question."17
Petitioners' Motion for Reconsideration of the affirmation was
denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute
between the parties warrants an order compelling them to
submit to arbitration.
Petitioners contend that the subject matter of private
respondents' causes of action arises out of or relates to the
Agreement between petitioners and private respondents. Thus,
considering that the arbitration clause of the Agreement
provides that all disputes arising out of or relating to the
Agreement or the parties' relationship, including the termination
thereof, shall be resolved by arbitration, they insist on the
suspension of the proceedings in Civil Case No. 2637-MN as
mandated by Sec. 7 of RA 87618
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought
upon an issue arising out of an agreement providing for
arbitration thereof, the court in which such suit or proceeding is
pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration, shall stay the
ADR || First Batch
action or proceeding until an arbitration has been had in
accordance with the terms of the agreement. Provided, That the
applicant for the stay is not in default in proceeding with such
arbitration.
Private respondents claim, on the other hand, that their causes
of action are rooted in Arts. 20, 21 and 23 of the Civil Code,19
the determination of which demands a full blown trial, as
correctly held by the Court of Appeals. Moreover, they claim
that the issues before the trial court were not joined so that the
Honorable Judge was not given the opportunity to satisfy
himself that the issue involved in the case was referable to
arbitration. They submit that, apparently, petitioners filed a
motion to suspend proceedings instead of sending a written
demand to private respondents to arbitrate because petitioners
were not sure whether the case could be a subject of
arbitration. They maintain that had petitioners done so and
private respondents failed to answer the demand, petitioners
could have filed with the trial court their demand for arbitration
that would warrant a determination by the judge whether to
refer the case to arbitration. Accordingly, private respondents
assert that arbitration is out of the question.
Private respondents further contend that the arbitration clause
centers more on venue rather than on arbitration. They finally
allege that petitioners filed their motion for extension of time to
file this petition on the same date20 petitioner DMC-USA filed a
petition to compel private respondent MMI to arbitrate before
the United States District Court in Northern California, docketed
as Case No. C-98-4446. They insist that the filing of the petition
to compel arbitration in the United States made the petition filed
before this Court an alternative remedy and, in a way, an
abandonment of the cause they are fighting for her in the
Philippines, thus warranting the dismissal of the present petition
before this Court.
There is no doubt that arbitration is valid and constitutional in
our jurisdiction.21 Even before the enactment of RA 876, this
Court has countenanced the settlement of disputes through
arbitration. Unless the agreement is such as absolutely to close
the doors of the courts against the parties, which agreement
would be void, the courts will look with favor upon such
amicable arrangement and will only interfere with great
reluctance to anticipate or nullify the action of the arbitrator. 22
Moreover, as RA 876 expressly authorizes arbitration of
domestic disputes, foreign arbitration as a system of settling
commercial disputes 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.23
A careful examination of the instant case shows that the
arbitration clause in the Distributorship Agreement between
petitioner DMC-USA and private respondent MMI is valid and
59
the dispute between the parties is arbitrable. However, this
Court must deny the petition.
The Agreement between petitioner DMC-USA and private
respondent MMI is a contract. The provision to submit to
arbitration any dispute arising therefrom and the relationship of
the parties is part of that contract and is itself a contract. As a
rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their
assigns and heirs.24 Clearly, only parties to the Agreement, i.e.,
petitioners DMC-USA and its Managing Director for Export
Sales Paul E. Derby, Jr., and private respondents MMI and its
Managing Director LILY SY are bound by the Agreement and
its arbitration clause as they are the only signatories thereto.
Petitioners Daniel Collins and Luis Hidalgo, and private
respondent SFI, not parties to the Agreement and cannot even
be considered assigns or heirs of the parties, are not bound by
the Agreement and the arbitration clause therein.
Consequently, referral to arbitration in the State of California
pursuant to the arbitration clause and the suspension of the
proceedings in Civil Case No. 2637-MN pending the return of
the arbitral award could be called for25 but only as to petitioners
DMC-USA and Paul E. Derby, Jr., and private respondents MMI
and LILY SY, and not as to the other parties in this case. This is
consistent with the recent case of Heirs of Augusto L. Salas, Jr.
v. Laperal Realty Corporation,26 which superseded that of
Toyota Motor Philippines Corp. v. Court of Appeals.27
In Toyota, the Court ruled that "[t]he contention that the
arbitration clause has become dysfunctional because of the
presence of third parties is untenable" ratiocinating that
"[c]ontracts are respected as the law between the contracting
parties"28 and that "[a]s such, the parties are thereby expected
to abide with good faith in their contractual commitments."29
However, in Salas, Jr., only parties to the Agreement, their
assigns or heirs have the right to arbitrate or could be
compelled to arbitrate. The Court went further by declaring that
in recognizing the right of the contracting parties to arbitrate or
to compel arbitration, the splitting of the proceedings to
arbitration as to some of the parties on one hand and trial for
the others on the other hand, or the suspension of trial pending
arbitration between some of the parties, should not be allowed
as it would, in effect, result in multiplicity of suits, duplicitous
procedure and unnecessary delay.30
The object of arbitration is to allow the expeditious
determination of a dispute.31 Clearly, the issue before us could
not be speedily and efficiently resolved in its entirety if we allow
simultaneous arbitration proceedings and trial, or suspension of
trial pending arbitration. Accordingly, the interest of justice
would only be served if the trial court hears and adjudicates the
case in a single and complete proceeding.32
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals affirming the Order of the Regional Trial Court
of Malabon, Metro Manila, in Civil Case No. 2637-MN, which
denied petitioners' Motion to Suspend Proceedings, is
ADR || First Batch 60

AFFIRMED. The Regional Trial Court concerned is directed to Br. 73, Malabon, Metro Manila.
proceed with the hearing of Civil Case No. 2637-MN with
dispatch. No costs. 15 See Note 2.

SO ORDERED. 16 See Note 10.

Mendoza, Quisumbing Buena, and De Leon, Jr., JJ., concur. 1wphi1.nt 17 See Note 1.

18 The Arbitration Law.

Footnotes: 19 See Notes 9, 10 and 11.

1 Penned by Associate Justice Demetrio G. Demetria, 20 18 November 1998.

concurred in by Associate Justices Ramon A. Barcelona and
Omar U. Amin. 21 Chapter 2, Title XIV, Book IV, New Civil Code of the
Philippines.
2 Penned by Judge Bienvenido L. Reyes (now Associate
Justice of the Court of Appeals), RTC-Br. 74, Malabon, Metro 22Puromines, Inc. v. Court of Appeals, G.R. No. 91228, 22
Manila.
March 1993, 220 SCRA 281.
3 See Note 1., 23National Union Fire Insurance Company of Pittsburg v. Stolt-
Nielsen Philippines, Inc., G.R. No. 87958, 26 April 1990.
4 Rollo, p. 68.
24 Art. 1311, New Civil Code of the Philippines.
5 Id., pp. 40-82.
25 See Note 22.
6Managing Director of Del Monte Corporation's Export Sales
Department. 26 G.R. No. 135362, 13 December 1999, 320 SCRA 610.
7Regional Director of Del Monte Corporation's Export Sales 27 G.R. No. 102881, 7 December 1992, 216 SCRA 236.
Department.
28 Citing Mercantile Ins. Co., Inc. v. Felipe Ysmael, Jr. & Co.,
8 Head of Credit Services Department of Del Monte
Inc., G.R. NO. 43862, 13 January 1989, 169 SCRA 66.
Corporation.
29Citing Quillian v. Court of Appeals, G.R. No. 55457, 20
9 Owner by assignment of Del Monte Trademarks in the
January 1989, 169 SCRA 279.
Philippines.
30 Ibid.
10 Art. 20. Every person who, contrary to law, willfully and
negligently causes damage to another, shall indemnify the
latter for the same.
31Coquia, Jorge R., Annotation, Arbitration as a Means of
Reducing Court Congestion, 29 July 1977, 78 SCRA 121.
11Art. 21. Any person who willfully causes loss or damage to
another in a manner that is contrary to morals, good custom or
32 See Note 26.
public policy shall compensate the latter for damages.

12 Art. 23. Even when an act or event causing damage to

another's property was not due to the fault or negligence of the
defendant, the latter shall be liable to indemnity, if through the
act or event, he was benefited.

13 Rollo, pp. 83-88..

14 Penned by Presiding Judge Amanda Valera Cabigao, RTCj-

ADR || First Batch 61

Republic of the Philippines The trial opened with the following dialogue, which for the great
SUPREME COURT bearing it has on this case, is here reproduced:.
Manila
EN BANC COURT:

G.R. No. L-29169 August 19, 1968 The parties may proceed.

ROGER CHAVEZ, petitioner, FISCAL GRECIA:

vs. Our first witness is Roger Chavez [one of the accused].

THE HONORABLE COURT OF APPEALS, THE PEOPLE OF ATTY. CARBON [Counsel for petitioner Chavez]:
THE PHILIPPINES and THE WARDEN OF THE CITY JAIL OF
MANILA, respondents.
I am quite taken by surprise, as counsel for the accused Roger
Chavez, with this move of the Fiscal in presenting him as his
Estanislao E. Fernandez and Fausto Arce for petitioner. Office witness. I object.
of the Solicitor General for respondents.
COURT:
SANCHEZ, J.:
On what ground, counsel? .
The thrust of petitioner's case presented in his original and
supplementary petitions invoking jurisdiction of this Court is that
ATTY. CARBON:
he is entitled, on habeas corpus, to be freed from imprisonment
upon the ground that in the trial which resulted in his conviction1
he was denied his constitutional right not to be compelled to On the ground that I have to confer with my client. It is really
testify against himself. There is his prayer, too, that, should he surprising that at this stage, without my being notified by the
fail in this, he be granted the alternative remedies of certiorari to Fiscal, my client is being presented as witness for the
strike down the two resolutions of the Court of Appeals prosecution. I want to say in passing that it is only at this very
dismissing his appeal for failure to file brief, and of mandamus moment that I come to know about this strategy of the
to direct the said court to forward his appeal to this Court for the prosecution.
reason that he was raising purely questions of law.
COURT (To the Fiscal):
The indictment in the court below the third amended
information upon which the judgment of conviction herein You are not withdrawing the information against the accused
challenged was rendered, was for qualified theft of a motor Roger Chavez by making [him a] state witness?.
vehicle, one (1) Thunderbird car, Motor No. H9YH-143003, with
Plate No. H-16648 Pasay City '62 together with its accessories FISCAL GRECIA:
worth P22,200.00. Accused were the following: Petitioner
herein, Roger Chavez, Ricardo Sumilang alias "Romeo I am not making him as state witness, Your Honor.
Vasquez", Edgardo P. Pascual alias "Ging" Pascual, Pedro
Rebullo alias "Pita", Luis Asistio alias "Baby" Asistio, Lorenzo
I am only presenting him as an ordinary witness.
Meneses alias "Lory" Meneses, Peter Doe, Charlie Doe and
Paul Doe.2
ATTY. CARBON:
Averred in the aforesaid information was that on or about the
14th day of November, 1962, in Quezon City, the accused As a matter of right, because it will incriminate my client, I
conspired, with intent of gain, abuse of confidence and without object.
the consent of the owner thereof, Dy Sun Hiok y Lim, in
asporting the motor vehicle above-described. COURT:

Upon arraignment, all the accused, except the three Does who The Court will give counsel for Roger Chavez fifteen minutes
have not been identified nor apprehended, pleaded not guilty. 1wph1.t within which to confer and explain to his client about the giving
of his testimony.
On July 23, 1963, trial commenced before the judge presiding
Branch IX of the Court of First Instance of Rizal in Quezon City. xxx xxx xxx
ADR || First Batch
COURT: [after the recess]
Are the parties ready? .
FISCAL:
We are ready to call on our first witness, Roger Chavez.
ATTY. CARBON:
As per understanding, the proceeding was suspended in order
to enable me to confer with my client.
I conferred with my client and he assured me that he will not
testify for the prosecution this morning after I have explained to
him the consequences of what will transpire.
COURT:
What he will testify to does not necessarily incriminate him,
counsel.
And there is the right of the prosecution to ask anybody to act
as witness on the witness-stand including the accused.
If there should be any question that is incriminating then that is
the time for counsel to interpose his objection and the court will
sustain him if and when the court feels that the answer of this
witness to the question would incriminate him.
Counsel has all the assurance that the court will not require the
witness to answer questions which would incriminate him.
But surely, counsel could not object to have the accused called
on the witnessstand.
ATTY. CARBON:
I submit.
xxx xxx xxx
ATTY. CRUZ [Counsel for defendants Pascual and Meneses]: .
MAY IT PLEASE THE COURT:
This incident of the accused Roger Chavez being called to
testify for the prosecution is something so sudden that has
come to the knowledge of this counsel.
This representation has been apprised of the witnesses
embraced in the information.
62
For which reason I pray this court that I be given at least some
days to meet whatever testimony this witness will bring about. I
therefore move for postponement of today's hearing.
COURT:
The court will give counsel time within which to prepare his
cross-examination of this witness.
ATTY. CRUZ:
I labored under the impression that the witnesses for the
prosecution in this criminal case are those only listed in the
information.
I did not know until this morning that one of the accused will
testify as witness for the prosecution.
COURT:
That's the reason why the court will go along with counsels for
the accused and will give them time within which to prepare for
their cross-examination of this witness.
The court will not defer the taking of the direct examination of
the witness.
Call the witness to the witness stand.
EVIDENCE FOR THE PROSECUTION
ROGER CHAVEZ, 31 years old, single, buy and sell merchant,
presently detained at the Manila Police Department
headquarters, after being duly sworn according to law, declared
as follows:
ATTY. IBASCO [Counsel for defendant Luis Asistio]:
WITH THE LEAVE OF THE COURT:
This witness, Roger Chavez is one of the accused in this case
No. Q-5311.
The information alleges conspiracy. Under Rule 123, Section
12, it states:
'The act or declaration of a conspirator relating to the
conspiracy and during its existence, may be given in evidence
against the co-conspirator after the conspiracy is shown by
evidence other than such act or declaration.'
COURT:
That is premature, counsel. Neither the court nor counsels for
ADR || First Batch
the accused know what the prosecution events to establish by
calling this witness to the witness stand.
ATTY. IBASCO:
I submit.
COURT: The Fiscal may proceed.3
And so did the trial proceed. It began with the "direct
examination" of Roger Chavez by "Fiscal Grecia".
Came the judgment of February 1, 1965. The version of the
prosecution as found by the court below may be briefly narrated
as follows:
A few days before November 12, 1962, Roger Chavez saw
Johnson Lee, a Chinese, driving a Thunderbird car. With
Ricardo Sumilang (movie actor Romeo Vasquez) in mind,
whom he knew was in the market for such a car, Chavez asked
Lee whether his car was for sale. Lee answered affirmatively
and left his address with Chavez. Then, on November 12,
Chavez met Sumilang at a barbershop informed him about the
Thunderbird. But Sumilang said that he had changed his mind
about buying a new car. Instead, he told Chavez that he
wanted to mortgage his Buick car for P10,000.00 to cover an
indebtedness in Pasay City. Upon the suggestion of Chavez,
they went to see Luis Asistio, who he knew was lending money
on car mortgages and who, on one occasion, already lent
Romeo Vasquez P3,000.00 on the same Buick car. Asistio
however told the two that he had a better idea on how to raise
the money. His plan was to capitalize on Romeo Vasquez'
reputation as a wealthy movie star, introduce him as a buyer to
someone who was selling a car and, after the deed of sale is
signed, by trickery to run away with the car. Asistio would then
register it, sell it to a third person for a profit. Chavez known to
be a car agent was included in the plan. He furnished the name
of Johnson Lee who was selling his Thunderbird. 1wph1.t
In the morning of November 14, Chavez telephoned Johnson
Lee and arranged for an appointment. Sometime in the
afternoon. Chavez and Sumilang met Lee in his Thunderbird on
Highway 54. Sumilang was introduced as the interested buyer.
Sumilang's driver inspected the car, took the wheel for a while.
After Sumilang and Lee agreed on the purchase price
(P21.000.00), they went to Binondo to Johnson Lee's cousin,
Dy Sun Hiok, in whose name the car was registered.
Thereafter, they went to see a lawyer notary public in Quezon
City, known to Chavez for the drafting of the deed of sale. After
the deed of sale was drawn up, it was signed by Sumilang as
the vendee, Dy Sun Hiok the vendor, and Sumilang's driver and
Johnson Lee the witnesses thereto.
As payment was to be made at Eugene's restaurant in Quezon
City, all of them then drove in the Thunderbird car to that place.
The deed of sale and other papers remained in the pockets of
63
Johnson Lee.
At Eugene's, a man approached Sumilang with a note which
stated that the money was ready at the Dalisay Theater.
Sumilang then wrote on the same note that the money should
be brought to the restaurant. At the same time he requested
Lee to exhibit the deed of sale of the car to the note bearer.4
Then, the two Chinese were left alone in the restaurant. For
Sumilang, who had left the table to pose for pictures with some
fans and come back, again left never to return. So did Chavez,
who disappeared after he left on the pretext of buying
cigarettes. The two Chinese could not locate Sumilang and
Chavez. They went out to the place where the Thunderbird was
parked, found that it was gone. They then immediately reported
its loss to the police. Much later, the NBI recovered the already
repainted car and impounded it.
Right after the meeting at Eugene's, Chavez, Sumilang and
Asistio converged that same day at Barrio Fiesta, a restaurant
at Highway 54 near the Balintawak monument in Caloocan.
There, Asistio handed to Sumilang P1,000.00 cash and a golf
set worth P800.00 as the latter's share in the transaction. On
the 14th of November, the registration of the car was
transferred in the name of Sumilang in Cavite City, and three
days later, in the name of Asistio in Caloocan.
From the court's decision, Ricardo Sumilang's version,
corroborated in part by Asistio, may be condensed as follows:
In the last week of September, 1962, Sumilang saw Roger
Chavez at a gas station. The latter informed him that there was
a Thunderbird from Clark Field for sale for a price between
P20,000.00 and P22,000.00. Chavez said that it could be held
for him with a down payment of P10,000.00.
To raise this sum, Sumilang and Chavez, on October 1, went to
the house of a certain Nena Hernaez de los Reyes who wrote
out a check for P5,000.00 as a loan to Sumilang. That check
was exhibited in court. Sumilang and Chavez then went to
Pasay City to see a certain Mario Baltazar, an agent of the
Pasay City Mayor, and Narsing Cailles, Chief of the Fire
Department. Sumilang asked the two for a P10,000-loan
backed up by the P5,000.00-check aforesaid on condition that it
should not be cashed immediately as there were not enough
funds therefor. Baltazar and Cailles agreed to give the money
the nextday as long as the check would be left with them and
Sumilang would sign a promissory note for P10,000.00.
Baltazar later informed Sumilang that Chavez picked up the
money the next day. Four or five days afterwards, Chavez
returned P4,000.00 to Sumilang because P6,000.00 was
enough for the deposit. And so, Sumilang gave back the
P4,000.00 to Baltazar.
About the end of October or at the beginning of November,
Chavez asked Sumilang for another P3,000.00. Sumilang sent
ADR || First Batch
Chavez to Baltazar and Cailles, with a note requesting that they
accommodate him once more. He also sent a check, again
without funds. Baltazar gave the money after verifying the
authenticity of the note.
On November 14, Chavez appeared at Sumilang's house with
the news that the car was ready if Sumilang was ready with the
rest of the money. So Sumilang got P9,000.00 from his mother
and another P4,000.00 from his aparador. He immediately gave
P6,000.00 to Chavez, intending to pay out the balance upon
the car's delivery. It was then that Chavez told Sumilang that
the car was already bought by a Chinese who would be the
vendor.
The purchase price finally agreed upon between Sumilang and
Johnson Lee was P21,000.00, plus P500.00 agents
commission at the expense of the buyer. Sumilang told Lee that
he already paid part of the price to Chavez.
At Eugene's, Chavez asked Sumilang for the balance.
Sumilang accommodated. There, Sumilang, also saw a friend,
"Ging" Pascual. In the course of their conversation at the bar,
Sumilang mentioned the proposed transaction thru Chavez.
Pascual warned that Chavez was a "smart" agent and advised
that Sumilang should have a receipt for his money. A certain
Bimbo, a friend of Pascual, offered to make out a receipt for
Chavez to sign.
After Sumilang returned from posing for some photographs with
some of his fans, Bimbo showed him the receipt already signed
by Chavez. Sumilang requested Pascual and Bimbo to sign the
receipt as witnesses. And they did. This receipt was offered as
an exhibit by the prosecution and by Sumilang.
When Sumilang was ready to leave Eugene's, Johnson Lee
turned over to him the deed of sale, the registration papers and
the keys to the car. After shaking hands with Lee, Sumilang
drove away in the car with his driver at the wheel.
Two or three days afterwards, Sumilang dropped by the Barrio
Fiesta on his way to a film shooting at Bulacan. He saw Asistio
with many companions. Asistio liked his Thunderbird parked
outside. Asistio offered to buy it from him for P22,500.00. As
the offer was good, and knowing Asistio's and his friends'
reputation for always getting what they wanted, Sumilang
consented to the sale. Asistio tendered a down payment of
P1,000.00; the balance he promised to pay the next day after
negotiating with some financing company. Before said balance
could be paid, the car was impounded.
The trial court gave evidence to Sumilang's averment,
strengthened by Baltazar's and Cailles' corroborations, that he
paid good money for the car. Sumilang was thus cleared. So
was Asistio whom the trial court believed to be a mere buyer of
the car. And so, the prosecution's theory of conspiracy was
discounted.
64
As to the other accused, the court found no case against Pedro
Rebullo alias "Pita" and Lorenzo Meneses alias "Lory". The
accused "Ging" Pascual was also acquitted for in the first place
he was not identified by Johnson Lee in court.
As to Roger Chavez, however, the court had this to say: "Roger
Chavez does not offer any defense. As a matter of fact, his
testimony as witness for the prosecution establishes his guilt
beyond reasonable doubt."5 The trial court branded him "a self-
confessed culprit".6 The court further continued:
It is not improbable that true to the saying that misery loves
company Roger Chavez tried to drag his co-accused down with
him by coloring his story with fabrications which he expected
would easily stick together what with the newspaper notoriety of
one and the sensationalism caused by the other. But Roger
Chavez' accusations of Asistio's participation is utterly
uncorroborated. And coming, as it does, from a man who has
had at least two convictions for acts not very different from
those charged in this information, the Court would be too
gullible if it were to give full credence to his words even if they
concerned a man no less notorious than himself.7
The trial court then came to the conclusion that if Johnson Lee
was not paid for his car, he had no one but Roger Chavez to
blame.
The sum of all these is that the trial court freed all the accused
except Roger Chavez who was found guilty beyond reasonable
doubt of the crime of qualified theft. He was accordingly
sentenced to suffer an indeterminate penalty of not less than
ten (10) years, one (1) day, as minimum and not more than
fourteen (14) years, eight (8) months and one (1) day as
maximum, to indemnify Dy Sun Hiok and/or Johnson Lee in the
sum of P21,000.00 without subsidiary imprisonment in case of
insolvency, to undergo the accessory penalties prescribed by
law, and to pay the costs. The Thunderbird car then in the
custody of the NBI was ordered to be turned over to Ricardo
Sumilang, who was directed to return to Asistio the sum of
P1,000.00 unless the latter chose to pay P21,500.00,
representing the balance of the contract price for the car.
The foregoing sentence was promulgated on March 8, 1965.
Roger Chavez appealed to the Court of Appeals.
On April 18, 1968, the Court of Appeals required Atty. Natividad
Marquez, counsel for Roger Chavez, to show cause within ten
days from notice why Chavez' appeal should not be considered
abandoned and dismissed. Reason for this is that said lawyer
received notice to file brief on December 28, 1967 and the
period for the filing thereof lapsed on January 27, 1968 without
any brief having been filed.
On May 13, 1968, Atty. Marquez registered a detailed written
explanation. She also stated that if she were allowed to file
appellant's brief she would go along with the factual findings of
ADR || First Batch
the court below but will show however that its conclusion is
erroneous.8
On May 14, 1968, the Court of Appeals, despite the foregoing
explanation, resolved to dismiss the appeal. A move to
reconsider was unavailing. For, on June 21, 1968, the Court of
Appeals, through a per curiam resolution, disposed to maintain
its May 14 resolution dismissing the appeal, directed the City
Warden of Manila where Chavez is confined by virtue of the
warrant of arrest issued by the Court of Appeals, to turn him
over to Muntinlupa Bilibid Prisons pending execution of the
judgment below, and ordered remand of the case to the
Quezon City court for execution of judgment.
It was at this stage that the present proceedings were
commenced in this Court.
Upon the petitions, the return, and the reply, and after hearing
on oral arguments, we now come to grips with the main
problem presented.
We concentrate attention on that phase of the issues which
relates petitioner's assertion that he was compelled to testify
against himself. For indeed if this one question is resolved in
the affirmative, we need not reach the others; in which case,
these should not be pursued here.
1. Petitioner's plea on this score rests upon his averment, with
proof, of violation of his right constitutionally entrenched
against self-incrimination. He asks that the hand of this Court
be made to bear down upon his conviction; that he be relieved
of the effects thereof. He asks us to consider the constitutional
injunction that "No person shall be compelled to be a witness
against himself,"9 fully echoed in Section 1, Rule 115, Rules of
Court where, in all criminal prosecutions, the defendant shall be
entitled: "(e) To be exempt from being a witness against
himself." .
It has been said that forcing a man to be a witness against
himself is at war with "the fundamentals of a republican
government"; 10 that [i]t may suit the purposes of despotic
power but it can not abide the pure atmosphere of political
liberty and personal freedom."11 Mr. Justice Abad Santos
recounts the historical background of this constitutional
inhibition, thus: " "The maxim Nemo tenetur seipsum accusare
had its origin in a protest against the inquisitorial and manifestly
unjust methods of interrogating accused persons, which has
long obtained in the continental system, and, until the expulsion
of the Stuarts from the British throne in 1688, and the erection
of additional barriers for the protection of the people against the
exercise of arbitrary power, was not uncommon even in
England. While the admissions of confessions of the prisoner,
when voluntarily and freely made, have always ranked high in
the scale of incriminating evidence, if an accused person be
asked to explain his apparent connection with a crime under
investigation, the ease with which the questions put to him may
assume an inquisitorial character, the temptation to press, the
65
witness unduly, to browbeat him if he be timid or reluctant, to
push him into a corner, and to entrap him into fatal
contradictions, which is so painfully evident in many of the
earlier state trials, notably in those of Sir Nicholas
Throckmorton, and Udal, the Puritan minister, made the system
so odious as to give rise to a demand for its total abolition. The
change in the English criminal procedure in that particular
seems to be founded upon no statute and no judicial opinion,
but upon a general and silent acquiescence of the courts in a
popular demand. But, however adopted, it has become firmly
embedded in English, as well as in American jurisprudence. So
deeply did the iniquities of the ancient system impress
themselves upon the minds of the American colonists that the
states, with one accord, made a denial of the right to question
an accused person a part of their fundamental law, so that a
maxim which in England was a mere rule of evidence, became
clothed in this country with the impregnability of a constitutional
enactment." (Brown vs. Walker, 161 U.S., 591, 597; 40 Law.
ed., 819, 821)." 12 Mr. Justice Malcolm, in expressive language,
tells us that this maxim was recognized in England in the early
days "in a revolt against the thumbscrew and the rack." 13 An
old Philippine case [1904] 14 speaks of this constitutional
injunction as "older than the Government of the United States";
as having "its origin in a protest against the inquisitorial
methods of interrogating the accused person"; and as having
been adopted in the Philippines "to wipe out such practices as
formerly prevailed in these Islands of requiring accused
persons to submit to judicial examinations, and to give
testimony regarding the offenses with which they were
charged."
So it is then that this right is "not merely a formal technical rule
the enforcement of which is left to the discretion of the court"; it
is mandatory; it secures to a defendant a valuable and
substantive right; 15 it is fundamental to our scheme of justice.
Just a few months ago, the Supreme Court of the United States
(January 29, 1968), speaking thru Mr. Justice Harlan warned
that "[t]he constitutional privilege was intended to shield the
guilty and imprudent as well as the innocent and foresighted." 16
It is in this context that we say that the constitutional guarantee
may not be treated with unconcern. To repeat, it is mandatory;
it secures to every defendant a valuable and substantive right.
Taada and Fernando (Constitution of the Philippines, 4th ed.,
vol. I, pp. 583-584) take note of U.S. vs. Navarro, supra, which
reaffirms the rule that the constitutional proscription was
established on broad grounds of public policy and humanity; of
policy because it would place the witness against the strongest
temptation to commit perjury, and of humanity because it would
be to extort a confession of truth by a kind of duress every
species and degree of which the law abhors. 17
Therefore, the court may not extract from a defendant's own
lips and against his will an admission of his guilt. Nor may a
court as much as resort to compulsory disclosure, directly or
indirectly, of facts usable against him as a confession of the
crime or the tendency of which is to prove the commission of a
ADR || First Batch 66

crime. Because, it is his right to forego testimony, to remain sustain him if and when the court feels that the answer of this
silent, unless he chooses to take the witness stand with witness to the question would incriminate him.
undiluted, unfettered exercise of his own free, genuine will.
Counsel has all the assurance that the court will not require the
Compulsion as it is understood here does not necessarily witness to answer questions which would incriminate him.
connote the use of violence; it may be the product of
unintentional statements. Pressure which operates to overbear But surely, counsel could not object to have the accused called
his will, disable him from making a free and rational choice, or on the witness stand.
impair his capacity for rational judgment would in our opinion be
sufficient. So is moral coercion "tending to force testimony from
Paraphrasing Chief Justice Marshall in Aaron Burr's Trial,
the unwilling lips of the defendant." 18
Robertsons Rep. I, 208, 244, quoted in VIII Wigmore, p. 355, 25
While a defendant's knowledge of the facts remains concealed
2. With the foregoing as guideposts, we now turn to the facts. within his bosom, he is safe; but draw it from thence, and he is
Petitioner is a defendant in a criminal case. He was called by exposed" to conviction.
the prosecution as the first witness in that case to testify for the
People during the first day of trial thereof. Petitioner objected
The judge's words heretofore quoted "But surely counsel
and invoked the privilege of self-incrimination. This he
could not object to have the accused called on the witness
broadened by the clear cut statement that he will not testify. But
stand" wielded authority. By those words, petitioner was
petitioner's protestations were met with the judge's emphatic
enveloped by a coercive force; they deprived him of his will to
statement that it "is the right of the prosecution to ask anybody
resist; they foreclosed choice; the realities of human nature tell
to act as witness on the witness stand including the accused,"
us that as he took his oath to tell the truth, the whole truth and
and that defense counsel "could not object to have the accused
nothing but the truth, no genuine consent underlay submission
called on the witness stand." The cumulative impact of all these
to take the witness stand. Constitutionally sound consent was
is that accused-petitioner had to take the stand. He was thus
absent.
peremptorily asked to create evidence against himself. The
foregoing situation molds a solid case for petitioner, backed by
the Constitution, the law, and jurisprudence. 3. Prejudice to the accused for having been compelled over his
objections to be a witness for the People is at once apparent.
The record discloses that by leading questions Chavez, the
Petitioner, as accused, occupies a different tier of protection
accused, was made to affirm his statement given to the NBI
from an ordinary witness. Whereas an ordinary witness may be
agents on July 17, 1963 at 5:00 o'clock in the afternoon. 26 And
compelled to take the witness stand and claim the privilege as
this statement detailed the plan and execution thereof by
each question requiring an incriminating answer is shot at him,
19 and accused may altogether refuse to take the witness stand
Sumilang (Vasquez), Asistio and himself to deprive the Chinese
of his Thunderbird car. And he himself proceeded to narrate the
and refuse to answer any and all questions. 20 For, in reality, the
same anew in open court. He identified the Thunderbird car
purpose of calling an accused as a witness for the People
involved in the case. 27
would be to incriminate him. 21 The rule positively intends to
avoid and prohibit the certainly inhuman procedure of
compelling a person "to furnish the missing evidence necessary The decision convicting Roger Chavez was clearly of the view
for his conviction." 22 This rule may apply even to a co- that the case for the People was built primarily around the
defendant in a joint trial.23 admissions of Chavez himself. The trial court described Chavez
as the "star witness for the prosecution". Indeed, the damaging
facts forged in the decision were drawn directly from the lips of
And the guide in the interpretation of the constitutional precept
Chavez as a prosecution witness and of course Ricardo
that the accused shall not be compelled to furnish evidence
Sumilang for the defense. There are the unequivocal
against himself "is not the probability of the evidence but it is
statements in the decision that "even accused Chavez"
the capability of abuse." 24 Thus it is, that it was undoubtedly
identified "the very same Thunderbird that Johnson Lee had
erroneous for the trial judge to placate petitioner with these
offered for sale"; that Chavez "testimony as witness for the
words:.
prosecution establishes his guilt beyond reasonable doubt and
that Chavez is "a self-confessed culprit".1wph1.t

What he will testify to does not necessarily incriminate him,

counsel.
And there is the right of the prosecution to ask anybody to act
as witness on the witness-stand including the accused.
If there should be any question that is incriminating then that is
the time for counsel to interpose his objection and the court will
4. With all these, we have no hesitancy in saying that petitioner
was forced to testify to incriminate himself, in full breach of his
constitutional right to remain silent. It cannot be said now that
he has waived his right. He did not volunteer to take the stand
and in his own defense; he did not offer himself as a witness;
on the contrary, he claimed the right upon being called to
testify. If petitioner nevertheless answered the questions inspite
ADR || First Batch
of his fear of being accused of perjury or being put under
contempt, this circumstance cannot be counted against him.
His testimony is not of his own choice. To him it was a case of
compelled submission. He was a cowed participant in
proceedings before a judge who possessed the power to put
him under contempt had he chosen to remain silent. Nor could
he escape testifying. The court made it abundantly clear that
his testimony at least on direct examination would be taken
right then and thereon the first day of the trial.
It matters not that, after all efforts to stave off petitioner's taking
the stand became fruitless, no objections to questions
propounded to him were made. Here involve is not a mere
question of self-incrimination. It is a defendant's constitutional
immunity from being called to testify against himself. And the
objection made at the beginning is a continuing one. 1wph1.t
There is therefore no waiver of the privilege. "To be effective, a
waiver must be certain and unequivocal, and intelligently,
understandably, and willingly made; such waiver following only
where liberty of choice has been fully accorded. After a claim a
witness cannot properly be held to have waived his privilege on
vague and uncertain evidence." 28 The teaching in Johnson vs.
Zerbst 29 is this: "It has been pointed out that "courts indulge
every reasonable presumption against waiver" of fundamental
constitutional rights and that we "do not presume acquiescence
in the loss of fundamental rights." A waiver is ordinarily an
intentional relinquishment or abandonment of a known right or
privilege." Renuntiatio non praesumitur.
The foregoing guidelines, juxtaposed with the circumstances of
the case heretofore adverted to, make waiver a shaky defense.
It cannot stand. If, by his own admission, defendant proved his
guilt, still, his original claim remains valid. For the privilege, we
say again, is a rampart that gives protection - even to the guilty.
30
5. The course which petitioner takes is correct. Habeas corpus
is a high prerogative writ. 31 It is traditionally considered as an
exceptional remedy to release a person whose liberty is illegally
restrained such as when the accused's constitutional rights are
disregarded. 32 Such defect results in the absence or loss of
jurisdiction 33 and therefore invalidates the trial and the
consequent conviction of the accused whose fundamental right
was violated. 34 That void judgment of conviction may be
challenged by collateral attack, which precisely is the function
of habeas corpus. 35 This writ may issue even if another remedy
which is less effective may be availed of by the defendant. 36
Thus, failure by the accused to perfect his appeal before the
Court of Appeals does not preclude a recourse to the writ. 37
The writ may be granted upon a judgment already final. 38 For,
as explained in Johnson vs. Zerbst, 39 the writ of habeas corpus
as an extraordinary remedy must be liberally given effect 40 so
as to protect well a person whose liberty is at stake. The
propriety of the writ was given the nod in that case, involving a
violation of another constitutional right, in this wise:
67
Since the Sixth Amendment constitutionally entitles one
charged with crime to the assistance of Counsel, compliance
with this constitutional mandate is an essential jurisdictional
prerequisite to a Federal Court's authority. When this right is
properly waived, the assistance of Counsel is no longer a
necessary element of the Court's jurisdiction to proceed to
conviction and sentence. If the accused, however, is not
represented by Counsel and has not competently and
intelligently waived his constitutional right, the Sixth
Amendment stands as a jurisdictional bar to a valid conviction
and sentence depriving him of his liberty. A court's jurisdiction
at the beginning of trial may be lost "in the course of the
proceedings" due to failure to complete the court as the
Sixth Amendment requires by providing Counsel for an
accused who is unable to obtain Counsel, who has not
intelligently waived this constitutional guaranty, and whose life
or liberty is at stake. If this requirement of the Sixth Amendment
is not complied with, the court no longer has jurisdiction to
proceed. The judgment of conviction pronounced by a court
without jurisdiction is void, and one imprisoned thereunder may
obtain release of habeas corpus. 41
Under our own Rules of Court, to grant the remedy to the
accused Roger Chavez whose case presents a clear picture of
disregard of a constitutional right is absolutely proper. Section 1
of Rule 102 extends the writ, unless otherwise expressly
provided by law, "to all cases of illegal confinement or detention
by which any person is deprived of his liberty, or by which the
rightful custody of any person is withheld from the person
entitled thereto.
Just as we are about to write finis to our task, we are prompted
to restate that: "A void judgment is in legal effect no judgment.
By it no rights are divested. From it no rights can be obtained.
Being worthless in itself, all proceedings founded upon it are
equally worthless. It neither binds nor bars any one. All acts
performed under it and all claims flowing out of it are void. The
parties attempting to enforce it may be responsible as
trespassers. ... " 42
6. Respondents' return 43 shows that petitioner is still serving
under a final and valid judgment of conviction for another
offense. We should guard against the improvident issuance of
an order discharging a petitioner from confinement. The
position we take here is that petitioner herein is entitled to
liberty thru habeas corpus only with respect to Criminal Case
Q-5311 of the Court of First Instance of Rizal, Quezon City
Branch, under which he was prosecuted and convicted.
Upon the view we take of this case, judgment is hereby
rendered directing the respondent Warden of the City Jail of
Manila or the Director of Prisons or any other officer or person
in custody of petitioner Roger Chavez by reason of the
judgment of the Court of First Instance of Rizal, Quezon City
Branch, in Criminal Case Q-5311, entitled "People of the
Philippines, plaintiff, vs. Ricardo Sumilang, et al., accused," to
discharge said Roger Chavez from custody, unless he is held,
ADR || First Batch
kept in custody or detained for any cause or reason other than
the said judgment in said Criminal Case Q-5311 of the Court of
First Instance of Rizal, Quezon City Branch, in which event the
discharge herein directed shall be effected when such other
cause or reason ceases to exist.
No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Angeles and Fernando, JJ., concur. Castro, J., concurs in a
separate opinion.
Separate Opinions
CASTRO, J., dissenting :
In 1901, early in the history of constitutional government in this
country, this Court reversed the conviction of an accused who,
having pleaded "not guilty," was required by the judge to testify
and answer the complaint. The case was that of United States
v. Junio, reported in the first volume of the Philippine Reports,
on page 50 thereof.
Resolution of the case did not require an extended opinion (it
consumed no more than a page in the Reports). For indeed the
facts fitted exactly into the prohibition contained in The
President's Instruction to the (Second) Philippine Commission1
"that no person shall ... be compelled in any criminal case to be
a witness against himself.".
There was no need either for a dissertation on the Rights of
Man, though occasion for this was not lacking as the
predominant American members of the Court were under a
special commission to prepare the Filipinos for self-
government. The privilege against self-incrimination was fully
understood by the Filipinos, whose own history provided the
necessary backdrop for this privilege. 2
The Supreme Court simply said, "The judge had no right to
compel the accused to make any statement whatever," and
declared the proceedings void.
Nor was there a similar judicial error likely to be committed in
the years to come, what with the constant reminder of a Bill of
Rights enshrined in successive organic acts intended for the
Philippines.3 This is not to say that the Philippine history of the
privilege ended with the Junio case. To be sure, violations of
the privilege took other, and perhaps subtle, forms4 but not the
form directly prohibited by the privilege. Even in the recent case
of Cabal v. Kapunan5 it was assumed as a familiar learning that
the accused in a criminal case cannot be required to give
testimony and that if his testimony is needed at all against his
co-accused, he must first be discharged.6 If Cabal, the
respondent in an administrative case, was required by an
68
investigating committee to testify, it was because it was thought
that proceedings for forfeiture of illegally acquired property
under Republic Act 13797 were civil and not criminal in nature.
Thus Mr. Justice (now Chief Justice) Concepcion could
confidently say:
At the outset, it is not disputed that the accused in a criminal
case may refuse not only to answer incriminatory questions but
also to take the witness stand. (3 Whartons Criminal Evidence,
pp. 1959-1960; 98 C.J.S., p. 264). Hence, the issue before us
boils down to whether or not the proceedings before the
aforementioned Committee is civil or criminal in character.
Today, perhaps because of long separation from our past, we
need what Holmes called "education in the obvious, more than
investigation of the obscure."8 The past may have receded so
far into the distance that our perspectives may have been
altered and our vision blurred.
When the court in the case at bar required the petitioner to
testify, it in effect undid the libertarian gains made over half a
century and overturned the settled law. The past was recreated
with all its vividness and all its horrors: John Lilburne in England
in 1637, refusing to testify before the Council of the Star
Chamber and subsequently condemned by it to be whipped
and pilloried for his "boldness in refusing to take a legal oath;"9
the Filipino priests Gomez, Burgos and Zamora in 1872
condemned by the Inquisition to die by their own testimony. 10
It is for this reason that I deem this occasion important for the
expression of my views on the larger question of constitutional
dimension.
No doubt the constitutional provision that "No person shall be
compelled to be a witness against himself" 11 may, on occasion,
save a guilty man from his just deserts, but it is aimed against a
more far reaching evil recurrence of the Inquisition and the
Star Chamber, even if not in their stark brutality. Prevention of
the greater evil was deemed of more importance than
occurrence of the lesser evil. 12 As Dean Griswold put the
matter with eloquence:.
[T]he privilege against self-incrimination is one of the great
landmarks in man's struggle to make himself civilized ... [W]e
do not make even the most hardened criminal sign his own
death warrant, or dig his own grave, or pull the lever that
springs the trap on which he stands. We have through the
course of history developed considerable feeling of the dignity
and intrinsic importance of the individual man. Even the evil
man is a human being. 13
The Government must thus establish guilt by evidence
independently and freely secured; it can not by coercion prove
a charge against an accused out of his own mouth. 14
This is not what was done here. What was done here was to
ADR || First Batch
force the petitioner to take the witness stand and state his part
in the crime charged as "star witness for the prosecution," to
use the very words of the decision, and, by means of his
testimony, prove his guilt. Thus, the trial court said in its
decision:
Roger Chavez does not offer any defense. As a matter of fact,
his testimony as a witness for the prosecution establishes his
guilt beyond reasonable doubt.
The petitioner has been variously described by the trial court as
"a car agent ... well versed in this kind of chicanery" "a self-
confessed culprit," and "a man with at least two convictions for
acts not very different from those charged in [the] information."
But if he has thus been described it was on the basis of
evidence wrung from his lips. If he was ultimately found guilty of
the charge against him it was because of evidence which he
was forced to give. In truth he was made the "star witness for
the prosecution" against himself.
But neither torture nor an oath nor the threat of punishment
such as imprisonment for contempt can be used to compel him
to provide the evidence to convict himself. No matter how evil
he is, he is still a human being.
The fact that the judgment of conviction became final with the
dismissal of the appeal to the Court of Appeals for failure of the
petitioner's former counsel to file a brief,15 is of no moment.
That judgment is void, and it is precisely the abiding concern of
the writ of habeas corpus to provide redress for unconstitutional
and wrongful convictions. Vindication of due process, it has
been well said, is precisely the historic office of the Great Writ.
16
In many respects, this case is similar to that of Fay v. Noia. 17
Noia was convicted of murder in 1942 with Santo Caminito and
Frank Bonino in the County Court of Kings County, New York,
in the killing of one Hemmeroff during the commission of a
robbery. The sole evidence against each defendant was his
signed confession. Caminito and Bonino, but not Noia appealed
their convictions to the Appellate Division of the New York
Supreme Court. These appeals were unsuccessful but
subsequent legal proceedings resulted in the releases of
Caminito and Bonino upon findings that their confessions had
been coerced and their conviction therefore procured in
violation of the Fourteenth Amendment. Although Noia's
confession was found to have been coerced, the United States
District Court for the Southern District of New York held that,
because of Noia's failure to appeal, he must be denied reliefin
view of the provision of 28 U.S.C. sec. 2254 that "An
application for a writ of habeas corpus in behalf of a person in
custody pursuant to the judgment of a State court shall not be
granted unless it appears that the applicant has exhausted the
remedies available in the courts of the State. ..." The Court of
Appeals for the Second Circuit reversed the judgment of the
District Court and ordered Noia's conviction set aside, with
direction to discharge him from custody unless given a new trial
69
forthwith. From that judgment the State appealed.
As the Supreme Court of the United States phrased the issue,
the "narrow question is whether the respondent Noia may be
granted federal habeas corpus relief from imprisonment under a
New York conviction now admitted by the State to rest upon a
confession obtained from him in violation of the Fourteenth
Amendment, after he was denied state post-conviction relief
because the coerced confession claim had been decided
against him at the trial and Noia had allowed the time for a
direct appeal to lapse without seeking review by a state
appellate court."
In affirming the judgment of the Court of Appeals, the United
States Supreme Court, through Mr. Justice Brennan, spoke in
enduring language that may well apply to the case of Roger
Chavez. Said the Court: 1wph1.t
Today as always few indeed is the number of State prisoners
who eventually win their freedom by means of federal habeas
corpus. These few who are ultimately successful are persons
whom society has grievously wronged and for whom belated
liberation is little enough compensation. Surely no fair minded
person will contend that those who have been deprived of their
liberty without due process of law ought nevertheless to
languish in prison. Noia, no less than his co-defendants
Caminito and Bonino, is conceded to have been the victim of
unconstitutional state action. Noia's case stands on its own; but
surely no just and humane legal system can tolerate a result
whereby a Caminito and a Bonino are at liberty because their
confessions were found to have been coerced yet Noia, whose
confession was also coerced, remains in jail for life. For such
anomalies, such affronts to the conscience of a civilized
society, habeas corpus is predestined by its historical role in the
struggle for personal liberty to be the ultimate remedy. If the
States withhold effective remedy, the federal courts have the
power and the duty to provide it. Habeas Corpus is one of the
precious heritages of Anglo-American civilization. We do no
more today than confirm its continuing efficacy.
A fitting conclusion of this separate opinion may perhaps be
found in two memorable admonitions from Marjorie G. Fribourg
and Justice William O. Douglas.
Mrs. Fribourg, in her inimitable phrase, warns us that
... Time has taught its age-old lesson. Well-meaning people
burnt witches. Well-meaning prosecutors have convicted the
innocent. Well-meaning objectives espoused by those not
grounded in history can lure us from protecting our heritage of
equal justice under the law. They can entice us, faster than we
like to believe, into endangering our liberties.18
And these are the unforgettable words of Justice Douglas:
The challenge to our liberties comes frequently not from those
ADR || First Batch 70

who consciously seek to destroy our system of government, but 8Petitioner here submits the theory that the facts found by the
from men of goodwill - good men who allow their proper trial court make out a case of estafa, not qualified theft.
concerns to blind them to the fact that what they propose to
accomplish involves an impairment of liberty. 9Section 1 (18), Bill of Rights, Article III, Constitution of the
Philippines.
xxx xxx xxx
10 Villaflor vs. Summers. 41 Phil. 62, 68.
The motives of these men are often commendable. What we
must remember, however, is that preservation of liberties does 11 U.S. vs. Navarro, 3 Phil. 143, 155.
not depend on motives. A suppression of liberty has the same
effect whether the suppressor be a reformer or an outlaw. The 12 Bermudez vs. Castillo, 64 Phil. 483, 495-496.
only protection against misguided zeal is constant alertness to
infractions of the guarantees of liberty contained in our
Constitution. Each surrender of liberty to the demands of the
13 Villaflor vs. Summers, supra at p. 68.
moment makes easier another, larger surrender. The battle
over the Bill of Rights is a never ending one. 1wph1.t
U.S. vs. Navarro, supra, at p. 152, cited in Taada and
14

Carreon, Political Law of the Philippines, vol. II, 1962 ed., up.
xxx xxx xxx 278-279.

The liberties of any person are the liberties of all of us. III Martin, Rules of Court, 1964 ed., p. 262, citing 14 Am. Jur.,
15

869.
xxx xxx xxx
Marchetti vs. United States (U.S. Supreme Court), No. 2-
16

October Term, 1967, January 29 1968.

In short, the liberties of none are safe unless the liberties of all
are protected.
See also: III Martin, p. 262; Taada and Carreon, op. cit., pp.
17

278-279.
But even if we should sense no danger to our own liberties,
even if we feel secure because we belong to a group that is
important and respected, we must recognize that our Bill of State vs. Wolfe, 266 N.W. 116, 125; 104 ALR 464, 476;
18

Rights is a code of fair play for the less fortunate that we in all Anno., p. 479.
honor and good conscience must observe.19
19 Gonzales vs. Secretary of Labor, 94 Phil. 325, 326.
Footnotes
Cabal vs. Kapunan, L-19052, December 29, 1962; 21 Am. Jur
20

Criminal Case No. Q-5311, Court of First Instance of Rizal,

1 2d., p. 383; 98 C.J.S., p. 265; 8 Wigmore, Evidence 1961 ed.,
Quezon City, Branch IX. p. 406; 3 Wharton's Criminal Evidence, 11th ed., pp. 1959-
1960.
2The original information named only the accused Sumilang,
Chavez, John Doe and Richard Doe. It was amended by
21 Navarro, Criminal Procedure, 1960; ed., p. 302.
substituting Edgardo P. Pascual for John Doe. Then, another
amendment included the rest of the accused abovenamed. 22 Bermudez vs. Castillo supra, at pp. 488-489.

3 Tr., July 23, 1963, pp. 2-11; emphasis supplied. 4 Moran, Comments on the Rules of Court, 1963 ed., p. 160;
23

98 C.J.S., p. 274; 3 Wharton's Criminal Evidence, 11th ed., pp.

4Chavez at this point testified on direct examination that the 1959-1960.
Chinese (Johnson Lee) handed the deed of sale to Romeo
Vasquez who, in turn, delivered it to the emissary. Tr., (Annex Allen vs. State, 171 ALR 1138, 1143, citing Emery's Case,
24

A), p. 39. 107 Mass. 172, 9 Am. Rep. 22.

5 Annex C, p. 7, Rollo, p. 101. Isabela Sugar Company, Inc. vs. Macadaeg, 93 Phil. 995,
25

1000.
6 Id., p. 14, Rollo, p. 108.
26 Tr., pp. 11, 13-23.
7 Id., pp. 14-15, Rollo, pp. 108-109.
27 Tr., pp. 56-57.
ADR || First Batch
28 98 C.J.S., p. 314; emphasis supplied.
29 304 U.S. 458, 464, 82 L. ed. 1461, 1466.
30 Marchetti vs. United States, supra.
31 25 Am. Jur., p. 150.
32See: Santiago vs. Director of Prisons, 77 Phil. 927, 930;
Camasura vs. Provost Marshall, 78 Phil. 131; Harden vs.
Director of Prisons, 81 Phil. 741, 746; Parulan vs. Director of
Prisons, 1968A Phild. 514, 516; see also Counselman vs.
Hitchcock (1867), 142 U.S. 547, 35 L. ed. 1110, a case
involving a violation of the privilege against self-incrimination
and the writ of habeas corpus was allowed; Sunal vs. Large,
332 U.S. 174, 178-179, 91 L. ed. 1982, 1986-1987.
33 39 C.J.S., pp. 449-450.
Mitchell vs. Youell, 130 F. 2d. 880, 882; U.S. vs. Lawn, 115 F.
34
Supp. 674, 677.
Abriol vs. Homeres, 84 Phil. 525, 530, 534. See the dissenting
35
opinion affirming the same view at pp. 538-539. See also:
Camasura vs. Provost Marshall, supra, at p. 137.
36 25 Am. Jur., p. 155.
37 39 C.J.S. p. 446, citing Johnson vs. Zerbst, supra.
38 Abriol vs. Homeres, supra, at pp. 527, 534-535.
39Supra, at p. 1467: "True, habeas corpus cannot be used as a
means of reviewing errors of law and irregularities not
involving the question of jurisdiction occurring during the
course of trial; and the "writ of habeas corpus cannot be used
as a writ of error." These principles, however, must be
construed and applied so as to preserve not destroy
constitutional - safeguards of human life and liberty.".
40III Martin, p. 267: "The prohibition against self-incrimination, in
order that it may produce its desired purpose and may not be
rendered a dead letter, should be interpreted liberally in favor of
the person invoking the same." See: Bermudez vs. Castillo,
supra, at p. 489.
Cited in Abriol vs. Homeres, supra, at pp. 533-534; emphasis
41
supplied.
Gomez vs. Concepcion, 47 Phil. 717, 722, giving as authority
42
Freeman on Judgments, see. 117 citing Campbell vs.
McCahan, 41 Ill., 45; Roberts vs. Stowers, 7 Bush, 295; Huls
vs. Buntin, 47 Ill., 396; Sherrell vs. Goodrum, 3 Humph., 418;
Andrews vs. State, 2 Sheed, 549; Hollingsworth vs. Bagley, 35
Tex., 345; Morton vs. Root, 2 Dill., 312; Commercial Bank of
71
Manchester vs. Martin, 9 Smedes & M., 613; Hargis vs. Morse,
7 Kan., 259. See also Cornell vs. Barnes, 7 Hill. 35; Dawson
and Another vs. Wells, 3 Ind., 899; Meyer vs. Mintonye, 106 Ill.,
414; Olson vs. Nunnally, 47 Kan., 391; White vs. Foote L. & M.
Co, 29 W. Va. 385.
43 Par. 2 (d).
CASTRO J.:, dissenting :
1 Pub. Laws lxiii, lxvi (1900).
2See United States v. Navarro, 3 Phil. 143 (1904). In his
majority opinion, Mr. Justice McDonough said that under the
Spanish system of criminal procedure the privilege against self-
incrimination was unavailing, a point seriously disputed in the
dissenting opinion of Mr. Justice Mapa. Are both Justices half
right and half wrong? Is it more accurate to say that while the
Spanish system allowed no more than a comment on the failure
of the accused to testify, no unfavorable inference being drawn
therefrom (as Justice Mapa said at p. 161), in practice the
accused was actually denied the privilege against self-
incrimination (as Justice McDonough said at p. 152)? See, e.g.,
T. Agoncillo & 0. Alfonso, A Short History of the Filipino People,
103-132 (1961).
3Act of July 1, 1902, sec. 5, par. 3, 1 Pub. Laws 1056; Jones
Act of August 29, 1916, sec. 3, par. 3, 12 Pub. Laws 237; Act of
March 24, 1934, ch. 84, 48 Stat. 456; see also General Orders
58, sec. 15(4), 1 Pub. Laws 1082 (1900).
4Beltran v. Samson, 53 Phil. 570 (1929) (preliminary
investigation; respondent required to give a specimen of his
handwriting); Bermudes v. Castillo, 64 Phil. 483 (1937)
(administrative investigation; person required to copy certain
letters to establish her authorship of the letters).
5 L-19052, Dec. 29, 1962.
6E.g., 4 M. Moran, Comments on the Rules of Court 160 (6th
Ed., 1963).
7 10 Laws & Res. 345 (1955).
8 O.W. Holmes, Law and the Court, in Speeches 98, 99 (1913).
9 E. Griswold, The Fifth Amendment Today 3 (1955).
10 T. Agoncillo & O. Alfonso, op. cit. supra note 2, at 156.
11 Phil. Const. art. III, sec. 1(18).
12 Ullmann v. United States, 356 U.S. 422 (1956).
13 Op. cit. supra note 9, at 7.
ADR || First Batch 72

Malley v. Hogan, 378 U.S. 1 (1964); accord, Murphy v.

14 Republic of the Philippines
Waterfront Comm'n, 378 U.S. 52 (1964). SUPREME COURT
Manila
Resolutions of May 14, 1968 and June 21, 1968, CA-G.R.
15 SECOND DIVISION
06776-CR.
G.R. No. 163582 August 9, 2010
16 Fay v. Noia, 372 U.S. 391 (1963).
WILLIAM GOLANGCO CONSTRUCTION CORPORATION,
17Id. For an account of a convict who served twenty-two years Petitioner,
in prison before finally being released on habeas corpus or a
finding that he was denied due process, see Marino v. Ragen, vs.
332 U.S. 651 (1947).
RAY BURTON DEVELOPMENT CORPORATION,
18 The Bill of Rights (1967), p. 233. Respondent.

19 A Living Bill of Rights (1961), pp. 61, 62, 64. DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule

45 of the Rules of Court, praying that the Decision1 of the Court
of Appeals (CA) dated December 19, 2003, holding that the
Construction Industry Arbitration Commission (CIAC) had no
jurisdiction over the dispute between herein parties, and the CA
Resolution2 dated May 24, 2004, denying herein petitioner's
motion for reconsideration, be reversed and set aside.

The undisputed facts, as accurately narrated in the CA

Decision, are as follows.

On July 20, 1995, petitioner Ray Burton Development

Corporation [herein respondent] (RBDC for brevity) and private
respondent William Golangco Construction Corporation [herein
petitioner] (WGCC) entered into a Contract for the construction
of the Elizabeth Place (Office/Residential Condominium).

On March 18, 2002, private respondent WGCC filed a

complaint with a request for arbitration with the Construction
Industry Arbitration Commission (hereinafter referred to as
CIAC). In its complaint, private respondent prayed that CIAC
render judgment ordering petitioner to pay private respondent
the amount of, to wit:

1. P24,703,132.44 for the unpaid balance on the contract price;

2. P10,602,670.25 for the unpaid balance on the labor cost

adjustment;

3. P9,264,503.70 for the unpaid balance of additive works;

4. P2,865,615.10 for extended overhead expenses;

5. P1,395,364.01 for materials cost adjustment and trade

contractors' utilities expenses;
ADR || First Batch
6. P4,835,933.95 for interest charges on unpaid overdue
billings on labor cost adjustment and change orders.
or for a total of Fifty Three Million Six Hundred Sixty-Seven
Thousand Two Hundred Nineteen and 45/xx (P53,667,219.45)
and interest charges based on the prevailing bank rates on the
foregoing amount from March 1, 2002 and until such time as
the same shall be fully paid.
On April 12, 2002, petitioner RBDC filed a Motion to Dismiss
the aforesaid complaint on the ground of lack of jurisdiction. It is
petitioner's contention that the CIAC acquires jurisdiction over
disputes arising from or connected with construction contracts
only when the parties to the contract agree to submit the same
to voluntary arbitration. In the contract between petitioner and
private respondent, petitioner claimed that only disputes by
reason of differences in interpretation of the contract
documents shall be deemed subject to arbitration.
Private respondent filed a Comment and Opposition to the
aforesaid Motion dated April 15, 2002. Private respondent
averred that the claims set forth in the complaint require
contract interpretation and are thus cognizable by the CIAC
pursuant to the arbitration clause in the construction contract
between the parties. Moreover, even assuming that the claims
do not involve differing contract interpretation, they are still
cognizable by the CIAC as the arbitration clause mandates their
direct filing therewith.
On May 6, 2002, the CIAC rendered an Order the pertinent
portion of which reads as follows:
The Commission has taken note of the foregoing arguments of
the parties. After due deliberations, the Commission resolved to
DENY Respondent's motion on the following grounds:
[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly
provides that "any dispute" arising under the construction
contract shall be submitted to "the Construction Arbitration
Authority created by the Government." Even without this
provision, the bare agreement to submit a construction dispute
to arbitration vests in the Commission original and exclusive
jurisdiction by virtue of Sec. 4 of Executive Order No. 1008,
whether or not a dispute involves a collection of sum of money
or contract interpretation as long as the same arises from, or in
connection with, contracts entered into by the parties involved.
The Supreme Court jurisprudence on Tesco vs. Vera case
referred to by respondent is no longer controlling as the same
was based on the old provision of Article III, Sec. 1 of the CIAC
Rules which has long been amended.
[2] The issue raised by Respondent in its Motion to Dismiss is
similar to the issue set forth in CA-G.R. Sp. No. 67367,
Continental Cement Corporation vs. CIAC and EEI Corporation,
where the appellate court upheld the ruling of the CIAC thereon
that since the parties agreed to submit to arbitration any
73
dispute, the same does not exclude disputes relating to claims
for payment in as much as the said dispute originates from
execution of the works. As such, the subject dispute falls within
the original and exclusive jurisdiction of the CIAC.
WHEREFORE, in view of the foregoing, Respondent's Motion
to Dismiss is DENIED for lack of merit. Respondent is given
anew an inextendible period of ten (10) days from receipt
hereof within which to file its Answer and nominees for the
Arbitral Tribunal. If Respondent shall fail to comply within the
prescribed period, the Commission shall proceed with
arbitration in accordance with its Rules. x x x
Thereafter, petitioner filed a Motion to Suspend Proceedings
praying that the CIAC order a suspension of the proceedings in
Case No. 13-2002 until the resolution of the negotiations
between the parties, and consequently, that the period to file an
Answer be held in abeyance.
Private respondent filed an Opposition to the aforesaid Motion
and a Counter-Motion to Declare respondent to Have Refused
to Arbitrate and to Proceed with Arbitration Ex Parte.
On May 24, 2002 the CIAC issued an Order, the pertinent
portion of which reads:
In view of the foregoing, Respondent's (petitioner's) Motion to
Suspend Proceedings is DENIED. Accordingly, respondent is
hereby given a non-extendible period of five (5) days from
receipt thereof within which to submit its Answer and nominees
for the Arbitral Tribunal. In default thereof, claimant's (private
respondent's) Counter-Motion is deemed granted and
arbitration shall proceed in accordance with the CIAC Rules
Governing Construction Arbitration.
SO ORDERED. x x x
On June 3, 2002, petitioner RBDC filed [with the Court of
Appeals (CA)] a petition for Certiorari and Prohibition with
prayer for the issuance of a temporary restraining order and a
writ of preliminary injunction. Petitioner contended that CIAC
acted without or in excess of its jurisdiction when it issued the
questioned order despite the clear showing that there is lack of
jurisdiction on the issue submitted by private respondent for
arbitration.3
On December 19, 2003, the CA rendered the assailed Decision
granting the petition for certiorari, ruling that the CIAC had no
jurisdiction over the subject matter of the case because the
parties agreed that only disputes regarding differences in
interpretation of the contract documents shall be submitted for
arbitration, while the allegations in the complaint make out a
case for collection of sum of money. Petitioner moved for
reconsideration of said ruling, but the same was denied in a
Resolution dated May 24, 2004.
ADR || First Batch
Hence, this petition where it is alleged that:
I.
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION IN FAILING TO DISMISS PRIVATE
RESPONDENT RBDC'S PETITION IN CA-G.R. SP NO. 70959
OUTRIGHT IN VIEW OF RBDC'S FAILURE TO FILE A
MOTION FOR RECONSIDERATION OF THE CIAC'S ORDER,
AS WELL AS FOR RBDC'S FAILURE TO ATTACH TO THE
PETITION THE RELEVANT PLEADINGS IN CIAC CASE NO.
13-2002, IN VIOLATION OF THE REQUIREMENT UNDER
RULE 65, SECTIONS 1 AND 2, PARAGRAPH 2 THEREOF,
AND RULE 46, SECTION 3, PARAGRAPH 2 THEREOF.
II.
THE COURT OF APPEALS ERRED GRAVELY IN NOT
RULING THAT THE CIAC HAS JURISDICTION OVER
WGCC'S CLAIMS, WHICH ARE IN THE NATURE OF
ARBITRABLE DISPUTES COVERED BY CLAUSE 17.1 OF
ARTICLE XVII INVOLVING CONTRACT INTERPRETATION.
xxxx
III.
THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
DISCERN THAT CLAUSE 17.2 OF ARTICLE XVII CANNOT
BE TREATED AS BEING "LIMITED TO DISPUTES ARISING
FROM INTERPRETATION OF THE CONTRACT."
xxxx
IV.
THE COURT OF APPEALS ERRED GRAVELY IN NOT
RULING THAT RBDC IS ESTOPPED FROM DISPUTING THE
JURISDICTION OF THE CIAC.
xxxx
V.
FINALLY, THE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REFUSING TO PAY HEED TO
THE DECLARATION IN EXECUTIVE ORDER NO. 1008 THAT
THE POLICY OF THE STATE IS IN FAVOR OF
ARBITRATION OF CONSTRUCTION DISPUTES, WHICH
POLICY HAS BEEN REINFORCED FURTHER BY THE
RECENT PASSAGE OF THE "ALTERNATIVE DISPUTE
RESOLUTION ACT OF 2004"(R.A. NO. 9285).4
The petition is meritorious.
74
The aforementioned issues boil down to (1) whether the CA
acted with grave abuse of discretion in failing to dismiss the
petition for certiorari filed by herein respondent, in view of the
latter's failure to file a motion for reconsideration of the assailed
CIAC Order and for failure to attach to the petition the relevant
pleadings in CIAC Case No. 13-2002; and (2) whether the CA
gravely erred in not upholding the jurisdiction of the CIAC over
the subject complaint.
Petitioner is correct that it was grave error for the CA to have
given due course to respondent's petition for certiorari despite
its failure to attach copies of relevant pleadings in CIAC Case
No. 13-2002. In Tagle v. Equitable PCI Bank,5 the party filing
the petition for certiorari before the CA failed to attach the
Motion to Stop Writ of Possession and the Order denying the
same. On the ground of non-compliance with the rules, the CA
dismissed said petition for certiorari. When the case was
elevated to this Court via a petition for certiorari, the same was
likewise dismissed. In said case, the Court emphasized the
importance of complying with the formal requirements for filing
a petition for certiorari and held as follows:
x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the
Revised Rules of Court. Sec. 1 of Rule 65 reads:
SECTION 1. Petition for certiorari. When any tribunal, board
or officer exercising judicial or quasi-judicial functions has acted
without or in excess of its or his jurisdiction, or with grave abuse
of discretion amounting to lack or excess of [its or his]
jurisdiction, and there is no appeal, or any plain, speedy, and
adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such
tribunal, board or officer, and granting such incidental reliefs as
law and justice may require.
The petition shall be accompanied by a certified true copy of
the judgment, order or resolution subject thereof, copies of all
pleadings and documents relevant and pertinent thereto, and a
sworn certification of non-forum shopping as provided in the
third paragraph of Section 3, Rule 46. (Emphasis supplied.)
And Sec. 3 of Rule 46 provides:
SEC. 3. Contents and filing of petition; effect of non-compliance
with requirements. The petition shall contain the full names
and actual addresses of all the petitioners and respondents, a
concise statement of the matters involved, the factual
background of the case, and the grounds relied upon for the
relief prayed for.
In actions filed under Rule 65, the petition shall further indicate
the material dates showing when notice of the judgment or final
order or resolution subject thereof was received, when a motion
for new trial or reconsideration, if any, was filed and when
ADR || First Batch
notice of the denial thereof was received.
It shall be filed in seven (7) clearly legible copies together with
proof of service thereof on the respondent with the original copy
intended for the court indicated as such by the petitioner and
shall be accompanied by a clearly legible duplicate original or
certified true copy of the judgment, order, resolution, or ruling
subject thereof, such material portions of the record as are
referred to therein, and other documents relevant or pertinent
thereto. The certification shall be accomplished by the proper
clerk of court or by his duly-authorized representative, or by the
proper officer of the court, tribunal, agency or office involved or
by his duly authorized representative. The other requisite
number of copies of the petition shall be accompanied by
clearly legible plain copies of all documents attached to the
original.
xxxx
The failure of the petitioner to comply with any of the foregoing
requirements shall be sufficient ground for the dismissal of the
petition. (Emphasis supplied.)
The afore-quoted provisions are plain and unmistakable.
Failure to comply with the requirement that the petition be
accompanied by a duplicate original or certified true copy of the
judgment, order, resolution or ruling being challenged is
sufficient ground for the dismissal of said petition.
Consequently, it cannot be said that the Court of Appeals
acted with grave abuse of discretion amounting to lack or
excess of jurisdiction in dismissing the petition x x x for
non-compliance with Sec. 1, Rule 65, in relation to Sec. 3,
Rule 46, of the Revised Rules of Court.6
In the present case, herein petitioner (private respondent
below) strongly argued against the CA's granting due course to
the petition, pointing out that pertinent pleadings such as the
Complaint before the CIAC, herein respondent's Motion to
Dismiss, herein petitioner's Comment and Opposition (Re:
Motion to Dismiss), and the Motion to Suspend Proceedings,
have not been attached to the petition. Herein respondent
(petitioner before the CA) argued in its Reply7 before the CA
that it did not deem such pleadings or documents germane to
the petition. However, in the CA Resolution8 dated July 4, 2002,
the appellate court itself revealed the necessity of such
documents by ordering the submission of copies of pleadings
relevant to the petition. Indeed, such pleadings are necessary
for a judicious resolution of the issues raised in the petition and
should have been attached thereto. As mandated by the rules,
the failure to do so is sufficient ground for the dismissal of the
petition. The CA did not give any convincing reason why the
rule regarding requirements for filing a petition should be
relaxed in favor of herein respondent. Therefore, it was error for
the CA to have given due course to the petition for certiorari
despite herein respondent's failure to comply with the
requirements set forth in Section 1, Rule 65, in relation to
Section 3, Rule 46, of the Revised Rules of Court.
75
Even on the main issue regarding the CIAC's jurisdiction, the
CA erred in ruling that said arbitration body had no jurisdiction
over the complaint filed by herein petitioner. There is no
question that, as provided under Section 4 of Executive Order
No. 1008, also known as the "Construction Industry Arbitration
Law," the CIAC has original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into
by parties involved in construction in the Philippines and all that
is needed for the CIAC to acquire jurisdiction is for the parties
to agree to submit the same to voluntary arbitration.
Nevertheless, respondent insists that the only disputes it
agreed to submit to voluntary arbitration are those arising from
interpretation of contract documents. It argued that the claims
alleged in petitioner's complaint are not disputes arising from
interpretation of contract documents; hence, the CIAC cannot
assume jurisdiction over the case.
Respondent's contention is tenuous.
The contract between herein parties contained an arbitration
clause which reads as follows:
17.1.1. Any dispute arising in the course of the execution of this
Contract by reason of differences in interpretation of the
Contract Documents which the OWNER and the
CONTRACTOR are unable to resolve between themselves,
shall be submitted by either party for resolution or decision, x x
x to a Board of Arbitrators composed of three (3) members, to
be chosen as follows:
One (1) member each shall be chosen by the OWNER and the
CONTRACTOR. The said two (2) members, in turn, shall select
a third member acceptable to both of them. The decision of the
Board of Arbitrators shall be rendered within fifteen (15) days
from the first meeting of the Board. The decision of the Board of
Arbitrators when reached through the affirmative vote of at least
two (2) of its members shall be final and binding upon the
OWNER and the CONTRACTOR.
17.2 Matters not otherwise provided for in this Contract or by
special agreement of the parties shall be governed by the
provisions of the Construction Arbitration Law of the
Philippines. As a last resort, any dispute which is not resolved
by the Board of Arbitrators shall be submitted to the
Construction Arbitration Authority created by the government.9
In gist, the foregoing provisions mean that herein parties
agreed to submit disputes arising by reason of differences in
interpretation of the contract to a Board of Arbitrators the
composition of which is mutually agreed upon by the parties,
and, as a last resort, any other dispute which had not been
resolved by the Board of Arbitrators shall be submitted to the
Construction Arbitration Authority created by the government,
which is no other than the CIAC. Moreover, other matters not
dealt with by provisions of the contract or by special
agreements shall be governed by provisions of the Construction
Industry Arbitration Law, or Executive Order No. 1008.
ADR || First Batch
The Court finds that petitioner's claims that it is entitled to
payment for several items under their contract, which claims
are, in turn, refuted by respondent, involves a "dispute arising
from differences in interpretation of the contract." Verily, the
matter of ascertaining the duties and obligations of the parties
under their contract all involve interpretation of the provisions of
the contract. Therefore, if the parties cannot see eye to eye
regarding each others obligations, i.e., the extent of work to be
expected from each of the parties and the valuation thereof,
this is properly a dispute arising from differences in the
interpretation of the contract.
Note, further, that in respondent's letter10 dated February 14,
2000, it stated that disputed items of work such as Labor Cost
Adjustment and interest charges, retention, processing of
payment on Cost Retained by WGCC, Determination of Cost of
Deletion for miscellaneous Finishing Works, are considered
"unresolved dispute[s] as to the proper interpretation of our
respective obligations under the Contract," which should be
referred to the Board of Arbitrators. Even if the dispute subject
matter of said letter had been satisfactorily settled by herein
parties, the contents of the letter evinces respondent's frame of
mind that the claims being made by petitioner in the complaint
subject of this petition, are indeed matters involving disputes
arising from differences in interpretation.
Clearly, the subject matter of petitioner's claims arose from
differences in interpretation of the contract, and under the terms
thereof, such disputes are subject to voluntary arbitration.
Since, under Section 4 of Executive Order No. 1008 the CIAC
shall have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines and all that is
needed for the CIAC to acquire jurisdiction is for the parties to
agree to submit the same to voluntary arbitration, there can be
no other conclusion but that the CIAC had jurisdiction over
petitioner's complaint. Furthermore, Section 1, Article III of the
CIAC Rules of Procedure Governing Construction Arbitration
(CIAC Rules) further provide that "[a]n arbitration clause in a
construction contract or a submission to arbitration of a
construction dispute shall be deemed an agreement to submit
an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution
or arbitral body in such contract or submission." Thus, even if
there is no showing that petitioner previously brought its claims
before a Board of Arbitrators constituted under the terms of the
contract, this circumstance would not divest the CIAC of
jurisdiction. In HUTAMA-RSEA Joint Operations, Inc. v. Citra
Metro Manila Tollways Corporation,11 the Court held that:
Under Section 1, Article III of the CIAC Rules, an arbitration
clause in a construction contract shall be deemed as an
agreement to submit an existing or future controversy to CIAC
jurisdiction, "notwithstanding the reference to a different
arbitration institution or arbitral body in such contract x x x."
Elementary is the rule that when laws or rules are clear, it is
incumbent on the court to apply them. When the law (or rule) is
76
unambiguous and unequivocal, application, not interpretation
thereof, is imperative.1avvphi1
Hence, the bare fact that the parties herein incorporated an
arbitration clause in the EPCC is sufficient to vest the CIAC with
jurisdiction over any construction controversy or claim between
the parties. The arbitration clause in the construction contract
ipso facto vested the CIAC with jurisdiction. This rule applies,
regardless of whether the parties specifically choose another
forum or make reference to another arbitral body. Since the
jurisdiction of CIAC is conferred by law, it cannot be subjected
to any condition; nor can it be waived or diminished by the
stipulation, act or omission of the parties, as long as the parties
agreed to submit their construction contract dispute to
arbitration, or if there is an arbitration clause in the construction
contract. The parties will not be precluded from electing to
submit their dispute to CIAC, because this right has been
vested in each party by law.
xxxx
It bears to emphasize that the mere existence of an
arbitration clause in the construction contract is
considered by law as an agreement by the parties to
submit existing or future controversies between them to
CIAC jurisdiction, without any qualification or condition
precedent. To affirm a condition precedent in the construction
contract, which would effectively suspend the jurisdiction of the
CIAC until compliance therewith, would be in conflict with the
recognized intention of the law and rules to automatically vest
CIAC with jurisdiction over a dispute should the construction
contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the
contribution of the construction industry to national
development goals. Realizing that delays in the resolution of
construction industry disputes would also hold up the
development of the country, Executive Order No. 1008
expressly mandates the CIAC to expeditiously settle
construction industry disputes and, for this purpose, vests in the
CIAC original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by the parties
involved in construction in the Philippines.12
Thus, there is no question that in this case, the CIAC properly
took cognizance of petitioner's complaint as it had jurisdiction
over the same.
IN VIEW OF THE FOREGOING, the Petition is GRANTED. The
Decision of the Court of Appeals, dated December 19, 2003,
and its Resolution dated May 24, 2004 in CA-G.R. SP No.
70959 are REVERSED and SET ASIDE. The Order of the
Construction Industry Arbitration Commission is REINSTATED.
SO ORDERED.
ADR || First Batch 77

DIOSDADO M. PERALTA 3 Rollo, pp. 88-91.

Associate Justice 4 Id. at 34-36.

WE CONCUR: 5 G.R. No. 172299, April 22, 2008, 552 SCRA 424.

ANTONIO T. CARPIO 6 Id. at 442-444. (Emphasis supplied.)

Associate Justice 7 CA rollo, pp. 293-303.

Chairperson 8 Id. at 62-63.

ANTONIO EDUARDO B. NACHURA 9 Rollo, pp. 494-495.

ROBERTO A. ABAD

Associate Justice 10 Id. at 270-271.Associate Justice

JOSE CATRAL MENDOZA
11 G.R. No. 180640, April 24, 2009, 586 SCRA 746.
Associate Justice
12 Id. at 760-763. (Emphasis supplied.)
ATTESTATION

I attest that the conclusions in the above Decision had been

reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

ANTONIO T. CARPIO

Associate Justice

Second Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the

Division Chairpersons Attestation, I certify that the conclusions
in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts
Division.

RENATO C. CORONA

Chief Justice

Footnotes

1Penned by Associate Justice Eloy R. Bello, Jr., with Associate

Justices Amelita G. Tolentino and Arturo D. Brion (now a
member of this Court), concurring; rollo, pp. 88-94.

2 Id. at 96.
ADR || First Batch
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 176657 September 1, 2010
DEPARTMENT OF FOREIGN AFFAIRS and BANGKO
SENTRAL NG PILIPINAS, Petitioners,
vs.
HON. FRANCO T. FALCON, IN HIS CAPACITY AS THE
PRESIDING JUDGE OF BRANCH 71 OF THE REGIONAL
TRIAL COURT IN PASIG CITY and BCA INTERNATIONAL
CORPORATION, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Certiorari and prohibition
under Rule 65 of the Rules of Court with a prayer for the
issuance of a temporary restraining order and/or a writ of
preliminary injunction filed by petitioners Department of Foreign
Affairs (DFA) and Bangko Sentral ng Pilipinas (BSP).
Petitioners pray that the Court declare as null and void the
Order1 dated February 14, 2007 of respondent Judge Franco T.
Falcon (Judge Falcon) in Civil Case No. 71079, which granted
the application for preliminary injunction filed by respondent
BCA International Corporation (BCA). Likewise, petitioners
seek to prevent respondent Judge Falcon from implementing
the corresponding Writ of Preliminary Injunction dated February
23, 20072 issued pursuant to the aforesaid Order.
The facts of this case, as culled from the records, are as
follows:
Being a member state of the International Civil Aviation
Organization (ICAO),3 the Philippines has to comply with the
commitments and standards set forth in ICAO Document No.
93034 which requires the ICAO member states to issue
machine readable travel documents (MRTDs)5 by April 2010.
Thus, in line with the DFAs mandate to improve the passport
and visa issuance system, as well as the storage and retrieval
of its related application records, and pursuant to our
governments ICAO commitments, the DFA secured the
approval of the President of the Philippines, as Chairman of the
Board of the National Economic and Development Authority
(NEDA), for the implementation of the Machine Readable
Passport and Visa Project (the MRP/V Project) under the Build-
Operate-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)
78
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,6
BCA incorporated a project company, the Philippine Passport
Corporation (PPC) to undertake and implement the MRP/V
Project.
On February 8, 2001, a Build-Operate-Transfer Agreement7
(BOT Agreement) between the DFA and PPC was signed by
DFA Acting Secretary Lauro L. Baja, Jr. and PPC President
Bonifacio Sumbilla. Under the BOT Agreement, the MRP/V
Project was defined as follows:
Section 1.02 MRP/V Project refers to all the activities and
services undertaken in the fulfillment of the Machine Readable
Passport and Visa Project as defined in the Request for
Proposals (RFP), a copy of which is hereto attached as Annex
A, including but not limited to project financing, systems
development, installation and maintenance in the Philippines
and Foreign Service Posts (FSPs), training of DFA personnel,
provision of all project consumables (related to the production
of passports and visas, such as printer supplies, etc.), scanning
of application and citizenship documents, creation of data
bases, issuance of machine readable passports and visas, and
site preparation in the Central Facility and Regional Consular
Offices (RCOs) nationwide.8
On April 5, 2002, former DFA Secretary Teofisto T. Guingona
and Bonifacio Sumbilla, this time as BCA President, signed an
Amended BOT Agreement9 in order to reflect the change in the
designation of the parties and to harmonize Section 11.3 with
Section 11.810 of the IRR of the BOT Law. The Amended BOT
Agreement was entered into by the DFA and BCA with the
conformity of PPC.
The two BOT Agreements (the original version signed on
February 8, 2001 and the amended version signed April 5,
2002) contain substantially the same provisions except for
seven additional paragraphs in the whereas clauses and two
new provisions Section 9.05 on Performance and Warranty
Securities and Section 20.15 on Miscellaneous Provisions. The
two additional provisions are quoted below:
Section 9.05. The PPC has posted in favor of the DFA the
performance security required for Phase 1 of the MRP/V
Project and shall be deemed, for all intents and purposes, to be
full compliance by BCA with the provisions of this Article 9.
ADR || First Batch
xxxx
Section 20.15 It is clearly and expressly understood that BCA
may assign, cede and transfer all of its rights and obligations
under this Amended BOT Agreement to PPC, as fully as if PPC
is the original signatory to this Amended BOT Agreement,
provided however that BCA shall nonetheless be jointly and
severally liable with PPC for the performance of all the
obligations and liabilities under this Amended BOT
Agreement.11
Also modified in the Amended BOT Agreement was the Project
Completion date of the MRP/V Project which set the completion
of the implementation phase of the project within 18 to 23
months from the date of effectivity of the Amended BOT
Agreement as opposed to the previous period found in the
original BOT Agreement which set the completion within 18 to
23 months from receipt of the NTP (Notice to Proceed) in
accordance with the Project Master Plan.
On April 12, 2002, an Assignment Agreement12 was executed
by BCA and PPC, whereby BCA assigned and ceded its rights,
title, interest and benefits arising from the Amended BOT
Agreement to PPC.
As set out in Article 8 of the original and the Amended BOT
Agreement, the MRP/V Project was divided into six phases:
Phase 1. Project Planning Phase The Project Proponent
[BCA] shall prepare detailed plans and specifications in
accordance with Annex A of this [Amended] BOT Agreement
within three (3) months from issuance of the NTP (Notice to
Proceed) [from the date of effectivity of this Amended BOT
Agreement]. This phase shall be considered complete upon the
review, acceptance and approval by the DFA of these plans
and the resulting Master Plan, including the Master Schedule,
the business process specifications, the acceptance criteria,
among other plans.
xxxx
The DFA must approve all detailed plans as a condition
precedent to the issuance of the CA [Certificate of Acceptance]
for Phase 1.
Phase 2. Implementation of the MRP/V Project at the
Central Facility Within six (6) months from issuance of the
CA for Phase 1, the PROJECT PROPONENT [BCA] shall
complete the implementation of the MRP/V Project in the DFA
Central Facility, and establish the network design between the
DFA Central Facility, the ten (10) RCOs [Regional Consular
Offices] and the eighty (80) FSPs [Foreign Service Posts].
xxxx
Phase 3. Implementation of the MRP/V Project at the
79
Regional Consular Offices This phase represents the
replication of the systems as approved from the Central Facility
to the RCOs throughout the country, as identified in the RFP
[Request for Proposal]. The approved systems are those
implemented, evaluated, and finally approved by DFA as
described in Phase 1. The Project Proponent [BCA] will be
permitted to begin site preparation and the scanning and
database building operations in all offices as soon as the plans
are agreed upon and accepted. This includes site preparation
and database building operations in these Phase-3 offices.
Within six (6) months from issuance of CA for Phase 2, the
Project Proponent [BCA] shall complete site preparation and
implementation of the approved systems in the ten (10) RCOs,
including a fully functional network connection between all
equipment at the Central Facility and the RCOs.
Phase 4. Full Implementation, including all Foreign Service
Posts Within three (3) to eight (8) months from issuance of
the CA for Phase-3, the Project Proponent [BCA] shall
complete all preparations and fully implement the approved
systems in the eighty (80) FSPs, including a fully functional
network connection between all equipment at the Central
Facility and the FSPs. Upon satisfactory completion of Phase 4,
a CA shall be issued by the DFA.
Phase 5. In Service Phase Operation and maintenance of
the complete MRP/V Facility to provide machine readable
passports and visas in all designated locations around the
world.
Phase 6. Transition/Turnover Transition/Turnover to the
DFA of all operations and equipment, to include an orderly
transfer of ownership of all hardware, application system
software and its source code and/or licenses (subject to Section
5.02 [H]), peripherals, leasehold improvements, physical and
computer security improvements, Automated Fingerprint
Identification Systems, and all other MRP/V facilities shall
commence at least six (6) months prior to the end of the
[Amended] BOT Agreement. The transition will include the
training of DFA personnel who will be taking over the
responsibilities of system operation and maintenance from the
Project Proponent [BCA]. The Project Proponent [BCA] shall
bear all costs related to this transfer.13 (Words in brackets
appear in the Amended BOT Agreement)
To place matters in the proper perspective, it should be pointed
out that both the DFA and BCA impute breach of the Amended
BOT Agreement against each other.
According to the DFA, delays in the completion of the phases
permeated the MRP/V Project due to the submission of
deficient documents as well as intervening issues regarding
BCA/PPCs supposed financial incapacity to fully implement the
project.
ADR || First Batch
On the other hand, BCA contends that the DFA failed to
perform its reciprocal obligation to issue to BCA a Certificate of
Acceptance of Phase 1 within 14 working days of operation
purportedly required by Section 14.04 of the Amended BOT
Agreement. BCA bewailed that it took almost three years for the
DFA to issue the said Certificate allegedly because every
appointee to the position of DFA Secretary wanted to review
the award of the project to BCA. BCA further alleged that it was
the DFAs refusal to approve the location of the DFA Central
Facility which prevented BCA from proceeding with Phase 2 of
the MRP/V Project.
Later, the DFA sought the opinion of the Department of Finance
(DOF) and the Department of Justice (DOJ) regarding the
appropriate legal actions in connection with BCAs alleged
delays in the completion of the MRP/V Project. In a Letter dated
February 21, 2005,14 the DOJ opined that the DFA should issue
a final demand upon BCA to make good on its obligations,
specifically on the warranties and responsibilities regarding the
necessary capitalization and the required financing to carry out
the MRP/V Project. The DOJ used as basis for said
recommendation, the Letter dated April 19, 2004 15 of DOF
Secretary Juanita Amatong to then DFA Secretary Delia Albert
stating, among others, that BCA may not be able to infuse more
capital into PPC to use for the completion of the MRP/V Project.
Thus, on February 22, 2005, DFA sent a letter16 to BCA,
through its project company PPC, invoking BCAs financial
warranty under Section 5.02(A) of the Amended BOT
Agreement.17 The DFA required BCA to submit (a) proof of
adequate capitalization (i.e., full or substantial payment of stock
subscriptions); (b) a bank guarantee indicating the availability of
a credit facility of P700 million; and (c) audited financial
statements for the years 2001 to 2004.
In reply to DFAs letter, BCA, through PPC, informed the former
of its position that its financial capacity was already passed
upon during the prequalification process and that the Amended
BOT Agreement did not call for any additional financial
requirements for the implementation of the MRP/V Project.
Nonetheless, BCA submitted its financial statements for the
years 2001 and 2002 and requested for additional time within
which to comply with the other financial requirements which the
DFA insisted on.18
According to the DFA, BCAs financial warranty is a continuing
warranty which requires that it shall have the necessary
capitalization to finance the MRP/V Project in its entirety and
not on a "per phase" basis as BCA contends. Only upon
sufficient proof of its financial capability to complete and
implement the whole project will the DFAs obligation to choose
and approve the location of its Central Facility arise. The DFA
asserted that its approval of a Central Facility site was not
ministerial and upon its review, BCAs proposed site for the
Central Facility was purportedly unacceptable in terms of
security and facilities. Moreover, the DFA allegedly received
conflicting official letters and notices19 from BCA and PPC
80
regarding the true ownership and control of PPC. The DFA
implied that the disputes among the shareholders of PPC and
between PPC and BCA appeared to be part of the reason for
the hampered implementation of the MRP/V Project.
BCA, in turn, submitted various letters and documents to prove
its financial capability to complete the MRP/V Project.20
However, the DFA claimed these documents were
unsatisfactory or of dubious authenticity. Then on August 1,
2005, BCA terminated its Assignment Agreement with PPC and
notified the DFA that it would directly implement the MRP/V
Project.21 BCA further claims that the termination of the
Assignment Agreement was upon the instance, or with the
conformity, of the DFA, a claim which the DFA disputed.
On December 9, 2005, the DFA sent a Notice of Termination22
to BCA and PPC due to their alleged failure to submit proof of
financial capability to complete the entire MRP/V Project in
accordance with the financial warranty under Section 5.02(A) of
the Amended BOT Agreement. The Notice states:
After a careful evaluation and consideration of the matter,
including the reasons cited in your letters dated March 3, May
3, and June 20, 2005, and upon the recommendation of the
Office of the Solicitor General (OSG), the Department is of the
view that your continuing default in complying with the requisite
bank guarantee and/or credit facility, despite repeated notice
and demand, is legally unjustified.
In light of the foregoing considerations and upon the instruction
of the Secretary of Foreign Affairs, the Department hereby
formally TERMINATE (sic) the Subject Amended BOT
Agreement dated 5 April 2005 (sic)23 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 letter24 to the DFA
demanding that it immediately reconsider and revoke its
previous notice of termination, otherwise, BCA would be
compelled to declare the DFA in default pursuant to the
Amended BOT Agreement. When the DFA failed to respond to
said letter, BCA issued its own Notice of Default dated
December 22, 200525 against the DFA, stating that if the default
is not remedied within 90 days, BCA will be constrained to
terminate the MRP/V Project and hold the DFA liable for
damages.
BCAs request for mutual discussion under Section 19.01 of the
Amended BOT Agreement26 was purportedly ignored by the
DFA and left the dispute unresolved through amicable means
within 90 days. Consequently, BCA filed its Request for
ADR || First Batch
Arbitration dated April 7, 200627 with the Philippine Dispute
Resolution Center, Inc. (PDRCI), pursuant to Section 19.02 of
the Amended BOT Agreement which provides:
Section 19.02 Failure to Settle Amicably If the Dispute
cannot be settled amicably within ninety (90) days by mutual
discussion as contemplated under Section 19.01 herein, the
Dispute shall be settled with finality by an arbitrage tribunal
operating under International Law, hereinafter referred to as the
"Tribunal", under the UNCITRAL Arbitration Rules contained in
Resolution 31/98 adopted by the United Nations General
Assembly on December 15, 1976, and entitled "Arbitration
Rules on the United Nations Commission on the International
Trade Law". The DFA and the BCA undertake to abide by and
implement the arbitration award. The place of arbitration shall
be Pasay City, Philippines, or such other place as may mutually
be agreed upon by both parties. The arbitration proceeding
shall be conducted in the English language.28
As alleged in BCAs Request for Arbitration, PDRCI is a non-
stock, non-profit organization composed of independent
arbitrators who operate under its own Administrative Guidelines
and Rules of Arbitration as well as under the United Nations
Commission on the International Trade Law (UNCITRAL)
Model Law on International Commercial Arbitration and other
applicable laws and rules. According to BCA, PDRCI can act as
an arbitration center from whose pool of accredited arbitrators
both the DFA and BCA may select their own nominee to
become a member of the arbitral tribunal which will render the
arbitration award.
BCAs Request for Arbitration filed with the PDRCI sought the
following reliefs:
1. A judgment nullifying and setting aside the Notice of
Termination dated December 9, 2005 of Respondent [DFA],
including its demand to Claimant [BCA] to pay liquidated
damages equivalent to the corresponding performance security
bond posted by Claimant [BCA];
2. A judgment (a) confirming the Notice of Default dated
December 22, 2005 issued by Claimant [BCA] to Respondent
[DFA]; and (b) ordering Respondent [DFA] to perform its
obligation under the Amended BOT Agreement dated April 5,
2002 by approving the site of the Central Facility at the Star
Mall Complex on Shaw Boulevard, Mandaluyong City, within
five days from receipt of the Arbitral Award; and
3. A judgment ordering respondent [DFA] to pay damages to
Claimant [BCA], reasonably estimated 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.29
PDRCI, through a letter dated April 26, 2006,30 invited the DFA
81
to submit its Answer to the Request for Arbitration within 30
days from receipt of said letter and also requested both the
DFA and BCA to nominate their chosen arbitrator within the
same period of time.
Initially, the DFA, through a letter dated May 22, 2006,31
requested for an extension of time to file its answer, "without
prejudice to jurisdictional and other defenses and objections
available to it under the law." Subsequently, however, in a letter
dated May 29, 2006,32 the DFA declined the request for
arbitration before the PDRCI. While it expressed its willingness
to resort to arbitration, the DFA pointed out that under Section
19.02 of the Amended BOT Agreement, there is no mention of
a specific body or institution that was previously authorized by
the parties to settle their dispute. The DFA further claimed that
the arbitration of the dispute should be had before an ad 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, 2006,33 the DOJ
concurred with the steps taken by the DFA, stating that there
was basis in law and in fact for the termination of the MRP/V
Project. Moreover, the DOJ recommended the immediate
implementation of the project (presumably by a different
contractor) at the soonest possible time.
Thereafter, the DFA and the BSP entered into a Memorandum
of Agreement for the latter to provide the former passports
compliant with international standards. The BSP then solicited
bids for the supply, delivery, installation and commissioning of a
system for the production of Electronic Passport Booklets or e-
Passports.34
For BCA, the BSPs invitation to bid for the supply and
purchase of e-Passports (the e-Passport Project) would only
further delay the arbitration it requested from the DFA.
Moreover, this new 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 Relief35 under Section 28
of the Alternative Dispute Resolution Act of 2004 (R.A. No.
9285),36 with the Regional Trial Court (RTC) of Pasig City,
Branch 71, presided over by respondent Judge Falcon. In that
RTC petition, BCA prayed for the following:
WHEREFORE, BCA respectfully prays that this Honorable
Court, before the constitution of the arbitral tribunal in PDRCI
ADR || First Batch
Case No. 30-2006/BGF, grant petitioner interim relief in the
following manner:
(a) upon filing of this Petition, immediately issue an order
temporarily restraining Respondents [DFA and BSP], their
agents, representatives, awardees, suppliers and assigns (i)
from awarding a new contract to implement the Project, or any
similar electronic passport or visa project; or (ii) if such contract
has been awarded, from implementing such Project or similar
projects until further orders from this Honorable Court;
(b) after notice and hearing, issue a writ of preliminary
injunction ordering Respondents [DFA and BSP], their agents,
representatives, awardees, suppliers and assigns to desist (i)
from awarding a new contract to implement the Project or any
similar electronic passport or visa project; or (ii) if such contract
has been awarded, from implementing such Project or similar
projects, and to maintain the status quo ante pending the
resolution on the merits of BCAs Request for Arbitration; and
(c) render judgment affirming the interim relief granted to BCA
until the dispute between the parties shall have been resolved
with finality.
BCA also prays for such other relief, just and equitable under
the premises.37
BCA alleged, in support for its application for a Temporary
Restraining Order (TRO), that unless the DFA and the BSP
were immediately restrained, they would proceed to undertake
the project together with a third party to defeat the reliefs BCA
sought in its Request for Arbitration, thus causing BCA to suffer
grave and irreparable injury from the loss of substantial
investments in connection with the implementation of the
MRP/V Project.
Thereafter, the DFA filed an Opposition (to the Application for
Temporary Restraining Order and/or Writ of Preliminary
Injunction) dated January 18, 2007,38 alleging that BCA has no
cause of action against it as the contract between them is for
machine readable passports and visas which is not the same
as the contract it has with the BSP for the supply of electronic
passports. The DFA also pointed out that the Filipino people
and the governments international standing would suffer great
damage if a TRO would be issued to stop the e-Passport
Project. The DFA mainly anchored its opposition on Republic
Act No. 8975, which prohibits trial courts from issuing a TRO,
preliminary injunction or mandatory injunction against the
bidding or awarding of a contract or project of the national
government.
On January 23, 2007, after summarily hearing the parties oral
arguments on BCAs application for the issuance of a TRO, the
trial court ordered the issuance of a TRO restraining the DFA
and the BSP, their agents, representatives, awardees, suppliers
and assigns from awarding a new contract to implement the
82
Project or any similar electronic passport or visa project, or if
such contract has been awarded, from implementing such or
similar projects.39 The trial court also set for hearing BCAs
application for preliminary injunction.
Consequently, the DFA filed a Motion for Reconsideration40 of
the January 23, 2007 Order. The BSP, in turn, also sought to lift
the TRO and to dismiss the petition. In its Urgent Omnibus
Motion dated February 1, 2007,41 the BSP asserted that BCA is
not entitled to an injunction, as it does not have a clear right
which ought to be protected, and that the trial court has no
jurisdiction to enjoin the implementation of the e-Passport
Project which, the BSP alleged, is a national government
project under Republic Act No. 8975.
In the hearings set for BCAs application for preliminary
injunction, BCA presented as witnesses, Mr. Bonifacio
Sumbilla, its President, Mr. Celestino Mercader, Jr. from the
Independent Verification and Validation Contractor
commissioned by the DFA under the Amended BOT
Agreement, and DFA Assistant Secretary Domingo Lucenario,
Jr. as adverse party witness.
The DFA and the BSP did not present any witness during the
hearings for BCAs application for preliminary injunction.
According to the DFA and the BSP, the trial court did not have
any jurisdiction over the case considering that BCA did not pay
the correct docket fees and that only the Supreme Court could
issue a TRO on the bidding for a national government project
like the e-Passport Project pursuant to the provisions of
Republic Act No. 8975. Under Section 3 of Republic Act No.
8975, the RTC could only issue a TRO against a national
government project if it involves a matter of extreme urgency
involving a constitutional issue, such that unless a TRO is
issued, grave injustice and irreparable injury will arise.
Thereafter, BCA filed an Omnibus Comment [on Opposition
and Supplemental Opposition (To the Application for
Temporary Restraining Order and/or Writ of Preliminary
Injunction)] and Opposition [to Motion for Reconsideration (To
the Temporary Restraining Order dated January 23, 2007)] and
Urgent Omnibus Motion [(i) To Lift Temporary Restraining
Order; and (ii) To Dismiss the Petition] dated January 31,
2007.42 The DFA and the BSP filed their separate Replies (to
BCAs Omnibus Comment) dated February 9, 200743 and
February 13, 2007,44 respectively.
On February 14, 2007, the trial court issued an Order granting
BCAs application for preliminary injunction, to wit:
WHEREFORE, in view of the above, the court resolves that it
has jurisdiction over the instant petition and to issue the
provisional remedy prayed for, and therefore, hereby GRANTS
petitioners [BCAs] application for preliminary injunction.
Accordingly, upon posting a bond in the amount of Ten Million
Pesos (P10,000,000.00), let a writ of preliminary injunction
issue ordering respondents [DFA and BSP], their agents,
ADR || First Batch
representatives, awardees, suppliers and assigns to desist (i)
from awarding a new contract to implement the project or any
similar electronic passport or visa project or (ii) if such contract
has been awarded from implementing such project or similar
projects.
The motion to dismiss is denied for lack of merit. The motions
for reconsideration and to lift temporary restraining Order are
now moot and academic by reason of the expiration of the
TRO.45
On February 16, 2007, BCA filed an Amended Petition,46
wherein paragraphs 3.3(b) and 4.3 were modified to add
language to the effect that unless petitioners were enjoined
from awarding the 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 Certiorari47 and prohibition under Rule 65 of
the Rules of Court with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction, imputing
grave abuse of discretion on the trial court when it granted
interim relief to BCA and issued the assailed Order dated
February 14, 2007 and the writ of preliminary injunction dated
February 23, 2007.
The DFA and the BSP later filed an Urgent Motion for Issuance
of a Temporary Restraining Order and/or Writ of Preliminary
Injunction dated March 5, 2007.48
On March 12, 2007, the Court required BCA to file its comment
on the said petition within ten days from notice and granted the
Office of the Solicitor Generals urgent motion for issuance of a
TRO and/or writ of preliminary injunction,49 thus:
After deliberating on the petition for certiorari and prohibition
with temporary restraining order and/or writ of preliminary
injunction assailing the Order dated 14 February 2007 of the
Regional Trial Court, Branch 71, Pasig City, in Civil Case No.
71079, the Court, without necessarily giving due course thereto,
resolves to require respondents to COMMENT thereon (not to
file a motion to dismiss) within ten (10) days from notice.
The Court further resolves to GRANT the Office of the Solicitor
Generals urgent motion for issuance of a temporary restraining
order and/or writ of preliminary injunction dated 05 March 2007
and ISSUE a TEMPORARY RESTRAINING ORDER, as
prayed for, enjoining respondents from implementing the
assailed Order dated 14 February 2007 and the Writ of
Preliminary Injunction dated 23 February 2007, issued by
respondent Judge Franco T. Falcon in Civil Case No. 71079
entitled BCA International Corporation vs. Department of
83
Foreign Affairs and Bangko Sentral ng Pilipinas, and from
conducting further proceedings in said case until further orders
from this Court.
BCA filed on April 2, 2007 its Comment with Urgent Motion to
Lift TRO,50 to which the DFA and the BSP filed their Reply
dated August 14, 2007.51
In a Resolution dated June 4, 2007,52 the Court denied BCAs
motion to lift TRO. BCA filed another Urgent Omnibus Motion
dated August 17, 2007, for the reconsideration of the
Resolution dated June 4, 2007, praying that the TRO issued on
March 12, 2007 be lifted and that the petition be denied.
In a Resolution dated September 10, 2007,53 the Court denied
BCAs Urgent Omnibus Motion and gave due course to the
instant petition. The parties were directed to file their respective
memoranda within 30 days from notice of the Courts
September 10, 2007 Resolution.
Petitioners DFA and BSP submit the following issues for our
consideration:
Issues
I
Whether or not the respondent judge gravely abused his
discretion amounting to lack or excess of jurisdiction when he
issued the assailed order, which effectively enjoined the
implementation of the e-passport project -- A national
government project under Republic Act No. 8975.
II
Whether or not the respondent judge acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in granting
respondent BCAs "interim relief" inasmuch as:
(I) Respondent BCA has not established a clear right that can
be protected by an injunction; and
(II) Respondent BCA has not shown that it will sustain grave
and irreparable injury that must be protected by an injunction.
On the contrary, it is the Filipino people, who petitioners protect,
that will sustain serious and severe injury by the injunction.54
At the outset, we dispose of the procedural objections of BCA
to the petition, to wit: (a) petitioners did not follow the hierarchy
of courts by filing their petition directly with this Court, without
filing a motion for reconsideration with the RTC and without
filing a petition first with the Court of Appeals; (b) the person
who verified the petition for the DFA did not have personal
knowledge of the facts of the case and whose appointment to
his position was highly irregular; and (c) the verification by the
ADR || First Batch
Assistant Governor and General Counsel of the BSP of only
selected paragraphs of the petition was with the purported
intent to mislead this Court.
Although the direct filing of petitions for certiorari with the
Supreme Court is discouraged when litigants may still resort to
remedies with the lower courts, we have in the past overlooked
the failure of a party to strictly adhere to the hierarchy of courts
on highly meritorious grounds. Most recently, we relaxed the
rule on court hierarchy in the case of Roque, Jr. v. Commission
on Elections,55 wherein we held:
The policy on the hierarchy of courts, which petitioners indeed
failed to observe, is not an iron-clad rule. For indeed the Court
has full discretionary power to take cognizance and assume
jurisdiction of special civil actions 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.56 (Emphases ours.)
The Court deems it proper to adopt a similarly liberal attitude in
the present case in consideration of the transcendental
importance of an issue raised herein. This is the first time that
the Court is confronted with the question of whether an
information and communication technology project, which does
not conform to our traditional notion of the term "infrastructure,"
is covered by the prohibition on the issuance of court
injunctions found in Republic Act No. 8975, which is entitled
"An Act to Ensure the Expeditious Implementation and
Completion of Government Infrastructure Projects by
Prohibiting Lower Courts from Issuing Temporary Restraining
Orders, Preliminary Injunctions or Preliminary Mandatory
Injunctions, Providing Penalties for Violations Thereof, and for
Other Purposes." Taking into account the current trend of
computerization and modernization of administrative and
service systems of government offices, departments and
agencies, the resolution of this issue for the guidance of the
bench and bar, as well as the general public, is both timely and
imperative.
Anent BCAs claim that Mr. Edsel T. Custodio (who verified the
Petition on behalf of the DFA) did not have personal knowledge
of the facts of the case and was appointed to his position as
Acting Secretary under purportedly irregular circumstances, we
find that BCA failed to sufficiently prove such allegations. In any
event, we have previously held that "[d]epending on the nature
of the allegations in the petition, the verification may be based
either purely on personal knowledge, or entirely on authentic
records, or on both sources."57 The alleged lack of personal
knowledge of Mr. Custodio (which, as we already stated, BCA
failed to prove) would not necessarily render the verification
defective for he could have verified the petition purely on the
basis of authentic records.
As for the assertion that the partial verification of Assistant
Governor and General Counsel Juan de Zuniga, Jr. was for the
purpose of misleading this Court, BCA likewise failed to adduce
84
evidence on this point. Good faith is always presumed.
Paragraph 3 of Mr. Zunigas verification indicates that his partial
verification is due to the fact that he is verifying only the
allegations in the petition peculiar to the BSP. We see no
reason to doubt that this is the true reason for his partial or
selective verification.
In sum, BCA failed to successfully rebut the presumption that
the official acts (of Mr. Custodio and Mr. Zuniga) were done in
good faith and in the regular performance of official duty.58
Even assuming the verifications of the petition suffered from
some defect, we have time and again ruled that "[t]he ends of
justice are better served when cases are determined on the
merits after all parties are given full opportunity to ventilate
their causes and defenses rather than on technicality or
some procedural imperfections."59 In other words, the Court
may suspend or even disregard rules when the demands of
justice so require.60
We now come to the substantive issues involved in this case.
On whether the trial court had jurisdiction to issue a writ of
preliminary injunction in the present case
In their petition, the DFA and the BSP argue that respondent
Judge Falcon gravely abused his discretion amounting to lack
or excess of jurisdiction when he issued the assailed orders,
which effectively enjoined the bidding and/or implementation of
the e-Passport Project. According to petitioners, this violated
the clear prohibition under Republic Act No. 8975 regarding the
issuance of TROs and preliminary injunctions against national
government projects, such as the e-Passport Project.
The prohibition invoked by petitioners is found in Section 3 of
Republic Act No. 8975, which reads:
Section 3. Prohibition on the Issuance of Temporary
Restraining Orders, Preliminary Injunctions and Preliminary
Mandatory Injunctions. No court, except the Supreme Court,
shall issue any temporary restraining order, preliminary
injunction or preliminary mandatory injunction against the
government, or any of its subdivisions, officials or any person or
entity, whether public or private, acting under the governments
direction, to restrain, prohibit or compel the following acts:
(a) Acquisition, clearance and development of the right-of-way
and/or site or location of any national government project;
(b) Bidding or awarding of contract/project of the national
government as defined under Section 2 hereof;
(c) Commencement, prosecution, execution, implementation,
operation of any such contract or project;
(d) Termination or rescission of any such contract/project; and
ADR || First Batch
(e) The undertaking or authorization of any other lawful activity
necessary for such contract/project.
This prohibition shall apply in all cases, disputes or
controversies instituted by a private party, including but not
limited to cases filed by bidders or those claiming to have rights
through such bidders involving such contract/project. This
prohibition shall not apply when the matter is of extreme
urgency involving a constitutional issue, such that unless a
temporary restraining order is issued, grave injustice and
irreparable injury will arise. The applicant shall file a bond, in an
amount to be fixed by the court, which bond shall accrue in
favor of the government if the court should finally decide that
the applicant was not entitled to the relief sought.
If after due hearing the court finds that the award of the contract
is null and void, the court may, if appropriate under the
circumstances, award the contract to the qualified and winning
bidder or order a rebidding of the same, without prejudice to
any liability that the guilty party may incur under existing laws.
From the foregoing, it is indubitable that no court, aside from
the Supreme Court, may enjoin a "national government project"
unless the matter is one of extreme urgency involving a
constitutional issue such that unless the act complained of is
enjoined, grave injustice or irreparable injury would arise.
What then are the "national government projects" over which
the lower courts are without jurisdiction to issue the injunctive
relief as mandated by Republic Act No. 8975?
Section 2(a) of Republic Act No. 8975 provides:
Section 2. Definition of Terms.
(a) "National government projects" shall refer to all current and
future national government infrastructure, engineering works
and service contracts, including projects undertaken by
government-owned and -controlled corporations, all projects
covered by Republic Act No. 6975, as amended by Republic
Act No. 7718, otherwise known as the Build-Operate-and-
Transfer Law, and other related and necessary activities, such
as site acquisition, supply and/or installation of equipment and
materials, implementation, construction, completion, operation,
maintenance, improvement, repair and rehabilitation,
regardless of the source of funding.
As petitioners themselves pointed out, there are three types of
national government projects enumerated in Section 2(a), to
wit:
(a) current and future national government infrastructure
projects, engineering works and service contracts, including
projects undertaken by government-owned and controlled
corporations;
85
(b) all projects covered by R.A. No. 6975, as amended by R.A.
No. 7718, or the Build-Operate-and-Transfer ( BOT) Law; and
(c) other related and necessary activities, such as site
acquisition, supply and/or installation of equipment and
materials, implementation, construction, completion, operation,
maintenance, improvement repair and rehabilitation, regardless
of the source of funding.
Under Section 2(a) of the BOT Law as amended by Republic
Act No. 7718,61 private sector infrastructure or development
projects are those normally financed and operated by the public
sector but which will now be wholly or partly implemented by
the private sector, including but not limited to, power plants,
highways, ports, airports, canals, dams, hydropower projects,
water supply, irrigation, telecommunications, railroads and
railways, transport systems, land reclamation projects,
industrial estates or townships, housing, government buildings,
tourism projects, markets, slaughterhouses, warehouses, solid
waste management, information 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. 9184,62 also known as the
Government Procurement Reform Act, defines infrastructure
projects in Section 5(k) thereof in this manner:
(k) Infrastructure Projects - include the construction,
improvement, rehabilitation, demolition, repair, restoration or
maintenance of roads and bridges, railways, airports, seaports,
communication facilities, civil works components of information
technology projects, irrigation, flood control and drainage, water
supply, sanitation, sewerage and solid waste management
systems, shore protection, energy/power and electrification
facilities, national buildings, school buildings, hospital buildings
and other related construction projects of the government.
(Emphasis supplied.)
In the present petition, the DFA and the BSP contend that the
bidding for the supply, delivery, installation and commissioning
of a system for the production of Electronic Passport Booklets,
is a national government project within the definition of Section
2 of Republic Act No. 8975. Petitioners also point to the Senate
deliberations on Senate Bill No. 203863 (later Republic Act No.
8975) which allegedly show the legislatives intent to expand
the scope and definition of national government projects to
cover not only the infrastructure projects enumerated in
Presidential Decree No. 1818, but also future projects that may
likewise be considered national government infrastructure
projects, like the e-Passport Project, to wit:
Senator Cayetano. x x x Mr. President, the present bill, the
Senate Bill No. 2038, is actually an improvement of P.D. No.
1818 and definitely not a repudiation of what I have earlier said,
as my good friend clearly stated. But this is really an effort to
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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
86
projects refer to the "civil works components" thereof. (R.A. No.
9184 [2003], Sec. 5[c]{sic}).64
Respondent BSPs request for bid, for the supply, delivery,
installation and commissioning of a system for the production of
Electronic Passport Booklets appears to be beyond the scope
of the term "civil works." Respondents did not present evidence
to prove otherwise.65 (Emphases ours.)
From the foregoing, it can be gleaned that the trial court
accepted BCAs reasoning that, assuming the e-Passport
Project is a project under the BOT Law, Section 2 of the BOT
Law must be read in conjunction with Section 5(c) of Republic
Act No. 9184 or the Government Procurement Reform Act to
the effect that only the civil works component of information
technology projects are to be considered "infrastructure." Thus,
only said civil works component of an information technology
project cannot be the subject of a TRO or writ of injunction
issued by a lower court.
Although the Court finds that the trial court had jurisdiction to
issue the writ of preliminary injunction, we cannot uphold the
theory of BCA and the trial court that the definition of the term
"infrastructure project" in Republic Act No. 9184 should be
applied to the BOT Law.
Section 5 of Republic Act No. 9184 prefaces the definition of
the terms therein, including the term "infrastructure project,"
with the following phrase: "For purposes of this Act, the
following terms or words and phrases shall mean or be
understood as follows x x x."
This Court has stated that the definition of a term in a statute is
not conclusive as to the meaning of the same term as used
elsewhere.66 This is evident when the legislative definition is
expressly made for the purposes of the statute containing such
definition.67
There is no legal or rational basis to apply the definition of the
term "infrastructure project" in one statute to another statute
enacted years before and which already defined the types of
projects it covers. Rather, a reading of the two statutes involved
will readily show that there is a legislative intent to treat
information technology projects differently under the BOT Law
and the Government Procurement Reform Act.
In the BOT Law as amended by Republic Act No. 7718, the
national infrastructure and development projects covered by
said law are enumerated in Section 2(a) as follows:
SEC. 2. Definition of Terms. - The following terms used in this
Act shall have the meanings stated below:
(a) Private sector infrastructure or development projects - The
general description of infrastructure or development projects
normally financed and operated by the public sector but which
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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
87
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.
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This limited definition of "infrastructure project" in relation to
information technology projects under Republic Act No. 9184 is
significant since the IRR of Republic Act No. 9184 has some
provisions that are particular to infrastructure projects and other
provisions that are applicable only to procurement of goods or
consulting services.68
Implicitly, the civil works component of information technology
projects are subject to the provisions on infrastructure projects
while the technological and other components would be
covered by the provisions on procurement of goods or
consulting services as the circumstances may warrant.
When Congress adopted a limited definition of what is to be
considered "infrastructure" in relation to information technology
projects under the Government Procurement Reform Act,
legislators are presumed to have taken into account previous
laws concerning infrastructure projects (the BOT Law and
Republic Act No. 8975) and deliberately adopted the limited
definition. We can further presume that Congress had written
into law a different treatment for information technology projects
financed by public funds vis-a-vis privately funded projects for a
valid legislative purpose.
The idea that the definitions of terms found in the Government
Procurement Reform Act were not meant to be applied to
projects under the BOT Law is further reinforced by the
following provision in the IRR of the Government Procurement
Reform Act:
Section 1. Purpose and General Coverage
This Implementing Rules and Regulations (IRR) Part A,
hereinafter called "IRR-A," is promulgated pursuant to Section
75 of Republic Act No. 9184 (R.A. 9184), otherwise known as
the "Government Procurement Reform Act" (GPRA), for the
purpose of prescribing the necessary rules and regulations for
the modernization, standardization, and regulation of the
procurement activities of the government. This IRR-A shall
cover all fully domestically-funded procurement activities from
procurement planning up to contract implementation and
termination, except for the following:
a) Acquisition of real property which shall be governed by
Republic Act No. 8974 (R.A. 8974), entitled "An Act to Facilitate
the Acquisition of Right-of-Way Site or Location for National
Government Infrastructure Projects and for Other Purposes,"
and other applicable laws; and
b) Private sector infrastructure or development projects and
other procurement covered by Republic Act No. 7718 (R.A.
7718), entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the
Private Sector, and for Other Purposes," as amended:
Provided, however, That for the portions financed by the
Government, the provisions of this IRR-A shall apply.
88
The IRR-B for foreign-funded procurement activities shall be
the subject of a subsequent issuance. (Emphases supplied.)
The foregoing provision in the IRR can be taken as an
administrative interpretation that the provisions of Republic Act
No. 9184 are inapplicable to a BOT project except only insofar
as such portions of the BOT project that are financed by the
government.
Taking into account the different treatment of information
technology projects under the BOT Law and the Government
Procurement Reform Act, petitioners contention the trial court
had no jurisdiction to issue a writ of preliminary injunction in the
instant case would have been correct if the e-Passport Project
was a project under the BOT Law as they represented to the
trial court.
However, petitioners presented no proof that the e-Passport
Project was a BOT project. On the contrary, evidence adduced
by both sides tended to show that the e-Passport Project was a
procurement contract under Republic Act No. 9184.
The BSPs on-line request for expression of interest and to bid
for the e-Passport Project69 from the BSP website and the
newspaper clipping70 of the same request expressly stated that
"[t]he two stage bidding procedure under Section 30.4 of the
Implementing Rules and Regulation (sic) Part-A of Republic Act
No. 9184 relative to the bidding and award of the contract shall
apply." During the testimony of DFA Assistant Secretary
Domingo Lucenario, Jr. before the trial court, he admitted that
the e-Passport Project is a BSP procurement project and that it
is the "BSP that will pay the suppliers."71 In petitioners
Manifestation dated July 29, 200872 and the Erratum73 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, 200874 attached
to petitioners pleading, it was stated that the failure of the
contractor/supplier to submit the required performance bond
would be sufficient ground for the imposition of administrative
penalty under Section 69 of the IRR-A of Republic Act No.
9184.
Being a government procurement contract under Republic Act
No. 9184, only the civil works component of the e-Passport
Project would be considered an infrastructure project that may
not be the subject of a lower court-issued writ of injunction
under Republic Act No. 8975.
Could the e-Passport Project be considered as "engineering
works or a service contract" or as "related and necessary
activities" under Republic Act No. 8975 which may not be
enjoined?
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We hold in the negative. Under Republic Act No. 8975, a
"service contract" refers to "infrastructure contracts entered into
by any department, office or agency of the national government
with private entities and nongovernment organizations for
services related or incidental to the functions and operations of
the department, office or agency concerned." On the other
hand, the phrase "other related and necessary activities"
obviously refers to activities related to a government
infrastructure, engineering works, service contract or project
under the BOT Law. In other words, to be considered a service
contract or related activity, petitioners must show that the e-
Passport Project is an infrastructure project or necessarily
related to an infrastructure project. This, petitioners failed to do
for they saw fit not to present any evidence on the details of the
e-Passport Project before the trial court and this Court. There is
nothing on record to indicate that the e-Passport Project has a
civil works component or is necessarily related to an
infrastructure project.
Indeed, the reference to Section 30.475 of the IRR of Republic
Act No. 9184 (a provision specific to the procurement of goods)
in the BSPs request for interest and to bid confirms that the e-
Passport Project is a procurement of goods and not an
infrastructure project. Thus, within the context of Republic Act
No. 9184 which is the governing law for the e-Passport
Project the said Project is not an infrastructure project that is
protected from lower court issued injunctions under Republic
Act No. 8975, which, to reiterate, has for its purpose the
expeditious and efficient implementation and completion of
government infrastructure projects.
We note that under Section 28, Republic Act No. 9285 or the
Alternative Dispute Resolution Act of 2004,76 the grant of an
interim measure of protection by the proper court before the
constitution of an arbitral tribunal is allowed:
Sec. 28. Grant of Interim Measure of Protection. (a) It is not
incompatible with an arbitration agreement for a party to
request, before constitution of the tribunal, from a Court an
interim measure of protection and for the Court to grant such
measure. After constitution of the arbitral tribunal and during
arbitral proceedings, a request for an interim measure of
protection, or modification thereof, may be made with the
arbitral tribunal or to the extent that the arbitral tribunal has no
power to act or is unable to act effectively, the request may be
made with the Court. The arbitral tribunal is deemed constituted
when the sole arbitrator or the third arbitrator, who has been
nominated, has accepted the nomination and written
communication of said nomination and acceptance has been
received by the party making the request.
(a) The following rules on interim or provisional relief shall be
observed:
(1) Any party may request that provisional relief be granted
against the adverse party.
89
(2) Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(3) The order granting provisional relief may be conditioned
upon the provision of security or any act or omission specified
in the order.
(4) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against whom
the relief is sought, describing in appropriate detail the precise
relief, the party against whom the relief is requested, the
grounds for the relief, and the evidence supporting the request.
(5) The order shall be binding upon the parties.
(6) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(7) A party who does not comply with the order shall be liable
for all damages resulting from noncompliance, including all
expenses and reasonable attorneys fees, paid in obtaining the
orders judicial enforcement.
Section 3(h) of the same statute provides that the "Court" as
referred to in Article 6 of the Model Law shall mean a Regional
Trial Court.
Republic Act No. 9285 is a general law applicable to all matters
and controversies to be resolved through alternative dispute
resolution methods. This law allows a Regional Trial Court to
grant interim or provisional relief, including preliminary
injunction, to parties in an arbitration case prior to the
constitution of the arbitral tribunal. This general statute,
however, must give way to a special law governing national
government projects, Republic Act No. 8975 which prohibits
courts, except the Supreme Court, from issuing TROs and writs
of preliminary injunction in cases involving national government
projects.
However, as discussed above, the prohibition in Republic Act
No. 8975 is inoperative in this case, since petitioners failed to
prove that the e-Passport Project is national government project
as defined therein. Thus, the trial court had jurisdiction to issue
a writ of preliminary injunction against the e-Passport Project.
On whether the trial courts issuance of a writ of injunction was
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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
90
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
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obligations in the contract and such failure is not remediable or
if remediable shall remain unremedied for an unreasonable
length of time, the project proponent/contractor may, by prior
notice to the concerned national government agency or local
government unit specifying the turn-over date, terminate the
contract. The project proponent/contractor shall be reasonably
compensated by the Government for equivalent or
proportionate contract cost as defined in the contract.
(Emphases supplied.)
In addition, the Amended BOT Agreement, which is the law
between and among the parties to it, pertinently provides:
Section 17.01 Default In case a party commits an act
constituting an event of default, the non-defaulting party
may terminate this Amended BOT Agreement by serving a
written notice to the defaulting party specifying the grounds for
termination and giving the defaulting party a period of ninety
(90) days within which to rectify the default. If the default is not
remedied within this period to the satisfaction of the non-
defaulting party, then the latter will serve upon the former a
written notice of termination indicating the effective date of
termination.
Section 17.02 Proponents Default If this Amended BOT
Agreement is terminated by reason of the BCAs default, the
DFA shall have the following options:
A. Allow the BCAs unpaid creditors who hold a lien on the
MRP/V Facility to foreclose on the MRP/V Facility. The right of
the BCAs unpaid creditors to foreclose on the MRP/V Facility
shall be valid for the duration of the effectivity of this Amended
BOT Agreement; or,
B. Allow the BCAs unpaid creditors who hold a lien on the
MRP/V Facility to designate a substitute BCA for the MRP/V
Project, provided the designated substitute BCA is qualified
under existing laws and acceptable to the DFA. This substitute
BCA shall hereinafter be referred to as the "Substitute BCA."
The Substitute BCA shall assume all the BCAs rights and
privileges, as well as the obligations, duties and responsibilities
hereunder; provided, however, that the DFA shall at all times
and its sole option, have the right to invoke and exercise any
other remedy which may be available to the DFA under any
applicable laws, rules and/or regulations which may be in effect
at any time and from time to time. The DFA shall cooperate with
the creditors with a view to facilitating the choice of a Substitute
BCA, who shall take-over the operation, maintenance and
management of the MRP/V Project, within three (3) months
from the BCAs receipt of the notice of termination from the
DFA. The Substituted BCA shall have all the rights and
obligations of the previous BCA as contained in this Amended
BOT Agreement; or
C. Take-over the MRP/V Facility and assume all attendant
liabilities thereof.
91
D. 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:
A. Be obligated to take over the MRP/V Facility on an "as is,
where is" basis, and shall forthwith assume attendant liabilities
thereof; and
B. Pay liquidated damages to the BCA equivalent to the
following amounts, which may be charged to the insurance
proceeds referred to in Article 12:
(1) In the event of termination prior to completion of the
implementation of the MRP/V Project, damages shall be paid
equivalent to the value of completed implementation,
minus the aggregate amount of the attendant liabilities
assumed by the DFA, plus ten percent (10%) thereof. The
amount of such compensation shall be determined as of the
date of the notice of termination and shall become due and
demandable ninety (90) days after the date of this notice of
termination. Under this Amended BOT Agreement, the term
"Value of the Completed Implementation" shall mean the
aggregate of all reasonable costs and expenses incurred by the
BCA in connection with, in relation to and/or by reason of the
MRP/V Project, excluding all interest and capitalized interest,
as certified by a reputable and independent accounting firm to
be appointed by the BCA and subject to the approval by the
DFA, such approval shall not be unreasonably withheld.
(2) In the event of termination after completion of design,
development, and installation of the MRP/V Project, just
compensation shall be paid equivalent to the present value
of the net income which the BCA expects to earn or realize
during the unexpired or remaining term of this Amended
BOT Agreement using the internal rate of return on equity
(IRRe) defined in the financial projections of the BCA and
agreed upon by the parties, which is attached hereto and made
as an integral part of this Amended BOT Agreement as
Schedule "1". (Emphases supplied.)
The validity of the DFAs termination of the Amended BOT
Agreement and the determination of the party or parties in
default are issues properly threshed out in arbitration
proceedings as provided for by the agreement itself. However,
even if we hypothetically accept BCAs contention that the DFA
terminated the Amended BOT Agreement without any default or
wrongdoing on BCAs part, it is not indubitable that BCA is
entitled to injunctive relief.
The BOT Law expressly allows the government to terminate a
BOT agreement, even without fault on the part of the project
proponent, subject to the payment of the actual expenses
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incurred by the proponent plus a reasonable rate of return.
Under the BOT Law and the Amended BOT Agreement, in the
event of default on the part of the government (in this case, the
DFA) or on the part of the proponent, the non-defaulting party is
allowed to terminate the agreement, again subject to proper
compensation in the manner set forth in the agreement.
Time and again, this Court has held that to be entitled to
injunctive relief the party seeking such relief must be able to
show grave, irreparable injury that is not capable of
compensation.
In Lopez v. Court of Appeals, 77 we held:
Generally, injunction is a preservative remedy for the protection
of one's substantive right or interest. It is not a cause of action
in itself but merely a provisional remedy, an adjunct to a main
suit. It is resorted to only when there is a pressing necessity to
avoid injurious consequences which cannot be remedied under
any standard compensation. The application of the injunctive
writ rests upon the existence of an emergency or of a special
reason before the main case can be regularly heard. The
essential conditions for granting such temporary injunctive relief
are that the complaint alleges facts which appear to be
sufficient to constitute a proper basis for injunction and that on
the entire showing from the contending parties, the injunction is
reasonably necessary to protect the legal rights of the plaintiff
pending the litigation. Two requisites are necessary if a
preliminary injunction is to issue, namely, the existence of a
right to be protected and the facts against which the injunction
is to be directed are violative of said right. In particular, for a
writ of preliminary injunction to issue, the existence of the right
and the violation must appear in the allegation of the complaint
and a preliminary injunction is proper only when the plaintiff
(private respondent herein) appears to be entitled to the relief
demanded in his complaint. (Emphases supplied.)
We reiterated this point in Transfield Philippines, Inc. v. Luzon
Hydro Corporation,78 where we likewise opined:
Before a writ of preliminary injunction may be issued, there
must be a clear showing by the complaint that there exists a
right to be protected and that the acts against which the writ is
to be directed are violative of the said right. It must be shown
that the invasion of the right sought to be protected is material
and substantial, that the right of complainant is clear and
unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage. Moreover, an
injunctive remedy may only be resorted to when there is a
pressing necessity to avoid injurious consequences which
cannot be remedied under any standard compensation.
(Emphasis supplied.)
As the Court explained previously in Philippine Airlines, Inc. v.
National Labor Relations Commission79:
92
An injury is considered irreparable if it is of such constant and
frequent recurrence that no fair and reasonable redress can be
had therefor in a court of law, or where there is no standard by
which their amount can be measured with reasonable accuracy,
that is, it is not susceptible of mathematical computation. It is
considered irreparable injury when it cannot be adequately
compensated in damages due to the nature of the injury itself
or the nature of the right or property injured or when there
exists no certain pecuniary standard for the measurement of
damages. (Emphases supplied.)
It is still contentious whether this is a case of termination by the
DFA alone or both the DFA and BCA. The DFA contends that
BCA, by sending its own Notice of Default, likewise terminated
or "abandoned" the Amended BOT Agreement. Still, whether
this is a termination by the DFA alone without fault on the part
of BCA or a termination due to default on the part of either
party, the BOT Law and the Amended BOT Agreement lay
down the measure of compensation to be paid under the
appropriate circumstances.
Significantly, in BCAs Request for Arbitration with the PDRCI, it
prayed for, among others, "a judgment ordering respondent
[DFA] to pay damages to Claimant [BCA], reasonably estimated
at P50,000,000.00 as of [the date of the Request for
Arbitration], representing lost business opportunities; financing
fees, costs and commissions; travel expenses; legal fees and
expenses; and costs of arbitration, including the fees of the
arbitrator/s."80 All the purported damages that BCA claims to
have suffered by virtue of the DFAs termination of the
Amended BOT Agreement are plainly determinable in
pecuniary terms and can be "reasonably estimated" according
to BCAs own words.
Indeed, the right of BCA, a party which may or may not have
been in default on its BOT contract, to have the termination of
its BOT contract reversed is not guaranteed by the BOT Law.
Even assuming BCAs innocence of any breach of contract, all
the law provides is that BCA should be adequately
compensated for its losses in case of contract termination by
the government.
There is one point that none of the parties has highlighted but is
worthy of discussion. In seeking to enjoin the government from
awarding or implementing a machine readable passport project
or any similar electronic passport or visa project and praying for
the maintenance of the status quo ante pending the resolution
on the merits of BCAs Request for Arbitration, BCA effectively
seeks to enjoin the termination of the Amended BOT
Agreement for the MRP/V Project.
There is no doubt that the MRP/V Project is a project covered
by the BOT Law and, in turn, considered a "national
government project" under Republic Act No. 8795. Under
Section 3(d) of that statute, trial courts are prohibited from
issuing a TRO or writ of preliminary injunction against the
government to restrain or prohibit the termination or rescission
ADR || First Batch
of any such national government project/contract.
The rationale for this provision is easy to understand. For if a
project proponent that the government believes to be in
default is allowed to enjoin the termination of its contract on
the ground that it is contesting the validity of said termination,
then the government will be unable to enter into a new contract
with any other party while the controversy is pending litigation.
Obviously, a courts grant of injunctive relief in such an instance
is prejudicial to public interest since government would be
indefinitely hampered in its duty to provide vital public goods
and services in order to preserve the private proprietary rights
of the project proponent. On the other hand, should it turn out
that the project proponent was not at fault, the BOT Law itself
presupposes that the project proponent can be adequately
compensated for the termination of the contract. Although BCA
did not specifically pray for the trial court to enjoin the
termination of the Amended BOT Agreement and thus, there is
no direct violation of Republic Act No. 8795, a grant of
injunctive relief as prayed for by BCA will indirectly contravene
the same statute.
Verily, there is valid reason for the law to deny preliminary
injunctive relief to those who seek to contest the governments
termination of a national government contract. The only
circumstance under which a court may grant injunctive relief is
the existence of a matter of extreme urgency involving a
constitutional issue, such that unless a TRO or injunctive writ is
issued, grave injustice and irreparable injury will result.
Now, BCA likewise claims that unless it is granted injunctive
relief, it would suffer grave and irreparable injury since the
bidding out and award of the e-Passport Project would be
tantamount to a violation of its right against deprivation of
property without due process of law under Article III, Section 1
of the Constitution. We are unconvinced. 1avvphi1
Article III, Section 1 of the Constitution provides "[n]o person
shall be deprived of life, liberty, or property without due process
of law, nor shall any person be denied the equal protection of
the laws." Ordinarily, this constitutional provision has been
applied to the exercise by the State of its sovereign powers
such as, its legislative power,81 police power,82 or its power of
eminent domain.83
In the instant case, the State action being assailed is the DFAs
termination of the Amended BOT Agreement with BCA.
Although the said agreement involves a public service that the
DFA is mandated to provide and, therefore, is imbued with
public interest, the relationship of DFA to BCA is primarily
contractual and their dispute involves the adjudication of
contractual rights. The propriety of the DFAs acts, in relation to
the termination of the Amended BOT Agreement, should be
gauged against the provisions of the contract itself and the
applicable statutes to such contract. These contractual and
statutory provisions outline what constitutes due process in the
present case. In all, BCA failed to demonstrate that there is a
93
constitutional issue involved in this case, much less a
constitutional issue of extreme urgency.
As for the DFAs purported failure to appropriate sufficient
amounts in its budget to pay for liquidated damages to BCA,
this argument does not support BCAs position that it will suffer
grave and irreparable injury if it is denied injunctive relief. The
DFAs liability to BCA for damages is contingent on BCA
proving that it is entitled to such damages in the proper
proceedings. The DFA has no obligation to set aside funds to
pay for liquidated damages, or any other kind of damages, to
BCA until there is a final and executory judgment in favor of
BCA. It is illogical and impractical for the DFA to set aside a
significant portion of its budget for an event that may never
happen when such idle funds should be spent on providing
necessary services to the populace. For if it turns out at the end
of the arbitration proceedings that it is BCA alone that is in
default, it would be the one liable for liquidated damages to the
DFA under the terms of the Amended BOT Agreement.
With respect to BCAs allegation that the e-Passport Project is
grossly disadvantageous to the Filipino people since it is the
government that will be spending for the project unlike the
MRP/V Project which would have been privately funded, the
same is immaterial to the issue at hand. If it is true that the
award of the e-Passport Project is inimical to the public good or
tainted with some anomaly, it is indeed a cause for grave
concern but it is a matter that must be investigated and litigated
in the proper forum. It has no bearing on the issue of whether
BCA would suffer grave and irreparable injury such that it is
entitled to injunctive relief from the courts.
In all, we agree with petitioners DFA and BSP that the trial
courts issuance of a writ of preliminary injunction, despite the
lack of sufficient legal justification for the same, is tantamount to
grave abuse of discretion.
To be very clear, the present decision touches only on the twin
issues of (a) the jurisdiction of the trial court to issue a writ of
preliminary injunction as an interim relief under the factual
milieu of this case; and (b) the entitlement of BCA to injunctive
relief. The merits of the DFA and BCAs dispute regarding the
termination of the Amended BOT Agreement must be threshed
out in the proper arbitration proceedings. The civil case pending
before the trial court is purely for the grant of interim relief since
the main case is to be the subject of arbitration proceedings.
BCAs petition for interim relief before the trial court is
essentially a petition for a provisional remedy (i.e., preliminary
injunction) ancillary to its Request for Arbitration in PDRCI Case
No. 30-2006/BGF. BCA specifically prayed that the trial court
grant it interim relief pending the constitution of the arbitral
tribunal in the said PDRCI case. Unfortunately, during the
pendency of this case, PDRCI Case No. 30-2006/BGF was
dismissed by the PDRCI for lack of jurisdiction, in view of the
lack of agreement between the parties to arbitrate before the
PDRCI.84 In Philippine National Bank v. Ritratto Group, Inc.,85
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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.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
PRESBITERO J. VELASCO, JR.
Associate Justice
JOSE PORTUGAL PEREZ
94
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify
that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the
opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
Footnotes
1 Rollo, pp. 84-92.
2 Id. at 93.
3 The International Civil Aviation Organization (ICAO) is a
specialized agency of the United Nations which was
established on December 7, 1944 by 52 nations whose aim
was to assure the safe, orderly and economic development of
international air transport. ICAO was created with the signing in
Chicago of the Convention on International Civil Aviation. ICAO
is the permanent body charged with the administration of the
principles laid out in the Convention. (see
http://www.icao.int/icao/en/m_about.html.)
4 ICAO's mandate to develop MRTDs is provided by Articles 22,
23 and 37 of the Chicago Convention which oblige Contracting
States to develop and adopt international standards for
customs, immigration and other procedures to facilitate the
border-crossing processes involved in international air
transport. In order to address the clearance of increased
passengers volumes that came with the emergence of wide
body aircraft, ICAO took the initiative and published the first
edition of Document No. 9303 in 1980.
(http://www2.icao.int/en/MRTD/Pages/Overview.aspx.)
5 A Machine Readable Travel Document (MRTD) is an
international travel document (e.g., a passport or visa)
containing eye- and machine-readable data. Each type of
MRTD contains, in a standard format, the holder's identification
details, including a photograph or digital image, with mandatory
identity elements reflected in a two-line machine readable zone
(MRZ) printed in Optical Character Recognition-B (OCR-B)
style. (Id.)
6 The relevant MARIANO
portion of Section 11.3, IRR of the BOT Law,
C. DEL CASTILLO
states:
Associate Justice
Sec. 11.3. Notice of Award. The Notice of Award shall
ADR || First Batch 95

indicate, among others, that the awardee must submit within 20 Id. at 671-675.
thirty (30) calendar days from official receipt of the Notice of
Award the following: 21 Id. at 692.

a. prescribed performance security; 22 Id. at 256-257.

b. proof of commitment of equity contribution as specified by 23The Amended BOT Agreement was dated April 2, 2002 and
the Agency/LGU and subject to current monetary rules and not 2005.
regulations, and indications of financing resources;
24 Rollo, pp. 697-699.
c. in the case of a joint venture/consortium, the agreement
indicating that the members are jointly, severally and solidarily 25 Id. at 258-259.
liable for the obligations of the project proponent under the
contract; or
26 Section 19.01 of the Amended BOT Agreement provides:
d. in case a project company is formed, proof of registration in
accordance with Philippine laws. Section 19.01 Dispute Settlement Any dispute or
controversy of any kind whatsoever between the DFA and the
BCA (such dispute or controversy being referred to herein as a
7 Rollo, pp. 177-200.
"Dispute") which may arise out of or in connection with this
Agreement, in the first instance shall be settled within ninety
8 Id. at 178. (90) days through amicable means, such as, but not limited to,
mutual discussion.
9 Id. at 201-226.
27 Rollo, pp. 260-266.
10Section 11.8 of the IRR of the BOT Law provides that "[t]he
successful bidder should sign the contract within seven (7) 28 Id. at 222.
calendar days from receipt of the advice of the Agency/LGU
that all requirements for award, as provided for in Section 11.3 29 Id. at 266; page 7 of the Request for Arbitration.
are fully complied with."
30 Id. at 711-740.
11 Rollo, pp. 214-224.
31 Id. at 741-742.
12 Id. at 227-232.
32 Id. at 743-745.
13 Id. at 187-189.
33 Id. at 268-269.
14 Id. at 234-237.
34 Id. at 273-275.
15 Id. at 238-239.
35 Id. at 276-286.
16 Id. at 240; erroneously dated as February 22, 2004.
36 Section 28. Grant of Interim Measure of Protection. (a) It is
17 Section 5.02(A) of the Amended BOT Agreement provides:
not incompatible with an arbitration agreement for a party to
request, before constitution of the tribunal, from a Court an
Section 5.02 The BCA further warrants to the DFA that: interim measure of protection and for the Court to grant such
measure. After constitution of the arbitral tribunal and during
A. It shall have the necessary capitalization and shall obtain the arbitral proceedings, a request for an interim measure of
required financing to carry out the MRP/V Project in accordance protection, or modification thereof, may be made with the
with this amended BOT Agreement; x x x. (Rollo, p. 208.) 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
18 Rollo, pp. 241-243. 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
19 Id. at 252-255.
communication of said nomination and acceptance has been
ADR || First Batch 96

received by the party making the request. 54 Id. at 2185-2186.

(b) The following rules on interim or provisional relief shall be
observed:
(1) Any party may request that provisional relief be granted
against the adverse party.
(2) Such relief may be granted:
(i) to prevent irreparable loss or injury;
55 G.R. No. 188456, September 10, 2009, 599 SCRA 69.
56Id. at 112-113, citing Chavez v. National Housing Authority,
G.R. No. 164527, August 15, 2007, 530 SCRA 235, 285;
Cabarles v. Maceda, G.R. No. 161330, February 20, 2007, 516
SCRA 303, 320.
57Aparece v. J. Marketing Corporation, G.R. No. 174224,
October 17, 2008, 569 SCRA 636, 643.

(ii) to provide security for the performance of any obligation;

58See Rules of Court, Rule 131, Section 3(m); Philippine Agila
Satellite, Inc. v. Trinidad-Lichauco, G.R. No. 142362, May 3,
2006, 489 SCRA 22, 31.
(iii) to produce or preserve any evidence; or
59Ateneo de Naga University v. Manalo, 497 Phil. 635, 646-647
(iv) to compel any other appropriate act or omission.
(2005).
37 Rollo, p. 284; page 9 of the Petition for Interim Relief. 60See, for example, Chuidian v. Sandiganbayan, G.R. Nos.
156383 & 160723, July 31, 2006, 497 SCRA 327, 339.
38 Id. at 287-289.
61An Act Amending Certain Sections of Republic Act No. 6957,
39 Id. at 290-291. Entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the
40 Id. at 313-338. Private Sector, and for Other Purposes" or the Philippine Build-
Operate-Transfer (BOT) Law, Approved on May 5, 1994.
41 Id. at 339-356.
62An Act Providing for the Modernization, Standardization and
42 Id. at 357-408. Regulation of the Procurement Activities of the Government
and for Other Purposes, Approved on January 18, 2003.
43 Id. at 409-424.
63 Transcript of Senate Deliberations on Senate Bill 2038
44 Id. at 425-440. (August 2 and 9, 2000), DFA and BSP Petition; rollo, pp. 53-54.

45 Id. at 92.
64 The definition of "infrastructure" under Republic Act No. 9184
is found in Section 5(k), not Section 5(c).
46 Id. at 473-484.
65 Rollo, pp. 88-89.
47 Id. at 3-485.
66Endencia v. David, 93 Phil. 696, 701 (1953); Misamis Lumber
Co., Inc. v. Collector of Internal Revenue, 102 Phil. 116, 122
48 Id. at 491-495.
(1957); Calderon v. Carale, G.R. No. 91636, April 23, 1992, 208
SCRA 254, 263.
49 Id. at 497-502.
67City of Manila v. Manila Remnant Co., Inc., 100 Phil. 796, 800
50 Id. at 511-1169. (1957).

51 Id. at 1931-1965. 68Some examples of provisions in the IRR of Republic Act No.
9184 which differentiate among infrastructure projects, goods
52 Id. at 1837. procurement and consulting services procurement follow:

53 Id. at 1978-1980. In Section 13.1, the IRR specifies who may be observers during
the bidding process for the different types of procurement
activities.
ADR || First Batch 97

Section 21 sets out different guidelines for the contents of the
invitation to bid and the periods for advertising and posting the
invitation to bid for each type of procurement activity.
Section 23 enumerates the proponents eligibility requirements
for the procurement of goods and infrastructure projects while
the eligibility requirements for consulting services are specified
in Section 24.
Section 25 lays down different documentation requirements for
bids for each type of procurement activity.
Section 32 sets out the guidelines for bids evaluation for the
procurement of goods and infrastructure projects while Section
33 contains the guidelines for bids evaluation for consulting
services.
Section 42 states that the contract implementation guidelines
for the procurement of goods, infrastructure projects and
consulting services are set out in separate annexes (Annexes
D, E and F of the IRR).
technical specifications/requirements of the contract. Once the
final revised technical specifications are completed and duly
approved by the concerned BAC, copies of the same shall be
issued to all the bidders identified in the first stage who shall
then be required to submit their revised technical tenders,
including their price proposals in two (2) separate sealed
envelopes in accordance with this IRR-A, at a specified
deadline, after which time no more bids shall be received. The
concerned BAC shall then proceed in accordance with the
procedure prescribed in this IRR-A. (Emphasis supplied.)
76 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;
approved on April 2, 2004.
77 379 Phil. 743, 749-750 (2000).
78 G.R. No. 146717, November 22, 2004, 443 SCRA 307, 336;
citing Philippine National Bank v. Ritratto Group, Inc., 414 Phil.
494, 507 (2001).

69Rollo pp. 273-275 and 787-789; Annex AA of the Petition and

79 351 Phil. 172, 186 (1998).
Annex 30 of BCAs Comment.
80 Rollo, p. 266.
70 Id. at 790; Annex 31 of BCAs Comment.
81 Smith, Bell & Company (Ltd.) v. Natividad, 40 Phil. 136
71 Id. at 1713; TSN of the hearing held on February 7, 2007. (1919); Central Bank (now Bangko Sentral ng Pilipinas)
Employees Association, Inc. v. Bangko Sentral ng Pilipinas,
G.R. No. 148208, December 15, 2004, 446 SCRA 299; Serrano
72 Id. at 2347-2353.
v. Gallant Maritime Services, Inc., G.R. No. 167614, March 24,
2009.
73 Id. at 2354-2358.
82Roxas & Co., Inc. v. Court of Appeals, 378 Phil. 727 (1999);
74 Id. at 2357. Kuwait Airways Corporation v. Philippine Airlines, Inc., G.R. No.
156087, May 8, 2009, 587 SCRA 399.
75 Section 30.4 of the IRR of Republic Act No. 9184 states:
83Roxas & Co., Inc. v. Court of Appeals, id.; Brgy. Sindalan,
30.4. For the procurement of goods where, due to the nature of San Fernando, Pampanga v. Court of Appeals, G.R. No.
the requirements of the project, the required technical 150640, March 22, 2007, 518 SCRA 649.
specifications/requirements of the contract cannot be precisely
defined in advance of bidding, or where the problem of 84 PDRCI Letter dated March 28, 2007, rollo pp. 1856-57.
technically unequal bids is likely to occur, a two (2)-stage
bidding procedure may be employed. In these cases, the 85 Supra note 78 at 507.
procuring entity concerned shall prepare the bidding
documents, including the technical specification in the form of
performance criteria only. Under this procedure, prospective
bidders shall be requested at the first stage to submit their
respective Letter of Intent, eligibility requirements if needed,
and initial technical proposals only (no price tenders). The
concerned BAC shall then evaluate the technical merits of the
proposals received from eligible bidders vis--vis the required
performance standards. A meeting/discussion shall then be
held by the BAC with those eligible bidders whose technical
tenders meet the minimum required standards stipulated in the
bidding documents for purposes of drawing up the final revised
ADR || First Batch
Republic of the Philippines
SUPREME COURT
Manila
SPECIAL THIRD DIVISION
G.R. Nos. 147925-26 July 7, 2010
ELPIDIO S. UY, doing business under the name and style
of EDISON DEVELOPMENT & CONSTRUCTION, Petitioner,
vs.
PUBLIC ESTATES AUTHORITY, Respondent.
RESOLUTION
NACHURA, J.:
Before us are (i) the Motion for Partial Reconsideration filed by
petitioner Elpidio S. Uy (Uy), doing business under the name
and style of Edison Development & Construction (EDC), and (ii)
the Motion for Reconsideration filed by respondent Public
Estates Authority (PEA) of our June 8, 2009 Decision, the fallo
of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The
assailed Joint Decision and Joint Resolution of the Court of
Appeals in CA-G.R. SP Nos. 59308 and 59849 are AFFIRMED
with MODIFICATIONS. Respondent Public Estates Authority is
ordered to pay Elpidio S. Uy, doing business under the name
and style Edison Development and Construction,
P55,680,492.38 for equipment rentals on standby;
P2,275,721.00 for the cost of idle manpower; and
P6,050,165.05 for the construction of the nursery shade net
area; plus interest at 6% per annum to be computed from the
date of the filing of the complaint until finality of this Decision
and 12% per annum thereafter until full payment. Respondent
PEA is further ordered to pay petitioner Uy 10% of the total
award as attorneys fees.
SO ORDERED.1
Uy seeks partial reconsideration of our Decision. He argues
that:
I We will deal first with Uys motion.
x x x THE HONORABLE COURT ERRED IN THE
COMPUTATION OF THE DAMAGES DUE THE PETITIONER
FOR THE STANDBY EQUIPMENT COST.
II
x x x PETITIONER SHOULD BE REIMBURSED FOR COSTS
INCURRED FOR ADDITIONAL HAULING DISTANCE OF
98
TOPSOIL ALSO BECAUSE THE EVIDENCE ON RECORD
CONFIRMS THE EXISTENCE OF RESPONDENT PEAS
WRITTEN CONSENT, AND THE FACT THAT IT IS
INDESPENSABLE TO COMPLETING THE PROJECT.
WITHOUT SUCH ASSURANCE OF REIMBURSEMENT,
PETITIONER WOULD NOT HAVE TAKEN SUCH PRUDENT
ACTION.
III
x x x PETITIONER SHOULD BE ALLOWED TO RECOVER
THE COSTS HE INCURRED FOR THE MOBILIZATION OF
WATER TRUCKS ALSO BECAUSE RESPONDENT
BREACHED ITS OBLIGATIONS UNDER THE CONTRACT.
IV
WITH REGARD TO THE COURT OF APPEALS ILLEGAL
INJUNCTION PREVENTING PETITIONER FROM
RECOVERING HIS CLAIMS AGAINST RESPONDENT PEA IN
CIAC CASE NO. 03-2001, THIS SHOULD HAVE BEEN
LIFTED SINCE IT INVOLVES CLAIMS SEPARATE AND
DISTINCT FROM THE CASE A QUO.2
PEA, on the other hand, assails the Decision on the following
grounds:
I.
THE FACTUAL FINDINGS AND CONCLUSIONS OF THE
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION
(CIAC) INSOFAR AS THE ARBITRAL AWARD TO
PETITIONER IS CONCERNED, WHICH THE COURT OF
APPEALS AND THE FIRST DIVISION OF THIS HONORABLE
COURT AFFIRMED, HAS LONG BECOME FINAL AND
EXECUTORY.
II.
THE CIAC ARBITRAL AWARD HAD ALREADY BEEN
IMPLEMENTED UNDER WRIT OF EXECUTION DATED 19
SEPTEMBER 2000, WRIT OF EXECUTION DATED 31
AUGUST 2001 AND SUPPLEMENTAL WRIT OF EXECUTION
DATED 10 APRIL 2002.3
Uy objects to the factor rate used in the computation of the
award for standby equipment costs. He points out that the
actual number of equipment deployed and which remained on
standby, occasioned by the delay in delivery of work areas, has
not been considered in the computation. The Association of
Carriers and Equipment Lessors (ACEL) rate or the factor rate
used was only the total average rate, without regard to the
actual number of equipment deployed. He, therefore, insists
ADR || First Batch 99

that an increase in the award is in order. We cannot sustain this claim that is premised mainly on the
principle of unjust enrichment. We stress that the principle of
We find Uys argument on this point meritorious; and this Court unjust enrichment cannot be validly invoked by a party who,
is swayed to modify the formula used in the computation of the through his own act or omission, took the risk of being denied
award. payment for additional costs by not giving the other party prior
notice of such costs and/or by not securing their written consent
thereto, as required by law and their contract.7
The Certification,4 dated December 6, 1996, shows that EDC
mobilized the following equipment for the Heritage Park Project,
viz.: Similarly, we find no cogent reason to lift the injunction issued
in CIAC Case No. 03-2001. We are not persuaded by Uys
argument that the claims under CIAC Case No. 03-2001 are
Description Number
different from his claims in CIAC Case No. 02-2000. As we
Road Grader 2
explained in our Decision, there is only one cause of action
Pay Loader 2
running through Uys undertakings the violation of his alleged
Dump Trucks 10
right under the Landscaping and Construction Agreement.
Tractor with attachments 2
Therefore, the landscaping agreement is indispensable in the
Backhoe 2
prosecution of his claims in both CIAC Cases No. 02-2000 and
Delivery Trucks 3
No. 03-2001. We reiterate that a party, either by varying the
Rolo-tiller 0
form or action or by bringing forward in a second case
Concrete Mixer 4
additional parties or arguments, cannot escape the effects of
Bar Cutter 2
res judicata when the facts remain the same, at least where
Welding Machine 2
such new parties or matter could have been impleaded or
Roller 1
pleaded in the prior action.
Bulldozer 1
1avvphi1

Concrete Cutter 2
Plate Compactor 2 In fine, except for the claim for standby equipment costs, this
Compressor/Jack Hammer 3 Court finds no cogent reason to depart from our June 8, 2009
Genset 5KVA 1 Decision.
Electric drill/ Holesaw 4
We now go to PEAs motion.

These equipment remained in the project site on the days that
EDC was waiting for the turnover of additional work areas.5
Thus, we agree with Uy that the actual number of equipment
mobilized should be included in computing the award for
standby equipment cost. The award must, therefore, be
modified using the following formula:
PEA insists that our Decision in this case transgresses the
principle of res judicata. It asserts that the propriety of Uys
monetary claims against PEA had already been considered and
passed upon by this Court in G.R. Nos. 147933-34.
The argument is specious.

Actual period of delay (18.2 months) x average rate per ACEL x
number of equipment
However, we cannot simply accept in full Uys claim that he is
entitled to P71,009,557.95 as standby equipment cost. The
records show that not all of the equipment were operational;
several were under repair.6 Accordingly, we find it necessary to
remand the records of the case to the Construction Industry
Arbitration Commission (CIAC), which decided the case in the
first instance, for the proper computation of the award of
standby equipment cost based on the foregoing formula.
On the claim for costs for additional hauling distance of topsoil
and for mobilization of water truck, we maintain our ruling that a
written approval of PEAs general manager was indispensable
before the claim for additional cost can be granted. In this case,
the additional costs were incurred without the written approval
of PEA. The denial of Uys claims was, therefore, appropriate.
In G.R. Nos. 147933-34, this Court was very explicit in its
declaration that its Decision was independent of, and without
prejudice to, the appeal filed by Uy, viz.:
However, in order not to prejudice the deliberations of the
Courts Second Division in G.R. Nos. 147925-26, it should be
stated that the findings made in this case, especially as regards
the correctness of the findings of the CIAC, are limited to the
arbitral awards granted to respondent Elpidio S. Uy and to the
denial of the counterclaims of petitioner Public Estates
Authority. Our decision in this case does not affect the other
claims of respondent Uy which were not granted by the CIAC in
its questioned decision, the merits of which were not submitted
to us for determination in the instant petition.8
Indubitably, this Courts Decision in G.R. Nos. 147933-34 will
not bar the grant of additional award to Uy.
WHEREFORE, Uys Motion for Partial Reconsideration is
ADR || First Batch 10
0
PARTLY GRANTED. PEAs Motion for Reconsideration, on the
other hand, is DENIED with FINALITY. The assailed Decision
dated June 8, 2009 is AFFIRMED with MODIFICATION as to Footnotes
the award of standby equipment cost. The case is hereby
REMANDED to the Construction Industry Arbitration *Designated member vice Associate Justice Minita V. Chico-
Commission solely for the purpose of computing the exact
Nazario (ret.) per Special Order No. 631 dated April 29, 2009.
amount of standby equipment cost pursuant to the formula
herein specified. The CIAC is DIRECTED to compute the award
and effect payment thereof within thirty (30) days from receipt Designated member vice Associate Justice Conchita Carpio
**

of the records of this case. Morales per Special Order No. 649 dated May 25, 2009.

No further pleadings will be entertained.

SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
RENATO C. CORONA*
Chief Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
DIOSDADO M. PERALTA
***Designated member vice Associate Justice Consuelo
Ynares-Santiago (ret.) per Raffle dated October 21, 2009.
1 Rollo, p. 995.
2 Id. at 999.
3 Id. at 1047.
4 Exhibit "J"; Folder No. 2, CIAC Case No. 02-2002.
5 See Exhibits "F," "H-1" to "H-29," "I"; id.
6 See Exhibit C-1," id.
** ARTURO D. BRION***
7 Powton Conglomerate, Inc. v. Agcolicol, 448 Phil. 643 (2003).
Associate Justice
8 Public Estates Authority v. Uy, 423 Phil. 407, 419 (2001).

Associate Justice

ATTESTATION

I attest that the conclusions in the above Resolution had been

reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

ANTONIO EDUARDO B. NACHURA

Chairperson, Special Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the

Division Chairperson's Attestation, I certify that the conclusions
in the above Resolution had been reached in consultation
before the case was assigned to the writer of the opinion of the
Courts Division.

RENATO C. CORONA

Chief Justice
ADR || First Batch
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172525 October 20, 2010
SHINRYO (PHILIPPINES) COMPANY, INC., Petitioner,
vs.
RRN INCORPORATED,* Respondent.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule
45 of the Rules of Court, praying that the Decision1 of the Court
of Appeals (CA) dated February 22, 2006, affirming the
Decision of the Construction Industry Arbitration Commission
(CIAC), and the CA Resolution2 dated April 26, 2006, denying
herein petitioner's motion for reconsideration, be reversed and
set aside.
The facts, as accurately narrated in the CA Decision, are as
follows.
Petitioner Shinryo (Philippines) Company, Inc. (hereinafter
petitioner) is a domestic corporation organized under Philippine
laws. Private respondent RRN Incorporated (hereinafter
respondent) is likewise a domestic corporation organized under
Philippine laws.
Respondent filed a claim for arbitration against petitioner before
CIAC for recovery of unpaid account which consists of unpaid
portions of the sub-contract, variations and unused materials in
the total sum of P5,275,184.17 and legal interest in the amount
of P442,014.73. Petitioner filed a counterclaim for overpayment
in the amount of P2,512,997.96.
The parties admitted several facts before the CIAC. It was
shown that petitioner and respondent executed an Agreement
and Conditions of Sub-contract (hereafter Agreement signed on
June 11, 1996 and June 14, 1996, respectively. Respondent
signified its willingness to accept and perform for petitioner in
any of its projects, a part or the whole of the works more
particularly described in Conditions of Sub-Contract and other
Sub-contract documents.
On June 11, 2002, the parties executed a "Supply of
Manpower, Tools/Equipment, Consumables for the Electrical
Works-Power and Equipment Supply, Bus Duct Installation" for
the Phillip Morris Greenfield Project (hereafter Project) covered
by Purchase Order Nos. 4501200300-000274 and
10
1
4501200300-000275 amounting to P15,724,000.00 and
P9,276,000.00 respectively, or a total amount of
P25,000,000.00. The parties also agreed that respondent will
perform variation orders in the Project. In connection with the
Project, petitioner supplied manpower chargeable against
respondent.
Respondent was not able to finish the entire works with
petitioner due to financial difficulties. Petitioner paid respondent
a total amount of P26,547,624.76. On June 25, 2005 [should
read 2003], respondent, through its former counsel sent a letter
to petitioner demanding for the payment of its unpaid balance
amounting to P5,275,184.17. Petitioner claimed material back
charges in the amount of P4,063,633.43. On September 26,
2003, respondent only acknowledged P2,371,895.33 as
material back charges. Thereafter, on October 16, 2003,
respondent sent another letter to petitioner for them to meet
and settle their dispute.
On January 8, 2004, respondent sent another letter to petitioner
regarding the cost of equipment rental and the use of
scaffolding. Thereafter, on August 12, 2004, petitioner sent a
letter to respondent denying any unpaid account and the failure
in their negotiations for amicable settlement.
On September 3, 2004, respondent, through its new counsel,
advised petitioner of their intention to submit the matter to
arbitration. Thereafter, their dispute was submitted to
arbitration. During the preliminary conference, the parties
agreed in their Terms of Reference to resolve eight issues, to
wit:
1. What should be the basis in evaluating the variation cost?
1.1 How much is the variation cost?
2. Is the Respondent (petitioner in the instant case) justified in
charging claimant (herein respondent) the equipment rental fee
and for the use of the scaffoldings? If so, how much should be
charged to Claimant?
3. What should be the basis in evaluating the total cost of
materials supplied by Respondent to the Project which is
chargeable to Claimant?
3.1 How much is the total cost of materials supply chargeable
to Claimant?
4. How much is the value of the remaining works left undone by
the Claimant in the project?
5. Is the Claimant's claim for inventory of excess materials
valid? If so, how much is the value thereof?
6. Is the Respondent entitled to its claim for an overpayment in
ADR || First Batch
the amount of P2,512,997.96?
7. Is Claimant entitled to its claim for interest? If so, how much?
8. Who between the parties shall bear the cost of Arbitration?
The CIAC rendered the assailed decision after the presentation
of the parties' evidence. [The dispositive portion of said
decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the
claimant and respondent is ordered to pay claimant its unpaid
account in the sum of P3,728,960.54 plus legal interest of 6%
reckoned from June 25, 2003 up to the filing of the case on
October 11, 2004 and 12% of P3,728,960.54 from the finality of
the judgment until fully paid and arbitration cost of P104,333.82
representing claimant's share of the arbitration cost which
respondent should reimburse.
SO ORDERED.]
Petitioner accepts the ruling of the CIAC only in Issue No. 1 and
Sub-Issue No. 1.1 and in Issue No. 2 in so far as the amount of
P440,000.00 awarded as back charges for the use of
scaffoldings. x x x3
On February 22, 2006, the CA promulgated the assailed
Decision affirming the decision of the CIAC. The CA upheld the
CIAC ruling that petitioner failed to adduce sufficient proof that
the parties had an agreement regarding charges for
respondent's use of the manlift. As to the other charges for
materials, the CA held that the evidence on record amply
supports the CIAC findings. Petitioner moved for
reconsideration of said ruling, but the same was denied per
Resolution dated April 26, 2006.
Hence, this petition where it is alleged that:
I. THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE REVERSIBLE ERROR WHEN IT DENIED
PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL
IN THE AMOUNT OF P511,000.00 DESPITE EVIDENCE ON
RECORD THAT RESPONDENT RRN ACTUALLY USED AND
BENEFITED FROM THE MANLIFT EQUIPMENT.
II. IN RENDERING THE QUESTIONED DECISION AND
QUESTIONED RESOLUTION, THE HONORABLE COURT OF
APPEALS HAS DECIDED A QUESTION OF SUBSTANCE
NOT IN ACCORD WITH LAW AND/OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE SUPREME
COURT.
III. THE COURT OF APPEALS COMMITTED A GRAVE
REVERSIBLE ERROR IN AFFIRMING THE CIAC AWARD
FOR THE VALUE OF INVENTORIED MATERIALS
10
2
CONSIDERING THAT:
A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE
DEDUCTIONS ON ACCOUNT OF MATERIAL SUPPLY,
WHICH INCLUDED THE INVENTORIED MATERIALS.
B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE
ENGR. BONIFACIO ADMITTED THAT RESPONDENT RRN
FAILED TO ESTABLISH WHETHER THE MATERIALS CAME
FROM RESPONDENT RRN OR FROM PETITIONER AND
THAT IT WAS PETITIONER THAT ACTUALLY INSTALLED
THE SAID MATERIALS AS PART OF REMAINING WORKS
THAT PETITIONER TOOK OVER FROM RESPONDENT
RRN.
C. THE CLAIM FOR THE VALUE OF INVENTORIED
MATERIALS IS A DOUBLE CLAIM OR DOUBLE ENTRY
BECAUSE IN THE COMPUTATION OF THE FINAL
ACCOUNT, RESPONDENT RRN WAS CREDITED THE FULL
CONTRACT PRICE AND THE COST OF VARIATIONS,
WHICH INCLUDED THE INVENTORIED MATERIALS.
IV. IN RENDERING THE QUESTIONED DECISION AND
QUESTIONED RESOLUTION, THE COURT OF APPEALS
COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT
COMPLETELY DISREGARDED THE PROVISION OF THE
SUBCONTRACT, WHICH ALLOWED PAYMENT OF ACTUAL
COST INCURRED BY PETITIONER IN COMPLETING THE
REMAINING WORKS THAT PRIVATE RESPONDENT
ADMITTEDLY FAILED TO COMPLETE.
V. THE COURT OF APPEALS COMMITTED A GRAVE
REVERSIBLE ERROR WHEN IT COMPLETELY
DISREGARDED THE EVIDENCE ON ACTUAL COST
INCURRED BY PETITIONER IN COMPLETING THE
REMAINING WORKS.
VI. THE COURT OF APPEALS COMMITTED GRAVE
REVERSIBLE ERROR WHEN IT AFFIRMED THE CIAC
AWARD FOR INTERESTS AND ARBITRATION COSTS IN
FAVOR OF RESPONDENT RRN.4
The petition is bereft of merit.
Despite petitioner's attempts to make it appear that it is
advancing questions of law, it is quite clear that what petitioner
seeks is for this Court to recalibrate the evidence it has
presented before the CIAC. It insists that its evidence
sufficiently proves that it is entitled to payment for respondent's
use of its manlift equipment, and even absent proof of the
supposed agreement on the charges petitioner may impose on
respondent for the use of said equipment, respondent should
be made to pay based on the principle of unjust enrichment.
Petitioner also questions the amounts awarded by the CIAC for
inventoried materials, and costs incurred by petitioner for
completing the work left unfinished by respondent.
ADR || First Batch
As reiterated by the Court in IBEX International, Inc. v.
Government Service Insurance System,5 to wit:
It is settled that findings of fact of quasi-judicial bodies,
which have acquired expertise because their jurisdiction is
confined to specific matters, are generally accorded not
only respect, but also finality, especially when affirmed by
the Court of Appeals. In particular, factual findings of
construction arbitrators are final and conclusive and not
reviewable by this Court on appeal.
This rule, however, admits of certain exceptions. In Uniwide
Sales Realty and Resources Corporation v. Titan-Ikeda
Construction and Development Corporation, we said:
In David v. Construction Industry and Arbitration Commission,
we ruled that, as exceptions, factual findings of construction
arbitrators may be reviewed by this Court when the petitioner
proves affirmatively that: (1) the award was procured by
corruption, fraud or other undue means; (2) there was evident
partiality or corruption of the arbitrators or any of them; (3) the
arbitrators were guilty of misconduct in refusing to hear
evidence pertinent and material to the controversy; (4) one or
more of the arbitrators were disqualified to act as such under
Section nine of Republic Act No. 876 and willfully refrained from
disclosing such disqualifications or of any other misbehavior by
which the rights of any party have been materially prejudiced;
or (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the
subject matter submitted to them was not made. 1avvp++i1
Other recognized exceptions are as follows: (1) when there is a
very clear showing of grave abuse of discretion resulting in lack
or loss of jurisdiction as when a party was deprived of a fair
opportunity to present its position before the Arbitral Tribunal or
when an award is obtained through fraud or the corruption of
arbitrators, (2) when the findings of the Court of Appeals are
contrary to those of the CIAC, and (3) when a party is deprived
of administrative due process.6
A perusal of the records would reveal that none of the
aforementioned circumstances, which would justify exemption
of this case from the general rule, are present here. Such being
the case, the Court, not being a trier of facts, is not duty-bound
to examine, appraise and analyze anew the evidence
presented before the arbitration body.7
Petitioner's reliance on the principle of unjust enrichment is
likewise misplaced. The ruling of the Court in University of the
Philippines v. Philab Industries, Inc.8 is highly instructive, thus:
Unjust enrichment claims do not lie simply because one party
benefits from the efforts or obligations of others, but instead it
must be shown that a party was unjustly enriched in the sense
that the term unjustly could mean illegally or unlawfully.
10
3
Moreover, to substantiate a claim for unjust enrichment,
the claimant must unequivocally prove that another party
knowingly received something of value to which he was not
entitled and that the state of affairs are such that it would be
unjust for the person to keep the benefit. Unjust enrichment is a
term used to depict result or effect of failure to make
remuneration of or for property or benefits received under
circumstances that give rise to legal or equitable obligation to
account for them; to be entitled to remuneration, one must
confer benefit by mistake, fraud, coercion, or request. Unjust
enrichment is not itself a theory of reconvey. Rather, it is a
prerequisite for the enforcement of the doctrine of restitution.
Article 22 of the New Civil Code reads:
Every person who, through an act of performance by another,
or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal
ground, shall return the same to him.
In order that accion in rem verso may prosper, the essential
elements must be present: (1) that the defendant has been
enriched, (2) that the plaintiff has suffered a loss, (3) that the
enrichment of the defendant is without just or legal ground, and
(4) that the plaintiff has no other action based on contract,
quasi-contract, crime or quasi-delict.
An accion in rem verso is considered merely an auxiliary action,
available only when there is no other remedy on contract,
quasi-contract, crime, and quasi-delict. If there is an obtainable
action under any other institution of positive law, that action
must be resorted to, and the principle of accion in rem verso will
not lie.9
As found by both the CIAC and affirmed by the CA, petitioner
failed to prove that respondent's free use of the manlift was
without legal ground based on the provisions of their contract.
Thus, the third requisite, i.e., that the enrichment of respondent
is without just or legal ground, is missing. In addition,
petitioner's claim is based on contract, hence, the fourth
requisite that the plaintiff has no other action based on
contract, quasi-contract, crime or quasi-delict is also absent.
Clearly, the principle of unjust enrichment is not applicable in
this case.
The other issues raised by petitioner all boil down to whether
the CIAC or the CA erred in rejecting its claims for costs of
some materials.
Again, these issues are purely factual and cannot be properly
addressed in this petition for review on certiorari. In Hanjin
Heavy Industries and Construction Co., Ltd. v. Dynamic
Planners and Construction Corp.,10 it was emphasized that
mathematical computations, the propriety of arbitral awards,
claims for "other costs" and "abandonment" are factual
questions. Since the discussions of the CIAC and the CA in
ADR || First Batch 10
4
their respective Decisions show that its factual findings are Associate Justice
supported by substantial evidence, there is no reason why this
Court should not accord finality to said findings. Verily, to ATTESTATION
accede to petitioner's request for a recalibration of its evidence,
which had been thoroughly studied by both the CIAC and the
I attest that the conclusions in the above Decision had been
CA would result in negating the objective of Executive Order
reached in consultation before the case was assigned to the
No. 1008, which created an arbitration body to ensure the
writer of the opinion of the Courts Division.
prompt and efficient settlement of disputes in the construction
industry. Thus, the Court held in Uniwide Sales Realty and
Resources Corporation v. Titan-Ikeda Construction and ANTONIO T. CARPIO
Development Corporation,11 that:
Associate Justice
x x x The Court will not review the factual findings of an arbitral
tribunal upon the artful allegation that such body had Second Division, Chairperson
"misapprehended facts" and will not pass upon issues which
are, at bottom, issues of fact, no matter how cleverly disguised CERTIFICATION
they might be as "legal questions." The parties here had
recourse to arbitration and chose the arbitrators themselves; Pursuant to Section 13, Article VIII of the Constitution and the
they must have had confidence in such arbitrators. The Court Division Chairpersons Attestation, I certify that the conclusions
will not, therefore, permit the parties to relitigate before it the in the above Decision had been reached in consultation before
issues of facts previously presented and argued before the the case was assigned to the writer of the opinion of the Courts
Arbitral Tribunal, save only where a clear showing is made that, Division.
in reaching its factual conclusions, the Arbitral Tribunal
committed an error so egregious and hurtful to one party as to
RENATO C. CORONA
constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction.12
Chief Justice
As discussed above, there is nothing in the records that point to
any grave abuse of discretion committed by the CIAC.

The awards for interests and arbitration costs are, likewise, Footnotes
correct as they are in keeping with prevailing jurisprudence.13
* The Court of Appeals, Construction Industry Arbitration
IN VIEW OF THE FOREGOING, the Petition is DENIED. The Commission, the Honorable Beda G. Fajardo, Joel J. Marciano
Decision of the Court of Appeals dated February 22, 2006 and and Guillermo Claridad, in their capacities as Chairman and
its Resolution dated April 26, 2006 are AFFIRMED. Member of the Arbitral Tribunal, who were initially included as
respondents in the petition should not be included as such
pursuant to Section 4, Rule 45 of the Rules of Court.
SO ORDERED.
**Designated as an additional member in lieu of Associate
DIOSDADO M. PERALTA
Justice Antonio Eduardo B. Nachura, per raffle dated October
20, 2010.
Associate Justice
Designated as an additional member in lieu of Associate
***
WE CONCUR: Justice Roberto A. Abad, per Special Order No. 905, dated
October 5, 2010.
ANTONIO T. CARPIO
1 Penned by Associate Justice Juan Q. Enriquez, Jr., with
Associate Justice Associate Justices Godardo A. Jacinto and Vicente Q. Roxas,
concurring; rollo, pp. 66-76..
Chairperson
2 Id. at 78-79.
PRESBITERO J. VELASCO, JR. ** TERESITA J. LEONARDO-DE CASTRO***
3 Id. at 66-69.
Associate Justice Associate Justice
JOSE CATRAL MENDOZA 4 Id. at 17-19.
ADR || First Batch 10
5
5 G.R. No. 162095, October 12, 2009, 603 SCRA 306. Republic of the Philippines
SUPREME COURT
6 Id. at 314-315. (Emphasis supplied.) Manila
SECOND DIVISION
7Diesel Construction v. UPSI Property Holdings, Inc. G.R. No.
154885, March 24, 2008, 549 SCRA 12, ---30. G.R. No. 177556 December 8, 2010

8 482 Phil. 693 (2004) TRANSCEPT CONSTRUCTION AND MANAGEMENT

PROFESSIONALS, INC., Petitioner,
9 Id. at 709-711. (Emphasis and underscoring supplied.)
vs.
10G.R. Nos. 169408 & 170144, April 30, 2008, 553 SCRA 541,
558, 565, 568. TERESA C. AGUILAR, Respondent.

11 G.R. No. 126619, December 20, 2006 (quoting David v. DECISION

Construction Industry Arbitration Commission, 479 Phil. 578
[2004]), 511 SCRA 335. CARPIO, J.:

12 Id. at 362. The Case

13See Hanjin Heavy Industries and Construction Co., Ltd. v. Before the Court is a petition for review assailing the 24
Dynamic Planners and Construction Corp., supra note 10, at January 2007 Decision1 and the 20 April 2007 Resolution2 of
576. the Court of Appeals in CA-G.R. SP No. 93021.

The Antecedent Facts

From the decisions of the Court of Appeals and the

Construction Industry Arbitration Commission (CIAC), we
gathered the following facts:

On 18 August 2004, Teresa C. Aguilar (Aguilar) entered into an

Owner-General Contractor Agreement (First Contract) with
Transcept Construction and Management Professionals, Inc.
(Transcept) for the construction of a two-storey split level
vacation house (the Project) located at Phase 3, Block 3, Lot 7,
Canyon Woods, Laurel, Batangas. Under the First Contract, the
Project would cost P3,486,878.64 and was to be completed
within 2103 working days from the date of the First Contract or
on 7 June 2005. Aguilar paid a downpayment of P1 million on
27 August 2004.

On 30 November 2004, Transcept submitted its First Billing to

Aguilar for work accomplishments from start to 15 November
2004, in accordance with the Progressive Billing payment
scheme. Aguilar paid P566,356.

On 1 February 2005, Aguilar received the Second Billing

amounting to P334,488 for the period of 16 November 2004 to
15 December 2004. Transcept informed Aguilar that non-
payment would force them to halt all works on the Project.
Aguilar questioned the Second Billing as unusual for being 45
days ahead of actual accomplishment. Aguilar did not pay and
on 2 February 2005, Transcept stopped working on the Project.

Thereafter, Aguilar hired ASTEC, a duly accredited testing

ADR || First Batch
laboratory, to test Transcepts quality of work. The test showed
substandard works done by Transcept. In a letter dated 7
March 2005, Transcept outlined its program to reinforce or redo
the substandard works discovered by ASTEC. On 28 March
2005, ASTEC, through Engr. Jaime E. Rioflorido (Engr.
Rioflorido), sent Aguilar an Evaluation of Contractors
Performance which showed that aside from the substandard
workmanship and use of substandard materials, Transcept was
unreasonably and fraudulently billing Aguilar. Of the
downpayment amounting to P1,632,436.29, Engr. Riofloridos
reasonable assessment of Transcepts accomplishment
amounted only to P527,875.94. Engr. Rioflorido recommended
the partial demolition of Transcepts work.
On 30 May 2005, Transcept and Aguilar entered into a
Construction Contract (Second Contract) to extend the date of
completion from 7 June 2005 to 29 July 2005 and to use up the
P1.6 million downpayment paid by Aguilar. Aguilar hired the
services of Engr. Edgardo Anonuevo (Engr. Anonuevo) to
ensure that the works would comply with the plans in the
Second Contract.
Transcept failed to finish the Project on 29 July 2005, alleging
that the delay was due to additional works ordered by Aguilar.
Transcept also asked for payment of the additional amount of
P290,824.96. Aguilar countered that the Second Contract did
not provide for additional works.
On 2 September 2005, Aguilar sent a demand letter to
Transcept asking for payment of P581,844.54 for refund and
damages. Transcept ignored the demand letter. On 6
September 2005, Aguilar filed a complaint against Transcept
before CIAC.
The Decision of the CIAC
CIAC assessed the work accomplished with the corresponding
costs, as against the downpayment of P1,632,436.29 which
was the contract price in the Second Contract. On 16 January
2006, the CIAC promulgated its Decision.4
For Labor and Materials of the Scope of Work, the CIAC
credited the accomplishment to be P1,110,440.13 representing
Aguilars estimate which was reassessed by the CIAC after the
ocular inspection conducted by the parties. For indirect costs
for General Requirements of the Scope of Work, the CIACs
computation was P275,355.50. The CIAC noted that Aguilar did
not submit any evidence on indirect costs and her counsel did
not cross-examine Transcepts witnesses on the matter. For the
Septic Tank, which the CIAC found to be part of the Second
Contract, the CIAC assessed the accomplishment to amount to
P7,300. The CIAC added 5% Contingencies and 10%
Contractors Profit which are the minimum factors in making
estimates practiced in the construction industry. The CIAC thus
estimated that the total accomplishment amounted to
P1,602,359.97 which was P30,076.72 below the contract price
of P1,632,436.29. The tabulated amount shows:
10
6
Direct Costs for Labor and Materials P1,110,440.13
Indirect Costs for General Requirements 275,355.50
Septic Tank 7,300.00
Sub-Total P1,393,095.63
Plus 5% Contingencies 69,654.78
Add 10% of Sub-Total for Contractor's Profit 139,309.56
Total P1,602,359.97
The CIAC ruled that the accomplishment of P1,602,359.97 was
98.16% of P1,632,436.29, which was way above 95% and
should therefore be considered as substantial completion of the
Project. As such, the CIAC ruled that liquidated damages could
not be awarded to Aguilar. The CIAC, however, ruled that
Aguilar was entitled to P75,000 as Consultancy Expenses.
The CIAC also found that Aguilar demanded extra works which
entailed additional working days. The CIAC computed that the
additional works performed over and above the Second
Contract amounted to P189,909.91.
The dispositive portion of the CIACs decision reads:
In view of all the foregoing, it is hereby ordered that:
1. Respondent [Transcept] shall pay Claimant [Aguilar] the
amount of P30,076.72, representing the unaccomplished works
in the contract, plus 6% interests from the date of the
promulgation of this case, until fully paid.
2. Respondent shall pay Claimant the amount of P75,000.00,
representing the cost of Consultancy Services, plus 6%
interests from the date of the promulgation of this case, until
fully paid.
3. Claimant shall pay Respondent the amount of P189,909.91,
representing the cost of work performed over & above the
scope of work in the contract.
4. The cost for liquidated damages and cost representing
interests of construction bond, prayed for the Claimant, are
denied for being without merit.
5. Attorneys fees prayed for by both parties are denied for
being without merit.
6. Cost of Arbitration shall be shared equally by the parties.
SO ORDERED.5
Aguilar assailed the CIACs decision before the Court of
Appeals.
The Decision of the Court of Appeals
ADR || First Batch
In its 24 January 2007 Decision, the Court of Appeals reversed
the CIACs decision.
The Court of Appeals agreed with the CIAC that Aguilar did not
allege in her complaint the amount corresponding to the indirect
costs for General Requirements. However, the Court of
Appeals made a recomputation of the indirect costs for General
Requirements based on P1,632,436.29 and made the following
findings:
Direct Costs for Labor and Materials
Indirect Costs for General Requirements
Septic Tank
Sub-Total
Plus 5% Contingencies
Add 10% of Sub-Total for Contractor's Profit
Total
The Court of Appeals then deducted P1,433,520.24 from
P1,632,436.29 and concluded that Aguilar is entitled to
P198,916.05 instead of P30,076.72.
From the above computation, the Court of Appeals ruled that
Transcept only accomplished 87.81% of the contract price thus
entitling Aguilar to liquidated damages equivalent to 10% of
P1,632,436.29 or P163,243.63.
The Court of Appeals further ruled that Transcept was not
entitled to payment for additional works because they were in
fact only rectifications of the works poorly done by Transcept.
Finally, the Court of Appeals ruled that Aguilar was able to
prove that she paid P135,000 for consultancy services.
The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the foregoing considered, the instant petition is
hereby GRANTED and the assailed decision REVERSED AND
SET ASIDE. Accordingly, a new one is entered ordering
respondent to pay petitioner the following:
1) P198,916.02 for unaccomplished works in the second
contract, plus 6% interest from the date of the filing of the case,
until fully paid;
2) P135,000.00, representing the cost of consultancy services,
plus 6% interest from the filing of the case, until fully paid; and
3) P163,243.63 as and by way of liquidated damages.
The award of P189,909.91 in favor of Aguilar for additional
works is hereby deleted.
No costs.
SO ORDERED.6
10
7
Transcept filed a motion for reconsideration. In its 20 April
2007 Resolution, the Court of Appeals denied the motion.
Hence, the petition before this Court.
The Issues
The issues in this case are the following:
1. Whether the Court of Appeals erred in holding that Aguilar is
P1,110,440.13
entitled to P198,916.02 instead of P30,076.72 for
128,799.22
unaccomplished works;
7,300.00
P1,246,539.35
2.62,326.96
Whether the Court of Appeals erred in awarding Aguilar
liquidated damages;
124,653.93
P1,433,520.24
3. Whether the Court of Appeals erred in deleting the CIACs
award of P189,909.91 to Transcept representing additional
works done under the Second Contract; and
4. Whether the Court of Appeals erred in awarding Aguilar the
amount of P135,000 for consultancy services.
The Ruling of this Court
The petition is partly meritorious.
Refund for Unaccomplished Works
The Court of Appeals ruled that CIAC erred in adopting
Transcepts computation of unaccomplished works. The Court
of Appeals agreed with Aguilar that the CIACs computation
was based on what Transcept submitted which was based on
the original contract price of P3,486,878.64 instead of the
contract price of P1,632,436.29 under the Second Contract.
However, the Court of Appeals failed to consider the CIACs as
well as its own finding that Aguilar did not present any evidence
on indirect costs for General Requirements. In addition,
Aguilars counsel did not cross-examine Transcepts witnesses.
In short, Aguilar did not dispute but merely accepted
Transcepts computation on indirect expenses. Aguilar did not
interpose any objection to the computation until after the CIAC
ruled that Transcept substantially complied with the Project. We
also note Transcepts explanation, as well as the CIACs
finding, that General Requirements refer to mobilization,
overhead, insurance, hoarding and protection, temporary
facilities, equipment, materials testing, line set out, as-built
drawings, and clean out. They had been used up at the start of
the Project. Hence, costs for General Requirements are not
dependent on the amount of the contract because they were
incurred at the beginning of the Project. We should therefore
revert to the computation made by the CIAC, as follows:
Direct Costs for Labor and Materials P1,1
ADR || First Batch
Indirect Costs for General Requirements
Septic Tank
Sub-Total
Plus 5% Contingencies
Add 10% of Sub-Total for Contractor's Profit
Total
Liquidated Damages
Section 20.11(A)(a) of the Construction Industry Authority of the
Philippines (CIAP) Document No. 102 provides that "[t]here is
substantial completion when the Contractor completes 95% of
the Work, provided that the remaining work and the
performance of the work necessary to complete the Work shall
not prevent the normal use of the completed portion."
According to CIACs computation, Transcepts accomplishment
amounted to 98.16% of the contract price. It is beyond the 95%
required under CIAP Document No. 102 and is considered a
substantial completion of the Project. We thus agree with
CIACs application of Article 1234 of the Civil Code, which
provides that "[i]f the obligation had been substantially
performed in good faith, the obligor may recover as though
there had been a strict and complete fulfillment, less damages
suffered by the obligee."7
lavvphil
There being a substantial completion of the Project, Aguilar is
not entitled to liquidated damages but only to actual damages
of P30,076.72, representing the unaccomplished works in the
Second Contract as found by the CIAC, which is the difference
between the contract price of P1,632,436.29 and the
accomplishment of P1,602,359.97.
Additional Works
The Second Contract excluded the construction of the following
works:
1. Architectural Works - - Roofing System
2. Interior Fit-Out Works/Glass/Windows/CAB/CARP
3. Truss System
4. Supply and Installation of Plumbing Fixtures and Bathroom
Accessories
5. Supply and Installation of Downspout System
6. Electrical Roughing-in and Wiring Works
7. Supply and Installation of Wiring Devices
8. Supply and Installation of Circuit Breakers
9. Testing and Commissioning.8
10
8
The
275,355.50
CIAC found that Aguilar demanded additional works
from
7,300.00
Transcept. The CIAC found that the additional works
include
P1,393,095.63
the balcony, lifting of roof beams, and extra fast walls
which
69,654.78
are not covered by the Second Contract. However, we
agree
139,309.56
with the Court of Appeals that the works done were just
forP1,602,359.97
correction of the substandard works done under the First
Contract. During the ocular inspection, Aguilar pointed out that
the lifting of the roof beam was done because the construction
was three meters short of that specified in the First Contact.9
Hence, while the roofing system is excluded from the Second
Contract, it could not be said that the lifting of the roof beam is
an additional work on the part of Transcept.
The Court notes that the Second Contract was entered into by
the parties precisely to correct the substandard works
discovered by ASTEC. Hence, Aguilar should not be made to
pay for works done to correct these substandard works.
Consultancy Services
The Court of Appeals correctly awarded Aguilar the cost of
consultancy services amounting to P135,000. While Engr.
Rioflorido was not presented as a witness, it was established
that Aguilar hired ASTEC, a duly accredited testing laboratory,
to test Transcepts quality of work, and that Engr. Rioflorido
represented ASTEC. As found by the Court of Appeals, Aguilar
paid Engr. Rioflorido the amount of P65,000 for the services,
which should be added to the P75,000 consultancy services
awarded to Aguilar.10
WHEREFORE, we AFFIRM the 24 January 2007 Decision and
the 20 April 2007 Resolution of the Court of Appeals in CA-G.R.
SP No. 93021, with the MODIFICATION that the award of
P198,916.02 for unaccomplished works is reduced to
P30,076.72, and the award of P163,243.63 for liquidated
damages is deleted.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
RENATO C. CORONA*
Chief Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
JOSE C. MENDOZA
Associate Justice
ADR || First Batch 10
9
ATTESTATION 10 CA rollo, p. 292.

I attest that the conclusions in the above Decision had been

reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Division Chairpersons Attestation, I certify that the conclusions
in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts
Division.

RENATO C. CORONA

Chief Justice

Footnotes

*Designated additional member per Raffle dated 8 December

2010.

1 Rollo, pp. 61-74. Penned by Associate Justice Josefina

Guevara-Salonga with Associate Justices Vicente Q. Roxas
and Ramon R. Garcia, concurring.

2 Id. at 76-77.

3 120 days in the Decision of the Court of Appeals.

4Rollo, pp. 107-123. Penned by Sole Arbitrator Jacinto M.

Butalid.

5 Id. at 123.

6 Id. at 73-74.

7 See Diesel Construction Co., Inc. v. UPSI Property Holdings,

Inc., G.R. No. 154885, 24 March 2008, 549 SCRA 12.

8 Rollo, pp. 111-112.

9 Transcript of the Ocular Inspection, pp. 28-29.

ADR || First Batch
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 175404 January 31, 2011
CARGILL PHILIPPINES, INC., Petitioner,
vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse
and set aside the Decision1 dated July 31, 2006 and the
Resolution2 dated November 13, 2006 of the Court of Appeals
(CA) in CA G.R. SP No. 50304.
The factual antecedents are as follows:
On June 18, 1998, respondent San Fernando Regala Trading,
Inc. filed with the Regional Trial Court (RTC) of Makati City a
Complaint for Rescission of Contract with Damages3 against
petitioner Cargill Philippines, Inc. In its Complaint, respondent
alleged that it was engaged in buying and selling of molasses
and petitioner was one of its various sources from whom it
purchased molasses. Respondent alleged that it entered into a
contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner
12,000 metric tons of Thailand origin cane blackstrap molasses
at the price of US$192 per metric ton; that the delivery of the
molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of
Credit payable at sight, to be opened by September 15, 1996;
that sometime prior to September 15, 1996, the parties agreed
that instead of January/February 1997, the delivery would be
made in April/May 1997 and that payment would be by an
Irrevocable Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with its
obligations under the contract, despite demands from
respondent, thus, the latter prayed for rescission of the contract
and payment of damages.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend
Proceedings and To Refer Controversy to Voluntary
Arbitration,4 wherein it argued that the alleged contract between
the parties, dated July 11, 1996, was never consummated
because respondent never returned the proposed agreement
bearing its written acceptance or conformity nor did respondent
open the Irrevocable Letter of Credit at sight. Petitioner
contended that the controversy between the parties was
whether or not the alleged contract between the parties was
11
0
legally in existence and the RTC was not the proper
forum to ventilate such issue. It claimed that the contract
contained an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to
settle by mutual agreement shall be settled by arbitration in the
City of New York before the American Arbitration Association.
The Arbitration Award shall be final and binding on both
parties.5
that respondent must first comply with the arbitration clause
before resorting to court, thus, the RTC must either dismiss the
case or suspend the proceedings and direct the parties to
proceed with arbitration, pursuant to Sections 66 and 77 of
Republic Act (R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the RTC
has jurisdiction over the action for rescission of contract and
could not be changed by the subject arbitration clause. It cited
cases wherein arbitration clauses, such as the subject clause in
the contract, had been struck down as void for being contrary to
public policy since it provided that the arbitration award shall be
final and binding on both parties, thus, ousting the courts of
jurisdiction.
In its Reply, petitioner maintained that the cited decisions were
already inapplicable, having been rendered prior to the
effectivity of the New Civil Code in 1950 and the Arbitration Law
in 1953.
In its Rejoinder, respondent argued that the arbitration clause
relied upon by petitioner is invalid and unenforceable,
considering that the requirements imposed by the provisions of
the Arbitration Law had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent
had even clarified that the issue boiled down to whether the
arbitration clause contained in the contract subject of the
complaint is valid and enforceable; that the arbitration clause
did not violate any of the cited provisions of the Arbitration Law.
On September 17, 1998, the RTC rendered an Order,8 the
dispositive portion of which reads:
Premises considered, defendant's "Motion To Dismiss/Suspend
Proceedings and To Refer Controversy To Voluntary
Arbitration" is hereby DENIED. Defendant is directed to file its
answer within ten (10) days from receipt of a copy of this order.9
In denying the motion, the RTC found that there was no clear
basis for petitioner's plea to dismiss the case, pursuant to
Section 7 of the Arbitration Law. The RTC said that the
provision directed the court concerned only to stay the action or
proceeding brought upon an issue arising out of an agreement
ADR || First Batch
providing for the arbitration thereof, but did not impose the
sanction of dismissal. However, the RTC did not find the
suspension of the proceedings warranted, since the Arbitration
Law contemplates an arbitration proceeding that must be
conducted in the Philippines under the jurisdiction and control
of the RTC; and before an arbitrator who resides in the country;
and that the arbitral award is subject to court approval,
disapproval and modification, and that there must be an appeal
from the judgment of the RTC. The RTC found that the
arbitration clause in question contravened these procedures,
i.e., the arbitration clause contemplated an arbitration
proceeding in New York before a non-resident arbitrator
(American Arbitration Association); that the arbitral award shall
be final and binding on both parties. The RTC said that to apply
Section 7 of the Arbitration Law to such an agreement would
result in disregarding the other sections of the same law and
rendered them useless and mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC
denied in an Order10 dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the
sole issue that the RTC acted in excess of jurisdiction or with
grave abuse of discretion in refusing to dismiss or at least
suspend the proceedings a quo, despite the fact that the party's
agreement to arbitrate had not been complied with.
Respondent filed its Comment and Reply. The parties were
then required to file their respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision
denying the petition and affirming the RTC Orders.
In denying the petition, the CA found that stipulation providing
for arbitration in contractual obligation is both valid and
constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction and
expressly provided for in the Civil Code; that R.A. No. 876 (the
Arbitration Law) also expressly authorized the arbitration of
domestic disputes. The CA found error in the RTC's holding
that Section 7 of R.A. No. 876 was inapplicable to arbitration
clause simply because the clause failed to comply with the
requirements prescribed by the law. The CA found that there
was nothing in the Civil Code, or R.A. No. 876, that require that
arbitration proceedings must be conducted only in the
Philippines and the arbitrators should be Philippine residents. It
also found that the RTC ruling effectively invalidated not only
the disputed arbitration clause, but all other agreements which
provide for foreign arbitration. The CA did not find illegal or
against public policy the arbitration clause so as to render it null
and void or ineffectual.
Notwithstanding such findings, the CA still held that the case
cannot be brought under the Arbitration Law for the purpose of
suspending the proceedings before the RTC, since in its Motion
to Dismiss/Suspend proceedings, petitioner alleged, as one of
the grounds thereof, that the subject contract between the
11
1
parties did not exist or it was invalid; that the said contract
bearing the arbitration clause was never consummated by the
parties, thus, it was proper that such issue be first resolved by
the court through an appropriate trial; that the issue involved a
question of fact that the RTC should first resolve. Arbitration is
not proper when one of the parties repudiated the existence or
validity of the contract.
Petitioner's motion for reconsideration was denied in a
Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in
ruling that arbitration cannot proceed despite the fact that: (a) it
had ruled, in its assailed decision, that the arbitration clause is
valid, enforceable and binding on the parties; (b) the case of
Gonzales v. Climax Mining Ltd.11 is inapplicable here; (c)
parties are generally allowed, under the Rules of Court, to
adopt several defenses, alternatively or hypothetically, even if
such
defenses are inconsistent with each other; and (d) the
complaint filed by respondent with the trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions
when it found the arbitration clause between the parties as valid
and enforceable and yet in the same breath decreed that the
arbitration cannot proceed because petitioner assailed the
existence of the entire agreement containing the arbitration
clause. Petitioner claims the inapplicability of the cited
Gonzales case decided in 2005, because in the present case, it
was respondent who had filed the complaint for rescission and
damages with the RTC, which based its cause of action against
petitioner on the alleged agreement dated July 11, 2006
between the parties; and that the same agreement contained
the arbitration clause sought to be enforced by petitioner in this
case. Thus, whether petitioner assails the genuineness and
due execution of the agreement, the fact remains that the
agreement sued upon provides for an arbitration clause; that
respondent cannot use the provisions favorable to him and
completely disregard those that are unfavorable, such as the
arbitration clause.
Petitioner contends that as the defendant in the RTC, it
presented two alternative defenses, i.e., the parties had not
entered into any agreement upon which respondent as plaintiff
can sue upon; and, assuming that such agreement existed,
there was an arbitration clause that should be enforced, thus,
the dispute must first be submitted to arbitration before an
action can be instituted in court. Petitioner argues that under
Section 1(j) of Rule 16 of the Rules of Court, included as a
ground to dismiss a complaint is when a condition precedent for
filing the complaint has not been complied with; and that
submission to arbitration when such has been agreed upon is
one such condition precedent. Petitioner submits that the
proceedings in the RTC must be dismissed, or at least
ADR || First Batch
suspended, and the parties be ordered to proceed with
arbitration.
On March 12, 2007, petitioner filed a Manifestation12 saying that
the CA's rationale in declining to order arbitration based on the
2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its
legal basis, because it had been ruled that the arbitration
agreement can be implemented notwithstanding that one of the
parties thereto repudiated the contract which contained such
agreement based on the doctrine of separability.
In its Comment, respondent argues that certiorari under Rule
65 is not the remedy against an order denying a Motion to
Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration. It claims that the Arbitration Law which
petitioner invoked as basis for its Motion prescribed, under its
Section 29, a remedy, i.e., appeal by a petition for review on
certiorari under Rule 45. Respondent contends that the
Gonzales case, which was decided in 2007, is inapplicable in
this case, especially as to the doctrine of separability
enunciated therein. Respondent argues that even if the
existence of the contract and the arbitration clause is
conceded, the decisions of the RTC and the CA declining
referral of the dispute between the parties to arbitration would
still be correct. This is so because respondent's complaint filed
in Civil Case No. 98-1376 presents the principal issue of
whether under the facts alleged in the complaint, respondent is
entitled to rescind its contract with petitioner and for the latter to
pay damages; that such issue constitutes a judicial question or
one that requires the exercise of judicial function and cannot be
the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court,
which allowed a defendant to adopt in the same action several
defenses, alternatively or hypothetically, even if such defenses
are inconsistent with each other refers to allegations in the
pleadings, such as complaint, counterclaim, cross-claim, third-
party complaint, answer, but not to a motion to dismiss. Finally,
respondent claims that petitioner's argument is premised on the
existence of a contract with respondent containing a provision
for arbitration. However, its reliance on the contract, which it
repudiates, is inappropriate.
In its Reply, petitioner insists that respondent filed an action for
rescission and damages on the basis of the contract, thus,
respondent admitted the existence of all the provisions
contained thereunder, including the arbitration clause; that if
respondent relies on said contract for its cause of action
against petitioner, it must also consider itself bound by the rest
of the terms and conditions contained thereunder
notwithstanding that respondent may find some provisions to be
adverse to its position; that respondents citation of the
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
11
2
resolution of the Gonzales' motion for reconsideration in
2007, it had been ruled that an arbitration agreement is
effective notwithstanding the fact that one of the parties thereto
repudiated the main contract which contained it.
We first address the procedural issue raised by respondent that
petitioners petition for certiorari under Rule 65 filed in the CA
against an RTC Order denying a Motion to Dismiss/Suspend
Proceedings and to Refer Controversy to Voluntary Arbitration
was a wrong remedy invoking Section 29 of R.A. No. 876,
which provides:
Section 29.
x x x An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an
award through certiorari proceedings, but such appeals shall be
limited to question of law. x x x.
To support its argument, respondent cites the case of Gonzales
v. Climax Mining Ltd.13 (Gonzales case), wherein we ruled the
impropriety of a petition for certiorari under Rule 65 as a mode
of appeal from an RTC Order directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of
Makati a petition to compel arbitration under R.A. No. 876,
pursuant to the arbitration clause found in the Addendum
Contract it entered with Gonzales. Judge Oscar Pimentel of the
RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with Us
contending that Judge Pimentel acted with grave abuse of
discretion in immediately ordering the parties to proceed with
arbitration despite the proper, valid and timely raised argument
in his Answer with counterclaim that the Addendum Contract
containing the arbitration clause was null and void. Climax-
Arimco assailed the mode of review availed of by Gonzales,
citing Section 29 of R.A. No. 876 contending that 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
ADR || First Batch 11
3
than an error of judgment reviewable by a timely appeal and not binding.20 Submission to arbitration is a contract 21 and a
assailable by a special civil action of certiorari.14 clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a
In this case, petitioner raises before the CA the issue that the contract.22 The provision to submit to arbitration any dispute
respondent Judge acted in excess of jurisdiction or with grave arising therefrom and the relationship of the parties is part of
abuse of discretion in refusing to dismiss, or at least suspend, the contract and is itself a contract.23
the proceedings a quo, despite the fact that the partys
agreement to arbitrate had not been complied with. Notably, the In this case, the contract sued upon by respondent provides for
RTC found the existence of the arbitration clause, since it said an arbitration clause, to wit:
in its decision that "hardly disputed is the fact that the
arbitration clause in question contravenes several provisions of ARBITRATION
the Arbitration Law x x x and to apply Section 7 of the
Arbitration Law to such an agreement would result in the
Any dispute which the Buyer and Seller may not be able to
disregard of the afore-cited sections of the Arbitration Law and
settle by mutual agreement shall be settled by arbitration in the
render them useless and mere surplusages." However,
City of New York before the American Arbitration Association,
notwithstanding the finding that an arbitration agreement
The Arbitration Award shall be final and binding on both parties.
existed, the RTC denied petitioner's motion and directed
petitioner to file an answer.
The CA ruled that arbitration cannot be ordered in this case,
since petitioner alleged that the contract between the parties
In La Naval Drug Corporation v. Court of Appeals, it was held
15
did not exist or was invalid and arbitration is not proper when
that R.A. No. 876 explicitly confines the courts authority only to
one of the parties repudiates the existence or validity of the
the determination of whether or not there is an agreement in
contract. Thus, said the CA:
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 Notwithstanding our ruling on the validity and enforceability of
the terms thereof. If the court, upon the other hand, finds that the assailed arbitration clause providing for foreign arbitration, it
no such agreement exists, the proceedings shall be dismissed. 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 issuing the Order which denied petitioner's Motion to
in its Motion to Dismiss/Suspend Proceedings, etc, petitioner
Dismiss/Suspend Proceedings and to Refer Controversy to
Cargill alleged, as one of the grounds thereof, that the alleged
Voluntary Arbitration, the RTC went beyond its authority of
contract between the parties do not legally exist or is invalid. As
determining only the issue of whether or not there is an
posited by petitioner, it is their contention that the said contract,
agreement in writing providing for arbitration by directing
bearing the arbitration clause, was never consummated by the
petitioner to file an answer, instead of ordering the parties to
parties. That being the case, it is but proper that such issue be
proceed to arbitration. In so doing, it acted in excess of its
first resolved by the court through an appropriate trial. The
jurisdiction and since there is no plain, speedy, and adequate
issue involves a question of fact that the trial court should first
remedy in the ordinary course of law, petitioners resort to a
resolve.
petition for certiorari is the proper remedy.
Arbitration is not proper when one of the parties repudiates the
We now proceed to the substantive issue of whether the CA
existence or validity of the contract. Apropos is Gonzales v.
erred in finding that this case cannot be brought under the
Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where
arbitration law for the purpose of suspending the proceedings in
the Supreme Court held that:
the RTC.
The question of validity of the contract containing the
We find merit in the petition.
agreement to submit to arbitration will affect the
applicability of the arbitration clause itself. A party cannot
Arbitration, as an alternative mode of settling disputes, has long rely on the contract and claim rights or obligations under it
been recognized and accepted in our jurisdiction.16 R.A. No. and at the same time impugn its existence or validity.
87617 authorizes arbitration of domestic disputes. Foreign Indeed, litigants are enjoined from taking inconsistent
arbitration, as a system of settling commercial disputes of an positions....
international character, is likewise recognized.18 The enactment
of R.A. No. 9285 on April 2, 2004 further institutionalized the
Consequently, the petitioner herein cannot claim that the
use of alternative dispute resolution systems, including
contract was never consummated and, at the same time,
arbitration, in the settlement of disputes.19
invokes the arbitration clause provided for under the contract
which it alleges to be non-existent or invalid. Petitioner claims
A contract is required for arbitration to take place and to be that private respondent's complaint lacks a cause of action due
ADR || First Batch
to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a
fallback position. The petitioner must first adduce evidence in
support of its claim that there is no valid contract between them
and should the court a quo find the claim to be meritorious, the
parties may then be spared the rigors and expenses that
arbitration in a foreign land would surely entail.24
However, the Gonzales case,25 which the CA relied upon for not
ordering arbitration, had been modified upon a motion for
reconsideration in this wise:
x x x The adjudication of the petition in G.R. No. 167994
effectively modifies part of the Decision dated 28 February
2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit
to arbitration does not affect the applicability of the
arbitration clause itself. A contrary ruling would suggest
that a party's mere repudiation of the main contract is
sufficient to avoid arbitration. That is exactly the situation
that the separability doctrine, as well as jurisprudence
applying it, seeks to avoid. We add that when it was declared
in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the
case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract
on the ground of fraud, as it had already been determined that
the case should have been brought before the regular courts
involving as it did judicial issues.26
In so ruling that the validity of the contract containing the
arbitration agreement does not affect the applicability of the
arbitration clause itself, we then applied the doctrine of
separability, thus:
The doctrine of separability, or severability as other writers call
it, enunciates that an arbitration agreement is independent of
the main contract. The arbitration agreement is to be treated as
a separate agreement and the arbitration agreement does not
automatically terminate when the contract of which it is a part
comes to an end.
The separability of the arbitration agreement is especially
significant to the determination of whether the invalidity of the
main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also
referred to as the "container" contract, does not affect the
validity of the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration clause/agreement
still remains valid and enforceable.27
Respondent argues that the separability doctrine is not
applicable in petitioner's case, since in the Gonzales case,
Climax-Arimco sought to enforce the arbitration clause of its
contract with Gonzales and the former's move was premised on
the existence of a valid contract; while Gonzales, who resisted
the move of Climax-Arimco for arbitration, did not deny the
11
4
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.
ADR || First Batch
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
1wphi1
Panel of Arbitrators via a petition for certiorari before the CA.
The CA granted the petition and declared that the Panel of
Arbitrators did not have jurisdiction over the complaint, since its
jurisdiction was limited to the resolution of mining disputes,
such as those which raised a question of fact or matter
requiring the technical knowledge and experience of mining
authorities and not when the complaint alleged fraud and
oppression which called for the interpretation and application of
laws. The CA further ruled that the petition should have been
settled through arbitration under R.A. No. 876 the Arbitration
Law as provided under the addendum contract.
On a review on certiorari, we affirmed the CAs finding that the
Panel of Arbitrators who, under R.A. No. 7942 of the Philippine
Mining Act of 1995, has exclusive and original jurisdiction to
hear and decide mining disputes, such as mining areas, mineral
agreements, FTAAs or permits and surface owners, occupants
and claimholders/concessionaires, is bereft of jurisdiction over
the complaint for declaration of nullity of the addendum
contract; thus, the Panels' jurisdiction is limited only to those
mining disputes which raised question of facts or matters
requiring the technical knowledge and experience of mining
authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court observed
that the trend has been to make the adjudication of mining
cases a purely administrative matter. Decisions of the Supreme
Court on mining disputes have recognized a distinction
between (1) the primary powers granted by pertinent provisions
of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or
administrative nature, such as granting of license, permits,
lease and contracts, or approving, rejecting, reinstating or
canceling applications, or deciding conflicting applications, and
(2) controversies or disagreements of civil or contractual nature
between litigants which are questions of a judicial nature that
may be adjudicated only by the courts of justice. This distinction
is carried on even in Rep. Act No. 7942.28
We found that since the complaint filed before the DENR Panel
of Arbitrators charged respondents with disregarding and
ignoring the addendum contract, and acting in a fraudulent and
oppressive manner against petitioner, the complaint filed before
11
5
the Panel was not a dispute involving rights to mining
areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said
that the Panel of Arbitrators did not have jurisdiction over such
issue, since it does not involve the application of technical
knowledge and expertise relating to mining. It is in this context
that we said that:
Arbitration before the Panel of Arbitrators is proper only when
there is a disagreement between the parties as to some
provisions of the contract between them, which needs the
interpretation and the application of that particular knowledge
and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or
validity of such contract or agreement on the ground of fraud or
oppression as in this case. The validity of the contract cannot
be subject of arbitration proceedings. Allegations of fraud and
duress in the execution of a contract are matters within the
jurisdiction of the ordinary courts of law. These questions are
legal in nature and require the application and interpretation of
laws and jurisprudence which is necessarily a judicial function.29
In fact, We even clarified in our resolution on Gonzales motion
for reconsideration that "when we declared that the case should
not be brought for arbitration, it should be clarified that the case
referred to is the case actually filed by Gonzales before the
DENR Panel of Arbitrators, which was for the nullification of the
main contract on the ground of fraud, as it had already been
determined that the case should have been brought before the
regular courts involving as it did judicial issues." We made such
clarification in our resolution of the motion for reconsideration
after ruling that the parties in that case can proceed to
arbitration under the Arbitration Law, as provided under the
Arbitration Clause in their Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision dated
July 31, 2006 and the Resolution dated November 13, 2006 of
the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED
and SET ASIDE. The parties are hereby ORDERED to
SUBMIT themselves to the arbitration of their dispute, pursuant
to their July 11, 1996 agreement.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ADR || First Batch 11
6
ANTONIO EDUARDO B. NACHURA hear the parties,ROBERTO
and upon being
A. ABAD
satisfied that the making
of the agreement or such failure to comply therewith is not in
Associate Justice issue, shall make an order
Associate directing the parties to proceed to
Justice
JOSE CATRAL MENDOZA 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
Associate Justice
agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding
ATTESTATION shall be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
I attest that the conclusions in the above Decision had been thereunder, an order shall be made summarily directing the
reached in consultation before the case was assigned to the parties to proceed with the arbitration in accordance with the
writer of the opinion of the Courts Division. terms thereof.

ANTONIO T. CARPIO The court shall decide all motions, petitions or applications filed
under the provisions of this Act, within ten days after such
Associate Justice motions, petitions, or applications have been heard by it.

Second Division, Chairperson 7 Sec. 7. Stay of civil action. - If any suit or proceeding be
brought upon an issue arising out of an agreement providing for
CERTIFICATION the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue
involved in such suit or proceeding is referable to arbitration,
Pursuant to Section 13, Article VIII of the Constitution and the
shall say the action or proceeding until an arbitration has been
Division Chairpersons Attestation, I certify that the conclusions
had in accordance with the terms of the agreement; Provided
in the above Decision had been reached in consultation before
that the applicant for the stay is not in default in proceeding with
the case was assigned to the writer of the opinion of the Courts
such arbitration.
Division.
8 Penned by Judge Lucia Violago Isnani; rollo, pp. 71-75.
RENATO C. CORONA
9 Id. at 75.
Chief Justice
10 Records, pp. 113-115.

11 G.R. No. 161957, February 28, 2005, 452 SCRA 607.

Footnotes
12 Rollo, pp. 311-314.
1 Penned by Associate Justice Edgardo F. Sundiam, with
Associate Justices Rodrigo V. Cosico and Japar B.
Dimaampao, concurring; rollo, pp. 32-45.
13G.R. Nos. 161957 & 167994, January 22, 1997, 512 SCRA
148, 163.
2 Id. at 47-48.
14 Id. at 165.
3 Docketed as Civil Case No. 98-1376; raffled off to Branch 59.
15 G.R. No. 103200, August 31, 1994, 236 SCRA 78, 91.
4 Rollo, pp. 61-70.
16 Gonzales v. Climax Mining Ltd., supra note 13, at 166.
5 Id. at 60.
17 An Act to Institutionalize the Use of An Alternative Dispute
Resolution System in the Philippines and to Establish the Office
6 Section 6. Hearing by court. - A party aggrieved by the failure,
for Alternative Dispute Resolution, and for other purposes.
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
18 Gonzeles v. Climax Mining Ltd., supra note 13.
provided for in such agreement. Five days notice in writing of
the hearing of such application shall be served either personally 19 Id. at 167.
or by registered mail upon the party in default. The court shall
ADR || First Batch 11
7
20 Id. Republic of the Philippines
SUPREME COURT
21Id., citing Manila Electric Co. v. Pasay Transportation Co., 57 Baguio City
Phil 600 (1932). THIRD DIVISION

22 Id. at 167-168. G.R. No. 167022 April 4, 2011

23Id., citing Del Monte Corporation -USA v. Court of Appeals, LICOMCEN INCORPORATED, Petitioner,
404 Phil. 192 (2001).
vs.
24 Rollo, pp. 44-45. (Emphasis supplied.)
FOUNDATION SPECIALISTS, INC., Respondent.
25 Gonzales v. Climax Mining Ltd., supra note 11.
x - - - - - - - - - - - - - - - - - - - - - - -x
26Gonzales v. Climax Mining Ltd., supra note 13, at 172-173.
(Emphasis supplied.) G.R. No. 169678

27 Id. at 170. FOUNDATION SPECIALISTS, INC., Petitioner,

28 Gonzales v. Climax Mining Ltd., supra note 11, at 620. vs.

29 Id. at 624. LICOMCEN INCORPORATED, Respondent.

DECISION

BRION, J.:

THE FACTS

The petitioner, LICOMCEN Incorporated (LICOMCEN), is a

domestic corporation engaged in the business of operating
shopping malls in the country.

In March 1997, the City Government of Legaspi awarded to

LICOMCEN, after a public bidding, a lease contract over a lot
located in the central business district of the city. Under the
contract, LICOMCEN was obliged to finance the construction of
a commercial complex/mall to be known as the LCC Citimall
(Citimall). It was also granted the right to operate and manage
Citimall for 50 years, and was, thereafter, required to turn over
the ownership and operation to the City Government.1

For the Citimall project, LICOMCEN hired E.S. de Castro and

Associates (ESCA) to act as its engineering consultant. Since
the Citimall was envisioned to be a high-rise structure,
LICOMCEN contracted respondent Foundation Specialists, Inc.
(FSI) to do initial construction works, specifically, the
construction and installation of bored piles foundation.2
LICOMCEN and FSI signed the Construction Agreement,3 and
the accompanying Bid Documents4 and General Conditions of
Contract5 (GCC) on September 1, 1997. Immediately thereafter,
FSI purchased the materials needed for the Citimall6 project
and began working in order to meet the 90-day deadline set by
LICOMCEN.
ADR || First Batch
On December 16, 1997, LICOMCEN sent word to FSI that it
was considering major design revisions and the suspension of
work on the Citimall project. FSI replied on December 18, 1997,
expressing concern over the revisions and the suspension, as it
had fully mobilized its manpower and equipment, and had
ordered the delivery of steel bars. FSI also asked for the
payment of accomplished work amounting to P3,627,818.00.7 A
series of correspondence between LICOMCEN and FSI then
followed.
ESCA wrote FSI on January 6, 1998, stating that the revised
design necessitated a change in the bored piles requirement
and a substantial reduction in the number of piles. Thus, ESCA
proposed to FSI that only 50% of the steel bars be delivered to
the jobsite and the rest be shipped back to Manila.8
Notwithstanding this instruction, all the ordered steel bars
arrived in Legaspi City on January 14, 1998.9
On January 15, 1998, LICOMCEN instructed FSI to "hold all
construction activities on the project,"10 in view of a pending
administrative case against the officials of the City Government
of Legaspi and LICOMCEN filed before the Ombudsman (OMB-
ADM-1-97-0622).11 On January 19, 1998, ESCA formalized the
suspension of construction activities and ordered the
constructions demobilization until the case was resolved.12 In
response, FSI sent ESCA a letter, dated February 3, 1998,
requesting payment of costs incurred on account of the
suspension which totaled P22,667,026.97.13 FSI repeated its
demand for payment on March 3, 1998.14
ESCA replied to FSIs demands for payment on March 24,
1998, objecting to some of the claims.15 It denied the claim for
the cost of the steel bars that were delivered, since the delivery
was done in complete disregard of its instructions. It further
disclaimed liability for the other FSI claims based on the
suspension, as its cause was not due to LICOMCENs fault. FSI
rejected ESCAs evaluation of its claims in its April 15, 1998
letter.16
On March 14, 2001, FSI sent a final demand letter to
LICOMCEN for payment of P29,232,672.83.17 Since
LICOMCEN took no positive action on FSIs demand for
payment,18 FSI filed a petition for arbitration with the
Construction Industry Arbitration Commission (CIAC) on
October 2, 2002, docketed as CIAC Case No. 37-2002.19 In the
arbitration petition, FSI demanded payment of the following
amounts:
a. Unpaid accomplished work billings. P 1,264,404.12
b. Material costs at site.. 15,143,638.51
c. Equipment and labor standby costs.. 3,058,984.34
d. Unrealized gross profit.. 9,023,575.29
e. Attorneys fees.. 300,000.00
f. Interest expenses ...
LICOMCEN again denied liability for the amounts claimed by
FSI. It justified its decision to indefinitely suspend the Citimall
project due to the cases filed against it involving its Lease
11
8
Contract with the City Government of Legaspi.
LICOMCEN also assailed the CIACs jurisdiction, contending
that FSIs claims were matters not subject to arbitration under
GC-61 of the GCC, but one that should have been filed before
the regular courts of Legaspi City pursuant to GC-05.20
During the preliminary conference of January 28, 2003,
LICOMCEN reiterated its objections to the CIACs jurisdiction,
which the arbitrators simply noted. Both FSI and LICOMCEN
then proceeded to draft the Terms of Reference.21
On February 4, 2003, LICOMCEN, through a collaborating
counsel, filed its Ex Abundati Ad Cautela Omnibus Motion,
insisting that FSIs petition before the CIAC should be
dismissed for lack of jurisdiction; thus, it prayed for the
suspension of the arbitration proceedings until the issue of
jurisdiction was finally settled. The CIAC denied LICOMCENs
motion in its February 20, 2003 order,22 finding that the
question of jurisdiction depends on certain factual conditions
that have yet to be established by ample evidence. As the
CIACs February 20, 2003 order stood uncontested, the
arbitration proceedings continued, with both parties actively
participating.
The CIAC issued its decision on July 7, 2003,23 ruling in favor of
FSI and awarding the following amounts:
a. Unpaid accomplished work billings.
b. Material costs at site
c. Equipment and labor standby costs
d. Unrealized gross profit
LICOMCEN was also required to bear the costs of arbitration in
the total amount of P474,407.95.
LICOMCEN appealed the CIACs decision before the Court of
Appeals (CA). On November 23, 2004, the CA upheld the
CIACs decision, modifying only the amounts awarded by (a)
reducing LICOMCENs liability for material costs at site to
P5,694,939.87, and (b) deleting its liability for equipment and
labor standby costs and unrealized gross profit; all the other
awards were affirmed.24 Both parties moved for the
reconsideration of the CAs Decision; LICOMCENs motion was
denied in the CAs February 4, 2005 Resolution, while FSIs
motion was denied in the CAs September 13, 2005 Resolution.
Hence, the parties filed their own petition for review on certiorari
before the Court.25
LICOMCENs Arguments
LICOMCEM principally raises the question of the CIACs
jurisdiction, insisting that FSIs claims are non-arbitrable. In
support of its position, LICOMCEN cites GC-61 of the GCC:
GC-61. DISPUTES AND ARBITRATION
Should any dispute of any kind arise between the LICOMCEN
ADR || First Batch
INCORPORATED and the Contractor [referring to FSI] or the
Engineer [referring to ESCA] and the Contractor in connection
with, or arising out of the execution of the Works, such dispute
shall first be referred to and settled by the LICOMCEN,
INCORPORATED who shall within a period of thirty (30) days
after being formally requested by either party to resolve the
dispute, issue a written decision to the Engineer and
Contractor.
Such decision shall be final and binding upon the parties and
the Contractor shall proceed with the execution of the Works
with due diligence notwithstanding any Contractor's objection to
the decision of the Engineer. If within a period of thirty (30) days
from receipt of the LICOMCEN, INCORPORATED's decision
on the dispute, either party does not officially give notice to
contest such decision through arbitration, the said decision
shall remain final and binding. However, should any party,
within thirty (30) days from receipt of the LICOMCEN,
INCORPORATED's decision, contest said decision, the dispute
shall be submitted for arbitration under the Construction
Industry Arbitration Law, Executive Order 1008. The arbitrators
appointed under said rules and regulations shall have full power
to open up, revise and review any decision, opinion, direction,
certificate or valuation of the LICOMCEN, INCORPORATED.
Neither party shall be limited to the evidence or arguments put
before the LICOMCEN, INCORPORATED for the purpose of
obtaining his said decision. No decision given by the
LICOMCEN, INCORPORATED shall disqualify him from being
called as a witness and giving evidence in the arbitration. It is
understood that the obligations of the LICOMCEN,
INCORPORATED, the Engineer and the Contractor shall not be
altered by reason of the arbitration being conducted during the
progress of the Works.26
LICOMCEN posits that only disputes "in connection with or
arising out of the execution of the Works" are subject to
arbitration. LICOMCEN construes the phrase "execution of the
Works" as referring to the physical construction activities, since
"Works" under the GCC specifically refer to the "structures and
facilities" required to be constructed and completed for the
Citimall project.27 It considers FSIs claims as mere contractual
monetary claims that should be litigated before the courts of
Legaspi City, as provided in GC-05 of the GCC:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out
of or in connection with the Contract, or breach thereof, shall be
litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted
for settlement thru arbitration as provided herein.28
LICOMCEN also contends that FSI failed to comply with the
condition precedent for arbitration laid down in GC-61 of the
GCC. An arbitrable dispute under GC-61 must first be referred
to and settled by LICOMCEN, which has 30 days to resolve it. If
within a period of 30 days from receipt of LICOMCENs decision
11
9
on the dispute, either party does not officially give notice
to contest such decision through arbitration, the said decision
shall remain final and binding. However, should any party,
within 30 days from receipt of LICOMCENs decision, contest
said decision, the dispute shall be submitted for arbitration
under the Construction Industry Arbitration Law.
LICOMCEN considers its March 24, 1998 letter as its final
decision on FSIs claims, but declares that FSIs reply letter of
April 15, 1998 is not the "notice to contest" required by GC-61
that authorizes resort to arbitration before the CIAC. It posits
that nothing in FSIs April 15, 1998 letter states that FSI will
avail of arbitration as a mode to settle its dispute with
LICOMCEN. While FSIs final demand letter of March 14, 2001
mentioned its intention to refer the matter to arbitration,
LICOMCEN declares that the letter was made three years after
its March 24, 1998 letter, hence, long after the 30-day period
provided in GC-61. Indeed, FSI filed the petition for arbitration
with the CIAC only on October 2, 2002.29 Considering FSIs
delays in asserting its claims, LICOMCEN also contends that
FSIs action is barred by laches.
With respect to the monetary claims of FSI, LICOMCEM alleges
that the CA erred in upholding its liability for material costs at
site for the reinforcing steel bars in the amount of
P5,694,939.87, computed as follows30:
2nd initial rebar requirements purchased from
P 799,506.83
Pag-Asa Steel Works, Inc.
Reinforcing steel bars purchased from ARCA
Industrial Sales (total net weight of 744,197.66 5,395,433.04
kilograms) 50% of net amount due
Subtotal 6,194,939.87
Less
Purchase cost of steel bars by Ramon
(500,000.00)
Quinquileria
TOTAL LIABILITY OF LICOMCEN TO FSI FOR
MATERIAL COSTS AT SITE 5,694,939.87
Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable
to pay FSI "[t]he cost of materials or goods reasonably ordered
for the Permanent or Temporary Works which have been
delivered to the Contractor but not yet used, and which delivery
has been certified by the Engineer."31 None of these requisites
were allegedly complied with. It contends that FSI failed to
establish that the steel bars delivered in Legaspi City, on
January 14, 1998, were for the Citimall project. In fact, the steel
bars were delivered not at the site of the Citimall project, but at
FSIs batching plant called Tuanzon compound, a few hundred
meters from the site. Even if delivery to Tuanzon was allowed,
the delivery was done in violation of ESCAs instruction to ship
only 50% of the materials. Advised as early as December 1997
to suspend the works, FSI proceeded with the delivery of the
steel bars in January 1998. LICOMCEN declared that it should
not be made to pay for costs that FSI willingly incurred for
itself.32
ADR || First Batch
Assuming that LICOMCEN is liable for the costs of the steel
bars, it argues that its liability should be minimized by the fact
that FSI incurred no actual damage from the purchase and
delivery of the steel bars. During the suspension of the works,
FSI sold 125,000 kg of steel bars for P500,000.00 to a third
person (a certain Ramon Quinquileria). LICOMCEN alleges that
FSI sold the steel bars for a ridiculously low price of P 4.00/kilo,
when the prevailing rate was P20.00/kilo. The sale could have
garnered a higher price that would offset LICOMCENs liability.
LICOMCEN also wants FSI to account for and deliver to it the
remaining 744 metric tons of steel bars not sold. Otherwise, FSI
would be unjustly enriched at LICOMCENs expense, receiving
payment for materials not delivered to LICOMCEN.33
LICOMCEN also disagrees with the CA ruling that declared it
solely liable to pay the costs of arbitration. The ruling was
apparently based on the finding that LICOMCENs "failure or
refusal to meet its obligations, legal, financial, and moral,
caused FSI to bring the dispute to arbitration."34 LICOMCEN
asserts that it was FSIs decision to proceed with the delivery of
the steel bars that actually caused the dispute; it insists that it is
not the party at fault which should bear the arbitration costs.35
FSIs Arguments
FSI takes exception to the CA ruling that modified the amount
for material costs at site, and deleted the awards for equipment
and labor standby costs and unrealized profits.
Proof of damage to FSI is not required for LICOMCEN to be
liable for the material costs of the steel bars. Under GC-42, it is
enough that the materials were delivered to the contractor,
although not used. FSI said that the 744 metric tons of steel
bars were ordered and paid for by it for the Citimall project as
early as November 1997. If LICOMCEN contends that these
were procured for other projects FSI also had in Legaspi City, it
should have presented proof of this claim, but it failed to do
so.36
ESCAs January 6, 1998 letter simply suggested that only 50%
of the steel bars be shipped to Legaspi City; it was not a clear
and specific directive. Even if it was, the steel bars were
ordered and paid for long before the notice to suspend was
given; by then, it was too late to stop the delivery. FSI also
claims that since it believed in good faith that the Citimall
project was simply suspended, it expected work to resume
soon after and decided to proceed with the shipment.37
Contrary to LICOMCENs arguments, GC-42 of the GCC does
not require delivery of the materials at the site of the Citimall
project; it only requires delivery to the contractor, which is FSI.
Moreover, the Tuanzon compound, where the steel bars were
actually delivered, is very close to the Citimall project site. FSI
contends that it is a normal construction practice for contractors
to set up a "staging site," to prepare the materials and
equipment to be used, rather than stock them in the crowded
job/project site. FSI also asserts that it was useless to have the
12
0
delivery certified by ESCA because by then the Citimall
project had been suspended. It would be unfair to demand FSI
to perform an act that ESCA and LICOMCEN themselves had
prevented from happening.38
The CA deleted the awards for equipment and labor standby
costs on the ground that FSIs documentary evidence was
inadequate. FSI finds the ruling erroneous, since LICOMCEN
never questioned the list of employees and equipments
employed and rented by FSI for the duration of the
suspension.39
FSI also alleges that LICOMCEN maliciously and unlawfully
suspended the Citimall project. While LICOMCEN cited several
other cases in its petition for review on certiorari as grounds for
suspending the works, its letters/notices of suspension only
referred to one case, OMB-ADM-1-97-0622, an administrative
case before the Ombudsman that was dismissed as early as
October 12, 1998. LICOMCEN never notified FSI of the
dismissal of this case. More importantly, no restraining order or
injunction was issued in any of these cases to justify the
suspension of the Citimall project.40 FSI posits that
LICOMCENs true intent was to terminate its contract with it,
but, to avoid paying damages for breach of contract, simply
declared it as "indefinitely suspended." That LICOMCEN
conducted another public bidding for the "new designs" is a
telling indication of LICOMCENs intent to ease out FSI.41 Thus,
FSI states that LICOMCENs bad faith in indefinitely
suspending the Citimall project entitles it to claim unrealized
profit. The restriction under GC-41 that "[t]he contractor shall
have no claim for anticipated profits on the work thus
terminated,"42 will not apply because the stipulation refers to a
contract lawfully and properly terminated. FSI seeks to recover
unrealized profits under Articles 1170 and 2201 of the Civil
Code.
THE COURTS RULING
The jurisdiction of the CIAC
The CIAC was created through Executive Order No. 1008 (E.O.
1008), in recognition of the need to establish an arbitral
machinery that would expeditiously settle construction industry
disputes. The prompt resolution of problems arising from or
connected with the construction industry was considered of
necessary and vital for the fulfillment of national development
goals, as the construction industry provides employment to a
large segment of the national labor force and is a leading
contributor to the gross national product.43 Section 4 of E.O.
1008 states:
Sec. 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private
ADR || First Batch
contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or
application of contractual time and delays; maintenance and
defects; payment, default of employer or contractor and
changes in contract cost.
Excluded from the coverage of this law are disputes arising
from employer-employee relationships which shall continue to
be covered by the Labor Code of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is
determined by the Constitution and the law.44 It cannot be fixed
by the will of the parties to a dispute;45 the parties can neither
expand nor diminish a tribunals jurisdiction by stipulation or
agreement. The text of Section 4 of E.O. 1008 is broad enough
to cover any dispute arising from, or connected with
construction contracts, whether these involve mere contractual
money claims or execution of the works.46 Considering the
intent behind the law and the broad language adopted,
LICOMCEN erred in insisting on its restrictive interpretation of
GC-61. The CIACs jurisdiction cannot be limited by the parties
stipulation that only disputes in connection with or arising out of
the physical construction activities (execution of the works) are
arbitrable before it.
In fact, all that is required for the CIAC to acquire jurisdiction is
for the parties to a construction contract to agree to submit their
dispute to arbitration. Section 1, Article III of the 1988 CIAC
Rules of Procedure (as amended by CIAC Resolution Nos. 2-
91 and 3-93) states:
Section 1. Submission to CIAC Jurisdiction. An arbitration
clause in a construction contract or a submission to arbitration
of a construction dispute shall be deemed an agreement to
submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution
or arbitral body in such contract or submission. When a contract
contains a clause for the submission of a future controversy to
arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the
jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration shall be
in writing, but it need not be signed by the parties, as long as
the intent is clear that the parties agree to submit a present or
future controversy arising from a construction contract to
arbitration.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila
Tollways Corporation,47 the Court declared that "the bare fact
that the parties x x x incorporated an arbitration clause in [their
contract] is sufficient to vest the CIAC with jurisdiction over any
12
1
construction controversy or claim between the parties.
The arbitration clause in the construction contract ipso facto
vested the CIAC with jurisdiction."
Under GC-61 and GC-05 of the GCC, read singly and in
relation with one another, the Court sees no intent to limit resort
to arbitration only to disputes relating to the physical
construction activities.
First, consistent with the intent of the law, an arbitration clause
pursuant to E.O. 1008 should be interpreted at its widest
signification. Under GC-61, the voluntary arbitration clause
covers any dispute of any kind, not only arising of out the
execution of the works but also in connection therewith. The
payments, demand and disputed issues in this case namely,
work billings, material costs, equipment and labor standby
costs, unrealized profits all arose because of the construction
activities and/or are connected or related to these activities. In
other words, they are there because of the construction
activities. Attorneys fees and interests payment, on the other
hand, are costs directly incidental to the dispute. Hence, the
scope of the arbitration clause, as worded, covers all the
disputed items.
Second and more importantly, in insisting that contractual
money claims can be resolved only through court action,
LICOMCEN deliberately ignores one of the exceptions to the
general rule stated in GC-05:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out
of or in connection with the Contract, or breach thereof, shall be
litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted
for settlement thru arbitration as provided herein.
The second exception clause authorizes the submission to
arbitration of any dispute between LICOMCEM and FSI, even if
the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI
when it filed its petition for arbitration with the CIAC.
If the CIACs jurisdiction can neither be enlarged nor diminished
by the parties, it also cannot be subjected to a condition
precedent. GC-61 requires a party disagreeing with
LICOMCENs decision to "officially give notice to contest such
decision through arbitration" within 30 days from receipt of the
decision. However, FSIs April 15, 1998 letter is not the notice
contemplated by GC-61; it never mentioned FSIs plan to
submit the dispute to arbitration and instead requested
LICOMCEN to reevaluate its claims. Notwithstanding FSIs
failure to make a proper and timely notice, LICOMCENs
decision (embodied in its March 24, 1998 letter) cannot become
"final and binding" so as to preclude resort to the CIAC
arbitration. To reiterate, all that is required for the CIAC to
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acquire jurisdiction is for the parties to agree to submit their
dispute to voluntary arbitration:
[T]he mere existence of an arbitration clause in the construction
contract is considered by law as an agreement by the parties to
submit existing or future controversies between them to CIAC
jurisdiction, without any qualification or condition precedent. To
affirm a condition precedent in the construction contract, which
would effectively suspend the jurisdiction of the CIAC until
compliance therewith, would be in conflict with the recognized
intention of the law and rules to automatically vest CIAC with
jurisdiction over a dispute should the construction contract
contain an arbitration clause.48
The CIAC is given the original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into
by parties involved in construction in the Philippines.49 This
jurisdiction cannot be altered by stipulations restricting the
nature of construction disputes, appointing another arbitral
body, or making that bodys decision final and binding.
The jurisdiction of the CIAC to resolve the dispute between
LICOMCEN and FSI is, therefore, affirmed.
The validity of the indefinitesuspension of the works on
theCitimall project
Before the Court rules on each of FSIs contractual monetary
claims, we deem it important to discuss the validity of
LICOMCENs indefinite suspension of the works on the Citimall
project. We quote below two contractual stipulations relevant to
this issue:
GC-38. SUSPENSION OF WORKS
The Engineer [ESCA] through the LICOMCEN,
INCORPORATED shall have the authority to suspend the
Works wholly or partly by written order for such period as may
be deemed necessary, due to unfavorable weather or other
conditions considered unfavorable for the prosecution of the
Works, or for failure on the part of the Contractor to correct
work conditions which are unsafe for workers or the general
public, or failure or refusal to carry out valid orders, or due to
change of plans to suit field conditions as found necessary
during construction, or to other factors or causes which, in the
opinion of the Engineer, is necessary in the interest of the
Works and to the LICOMCEN, INCORPORATED. The
Contractor [FSI] shall immediately comply with such order to
suspend the work wholly or partly directed.
In case of total suspension or suspension of activities along the
critical path of the approved PERT/CPM network and the cause
of which is not due to any fault of the Contractor, the elapsed
time between the effective order for suspending work and the
order to resume work shall be allowed the Contractor by
adjusting the time allowed for his execution of the Contract
12
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Works.
The Engineer through LICOMCEN, INCORPORATED shall
issue the order lifting the suspension of work when conditions
to resume work shall have become favorable or the reasons for
the suspension have been duly corrected.50
GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND
WORK OR TERMINATE THE CONTRACT
xxxx
2. For Convenience of LICOMCEN, INCORPORATED
If any time before completion of work under the Contract it shall
be found by the LICOMCEN, INCORPORATED that reasons
beyond the control of the parties render it impossible or against
the interest of the LICOMCEN, INCORPORATED to complete
the work, the LICOMCEN, INCORPORATED at any time, by
written notice to the Contractor, may discontinue the work and
terminate the Contract in whole or in part. Upon the issuance of
such notice of termination, the Contractor shall discontinue to
work in such manner, sequence and at such time as the
LICOMCEN, INCORPORATED/Engineer may direct, continuing
and doing after said notice only such work and only until such
time or times as the LICOMCEN, INCORPORATED/Engineer
may direct.51
Under these stipulations, we consider LICOMCENs initial
suspension of the works valid. GC-38 authorizes the
suspension of the works for factors or causes which ESCA
deems necessary in the interests of the works and LICOMCEN.
The factors or causes of suspension may pertain to a change or
revision of works, as cited in the December 16, 1997 and
January 6, 1998 letters of ESCA, or to the pendency of a case
before the Ombudsman (OMB-ADM-1-97-0622), as cited in
LICOMCENs January 15, 1998 letter and ESCAs January 19,
1998 and February 17, 1998 letters. It was not necessary for
ESCA/LICOMCEN to wait for a restraining or injunctive order to
be issued in any of the cases filed against LICOMCEN before it
can suspend the works. The language of GC-38 gives
ESCA/LICOMCEN sufficient discretion to determine whether
the existence of a particular situation or condition necessitates
the suspension of the works and serves the interests of
LICOMCEN. 1avvphi1
Although we consider the initial suspension of the works as
valid, we find that LICOMCEN wrongfully prolonged the
suspension of the works (or "indefinite suspension" as
LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to
"issue an order lifting the suspension of work when conditions
to resume work shall have become favorable or the reasons for
the suspension have been duly corrected." The Ombudsman
case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN
cited in their letters to FSI as a ground for the suspension, was
dismissed as early as October 12, 1998, but neither ESCA nor
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LICOMCEN informed FSI of this development. The pendency of
the other cases52 may justify the continued suspension of the
works, but LICOMCEN never bothered to inform FSI of the
existence of these cases until the arbitration proceedings
commenced. By May 28, 2002, the City Government of Legaspi
sent LICOMCEN a notice instructing it to proceed with the
Citimall project;53 again, LICOMCEN failed to relay this
information to FSI. Instead, LICOMCEN conducted a rebidding
of the Citimall project based on the new design.54 LICOMCENs
claim that the rebidding was conducted merely to get cost
estimates for the new design goes against the established
practice in the construction industry. We find the CIACs
discussion on this matter relevant:
But what is more appalling and disgusting is the allegation x x x
that the x x x invitation to bid was issued x x x solely to gather
cost estimates on the redesigned [Citimall project] x x x. This
Arbitral Tribunal finds said act of asking for bids, without any
intention of awarding the project to the lowest and qualified
bidder, if true, to be extremely irresponsible and highly
unprofessional. It might even be branded as fraudulent x x x
[since] the invited bidders [were required] to pay P2,000.00
each for a set of the new plans, which amount was non-
refundable. The presence of x x x deceit makes the whole story
repugnant and unacceptable.55
LICOMCENs omissions and the imprudent rebidding of the
Citimall project are telling indications of LICOMCENs intent to
ease out FSI and terminate their contract. As with GC-31, GC-
42(2) grants LICOMCEN ample discretion to determine what
reasons render it against its interest to complete the work in
this case, the pendency of the other cases and the revised
designs for the Citimall project. Given this authority, the Court
fails to the see the logic why LICOMCEN had to resort to an
"indefinite suspension" of the works, instead of outrightly
terminating the contract in exercise of its rights under GC-42(2).
We now proceed to discuss the effects of these findings with
regard to FSIs monetary claims against LICOMCEN.
The claim for material costs at site
GC-42 of the GCC states:
GC-42 PAYMENT FOR TERMINATED CONTRACT
If the Contract is terminated as aforesaid, the Contractor will be
paid for all items of work executed, satisfactorily completed and
accepted by the LICOMCEN, INCORPORATED up to the date
of termination, at the rates and prices provided for in the
Contract and in addition:
1. The cost of partially accomplished items of additional or extra
work agreed upon by the LICOMCEN, INCORPORATED and
the Contractor.
12
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2. The cost of materials or goods reasonably ordered for
the Permanent or Temporary Works which have been delivered
to the Contractor but not yet used and which delivery has been
certified by the Engineer.
3. The reasonable cost of demobilization
For any payment due the Contractor under the above
conditions, the LICOMCEN, INCORPORATED, however, shall
deduct any outstanding balance due from the Contractor for
advances in respect to mobilization and materials, and any
other sum the LICOMCEN, INCORPORATED is entitled to be
credited.56
For LICOMCEN to be liable for the cost of materials or goods,
item two of GC-42 requires that
a. the materials or goods were reasonably ordered for the
Permanent or Temporary Works;
b. the materials or goods were delivered to the Contractor but
not yet used; and
c. the delivery was certified by the Engineer.
Both the CIAC and the CA agreed that these requisites were
met by FSI to make LICOMCEN liable for the cost of the steel
bars ordered for the Citimall project; the two tribunals differed
only to the extent of LICOMCENs liability because the CA
opined that it should be limited only to 50% of the cost of the
steel bars. A review of the records compels us to uphold the
CAs finding.
Prior to the delivery of the steel bars, ESCA informed FSI of the
suspension of the works; ESCAs January 6, 1998 letter reads:
As per our information to you on December 16, 1997, a major
revision in the design of the Legaspi Citimall necessitated a
change in the bored piles requirement of the project. The
change involved a substantial reduction in the number and
length of piles.
We expected that you would have suspended the deliveries of
the steel bars until the new design has been approved.
According to you[,] the steel bars had already been paid and
loaded and out of Manila on said date.
In order to avoid double handling, storage, security problems,
we suggest that only 50% of the total requirement of steel bars
be delivered at jobsite. The balance should be returned to
Manila where storage and security is better.
In order for us to consider additional cost due to the shipping of
the excess steel bars, we need to know the actual dates of
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purchase, payments and loading of the steel bars. Obviously,
we cannot consider the additional cost if you have had the
chance to delay the shipping of the steel bars.57
From the above, it appears that FSI was informed of the
necessity of suspending the works as early as December 16,
1997. Pursuant to GC-38 of the GCC, FSI was expected to
immediately comply with the order to suspend the work.58
Though ESCAs December 16, 1997 notice may not have been
categorical in ordering the suspension of the works, FSIs reply
letter of December 18, 1997 indicated that it actually complied
with the notice to suspend, as it said, "We hope for the early
resolution of the new foundation plan and the resumption of
work."59 Despite the suspension, FSI claimed that it could not
stop the delivery of the steel bars (nor found the need to do so)
because (a) the steel bars were ordered as early as November
1997 and were already loaded in Manila and expected to arrive
in Legaspi City by December 23, 1997, and (b) it expected
immediate resumption of work to meet the 90-day deadline.60
Records, however, disclose that these claims are not entirely
accurate. The memorandum of agreement and sale covering
the steel bars specifically stated that these would be withdrawn
from the Cagayan de Oro depot, not Manila61; indeed, the bill of
lading stated that the steel bars were loaded in Cagayan de
Oro on January 11, 1998, and arrived in Legaspi City within
three days, on January 14, 1998.62 The loading and delivery of
the steel bar thus happened after FSI received ESCAs
December 16, 1997 and January 6, 1998 letters days after
the instruction to suspend the works. Also, the same stipulation
that authorizes LICOMCEN to suspend the works allows the
extension of the period to complete the works. The relevant
portion of
GC-38 states:
In case of total suspension x x x and the cause of which is not
due to any fault of the Contractor [FSI], the elapsed time
between the effective order for suspending work and the order
to resume work shall be allowed the Contractor by adjusting the
time allowed for his execution of the Contract Works.63
The above stipulation, coupled with the short period it took to
ship the steel bars from Cagayan de Oro to Legaspi City, thus
negates both FSIs
argument and the CIACs ruling64 that there was no necessity to
stop the shipment so as to meet the 90-day deadline. These
circumstances prove that FSI acted imprudently in proceeding
with the delivery, contrary to LICOMCENs instructions. The CA
was correct in holding LICOMCEN liable for only 50% of the
costs of the steel bars delivered.
The claim for equipment andlabor standby costs
The Court upholds the CAs ruling deleting the award for
12
4
equipment and labor standby costs. We quote in
agreement pertinent portions of the CA decision:
The CIAC relied solely on the list of 37 pieces of equipment
respondent allegedly rented and maintained at the construction
site during the suspension of the project with the prorated
rentals incurred x x x. To the mind of this Court, these lists are
not sufficient to establish the fact that indeed [FSI] incurred the
said expenses. Reliance on said lists is purely speculative x x x
the list of equipments is a mere index or catalog of the
equipments, which may be utilized at the construction site. It is
not the best evidence to prove that said equipment were in fact
rented and maintained at the construction site during the
suspension of the work. x x x [FSI] should have presented the
lease contracts or any similar documents such as receipts of
payments x x x. Likewise, the list of employees does not in
anyway prove that those employees in the list were indeed at
the construction site or were required to be on call should their
services be needed and were being paid their salaries during
the suspension of the project. Thus, in the absence of sufficient
evidence, We deny the claim for equipment and labor standby
costs.65
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized
profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO
SUSPEND WORK OR TERMINATE THE CONTRACT
xxxx
2. For Convenience of the LICOMCEN, INCORPORATED
x x x. The Contractor [FSI] shall not claim damages for such
discontinuance or termination of the Contract, but the
Contractor shall receive compensation for reasonable expenses
incurred in good faith for the performance of the Contract and
for reasonable expenses associated with termination of the
Contract. The LICOMCEN, INCORPORATED will determine
the reasonableness of such expenses. The Contractor [FSI]
shall have no claim for anticipated profits on the work thus
terminated, nor any other claim, except for the work actually
performed at the time of complete discontinuance, including
any variations authorized by the LICOMCEN,
INCORPORATED/Engineer to be done.
The prohibition, FSI posits, applies only where the contract was
properly and lawfully terminated, which was not the case at bar.
FSI also took pains in differentiating its claim for "unrealized
profit" from the prohibited claim for "anticipated profits";
supposedly, unrealized profit is "one that is built-in in the
contract price, while anticipated profit is not." We fail to see the
distinction, considering that the contract itself neither defined
nor differentiated the two terms. [A] contract must be
ADR || First Batch 12
5
interpreted from the language of the contract itself, according to ARTURO D. BRION
its plain and ordinary meaning."66 If the terms of a contract are
clear and leave no doubt upon the intention of the contracting Associate Justice
parties, the literal meaning of the stipulations shall control.67
WE CONCUR:
Nonetheless, on account of our earlier discussion of
LICOMCENs failure to observe the proper procedure in
CONCHITA CARPIO MORALES
terminating the contract by declaring that it was merely
indefinitely suspended, we deem that FSI is entitled to the
payment of nominal damages. Nominal damages may be Associate Justice
awarded to a plaintiff whose right has been violated or invaded
by the defendant, for the purpose of vindicating or recognizing LUCAS P. BERSAMIN
that right, and not for indemnifying the plaintiff for any loss
suffered by him.68 Its award is, thus, not for the purpose of Associate Justice
indemnification for a loss but for the recognition and vindication MA. LOURDES P.A. SERENO
of a right. A violation of the plaintiffs right, even if only
technical, is sufficient to support an award of nominal Associate Justice
damages.69 FSI is entitled to recover the amount of
P100,000.00 as nominal damages.
ATTESTATION
The liability for costs of arbitration
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the
Under the parties Terms of Reference, executed before the writer of the opinion of the Courts Division.
CIAC, the costs of arbitration shall be equally divided between
them, subject to the CIACs determination of which of the
CONCHITA CARPIO MORALES
parties shall eventually shoulder the amount.70 The CIAC
eventually ruled that since LICOMCEN was the party at fault, it
should bear the costs. As the CA did, we agree with this finding. Associate Justice
Ultimately, it was LICOMCENs imprudent declaration of
indefinitely suspending the works that caused the dispute Chairperson
between it and FSI. LICOMCEN should bear the costs of
arbitration. CERTIFICATION

WHEREFORE, premises considered, the petition for review on
certiorari of LICOMCEN INCORPORATED, docketed as G.R.
No. 167022, and the petition for review on certiorari of
FOUNDATION SPECIALISTS, INC., docketed as G.R. No.
169678, are DENIED. The November 23, 2004 Decision of the
Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to
include the award of nominal damages in favor of
FOUNDATION SPECIALISTS, INC. Thus, LICOMCEN
INCORPORATED is ordered to pay FOUNDATION
SPECIALISTS, INC. the following amounts:
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, it is hereby certified that the
conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the
opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

a. P1,264,404.12 for unpaid balance on FOUNDATION

SPECIALISTS, INC. billings;
Footnotes
b. P5,694,939.87 for material costs at site; and
1 Rollo (G.R. No. 167022, Vol. I), p. 63.
c. P100,000.00 for nominal damages.
2 Ibid.
LICOMCEN INCORPORATED is also ordered to pay the costs
of arbitration. No costs. 3 Id. at 96-105.

SO ORDERED. 4 Id. at 106-119.

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6
5 Id. at 120-156. 28 Rollo (G.R. No. 167022, Vol. I), p. 128.

6 Id. at 903. 29 Id. at 65.

7 Id. at 202-203. 30 Rollo (G.R. No. 167022, Vol. I), p. 76.

8 Id. at 260. 31 Id. at 147.

9 Bill of Lading; id. at 261. 32 Rollo (G.R. No. 167022, Vol. II), pp. 1938-1943.

10 Id. at 64. 33 Id. at 1944-1946.

11 Id. at 184. 34 Rollo (G.R. No. 167022, Vol. I), page 80.

12 Id. at 185. 35 Rollo (G.R. No. 167022, Vol. II), pp. 1948-1949.

13 Id. at 195. 36 Id. at 1981-1986.

14 Id. at 200. 37 Ibid.

15 Id. at 212. 38 Id. at 1987.

16 Id. at 214. 39 Id. at 2141-2145.

17 Id. at 215-217. 40 Id. at 2015-2016.

18In reply to FSIs March 24, 2001 demand letter, LICOMCEN 41 Id. at 1996.
simply stated that the matter would be referred to its finance
and legal department, in its March 24, 2001 letter, id. at 430. 42 Id. (G.R. No. 167022, Vol. I), p. 146.

19 Id. at 90-95. 43 E.O. 1008 (1985), Whereas clauses.

20 Id. at 224-229. 44BF Homes, Inc., et al. v. Manila Electric Company, G.R. No.
171624, December 6, 2010, citing Civil Service Commission v.
21 Id. at 1863-1869. Albao, G.R. No. 155784, October 13, 2005, 472 SCRA 548,
555.
22 Rollo (G.R. No. 167022, Vol. I), pp. 889-890.
45Municipality of Sogod v. Rosal, G.R. Nos. 38204 and 38205,
23 Id. at 894-908. September 24, 1991, 201 SCRA 632.

24 Id. at 62-85.
46"E.O. No. 1008 does not distinguish between claims involving
payment of money or not," Excellent Quality Apparel, Inc. v.
Win Multi-Rich Builders, Inc., G.R. No. 175048, February 10,
25LICOMCENs petition for review on certiorari is docketed as
2009, 578 SCRA 272, 280, citing C. Parlade, The Law and
G.R. No. 167022, while FSIs petition for review on certiorari is
Practice of Conciliation and Arbitration of Construction Disputes
docketed as G.R. No. 169678.
(2001 ed.), p. 89.
26 Rollo (G.R. No. 167022, Vol. I), p. 156. 47 G.R. No. 180640, April 24, 2009, 586 SCRA 746, 760-761.
27 LICOMCEN cites GC-1.14, GC-1.09 and GC-1.13 which 48 Id. at 763.
defined the terms "works," "permanent works," and "temporary
works," respectively; id. at 38, and rollo (G.R. No. 167022, Vol.
II), pp. 1926-1928.
49 E.O. 1008, Section 4.
ADR || First Batch 12
7
50 Rollo (G.R. No. 167022, Vol. I), p. 144. 69Almeda v. Cario, G.R. No. 152143, January 13, 2003,
395 SCRA 144.
51 Id. at 146.
70 Rollo (G.R. No. 167022, Vol. II), p. 1366.
52LICOMCEN cites OMB-ADM-1-98-2015, and Civil Case Nos.
10109 and 10093; id. at 20-22.

53 Id. at 745.

54 The Invitation to Bid was dated October 1, 2002; id. at 221.

55 Id. at 902.

56 Id. at 146-147.

57 Id. at 260.

58 Id. at 144.

59 Id. at 203.

60 Rollo (G.R. No. 167022, Vol. II), pp. 2137-2138.

61 Rollo (G.R. No. 167022, Vol. I), p. 732.

62 Id. at 261.

63 Supra note 58.

64 Rollo (G.R. No. 167022, Vol. I), p. 903, the CIACs decision
states:

According to [Licomcen], FSI acted unreasonably by allowing

the rebars to be shipped to Legaspi City notwithstanding the
suspension of the project. This argument holds no water. First
of all, since the project was supposedly simply suspended, FSI
had every reason to expect work thereon to be resumed after a
short time. There was, therefore, no necessity then for it to stop
the shipment of the rebars. Furthermore, the stipulated period
of construction is only ninety (90) days. Because said period is
quite short, FSI cannot be faulted in ordering the remaining
rebars needed for the project ahead of their scheduled use,
since these had to be shipped from Cagayan de Oro.

65 Id. at 77-78.

66Adriatico Consortium, Inc. v. Land Bank of the Philippines,

G.R. No. 187838, December 23, 2009, 609 SCRA 403, 418.

67 CIVIL CODE, Article 1370.

68 Id., Article 2221.

ADR || First Batch 12
8
Republic of the Philippines patents in order to practice the processes claimed in
SUPREME COURT those patents in the United States, the Philippines, and
Manila Indonesia, enforce those patents and collect royalties in
SECOND DIVISION conjunction with Licensor.

G.R. No. 185582 February 29, 2012 xxx

TUNA PROCESSING, INC., Petitioner, 4. Establishment of Tuna Processors, Inc. The parties hereto
agree to the establishment of Tuna Processors, Inc. ("TPI"), a
vs. corporation established in the State of California, in order to
implement the objectives of this Agreement.
PHILIPPINE KINGFORD, INC., Respondent.
5. Bank account. TPI shall open and maintain bank accounts
in the United States, which will be used exclusively to deposit
DECISION
funds that it will collect and to disburse cash it will be obligated
to spend in connection with the implementation of this
PEREZ, J.: Agreement.

Can a foreign corporation not licensed to do business in the 6. Ownership of TPI. TPI shall be owned by the Sponsors and
Philippines, but which collects royalties from entities in the Licensor. Licensor shall be assigned one share of TPI for the
Philippines, sue here to enforce a foreign arbitral award? purpose of being elected as member of the board of directors.
The remaining shares of TPI shall be held by the Sponsors
In this Petition for Review on Certiorari under Rule 45,1 according to their respective equity shares. 9
petitioner Tuna Processing, Inc. (TPI), a foreign corporation not
licensed to do business in the Philippines, prays that the xxx
Resolution2 dated 21 November 2008 of the Regional Trial
Court (RTC) of Makati City be declared void and the case be
The parties likewise executed a Supplemental Memorandum of
remanded to the RTC for further proceedings. In the assailed
Agreement10 dated 15 January 2003 and an Agreement to
Resolution, the RTC dismissed petitioners Petition for
Amend Memorandum of Agreement11 dated 14 July 2003.
Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award3 against respondent Philippine Kingford, Inc. (Kingford),
a corporation duly organized and existing under the laws of the Due to a series of events not mentioned in the petition, the
Philippines,4 on the ground that petitioner lacked legal capacity licensees, including respondent Kingford, withdrew from
to sue.5 petitioner TPI and correspondingly reneged on their
obligations.12 Petitioner submitted the dispute for arbitration
before the International Centre for Dispute Resolution in the
The Antecedents
State of California, United States and won the case against
respondent.13 Pertinent portions of the award read:
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred
to as the "licensor"), co-patentee of U.S. Patent No. 5,484,619,
13.1 Within thirty (30) days from the date of transmittal of this
Philippine Letters Patent No. 31138, and Indonesian Patent No.
Award to the Parties, pursuant to the terms of this award, the
ID0003911 (collectively referred to as the "Yamaoka Patent"),6
total sum to be paid by RESPONDENT KINGFORD to
and five (5) Philippine tuna processors, namely, Angel Seafood
CLAIMANT TPI, is the sum of ONE MILLION SEVEN
Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY SIX
Resources, Santa Cruz Seafoods, Inc., and respondent
DOLLARS AND TEN CENTS ($1,750,846.10).
Kingford (collectively referred to as the "sponsors"/"licensees")7
entered into a Memorandum of Agreement (MOA),8 pertinent
provisions of which read: (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
1. Background and objectives. The Licensor, co-owner of
THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS
U.S.Patent No. 5,484,619, Philippine Patent No. 31138, and
AND NINETY CENTS ($229,355.90) which is 20% of MOA
Indonesian Patent No. ID0003911 xxx wishes to form an
assessments since September 1, 2005[;]
alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents,
and collecting royalties. (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
The Sponsors wish to be licensed under the aforementioned
sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR
ADR || First Batch
HUNDRED NINETY DOLLARS AND TWENTY CENTS
($271,490.20)[;]14 and
(C) For violation of THE LANHAM ACT and infringement of the
YAMAOKA 619 PATENT, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of ONE MILLION TWO
HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). xxx
xxx15
To enforce the award, petitioner TPI filed on 10 October 2007 a
Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award before the RTC of Makati City. The
petition was raffled to Branch 150 presided by Judge Elmo M.
Alameda.
At Branch 150, respondent Kingford filed a Motion to Dismiss.16
After the court denied the motion for lack of merit,17 respondent
sought for the inhibition of Judge Alameda and moved for the
reconsideration of the order denying the motion.18 Judge
Alameda inhibited himself notwithstanding "[t]he unfounded
allegations and unsubstantiated assertions in the motion."19
Judge Cedrick O. Ruiz of Branch 61, to which the case was re-
raffled, in turn, granted respondents Motion for
Reconsideration and dismissed the petition on the ground that
the petitioner lacked legal capacity to sue in the Philippines.20
Petitioner TPI now seeks to nullify, in this instant Petition for
Review on Certiorari under Rule 45, the order of the trial court
dismissing its Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo
was correct in so dismissing the petition on the ground of
petitioners lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause
of action recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a quo
12
9
dismissed the petition. Thus:
Herein plaintiff TPIs "Petition, etc." acknowledges that it "is a
foreign corporation established in the State of California" and
"was given the exclusive right to license or sublicense the
Yamaoka Patent" and "was assigned the exclusive right to
enforce the said patent and collect corresponding royalties" in
the Philippines. TPI likewise admits that it does not have a
license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI
has been doing business in the Philippines, but sans a license
to do so issued by the concerned government agency of the
Republic of the Philippines, when it collected royalties from "five
(5) Philippine tuna processors[,] namely[,] Angel Seafood
Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
Resources, Santa Cruz Seafoods, Inc. and respondent
Philippine Kingford, Inc." This being the real situation, TPI
cannot be permitted to maintain or intervene in any action, suit
or proceedings in any court or administrative agency of the
Philippines." A priori, the "Petition, etc." extant of the plaintiff
TPI should be dismissed for it does not have the legal
personality to sue in the Philippines.21
The petitioner counters, however, that it is entitled to seek for
the recognition and enforcement of the subject foreign arbitral
award in accordance with Republic Act No. 9285 (Alternative
Dispute Resolution Act of 2004),22 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),23 as none of these specifically requires that the
party seeking for the enforcement should have legal capacity to
sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused
on a ground not found in the [Alternative Dispute Resolution Act
of 2004], New York Convention, or Model Law. It is for this
reason that TPI has brought this matter before this most
Honorable Court, as it [i]s imperative to clarify whether the
Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be
defeated by misplaced technical considerations not found in the
relevant laws.24
Simply put, how do we reconcile the provisions of the
Corporation Code of the Philippines on one hand, and 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.,25 this Court rejected the application of
the Corporation Code and applied the New Central Bank Act. It
ratiocinated:
ADR || First Batch
Korugas invocation of the provisions of the Corporation Code is
misplaced. In an earlier case with similar antecedents, we ruled
that:
"The Corporation Code, however, is a general law applying to
all types of corporations, while the New Central Bank Act
regulates specifically banks and other financial institutions,
including the dissolution and liquidation thereof. As between a
general and special law, the latter shall prevail generalia
specialibus non derogant." (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v.
Presidential Agrarian Reform Council,27 this Court held:
Without doubt, the Corporation Code is the general law
providing for the formation, organization and regulation of
private corporations. On the other hand, RA 6657 is the special
law on agrarian reform. As between a general and special law,
the latter shall prevailgeneralia specialibus non derogant.28
Following the same principle, the Alternative Dispute Resolution
Act of 2004 shall apply in this case as the Act, as its title - An
Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office
for Alternative Dispute Resolution, and for Other Purposes -
would suggest, is a law especially enacted "to actively promote
party autonomy in the resolution of disputes or the freedom of
the party to make their own arrangements to resolve their
disputes."29 It specifically provides exclusive grounds available
to the party opposing an application for recognition and
enforcement of the arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a
municipal law, applies in the instant petition, we do not see the
need to discuss compliance with international obligations under
the New York Convention and 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.
13
0
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.
ADR || First Batch
2. Recognition and enforcement of an arbitral award may also
be refused if the competent authority in the country where
recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of
settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be
contrary to the public policy of that country.
Clearly, not one of these exclusive grounds touched on the
capacity to sue of the party seeking the recognition and
enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative
Dispute Resolution,31 which was promulgated by the Supreme
Court, likewise support this position.
Rule 13.1 of the Special Rules provides that "[a]ny party to a
foreign arbitration may petition the court to recognize and
enforce a foreign arbitral award." The contents of such petition
are enumerated in Rule 13.5.32 Capacity to sue is not included.
Oppositely, in the Rule on local arbitral awards or arbitrations in
instances where "the place of arbitration is in the Philippines,"33
it is specifically required that a petition "to determine any
question concerning the existence, validity and enforceability of
such arbitration agreement"34 available to the parties before the
commencement of arbitration and/or a petition for "judicial relief
from the ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction"35 after arbitration has
already commenced should state "[t]he facts showing that the
persons named as petitioner or respondent have legal capacity
to sue or be sued."36
Indeed, it is in the best interest of justice that in the
enforecement of a foreign arbitral award, we deny availment by
the losing party of the rule that bars foreign corporations not
licensed to do business in the Philippines from maintaining a
suit in our courts. When a party enters into a contract
containing a foreign arbitration clause and, as in this case, in
fact submits itself to arbitration, it becomes bound by the
contract, by the arbitration and by the result of arbitration,
conceding thereby the capacity of the other party to enter into
the contract, participate in the arbitration and cause the
implementation of the result. Although not on all fours with the
instant case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in
her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining
adherents in legal and judicial circles here and abroad. If its
tested mechanism can simply be ignored by an aggrieved
party, one who, it must be stressed, voluntarily and actively
participated in the arbitration proceedings from the very
13
1
beginning, it will destroy the very essence of mutuality
inherent in consensual contracts.38
Clearly, on the matter of capacity to sue, a foreign arbitral
award should be respected not because it is favored over
domestic laws and procedures, but because Republic Act No.
9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the
court a quo correctly observed that the Model Law, not the New
York Convention, governs the subject arbitral award,39
petitioner may still seek recognition and enforcement of the
award in Philippine court, since the Model Law prescribes
substantially identical exclusive grounds for refusing recognition
or enforcement.40
Premises considered, petitioner TPI, although not licensed to
do business in the Philippines, may seek recognition and
enforcement of the foreign arbitral award in accordance with the
provisions of the Alternative Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are likewise
unmeritorious.
First. There is no need to consider respondents contention that
petitioner TPI improperly raised a question of fact when it
posited that its act of entering into a MOA should not be
considered "doing business" in the Philippines for the purpose
of determining capacity to sue. We reiterate that the foreign
corporations capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral
award is concerned.
Second. Respondent cannot fault petitioner for not filing a
motion for reconsideration of the assailed Resolution dated 21
November 2008 dismissing the case. We have, time and again,
ruled that the prior filing of a motion for reconsideration is not
required in certiorari under Rule 45.41
Third. While we agree that petitioner failed to observe the
principle of hierarchy of courts, which, under ordinary
circumstances, warrants the outright dismissal of the case,42 we
opt to relax the rules following the pronouncement in Chua v.
Ang,43 to wit:
[I]t must be remembered that [the principle of hierarchy of
courts] generally applies to cases involving conflicting factual
allegations. Cases which depend on disputed facts for decision
cannot be brought immediately before us as we are not triers of
facts.44 A strict application of this rule may be excused when the
reason behind the rule is not present in a case, as in the
present case, where the issues are not factual but purely legal. 1wphi1
In these types of questions, this Court has the ultimate say so
that we merely abbreviate the review process if we, because of
ADR || First Batch 13
2
the unique circumstances of a case, choose to hear and decide JOSE PORTUGAL PEREZ
the legal issues outright.45
Associate Justice
Moreover, the novelty and the paramount importance of the
issue herein raised should be seriously considered.46 Surely, WE CONCUR:
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
ANTONIO T. CARPIO
means of dispute resolution, and uphold the policy of the State
embodied in the Alternative Dispute Resolution Act of 2004, to
wit: Associate Justice

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

of the State to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their ARTURO D. BRION
own arrangements to resolve their disputes. Towards this end,
the State shall encourage and actively promote the use of Associate Justice
Alternative Dispute Resolution (ADR) as an important means to BIENVENIDO L. REYES
achieve speedy and impartial justice and declog court dockets.
xxx Associate Justice

Fourth. As regards the issue on the validity and enforceability of ATTESTATION

the foreign arbitral award, we leave its determination to the
court a quo where its recognition and enforcement is being
I attest that the conclusions in the above Decision were
sought.
reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
Fifth. Respondent claims that petitioner failed to furnish the
court of origin a copy of the motion for time to file petition for
ANTONIO T. CARPIO
review on certiorari before the petition was filed with this
Court.47 We, however, find petitioners reply in order. Thus:
Associate Justice
26. Admittedly, reference to "Branch 67" in petitioner TPIs
"Motion for Time to File a Petition for Review on Certiorari Chairperson, Second Division
under Rule 45" is a typographical error. As correctly pointed out
by respondent Kingford, the order sought to be assailed CERTIFICATION
originated from Regional Trial Court, Makati City, Branch 61.
Pursuant to Section 13, Article VIII of the Constitution, and the
27. xxx Upon confirmation with the Regional Trial Court, Makati Division Chairpersons Attestation, it is hereby certified that the
City, Branch 61, a copy of petitioner TPIs motion was received conclusions in the above Decision were reached in consultation
by the Metropolitan Trial Court, Makati City, Branch 67. On 8 before the case was assigned to the writer of the opinion of the
January 2009, the motion was forwarded to the Regional Trial Courts Division.
Court, Makati City, Branch 61.48
RENATO C. CORONA
All considered, petitioner TPI, although a foreign corporation
not licensed to do business in the Philippines, is not, for that Chief Justice
reason alone, precluded from filing the Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award before a Philippine court.
Footnotes
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
1 Rollo, pp. 36-59.
ASIDE. The case is REMANDED to Branch 61 for further
proceedings. 2Id. at 65-75. Penned by Judge Cedrick O. Ruiz, Regional Trial
Court, Branch 61, Makati City.
SO ORDERED.
3 Id. at 105-113.
ADR || First Batch
4 Id. at 41. Petition for Review on Certiorari under Rule 45.
5 Id. at 72-75. Resolution dated 21 November 2008 of the RTC.
6 The Yamaoka Patent pertains to "the extra-low temperature
smoking process using filtered smoke on fresh tuna which
prevents the discoloration of the tuna and ensures its freshness
during the frozen state." Id. at 41. Petition for Review on
Certiorari under Rule 45.
7 Id. at 40. Petition for Review on Certiorari under Rule 45.
8 Id. at 76-83.
9 Id. at 76-77.
10 Id. at 84-85.
11 Id. at 87-89.
12 Id. at 42. Petition for Review on Certiorari under Rule 45.
13Id. at 93-99. Award of Arbitrator dated 26 July 2007. Id. at
103-104. Disposition of Application for Modification of Award of
Arbitrators dated 13 September 2007.
14Id. at 103. Pursuant to the Disposition of Application for
Modification of Award of Arbitrators dated 13 September 2007,
which modified the Award of Arbitrator dated 26 July 2007.
15 Id. at 97-98. Award of Arbitrator dated 26 July 2007.
16 Id. at 184-195.
17 Id. at 294-302. Order dated 20 May 2008.
18Id. at 303-326. Motion for Inhibition with Motion for
Reconsideration dated 30 May 2008.
19 Id. at 337-338. Order dated 11 June 2008.
20 Id. at 65-75. Resolution dated 21 November 2008.
21 Id. at 72-73. Resolution dated 21 November 2008.
22 Republic Act No. 9285 approved on 2 April 2004.
23 As adopted by the United Nations Commission on
International Trade Law on 21 June 1985, and as amended by
the United Nations Commission on International Trade Law on
7 July 2006.
24 Rollo, p. 38. Petition for Review on Certiorari under Rule 45.
13
3
25 G.R. No. 169053, 19 June 2009, 590 SCRA 49.
26Id. at 68 citing In re: Petition for Assistance in the Liquidation
of the Rural Bank of Bokod (Benguet), Inc., Philippine Deposit
Insurance Corporation, v. Bureau of Internal Revenue, G.R. No.
158261, 18 December 2006, 511 SCRA 123, 141 further citing
Laureano v. Court of Appeals, 381 Phil. 403, 411-412 (2000).
27 G.R. No. 171101, 5 July 2011, 653 SCRA 154.
28 Id. at 244 citing Koruga v. Arcenas, Jr., supra note 24.
29 Sec. 2, Republic Act No. 9285.
30Secs. 42 and 45, Republic Act No. 9285, which adopted the
New York Convention; and Sec. 19, Republic Act No. 9285,
which adopted the entire provisions of the Model Law.
31 A.M. No. 07-11-08-SC dated 1 September 2009.
32 RULE 13.5. Contents of petition. The petition shall state the
following:
a. The addresses of the parties to arbitration;
b. In the absence of any indication in the award, the country
where the arbitral award was made and whether such country
is a signatory to the New York Convention; and
c. The relief sought.
Apart from other submissions, the petition shall have attached
to it the following:
a. An authentic copy of the arbitration agreement; and
b. An authentic copy of the arbitral award.
If the foreign arbitral award or agreement to arbitrate or
submission is not made in English, the petitioner shall also
attach to the petition a translation of these documents into
English. The translation shall be certified by an official or sworn
translator or by a diplomatic or consular agent. A.M. No. 07-11-
08-SC dated 1 September 2009.
33 Rule 3.1, A.M. No. 07-11-08-SC dated 1 September 2009.
34 Rule 3.2, A.M. No. 07-11-08-SC dated 1 September 2009.
35 Rule 3.12, A.M. No. 07-11-08-SC dated 1 September 2009.
36In relation to a petition "to determine any question concerning
the existence, validity and enforceability of such arbitration
agreement" available to the parties before the commencement
ADR || First Batch
of arbitration, Rule 3.6 provides:
RULE 3.6. Contents of petition. The verified petition shall
state the following:
a. The facts showing that the persons named as petitioner or
respondent have legal capacity to sue or be sued;
b. The nature and substance of the dispute between the
parties;
c. The grounds and the circumstances relied upon by the
petitioner to establish his position; and
d. The relief/s sought.
Apart from other submissions, the petitioner must attach to the
petition an authentic copy of the arbitration agreement.
In relation to 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, Rule
3.16 reads:
RULE 3.16. Contents of petition. The petition shall state the
following:
a. The facts showing that the person named as petitioner or
respondent has legal capacity to sue or be sued;
b. The nature and substance of the dispute between the
parties;
c. The grounds and circumstances relied upon by the petitioner;
and
d. The relief/s sought.
In addition to the submissions, the petitioner shall attach to the
petition a copy of the request for arbitration and the ruling of the
arbitral tribunal.
The arbitrators shall be impleaded as nominal parties to the
case and shall be notified of the progress of the case.
37 G.R. No. 121171, 29 December 1998, 300 SCRA 579
38 Id. at 631.
39In its Resolution dated 21 November 2008, the court a quo
observed: "This reliance by TPI solely upon the New York
Convention in conjunction with Section 42 of Republic Act No.
9285 may not be correct. It is apparent from the Award of
Arbitrator that the International Centre [f]or Dispute Resolution
13
4
is a Commercial Arbitration Tribunal and hence, it is
engaged in commercial arbitration. Under the third sentence of
Section 40 of Republic Act No. 9285, [t]he recognition and
enforcement of an award in an international commercial
arbitration shall be governed by Article 35 of the Model Law [the
Model Law on International Commercial Arbitration adopted by
the United Nations Commission on International Trade Law on
21 June 1985] and not the so-called New York Convention.
Rollo, p. 74.
40 Article 36 of the Model Law provides:
Article 36. Grounds for refusing recognition or enforcement
(1) Recognition or enforcement of an arbitral award,
irrespective of the country in which it was made, may be
refused only:
(a) at the request of the party against whom it is invoked, if that
party furnishes to the competent court where recognition or
enforcement is sought proof that:
(i) a party to the arbitration agreement referred to in article 7
was 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
(ii) the party against whom the award is invoked was not given
proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present his
case; or
(iii) the award deals with a dispute 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
(iv) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreeement of the
parties or, failing such agreement, was not in accordance with
the law of the country where the arbitration took place; or
(v) the award has not yet become binding on the parties or has
been set aside or suspended by a court of the country in which,
or under the law of which, that award was made; or
(b) if the court finds that:
(i) the subject-matter of the dispute is not capable of settlement
by arbitration under the law of this State; or
ADR || First Batch
(ii) the recognition or enforcement of the award would be
contrary to the public policy of this State.
(2) xxx
41San Miguel Corporation v. Layoc, Jr., G.R. No. 149640, 19
October, 2007, 537 SCRA 77, 91; Bases Conversion and
Development Authority v. Uy, G.R. No. 144062, 2 November
2006, 506 SCRA 524, 534; and Paa v. CA, G.R. No. 126560, 4
December 1997, 282 SCRA 448.
42Catly v. Navarro, G.R. No. 167239, 5 May 2010, 620 SCRA
151, 193.
43 G.R. No. 156164, 4 September 2009, 598 SCRA 229.
44Id. at 238 citing Mangaliag v. Catubig-Pastoral, G.R. No.
143951, 25 October 2005, 474 SCRA 153,161; Agan, Jr. v.
Philippine International Air Terminals Co., Inc., G.R. Nos.
155001, 155547 and 155661, 21 January 2004, 420 SCRA
575, 584.
45 Id.
46La Bugal-B'laan Tribal Association, Inc. v. Ramos, G.R. No.
127882, 27 January 2004, 421 SCRA 148, 183.
47 Rollo, pp. 427-428. Comment/Opposition on the petition
dated 1 April 2009.
48Id. at 459. Reply to "COMMENT/OPPOSITION (Re: Petitoner
Tuna Processing, Inc.s Petition for Review on Certiorari Under
Rule 45 dated January 23, 2009)" dated 1 April 2009.
13
5
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 179628 January 16, 2013
THE MANILA INSURANCE COMPANY, INC., Petitioner,
vs.
SPOUSES ROBERTO and AIDA AMURAO, Respondents.
DECISION
DEL CASTILLO, J.:
The jurisdiction of the Construction Industry Arbitration
Commission (CIAC) is conferred by law. Section 41 of Executive
Order (E.O.) No. I 008, otherwise known as the Construction
Industry Arbitration Law, "is broad enough to cover any dispute
arising from, or connected with construction contracts, whether
these involve mere contractual money claims or execution of
the works."2
This Petition for Review on Certiorari3 under Rule 45 of the
Rules of Court assails the Decision4 dated June 7, 2007 and
the Resolution5 dated September 7, 2007 of the Court of
Appeals (CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida
Amurao entered into a Construction Contract Agreement
(CCA)6 with Aegean Construction and Development
Corporation (Aegean) for the construction of a six-storey
commercial building in Tomas Morato corner E. Rodriguez
Avenue, Quezon City.7 To guarantee its full and faithful
compliance with the terms and conditions of the CCA, Aegean
posted performance bonds secured by petitioner The Manila
Insurance Company, Inc.8 (petitioner) and Intra Strata
Assurance Corporation (Intra Strata).9
On November 15, 2001, due to the failure of Aegean to
complete the project, respondent spouses filed with the
Regional Trial Court (RTC) of Quezon City, Branch 217, a
Complaint,10 docketed as Civil Case No. Q-01-45573, against
petitioner and Intra Strata to collect on the performance bonds
they issued in the amounts of P2,760,000.00 and
P4,440,000.00, respectively.11
Intra Strata, for its part, filed an Answer12 and later, a Motion to
Admit Third Party Complaint,13 with attached Third Party
Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A.
Mariano.
ADR || First Batch
Petitioner, on the other hand, filed a Motion to Dismiss15 on the
grounds that the Complaint states no cause of action16 and that
the filing of the Complaint is premature due to the failure of
respondent-spouses to implead the principal contractor,
Aegean.17 The RTC, however, denied the motion in an Order18
dated May 8, 2002. Thus, petitioner filed an Answer with
Counterclaim and Cross-claim,19 followed by a Third Party
Complaint20 against Aegean and spouses Ronald and Susana
Nicdao.
During the pre-trial, petitioner and Intra Strata discovered that
the CCA entered into by respondent-spouses and Aegean
contained an arbitration clause.21
Hence, they filed separate Motions to Dismiss22 on the grounds
of lack of cause of action and lack of jurisdiction.
Ruling of the Regional Trial Court
On May 5, 2006, the RTC denied both motions.23 Petitioner and
Intra Strata separately moved for reconsideration but their
motions were denied by the RTC in its subsequent Order 24
dated September 11, 2006.
Aggrieved, petitioner elevated the case to the CA by way of
special civil action for certiorari.25
Ruling of the Court of Appeals
On June 7, 2007, the CA rendered a Decision26 dismissing the
petition. The CA ruled that the presence of an arbitration clause
in the CCA does not merit a dismissal of the case because
under the CCA, it is only when there are differences in the
interpretation of Article I of the construction agreement that the
parties can resort to arbitration.27 The CA also found no grave
abuse of discretion on the part of the RTC when it disregarded
the fact that the CCA was not yet signed at the time petitioner
issued the performance bond on February 29, 2000.28 The CA
explained that the performance bond was intended to be
coterminous with the construction of the building.29 It pointed
out that "if the delivery of the original contract is
contemporaneous with the delivery of the suretys obligation,
each contract becomes completed at the same time, and the
consideration which supports the principal contract likewise
supports the subsidiary one."30 The CA likewise said that,
although the contract of surety is only an accessory to the
principal contract, the suretys liability is direct, primary and
absolute.31 Thus:
WHEREFORE, we resolve to DISMISS the petition as we find
that no grave abuse of discretion attended the issuance of the
order of the public respondent denying the petitioners motion
to dismiss.
IT IS SO ORDERED.32
13
6
Petitioner moved for reconsideration but the CA denied
the same in a Resolution33 dated September 7, 2007.
Issues
Hence, this petition raising the following issues:
A.
THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS
ONLY WHEN THERE ARE DIFFERENCES IN THE
INTERPRETATION OF ARTICLE I OF THE CONSTRUCTION
AGREEMENT THAT THE PARTIES MAY RESORT TO
ARBITRATION BY THE CIAC.
B.
THE HONORABLE CA ERRED IN TREATING PETITIONER
AS A SOLIDARY DEBTOR INSTEAD OF A SOLIDARY
GUARANTOR.
C.
THE HONORABLE [CA] OVERLOOKED AND FAILED TO
CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND
EXISTING CONSTRUCTION AGREEMENT AT THE TIME
THE MANILA INSURANCE BOND NO. G (13) 2082 WAS
ISSUED ON FEBRUARY 29, 2000.34
Petitioners Arguments
Petitioner contends that the CA erred in ruling that the parties
may resort to arbitration only when there is difference in the
interpretation of the contract documents stated in Article I of the
CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008,
it is the CIAC that has original and exclusive jurisdiction over
construction disputes, such as the instant case.36
Petitioner likewise imputes error on the part of the CA in
treating petitioner as a solidary debtor instead of a solidary
guarantor.37 Petitioner argues that while a surety is bound
solidarily with the obligor, this does not make the surety a
solidary co-debtor.38 A surety or guarantor is liable only if the
debtor is himself liable.39 In this case, since respondent-
spouses and Aegean agreed to submit any dispute for
arbitration before the CIAC, it is imperative that the dispute
between respondent-spouses and Aegean must first be
referred to arbitration in order to establish the liability of
Aegean.40 In other words, unless the liability of Aegean is
determined, the filing of the instant case is premature.41
Finally, petitioner puts in issue the fact that the performance
bond was issued prior to the execution of the CCA.42 Petitioner
claims that since there was no existing contract at the time the
performance bond was executed, respondent-spouses have no
ADR || First Batch
cause of action against petitioner.43 Thus, the complaint should
be dismissed.44
Respondent spouses Arguments
Respondent-spouses, on the other hand, maintain that the
CIAC has no jurisdiction over the case because there is no
ambiguity in the provisions of the CCA.45 Besides, petitioner is
not a party to the CCA.46 Hence, it cannot invoke Article XVII of
the CCA, which provides for arbitration proceedings.47
Respondent-spouses also insist that petitioner as a surety is
directly and equally bound with the principal.48 The fact that the
performance bond was issued prior to the execution of the CCA
also does not affect the latters validity because the
performance bond is coterminous with the construction of the
building.49
Our Ruling
The petition has merit.
Nature of the liability of the surety
A contract of suretyship is defined as "an agreement whereby a
party, called the surety, guarantees the performance by another
party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It
includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206."50 We
have consistently held that a suretys liability is joint and
several, limited to the amount of the bond, and determined
strictly by the terms of contract of suretyship in relation to the
principal contract between the obligor and the obligee.51 It
bears stressing, however, that although the contract of
suretyship is secondary to the principal contract, the suretys
liability to the obligee is nevertheless direct, primary, and
absolute.52
In this case, respondent-spouses (obligee) filed with the RTC a
Complaint against petitioner (surety) to collect on the
performance bond it issued. Petitioner, however, seeks the
dismissal of the Complaint on the grounds of lack of cause of
action and lack of jurisdiction.
The respondent-spouses have cause of action against the
petitioner; the performance bond is coterminous with the CCA
Petitioner claims that respondent-spouses have no cause of
action against it because at the time it issued the performance
bond, the CCA was not yet signed by respondent-spouses and
Aegean.
We do not agree.
13
7
A careful reading of the Performance Bond reveals that
the "bond is coterminous with the final acceptance of the
project."53 Thus, the fact that it was issued prior to the execution
of the CCA does not affect its validity or effectivity.
But while there is a cause of action against petitioner, the
complaint must still be dismissed for lack of jurisdiction.
The CIAC has jurisdiction over the case
Section 4 of E.O. No. 1008 provides that:
SEC. 4. Jurisdiction. The CIAC shall have original and
exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction
in the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship,
violation of the terms of agreement, interpretation and/or
application of contractual time and delays, maintenance and
defects, payment, default of employer or contractor, and
changes in contract cost.
Excluded from the coverage of the law are disputes arising from
employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire
jurisdiction two requisites must concur: "first, the dispute must
be somehow connected to a construction contract; and second,
the parties must have agreed to submit the dispute to
arbitration proceedings."54
In this case, both requisites are present.
The parties agreed to submit to arbitration proceedings "any
dispute arising in the course of the execution and performance
of the CCA by reason of difference in interpretation of the
Contract Documents x x x which the parties are unable to
resolve amicably between themselves."55 Article XVII of the
CCA reads:
ARTICLE XVII ARBITRATION
17.1 Any dispute arising in the course of the execution and
performance of this Agreement by reason of difference in
interpretation of the Contract Documents set forth in Article I
which the OWNER and the CONTRACTOR are unable to
resolve amicably between themselves shall be submitted by
either party to a board of arbitrators composed of Three (3)
ADR || First Batch 13
8
members chosen as follows: One (1) member shall be chosen jurisdiction.
by the CONTRACTOR AND One (1) member shall be chosen
by the OWNER. The said Two (2) members, in turn, shall select SO ORDERED.
a third member acceptable to both of them. The decision of the
Board of Arbitrators shall be rendered within Ten (10) days from
MARIANO C. DEL CASTILLO
the first meeting of the board, which decision when reached
through the affirmative vote of at least Two (2) members of the
board shall be final and binding upon the OWNER and Associate Justice
CONTRACTOR. 1wphi1

WE CONCUR:
17.2 Matters not otherwise provided for in this Contract or by
Special Agreement of the parties shall be governed by the ANTONIO T. CARPIO
provisions of the Arbitration Law, Executive Order No. 1008.56
Associate Justice
In William Golangco Construction Corporation v. Ray Burton
Development Corporation,57 we declared that monetary claims Chairperson
under a construction contract are disputes arising from
"differences in interpretation of the contract" because "the TERESITA J. LEONARDO-DE CASTRO*
matter of ascertaining the duties and obligations of the parties
under their contract all involve interpretation of the provisions of
Associate Justice
the contract."58 Following our reasoning in that case, we find
MARVIC MARIO VICTOR F. LEONEN**
that the issue of whether respondent-spouses are entitled to
collect on the performance bond issued by petitioner is a
"dispute arising in the course of the execution and performance Associate Justice
of the CCA by reason of difference in the interpretation of the
contract documents." ATTESTATION

The fact that petitioner is not a party to the CCA cannot remove
the dispute from the jurisdiction of the CIAC because the issue
of whether respondent-spouses are entitled to collect on the
performance bond, as we have said, is a dispute arising from or
connected to the CCA.
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.
ANTONIO T. CARPIO

In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Associate Justice

Land, Inc.,59 we rejected the argument that the jurisdiction of
CIAC is limited to the construction industry, and thus, cannot
extend to surety contracts. In that case, we declared that
"although not the construction contract itself, the performance
bond is deemed as an associate of the main construction
contract that it cannot be separated or severed from its
principal. The Performance Bond is significantly and
substantially connected to the construction contract that there
can be no doubt it is the CIAC, under Section 4 of E.O. No.
1008, which has jurisdiction over any dispute arising from or
connected with it."60
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairperson's Attestation, I certify that the conclusions
in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court's
Division.

In view of the foregoing, we agree with the petitioner that MARIA LOURDES P. A. SERENO
juriisdiction over the instant case lies with the CIAC, and not
with the RTC. Thus, the Complaint filed by respondent-spouses Chief Justice
with the RTC must be dismissed.

WHEREFORE, the petition is hereby GRANTED. The Decision

dated June 7, 2007 and the Resolution dated September 7, Footnotes
2007 of the Court of Appeals in CA-G.R. SP No. 96815 are
hereby ANNULLED and SET ASIDE. The Presiding Judge of * Per raffle dated January 14.2013.
the Regional Trial Court of Quezon City, Branch 217 1s
DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of
ADR || First Batch 13
9
** Per Special Order No. 1408 dated January 15, 2013. 16 Id. at 26.

1 SEC. 4. Jurisdiction. -The ClAC shall have original and 17 Id. at 27.
exclusive jurisdiction over disputes arising from. or connected
with. contracts entered into by parties involved in construction 18 Id. at 49-50; penned by Judge Lydia Querubin Layosa.
in the Philippines. whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach 19 Rollo, pp. 88-94.
thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction. the parties to a
dispute must agree to submit the same to voluntary arbitration.
20 Id. at 97-100.

The jurisdiction of the ClAC may include but is not limited to

21 Id. at 40.
violation of specifications for materials and workmanship.
violation of the terms of agreement, interpretation and/or 22 Id. at 117-124 and 110-116.
application of contractual time and delays. maintenance and
defects. payment. default of employer or contractor, and 23 Records, Volume II, pp. 544-546.
changes in contract cost.
24 Id. at 589.
Excluded from the coverage of this law are disputes arising
from employer-employee relationships which shall continue to 25 CA rollo, pp. 2-22.
be covered by the Labor Code of the Philippines.
26 Rollo, pp. 39-47.
2LICOMCEN, lncorporated v. Foundation Specialists, Inc., G.R.
Nos. 167022 and 169678. April 4, 2011, 647 SCRA 83, 91. 27 Id. at 42-44.
3 Rollo, pp. 13-37. 28 Id. at 45-46.
4 Id. at 39-47; penned by Associate Justice Apolinario D. 29 Id. at 46.
Bruselas, Jr. and concurred in by Associate Justices
Bienvenido L. Reyes (now a member of this Court) and Aurora
Santiago-Lagman.
30 Id.

5 Id. at 49.
31 Id. at 45.

6 Id. at 72-85.
32 Id. at 46-47.

7 Id. at 39-40.
33 Id. at 49.

8 Id. at 68-69.
34 Id. at 168-169.

9 Id. at 70-71.
35 Id. at 169.

10 Id. at 63-67.
36 Id. at 171.

11 Id. at 66.
37 Id. at 174.

12 Records, Volume I, pp. 29-32.

38 Id. at 175.

13 Id. at 38-39.
39 Id.

14 Id. at 40-42.
40 Id. at 180.

15 Id. at 26-28.
41 Id. at 182.
ADR || First Batch 14
0
42 Id. at 183. Republic of the Philippines
SUPREME COURT
43 Id. at 185. Manila
FIRST DIVISION
44 Id. at 186.
G.R. No. 199650 June 26, 2013
45 Id. at 192-193.
J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,
46 Id. at 193.
vs.
47 Id.
UTILITY ASSURANCE CORPORATION, Respondent.
48 Id. at 195.
DECISION
49 Id. at 196.
VILLARAMA, JR., J.:
50 INSURANCE CODE, Section 175.
Before the Court is a petition for review on certiorari under Rule
45 of the 1997 Rules of Civil Procedure, as amended, assailing
51Intra-Strata Assurance Corporation v. Republic, G.R. No.
the Decision1 dated January 27,2011 and Resolution2 dated
156571, July 9, 2008, 557 SCRA 363, 369.
December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP
No. 112808.
52Prudential Guarantee and Assurance, Inc. v. Equinox Land
Corporation, G.R. Nos. 152505-06, September 13, 2007, 533
The Facts
SCRA 257, 268.

On December 24, 2007, petitioner J Plus Asia Development

53 Rollo, p. 86.
Corporation represented by its Chairman, Joo Han Lee, and
Martin E. Mabunay, doing business under the name and style
54 Prudential Guarantee and Assurance, Inc. v. Anscor Land, of Seven Shades of Blue Trading and Services, entered into a
Inc., G.R. No. 177240, September 8, 2010, 630 SCRA 368, Construction Agreement3 whereby the latter undertook to build
376. the former's 72-room condominium/hotel (Condotel Building 25)
located at the Fairways & Bluewaters Golf & Resort in Boracay
55 Rollo, p. 83. Island, Malay, Aklan. The project, costing P42,000,000.00, was
to be completed within one year or 365 days reckoned from the
56 Id. first calendar day after signing of the Notice of Award and
Notice to Proceed and receipt of down payment (20% of
57 G.R. No. 163582, August 9, 2010, 627 SCRA 74. contract price). The P8,400,000.00 down payment was fully
paid on January 14, 2008.4 Payment of the balance of the
contract price will be based on actual work finished within 15
58 Id. at 85.
days from receipt of the monthly progress billings. Per the
agreed work schedule, the completion date of the project was
59 Supra note 54 at 373-379. December 2008.5 Mabuhay also submitted the required
Performance Bond6 issued by respondent Utility Assurance
60 Id. at 377. Corporation (UTASSCO) in the amount equivalent to 20% down
payment or P8.4 million.

Mabunay commenced work at the project site on January 7,

2008. Petitioner paid up to the 7th monthly progress billing sent
by Mabunay. As of September 16, 2008, petitioner had paid the
total amount of P15,979,472.03 inclusive of the 20% down
payment. However, as of said date, Mabunay had
accomplished only 27.5% of the project.7

In the Joint Construction Evaluation Result and Status Report8

signed by Mabunay assisted by Arch. Elwin Olavario, and Joo
ADR || First Batch
Han Lee assisted by Roy V. Movido, the following findings were
accepted as true, accurate and correct:
III STATUS OF PROJECT AS OF 14 NOVEMBER 2008
1) After conducting a joint inspection and evaluation of the
project to determine the actual percentage of accomplishment,
the contracting parties, assisted by their respective technical
groups, SSB assisted by Arch. Elwin Olavario and JPLUS
assisted by Engrs. Joey Rojas and Shiela Botardo, concluded
and agreed that as of 14 November 2008, the project is only
Thirty One point Thirty Nine Percent (31.39%) complete.
2) Furthermore, the value of construction materials allocated for
the completion of the project and currently on site has been
determined and agreed to be ONE MILLION FORTY NINE
THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND
FORTY FIVE CENTAVOS (P1,049,364.45)
3) The additional accomplishment of SSB, reflected in its
reconciled and consolidated 8th and 9th billings, is Three point
Eighty Five Percent (3.85%) with a gross value of
P1,563,553.34 amount creditable to SSB after deducting the
withholding tax is P1,538,424.84
4) The unrecouped amount of the down payment is
P2,379,441.53 after deducting the cost of materials on site and
the net billable amount reflected in the reconciled and
consolidated 8th and 9th billings. The uncompleted portion of
the project is 68.61% with an estimated value per construction
agreement signed is P27,880,419.52.9 (Emphasis supplied.)
On November 19, 2008, petitioner terminated the contract and
sent demand letters to Mabunay and respondent surety. As its
demands went unheeded, petitioner filed a Request for
Arbitration10 before the Construction Industry Arbitration
Commission (CIAC). Petitioner prayed that Mabunay and
respondent be ordered to pay the sums of P8,980,575.89 as
liquidated damages and P2,379,441.53 corresponding to the
unrecouped down payment or overpayment petitioner made to
Mabunay.11
In his Answer,12 Mabunay claimed that the delay was caused by
retrofitting and other revision works ordered by Joo Han Lee.
He asserted that he actually had until April 30, 2009 to finish
the project since the 365 days period of completion started only
on May 2, 2008 after clearing the retrofitted old structure.
Hence, the termination of the contract by petitioner was
premature and the filing of the complaint against him was
baseless, malicious and in bad faith.
Respondent, on the other hand, filed a motion to dismiss on the
ground that petitioner has no cause of action and the complaint
states no cause of action against it. The CIAC denied the
motion to dismiss. Respondents motion for reconsideration
was likewise denied.13
14
1
In its Answer Ex Abundante Ad Cautelam With
Compulsory Counterclaims and Cross-claims,14 respondent
argued that the performance bond merely guaranteed the 20%
down payment and not the entire obligation of Mabunay under
the Construction Agreement. Since the value of the projects
accomplishment already exceeded the said amount,
respondents obligation under the performance bond had been
fully extinguished. As to the claim for alleged overpayment to
Mabunay, respondent contended that it should not be credited
against the 20% down payment which was already exhausted
and such application by petitioner is tantamount to reviving an
obligation that had been legally extinguished by payment.
Respondent also set up a cross-claim against Mabunay who
executed in its favor an Indemnity Agreement whereby
Mabunay undertook to indemnify respondent for whatever
amounts it may be adjudged liable to pay petitioner under the
surety bond.
Both petitioner and respondent submitted their respective
documentary and testimonial evidence. Mabunay failed to
appear in the scheduled hearings and to present his evidence
despite due notice to his counsel of record. The CIAC thus
declared that Mabunay is deemed to have waived his right to
present evidence.15
On February 2, 2010, the CIAC rendered its Decision16 and
made the following award:
Accordingly, in view of our foregoing discussions and
dispositions, the Tribunal hereby adjudges, orders and directs:
1. Respondents Mabunay and Utassco to jointly and severally
pay claimant the following:
a) P4,469,969.90, as liquidated damages, plus legal interest
thereon at the rate of 6% per annum computed from the date of
this decision up to the time this decision becomes final, and
12% per annum computed from the date this decision becomes
final until fully paid, and
b) P2,379,441.53 as unrecouped down payment plus interest
thereon at the rate of 6% per annum computed from the date of
this decision up to the time this decision becomes final, and
12% per annum computed from the date this decision becomes
final until fully paid.
It being understood that respondent Utasscos liability shall in
no case exceed P8.4 million.
2. Respondent Mabunay to pay to claimant the amount of
P98,435.89, which is respondent Mabunays share in the
arbitration cost claimant had advanced, with legal interest
thereon from January 8, 2010 until fully paid.
3. Respondent Mabunay to indemnify respondent Utassco of
the amounts respondent Utassco will have paid to claimant
ADR || First Batch
under this decision, plus interest thereon at the rate of 12% per
annum computed from the date he is notified of such payment
made by respondent Utassco to claimant until fully paid, and to
pay Utassco P100,000.00 as attorneys fees.
SO ORDERED.17
Dissatisfied, respondent filed in the CA a petition for review
under Rule 43 of the 1997 Rules of Civil Procedure, as
amended.
In the assailed decision, the CA agreed with the CIAC that the
specific condition in the Performance Bond did not clearly state
the limitation of the suretys liability. Pursuant to Article 137718
of the Civil Code, the CA said that the provision should be
construed in favor of petitioner considering that the obscurely
phrased provision was drawn up by respondent and Mabunay.
Further, the appellate court stated that respondent could not
possibly guarantee the down payment because it is not
Mabunay who owed the down payment to petitioner but the
other way around. Consequently, the completion by Mabunay
of 31.39% of the construction would not lead to the
extinguishment of respondents liability. The P8.4 million was a
limit on the amount of respondents liability and not a limitation
as to the obligation or undertaking it guaranteed.
However, the CA reversed the CIACs ruling that Mabunay had
incurred delay which entitled petitioner to the stipulated
liquidated damages and unrecouped down payment. Citing
Aerospace Chemical Industries, Inc. v. Court of Appeals,19 the
appellate court said that not all requisites in order to consider
the obligor or debtor in default were present in this case. It held
that it is only from December 24, 2008 (completion date) that
we should reckon default because the Construction Agreement
provided only for delay in the completion of the project and not
delay on a monthly basis using the work schedule approved by
petitioner as the reference point. Hence, petitioners termination
of the contract was premature since the delay in this case was
merely speculative; the obligation was not yet demandable.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the instant petition for
review is GRANTED. The assailed Decision dated 13 January
2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No.
03-2009 is hereby REVERSED and SET ASIDE. Accordingly,
the Writ of Execution dated 24 November 2010 issued by the
same tribunal is hereby ANNULLED and SET ASIDE.
SO ORDERED.20
Petitioner moved for reconsideration of the CA decision while
respondent filed a motion for partial reconsideration. Both
motions were denied.
The Issues
14
2
Before this Court petitioner seeks to reverse the CA
insofar as it denied petitioners claims under the Performance
Bond and to reinstate in its entirety the February 2, 2010 CIAC
Decision. Specifically, petitioner alleged that
A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT
HOLDING THAT THE ALTERNATIVE DISPUTE RESOLUTION
ACT AND THE SPECIAL RULES ON ALTERNATIVE
DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF
APPEALS OF JURISDICTION TO REVIEW ARBITRAL
AWARDS.
B. THE COURT OF APPEALS SERIOUSLY ERRED IN
REVERSING THE ARBITRAL AWARD ON AN ISSUE THAT
WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN
THE TERMS OF REFERENCE, NOT ASSIGNED AS
ANERROR, AND NOT ARGUED IN ANY OF THE PLEADINGS
FILED BEFORE THE COURT.
C. THE COURT OF APPEALS SERIOUSLY ERRED IN
RELYING ON THE CASE OF AEROSPACE CHEMICAL
INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94,
WHICH HAS NOTHING TO DO WITH CONSTRUCTION
AGREEMENTS.21
Our Ruling
On the procedural issues raised, we find no merit in petitioners
contention that with the institutionalization of alternative dispute
resolution under Republic Act (R.A.) No. 9285,22 otherwise
known as the Alternative Dispute Resolution Act of 2004, the
CA was divested of jurisdiction to review the decisions or
awards of the CIAC. Petitioner erroneously relied on the
provision in said law allowing any party to a domestic arbitration
to file in the Regional Trial Court (RTC) a petition either to
confirm, correct or vacate a domestic arbitral award.
We hold that R.A. No. 9285 did not confer on regional trial
courts jurisdiction to review awards or decisions of the CIAC in
construction disputes. On the contrary, Section 40 thereof
expressly declares that confirmation by the RTC is not required,
thus:
SEC. 40. Confirmation of Award. The confirmation of a
domestic arbitral award shall be governed by Section 23 of R.A.
876.
A domestic arbitral award when confirmed shall be enforced in
the same manner as final and executory decisions of the
Regional Trial Court.
The confirmation of a domestic award shall be made by the
regional trial court in accordance with the Rules of Procedure to
be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional
ADR || First Batch
trial court to be executory as provided under E.O. No. 1008.
(Emphasis supplied.)
Executive Order (EO) No. 1008 vests upon the CIAC original
and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the
abandonment or breach thereof. By express provision of
Section 19 thereof, the arbitral award of the CIAC is final and
unappealable, except on questions of law, which are
appealable to the Supreme Court. With the amendments
introduced by R.A. No. 7902 and promulgation of the 1997
Rules of Civil Procedure, as amended, the CIAC was included
in the enumeration of quasijudicial agencies whose decisions or
awards may be appealed to the CA in a petition for review
under Rule 43. Such review of the CIAC award may involve
either questions of fact, of law, or of fact and law.23
Petitioner misread the provisions of A.M. No. 07-11-08-SC
(Special ADR Rules) promulgated by this Court and which took
effect on October 30, 2009. Since R.A. No. 9285 explicitly
excluded CIAC awards from domestic arbitration awards that
need to be confirmed to be executory, said awards are
therefore not covered by Rule 11 of the Special ADR Rules,24
as they continue to be governed by EO No. 1008, as amended
and the rules of procedure of the CIAC. The CIAC Revised
Rules of Procedure Governing Construction Arbitration25
provide for the manner and mode of appeal from CIAC
decisions or awards in Section 18 thereof, which reads:
SECTION 18.2 Petition for review. A petition for review from a
final award may be taken by any of the parties within fifteen
(15) days from receipt thereof in accordance with the provisions
of Rule 43 of the Rules of Court.
As to the alleged error committed by the CA in deciding the
case upon an issue not raised or litigated before the CIAC, this
assertion has no basis. Whether or not Mabunay had incurred
delay in the performance of his obligations under the
Construction Agreement was the very first issue stipulated in
the Terms of Reference26 (TOR), which is distinct from the
issue of the extent of respondents liability under the
Performance Bond.
Indeed, resolution of the issue of delay was crucial upon which
depends petitioners right to the liquidated damages pursuant to
the Construction Agreement. Contrary to the CIACs findings,
the CA opined that delay should be reckoned only after the
lapse of the one-year contract period, and consequently
Mabunays liability for liquidated damages arises only upon the
happening of such condition.
We reverse the CA.
Default or mora on the part of the debtor is the delay in the
14
3
fulfillment of the prestation by reason of a cause
imputable to the former. It is the non-fulfillment of an obligation
with respect to time.27
Article 1169 of the Civil Code provides:
ART. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
xxxx
It is a general rule that one who contracts to complete certain
work within a certain time is liable for the damage for not
completing it within such time, unless the delay is excused or
waived.28
The Construction Agreement provides in Article 10 thereof the
following conditions as to completion time for the project
1. The CONTRACTOR shall complete the works called for
under this Agreement within ONE (1) YEAR or 365 Days
reckoned from the 1st calendar day after signing of the Notice
of Award and Notice to Proceed and receipt of down payment.
2. In this regard the CONTRACTOR shall submit a detailed
work schedule for approval by OWNER within Seven (7) days
after signing of this Agreement and full payment of 20% of the
agreed contract price. Said detailed work schedule shall follow
the general schedule of activities and shall serve as basis for
the evaluation of the progress of work by CONTRACTOR.29
In this jurisdiction, the following requisites must be present in
order that the debtor may be in default: (1) that the obligation
be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the
performance judicially or extrajudicially.30
In holding that Mabunay has not at all incurred delay, the CA
pointed out that the obligation to perform or complete the
project was not yet demandable as of November 19, 2008
when petitioner terminated the contract, because the agreed
completion date was still more than one month away
(December 24, 2008). Since the parties contemplated delay in
the completion of the entire project, the CA concluded that the
failure of the contractor to catch up with schedule of work
activities did not constitute delay giving rise to the contractors
liability for damages.
We cannot sustain the appellate courts interpretation as it is
inconsistent with the terms of the Construction Agreement.
Article 1374 of the Civil Code requires that the various
stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result
from all of them taken jointly. Here, the work schedule approved
by petitioner was intended, not only to serve as its basis for the
ADR || First Batch 14
4
payment of monthly progress billings, but also for evaluation of October 15, 2008
the progress of work by the contractor. Article 13.01 (g) (iii) of
the Construction Agreement provides that the contractor shall xxxx
be deemed in default if, among others, it had delayed without
justifiable cause the completion of the project "by more than
Dear Mr. Mabunay,
thirty (30) calendar days based on official work schedule duly
approved by the OWNER."31
We have noticed continuous absence of all the Engineers that
you have assigned on-site to administer and supervise your
Records showed that as early as April 2008, or within four
contracted work. For the past two (2) weeks, your company
months after Mabunay commenced work activities, the project
does not have a Technical Representative manning the jobsite
was already behind schedule for reasons not attributable to
considering the critical activities that are in progress and the
petitioner. In the succeeding months, Mabunay was still unable
delays in schedule that you have already incurred. In this
to catch up with his accomplishment even as petitioner
regard, we would highly recommend the immediate
constantly advised him of the delays, as can be gleaned from
replacement of your Project Engineer within the week.
the following notices of delay sent by petitioners engineer and
construction manager, Engr. Sheila N. Botardo:
We would highly appreciate your usual attention on this matter.
April 30, 2008
x x x x33
Seven Shades of Blue
November 5, 2008
Boracay Island
xxxx
Malay, Aklan
Dear Mr. Mabunay,
1wphi1

This is in reference to your discussion during the meeting with

Attention : Mr. Martin Mabunay Mr. Joohan Lee last October 30, 2008 regarding the
construction of the Field Office and Stock Room for Materials
General Manager intended for Villa Beatriz use only. We understand that you
Thru : Engr. Reynaldo Gapasin have committed to complete it November 5, 2008 but as of this
Project : Villa Beatriz date there is no improvement or any ongoing construction
Subject : Notice of Delay activity on the said field office and stockroom.
Dear Mr. Mabunay:
We are expecting deliveries of Owner Supplied Materials very
This is to formalize our discussion with your Engineers during soon, therefore, this stockroom is badly needed. We will highly
our meeting last April 23, 2008 regarding the delay in the appreciate if this matter will be given your immediate attention.
implementation of major activities based on your submitted
construction schedule. Substantial delay was noted in Thank you.
concreting works that affects your roof framing that should have
been 40% completed as of this date. This delay will create
x x x x34
major impact on your over-all schedule as the finishing works
will all be dependent on the enclosure of the building.
November 6, 2008
In this regard, we recommend that you prepare a catch-up
schedule and expedite the delivery of critical materials on site. xxxx
We would highly appreciate if you could attend our next regular
meeting so we could immediately address this matter. Thank Dear Mr. Mabunay,
you.
We would like to call your attention regarding the decrease in
Very truly yours, your manpower assigned on site. We have observed that for
the past three (3) weeks instead of increasing your manpower
Engr. Sheila N. Botardo to catch up with the delay it was reduced to only 8 workers
today from an average of 35 workers in the previous months.
Construction Manager LMI/FEPI32
Please note that based on your submitted revised schedule you
ADR || First Batch
are already delayed by approximately 57% and this will worsen
should you not address this matter properly.
We are looking forward for [sic] your cooperation and
continuous commitment in delivering this project as per contract
agreement.
x x x x35
Subsequently, a joint inspection and evaluation was conducted
with the assistance of the architects and engineers of petitioner
and Mabunay and it was found that as of November 14, 2008,
the project was only 31.39% complete and that the
uncompleted portion was 68.61% with an estimated value per
Construction Agreement as P27,880,419.52. Instead of
doubling his efforts as the scheduled completion date
approached, Mabunay did nothing to remedy the delays and
even reduced the deployment of workers at the project site.
Neither did Mabunay, at anytime, ask for an extension to
complete the project. Thus, on November 19, 2008, petitioner
advised Mabunay of its decision to terminate the contract on
account of the tremendous delay the latter incurred. This was
followed by the claim against the Performance Bond upon the
respondent on December 18, 2008.
Petitioners claim against the Performance Bond included the
liquidated damages provided in the Construction Agreement, as
follows:
ARTICLE 12 LIQUIDATED DAMAGES:
12.01 Time is of the essence in this Agreement. Should the
CONTRACTOR fail to complete the PROJECT within the period
stipulated herein or within the period of extension granted by
the OWNER, plus One (1) Week grace period, without any
justifiable reason, the CONTRACTOR hereby agrees
a. The CONTRACTOR shall pay the OWNER liquidated
damages equivalent to One Tenth of One Percent (1/10 of 1%)
of the Contract Amount for each day of delay after any and all
extensions and the One (1) week Grace Period until completed
by the CONTRACTOR.
b. The CONTRACTOR, even after paying for the liquidated
damages due to unexecuted works and/or delays shall not
relieve it of the obligation to complete and finish the
construction.
Any sum which maybe payable to the OWNER for such loss
may be deducted from the amounts retained under Article 9 or
retained by the OWNER when the works called for under this
Agreement have been finished and completed.
Liquidated Damage[s] payable to the OWNER shall be
automatically deducted from the contractors collectibles without
prior consent and concurrence by the CONTRACTOR.
14
5
12.02 To give full force and effect to the foregoing, the
CONTRACTOR hereby, without necessity of any further act
and deed, authorizes the OWNER to deduct any amount that
may be due under Item (a) above, from any and all money or
amounts due or which will become due to the CONTRACTOR
by virtue of this Agreement and/or to collect such amounts from
the Performance Bond filed by the CONTRACTOR in this
Agreement.36 (Emphasis supplied.)
Liability for liquidated damages is governed by Articles 2226 to
2228 of the Civil Code, which provide:
ART. 2226. Liquidated damages are those agreed upon by the
parties to a contract, to be paid in case of breach thereof.
ART. 2227. Liquidated damages, whether intended as an
indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.
ART. 2228. When the breach of the contract committed by the
defendant is not the one contemplated by the parties in
agreeing upon the liquidated damages, the law shall determine
the measure of damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation
in order to ensure performance and has a double function: (1)
to provide for liquidated damages, and (2) to strengthen the
coercive force of the obligation by the threat of greater
responsibility in the event of breach.37 The amount agreed upon
answers for damages suffered by the owner due to delays in
the completion of the project.38 As a precondition to such
award, however, there must be proof of the fact of delay in the
performance of the obligation.39
Concededly, Article 12.01 of the Construction Agreement
mentioned only the failure of the contractor to complete the
project within the stipulated period or the extension granted by
the owner. However, this will not defeat petitioners claim for
damages nor respondents liability under the Performance
Bond. Mabunay was clearly in default considering the dismal
percentage of his accomplishment (32.38%) of the work he
contracted on account of delays in executing the scheduled
work activities and repeated failure to provide sufficient
manpower to expedite construction works. The events of
default and remedies of the Owner are set forth in Article 13,
which reads:
ARTICLE 13 DEFAULT OF CONTRACTOR:
13.01 Any of the following shall constitute an Event of Default
on the part of the CONTRACTOR.
xxxx
g. In case the CONTRACTOR has done any of the following:
ADR || First Batch
(i.) has abandoned the Project
(ii.) without reasonable cause, has failed to commence the
construction or has suspended the progress of the Project for
twenty-eight days
(iii.) without justifiable cause, has delayed the completion of the
Project by more than thirty (30) calendar days based on official
work schedule duly approved by the OWNER
(iv.) despite previous written warning by the OWNER, is not
executing the construction works in accordance with the
Agreement or is persistently or flagrantly neglecting to carry out
its obligations under the Agreement.
(v.) has, to the detriment of good workmanship or in defiance of
the Owners instructions to the contrary, sublet any part of the
Agreement.
13.02 If the CONTRACTOR has committed any of the above
reasons cited in Item 13.01, the OWNER may after giving
fourteen (14) calendar days notice in writing to the
CONTRACTOR, enter upon the site and expel the
CONTRACTOR therefrom without voiding this Agreement, or
releasing the CONTRACTOR from any of its obligations, and
liabilities under this Agreement. Also without diminishing or
affecting the rights and powers conferred on the OWNER by
this Agreement and the OWNER may himself complete the
work or may employ any other contractor to complete the work.
If the OWNER shall enter and expel the CONTRACTOR under
this clause, the OWNER shall be entitled to confiscate the
performance bond of the CONTRACTOR to compensate for all
kinds of damages the OWNER may suffer. All expenses
incurred to finish the Project shall be charged to the
CONTRACTOR and/or his bond. Further, the OWNER shall not
be liable to pay the CONTRACTOR until the cost of execution,
damages for the delay in the completion, if any, and all; other
expenses incurred by the OWNER have been ascertained
which amount shall be deducted from any money due to the
CONTRACTOR on account of this Agreement. The
CONTRACTOR will not be compensated for any loss of profit,
loss of goodwill, loss of use of any equipment or property, loss
of business opportunity, additional financing cost or overhead
or opportunity losses related to the unaccomplished portions of
the work.40 (Emphasis supplied.)
As already demonstrated, the contractors default in this case
pertains to his failure to substantially perform the work on
account of tremendous delays in executing the scheduled work
activities. Where a party to a building construction contract fails
to comply with the duty imposed by the terms of the contract, a
breach results for which an action may be maintained to
recover the damages sustained thereby, and of course, a
breach occurs where the contractor inexcusably fails to perform
substantially in accordance with the terms of the contract.41
14
6
The plain and unambiguous terms of the Construction
Agreement authorize petitioner to confiscate the Performance
Bond to answer for all kinds of damages it may suffer as a
result of the contractors failure to complete the building. Having
elected to terminate the contract and expel the contractor from
the project site under Article 13 of the said Agreement,
petitioner is clearly entitled to the proceeds of the bond as
indemnification for damages it sustained due to the breach
committed by Mabunay. Such stipulation allowing the
confiscation of the contractors performance bond partakes of
the nature of a penalty clause. A penalty clause, expressly
recognized by law, is an accessory undertaking to assume
greater liability on the part of the obligor in case of breach of an
obligation. It functions to strengthen the coercive force of
obligation and to provide, in effect, for what could be the
liquidated damages resulting from such a breach. The obligor
would then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure of
damages caused by the breach. It is well-settled that so long as
such stipulation does not contravene law, morals, or public
order, it is strictly binding upon the obligor.42
Respondent, however, insists that it is not liable for the breach
committed by Mabunay because by the terms of the surety
bond it issued, its liability is limited to the performance by said
contractor to the extent equivalent to 20% of the down
payment. It stresses that with the 32.38% completion of the
project by Mabunay, its liability was extinguished because the
value of such accomplishment already exceeded the sum
equivalent to 20% down payment (P8.4 million).
The appellate court correctly rejected this theory of respondent
when it ruled that the Performance Bond guaranteed the full
and faithful compliance of Mabunays obligations under the
Construction Agreement, and that nowhere in law or
jurisprudence does it state that the obligation or undertaking by
a surety may be apportioned.
The pertinent portions of the Performance Bond provide:
The conditions of this obligation are as follows:
Whereas the JPLUS ASIA, requires the principal SEVEN
SHADES OF BLUE CONSTRUCTION AND DEVELOPMENT,
INC. to post a bond of the abovestated sum to guarantee 20%
down payment for the construction of Building 25 (Villa Beatriz)
72-Room Condotel, The Lodgings inside Fairways and
Bluewater, Boracay Island, Malay, Aklan.
Whereas, said contract required said Principal to give a good
and sufficient bond in the above-stated sum to secure the full
and faithful performance on his part of said contract.
It is a special provision of this undertaking that the liability of the
surety under this bond shall in no case exceed the sum of
P8,400,000.00 Philippine Currency.
ADR || First Batch 14
7
Now, Therefore, if the Principal shall well and truly perform and CA-G.R. SP No. 112808 are hereby REVERSED and
fulfill all the undertakings, covenants, terms, conditions and SET ASIDE.
agreements stipulated in said contract, then this obligation shall
be null and void; otherwise to remain in full force and effect.43 The Award made in the Decision dated February 2, 2010 of the
(Emphasis supplied.) Construction Industry Arbitration Commission Is hereby
REINSTATED with the following MODIFICATIONS:
While the above condition or specific guarantee is unclear, the
rest of the recitals in the bond unequivocally declare that it "Accordingly, in view of our foregoing discussions and
secures the full and faithful performance of Mabunays dispositions, the Tribunal hereby adjudges, orders and directs:
obligations under the Construction Agreement with petitioner.
By its nature, a performance bond guarantees that the
1) Respondent Utassco to pay to petitioner J Plus Asia
contractor will perform the contract, and usually provides that if
Development Corporation the full amount of the Performance
the contractor defaults and fails to complete the contract, the
Bond, P8,400,000.00, pursuant to Art. 13 of the Construction
surety can itself complete the contract or pay damages up to
Agreement dated December 24, 2007, with interest at the rate
the limit of the bond.44 Moreover, the rule is that if the language
of 6% per annum computed from the date of the filing of the
of the bond is ambiguous or uncertain, it will be construed most
complaint until the finality of this decision, and 12% per annum
strongly against a compensated surety and in favor of the
computed from the date this decision becomes final until fully
obligees or beneficiaries under the bond, in this case petitioner
paid; and
as the Project Owner, for whose benefit it was ostensibly
executed.45
2) Respondent Mabunay to indemnify respondent Utassco of
the amounts respondent Utassco will have paid to claimant
The imposition of interest on the claims of petitioner is likewise
under this decision, plus interest thereon at the rate of 12% per
in order. As we held in Commonwealth Insurance Corporation
annum computed from the date he is notified of such payment
v. Court of Appeals46
made by respondent Utassco to claimant until fully paid, and to
pay Utassco P100,000.00 as attorney's fees.
Petitioner argues that it should not be made to pay interest
because its issuance of the surety bonds was made on the
SO ORDERED.
condition that its liability shall in no case exceed the amount of
the said bonds.
With the above modifications, the Writ of Execution dated
November 24, 2010 issued by the CIAC Arbitral Tribunal in
We are not persuaded. Petitioners argument is misplaced.
CIAC Case No. 03-2009 is hereby REINSTATED and
UPHELD.
Jurisprudence is clear on this matter. As early as Tagawa vs.
Aldanese and Union Gurantee Co. and reiterated in Plaridel
No pronouncement as to costs.
Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co.,
Inc., and more recently, in Republic vs. Court of Appeals and R
& B Surety and Insurance Company, Inc., we have sustained SO ORDERED.
the principle that if a surety upon demand fails to pay, he can
be held liable for interest, even if in thus paying, its liability MARTIN S. VILLARAMA, JR.
becomes more than the principal obligation. The increased
liability is not because of the contract but because of the default Associate Justice
and the necessity of judicial collection.
WE CONCUR:
Petitioners liability under the suretyship contract is different
from its liability under the law. There is no question that as a
1wphi1

MARIA LOURDES P. A. SERENO

surety, petitioner should not be made to pay more than its
assumed obligation under the surety bonds. However, it is clear
Chief Justice
from the above-cited jurisprudence that petitioners liability for
the payment of interest is not by reason of the suretyship
agreement itself but because of the delay in the payment of its Chairperson
obligation under the said agreement.47 (Emphasis supplied;
citations omitted.) TERESITA J. LEONARDO-DE CASTRO

WHEREFORE, the petition for review on certiorari is Associate Justice

GRANTED. The Decision dated January 27, 2011 and BIENVENIDO L. REYES
Resolution dated December 8, 2011 of the Court of Appeals in
ADR || First Batch 14
8
Associate Justice 18 ART. 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused
CERTIFICATION the obscurity.

Pursuant to Section 13, Article VIII of the 1987 Constitution, I

19 G.R. No. 108129, September 23, 1999, 315 SCRA 92.
certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the 20 Rollo, p. 67.
writer of the opinion of the Court's Division.
21 Id. at 23.
MARIA LOURDES P. A. SERENO
22 Approved on April 2, 2004.
Chief Justice
23Metro Construction, Inc. v. Chatham Properties, Inc., G.R.
No. 141897, September 24, 2001, 365 SCRA 697, 718-719 &
794.
Footnotes
24 A.M. No. 07-11-08-SC, effective October 30, 2009.
1 Rollo, pp. 57-68. Penned by Associate Justice Samuel H.
Gaerlan with Associate Justices Hakim S. Abdulwahid and 25As amended by CIAC Resolution Nos. 15-2006, 16-2006, 18-
Ricardo R. Rosario concurring. 2006, 19-2006, 02-2007, 07-2007, 13-2007, 02-2008, and 03-
2008, which took effect on December 15, 2005.
2 Id. at 69-73.
26 Rollo, pp. 202-210.
3 Id. at 87-99.
27 IV Arturo M. Tolentino, COMMENTARIES AND
4 Id. at 962-967. JURISPRUDENCE ON THE CIVIL CODE OF THE
PHILIPPINES, 101 (1987 ed.).
5 Id. at 101-103, 606.
28 17 Am Jur 2d 387, p. 832.
6 Id. at 184.
29 Rollo, p. 93.
7 Id. at 109.
30Santos Ventura Hocorma Foundation, Inc. v. Santos, 484
Phil. 447, 457 (2004), citing IV Arturo M. Tolentino,
8 Id. at 109-110.
COMMENTARIES AND JURISPRUDENCE ON THE CIVIL
CODE OF THE PHILIPPINES, 102 (1987 ed.). See also
9 Id. at 110. Philippine Export and Foreign Loan Guarantee Corporation v.
V.P. Eusebio Construction, Inc., G.R. No. 140047, July 13,
10 Id. at 76-86. 2004, 434 SCRA 202, 218-219.

11 Id. at 82. 31 Rollo, p. 94.

12 Id. at 189-197. 32 Id. at 104.

13 Id. at 115-121, 132-136, 163-164. 33 Id. at 106.

14 Id at 165-183. 34 Id. at 107.

15 Id. at 211-212. 35 Id. at 108.

16 Id. at 600-614. 36 Id. at 93-94.

17 Id. at 614 to 614-A. 37Atlantic Erectors, Inc. v. Court of Appeals, G.R. No. 170732,
October 11, 2012, 684 SCRA 55, 65, citing Philippine Charter
ADR || First Batch 14
9
Insurance Corporation v. Petroleum Distributors & Service
Corporation, G.R. No. 180898, April 18, 2012, 670 SCRA 166,
177 and Filinvest Land, Inc. v. Court of Appeals, G.R. No.
138980, September 20, 2005, 470 SCRA 260, 269.

38Id., citing H.L. Carlos Construction, Inc. v. Marina Properties

Corporation, 466 Phil. 182, 205 (2004).

39 Id., citing Empire East Land Holdings, Inc. v. Capitol

Industrial Construction Groups, Inc., G.R. No. 168074,
September 26, 2008, 566 SCRA 473, 489.

40 Rollo, pp. 94-95.

41 13 Am Jur 2d 72, p. 73.

42Suatengco v. Reyes, G.R. No. 162729, December 17, 2008,

574 SCRA 187, 194, citing Ligutan v. Court of Appeals, G.R.
No. 138677, February 12, 2002, 376 SCRA 560, 567-568.

43 Rollo, p. 100.

44 17 Am Jur 2d 1, p. 192.

45 17 Am Jur 2d 3, p. 193.

46 466 Phil. 104 (2004).

47 Id. at 112-113.