G.R. No.

189563, April 07, 2014

GILAT SATELLITE NETWORKS, LTD., Petitioner, v. UNITED COCONUT PLANTERS BANK GENERAL
INSURANCE CO., INC., Respondent.

DECISION

SERENO, C.J.:

This is an appeal via a Petition for Review on Certiorari 1 filed 6 November 2009 assailing the Decision2 and
Resolution3 of the Court of Appeals (CA) in CAG.R. CV No. 89263, which reversed the Decision4 of the
Regional Trial Court (RTC), Branch 141, Makati City in Civil Case No. 02461, ordering respondent to pay
petitioner a sum of money.

The antecedent facts, as culled from the CA, are as follows: chanRoble svirtual Lawlib ra ry

On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications
equipment (sic), accessories, spares, services and software, at a total purchase price of Two Million One
Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase price
for the goods delivered, One Virtual promised to pay a portion thereof totalling US$1.2 Million in accordance
with the payment schedule dated 22 November 1999. To ensure the prompt payment of this amount, it
obtained defendant UCPB General Insurance Co., Inc.s surety bond dated 3 December 1999, in favor of
GILAT.

During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to One
Virtual the purchased products and equipment, as evidenced by airway bills/Bill of Lading (Exhibits F, F
1 to F8). All of the equipment (including the software components for which payment was secured by
the surety bond, was shipped by GILAT and duly received by One Virtual. Under an endorsement dated
December 23, 1999 (Exhibit E), the surety issued, with One Virtuals conformity, an amendment to the
surety bond, Annex A thereof, correcting its expiry date from May 30, 2001 to July 30, 2001.

One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the due
date of May 30, 2000 in accordance with the payment schedule attached as Annex A to the surety bond,
prompting GILAT to write the surety defendant UCPB on June 5, 2000, a demand letter (Exhibit G) for
payment of the said amount of US$400,000.00. No part of the amount set forth in this demand has been
paid to date by either One Virtual or defendant UCPB. One Virtual likewise failed to pay on the succeeding
payment instalment date of 30 November 2000 as set out in Annex A of the surety bond, prompting GILAT
to send a second demand letter dated January 24, 2001, for the payment of the full amount of
US$1,200,000.00 guaranteed under the surety bond, plus interests and expenses (Exhibits H) and which
letter was received by the defendant surety on January 25, 2001. However, defendant UCPB failed to settle
the amount of US$1,200,000.00 or a part thereof, hence, the instant complaint.5(Emphases in the original)

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint6 against respondent UCPB
General Insurance Co., Inc., to recover the amounts supposedly covered by the surety bond, plus interests
and expenses. After due hearing, the RTC rendered its Decision,7 the dispositive portion of which is herein
quoted: chanRob lesvi rtua lLawl ibra ry

WHEREFORE, premises considered, the Court hereby renders judgment for the plaintiff, and against the
defendant, ordering, to wit:

1. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars
(US$1,200,000.00) representing the principal debt under the Surety Bond, with legal interest
thereon at the rate of 12% per annum computed from the time the judgment becomes final and
executory until the obligation is fully settled; and

2. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four
Cents (US$44,004.04) representing attorneys fees and litigation expenses.
Accordingly, defendants counterclaim is hereby dismissed for want of merit.

SO ORDERED. (Emphasis in the original)

In so ruling, the RTC reasoned that there is no dispute that plaintiff [petitioner] delivered all the subject
equipments [sic] and the same was installed. Even with the delivery and installation made, One Virtual
failed to pay any of the payments agreed upon. Demand notwithstanding, defendant failed and refused and
continued to fail and refused to settle the obligation.8 Considering that its liability was indeed that of a
surety, as spelled out in the Surety Bond executed by and between One Virtual as Principal, UCPB as Surety
and GILAT as Creditor/Bond Obligee,9 respondent agreed and bound itself to pay in accordance with the
Payment Milestones. This obligation was not made dependent on any condition outside the terms and
conditions of the Surety Bond and Payment Milestones.10

Insofar as the interests were concerned, the RTC denied petitioners claim on the premise that while a
surety can be held liable for interest even if it becomes more onerous than the principal obligation, the
surety shall only accrue when the delay or refusal to pay the principal obligation is without any justifiable
cause.11 Here, respondent failed to pay its surety obligation because of the advice of its principal (One
Virtual) not to pay.12 The RTC then obligated respondent to pay petitioner the amount of USD1,200,000.00
representing the principal debt under the Surety Bond, with legal interest at the rate of 12% per annum
computed from the time the judgment becomes final and executory, and USD44,004.04 representing
attorneys fees and litigation expenses.

On 18 October 2007, respondent appealed to the CA.13 The appellate court rendered a Decision14 in the
following manner: cha nRoblesv irt ual Lawlib rary

WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction. The trial courts Decision dated
December 28, 2006 is VACATED. Plaintiffappellant Gilat Satellite Networks Ltd., and One Virtual are
ordered to proceed to arbitration, the outcome of which shall necessary bind the parties, including the
surety, defendantappellant United Coconut Planters Bank General Insurance Co., Inc.

SO ORDERED. (Emphasis in the original)

The CA ruled that in enforcing a surety contract, the complementarycontractsconstruedtogether

doctrine finds application. According to this doctrine, the accessory contract must be construed with the
principal agreement.15 In this case, the appellate court considered the Purchase Agreement entered into
between petitioner and One Virtual as the principal contract,16 whose stipulations are also binding on the
parties to the suretyship.17 Bearing in mind the arbitration clause contained in the Purchase
Agreement18 and pursuant to the policy of the courts to encourage alternative dispute resolution
methods,19 the trial courts Decision was vacated; petitioner and One Virtual were ordered to proceed to
arbitration.

On 9 September 2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument. The
motion was denied for lack of merit in a Resolution20 issued by the CA on 16 September 2009.

Hence, the instant Petition.

On 31 August 2010, respondent filed a Comment21 on the Petition for Review. On 24 November 2010,
petitioner filed a Reply.22

ISSUES

From the foregoing, we reduce the issues to the following: chanRob lesvi rtual Lawl ibra ry

1. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to
arbitrate; and

2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent
of its obligation under the Suretyship Agreement.

THE COURTS RULING

The existence of a suretyship
agreement does not give the
surety the right to intervene
in the principal contract, nor
can an arbitration clause
between the buyer and the
seller be invoked by a nonparty
such as the surety.

Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party entitled
to it applies for this relief.23 This referral, however, can only be demanded by one who is a party to the
arbitration agreement.24 Considering that neither petitioner nor One Virtual has asked for a referral, there is
no basis for the CAs order to arbitrate.

Moreover, Articles 1216 and 2047 of the Civil Code25 clearly provide that the creditor may proceed against
the surety without having first sued the principal debtor.26 Even the Surety Agreement itself states that
respondent becomes liable upon mere failure of the Principal to make such prompt payment.27 Thus,
petitioner should not be ordered to make a separate claim against One Virtual (via arbitration) before
proceeding against respondent.28

On the other hand, respondent maintains that a surety contract is merely an accessory contract, which
cannot exist without a valid obligation.29 Thus, the surety may avail itself of all the defenses available to the
principal debtor and inherent in the debt30 that is, the right to invoke the arbitration clause in the Purchase
Agreement.

We agree with petitioner.

In suretyship, the oftrepeated rule is that a suretys liability is joint and solidary with that of the principal
debtor. This undertaking makes a surety agreement an ancillary contract, as it presupposes the existence of
a principal contract.31 Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, its liability to the creditor or promise of the principal is said to be direct, primary and
absolute; in other words, a surety is directly and equally bound with the principal.32 He becomes liable for
the debt and duty of the principal obligor, even without possessing a direct or personal interest in the
obligations constituted by the latter.33 Thus, a surety is not entitled to a separate notice of default or to the
benefit of excussion.34 It may in fact be sued separately or together with the principal debtor.35

After a thorough examination of the pieces of evidence presented by both parties,36 the RTC found that
petitioner had delivered all the goods to One Virtual and installed them. Despite these compliances, One
Virtual still failed to pay its obligation,37 triggering respondents liability to petitioner as the formers surety.
In other words, the failure of One Virtual, as the principal debtor, to fulfill its monetary obligation to
petitioner gave the latter an immediate right to pursue respondent as the surety.

Consequently, we cannot sustain respondents claim that the Purchase Agreement, being the principal
contract to which the Suretyship Agreement is accessory, must take precedence over arbitration as the
preferred mode of settling disputes.

First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction Co. Ltd.,38 that [the] acceptance
[of a surety agreement], however, does not change in any material way the creditors relationship with the
principal debtor nor does it make the surety an active party to the principal creditordebtor relationship. In
other words, the acceptance does not give the surety the right to intervene in the principal
contract. The suretys role arises only upon the debtors default, at which time, it can be directly held liable
by the creditor for payment as a solidary obligor. Hence, the surety remains a stranger to the Purchase
Agreement. We agree with petitioner that respondent cannot invoke in its favor the arbitration clause in the
Purchase Agreement, because it is not a party to that contract.39 An arbitration agreement being contractual
in nature,40 it is binding only on the parties thereto, as well as their assigns and heirs.41

Second, Section 24 of Republic Act No. 928542 is clear in stating that a referral to arbitration may only take
place if at least one party so requests not later than the pretrial conference, or upon the request of both
parties thereafter. Respondent has not presented even an iota of evidence to show that either petitioner or
One Virtual submitted its contesting claim for arbitration.
Third, sureties do not insure the solvency of the debtor, but rather the debt itself.43 They are contracted
precisely to mitigate risks of nonperformance on the part of the obligor. This responsibility necessarily
places a surety on the same level as that of the principal debtor.44The effect is that the creditor is
given the right to directly proceed against either principal debtor or surety. This is the reason why excussion
cannot be invoked.45 To require the creditor to proceed to arbitration would render the very essence of
suretyship nugatory and diminish its value in commerce. At any rate, as we have held in Palmares v. Court
of Appeals,46 if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit
of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the
creditor.

Interest, as a form of indemnity, may

be awarded to a creditor for the delay
incurred by a debtor in the payment of
the latters obligation, provided that the
delay is inexcusable.

Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum
from the time of its first demand on respondent on 5 June 2000 or at most, from the second demand on 24
January 2001 because of the latters delay in discharging its monetary obligation.47Citing Article 1169 of the
Civil Code, petitioner insists that the delay started to run from the time it demanded the fulfilment of
respondents obligation under the suretyship contract. Significantly, respondent does not contest this point,
but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioners last
demand on 24 January 2001.

In rejecting petitioners position, the RTC stated that interests may only accrue when the delay or the
refusal of a party to pay is without any justifiable cause.48 In this case, respondents failure to heed the
demand was due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in
the Purchase Agreement.49 The CA, however, made no pronouncement on this matter.

We sustain petitioner.

Article 2209 of the Civil Code is clear: [i]f an obligation consists in the payment of a sum of money, and the
debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest.

Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance
of the obligation, and the latter fails to comply.50 Delay, as used in Article 1169, is synonymous with default
or mora, which means delay in the fulfilment of obligations.51 It is the nonfulfillment of an obligation with
respect to time.52 In order for the debtor (in this case, the surety) to be in default, it is necessary that the
following requisites be present: (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.53

Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying,
its liability becomes more than the principal obligation.54 The increased liability is not because of the
contract, but because of the default and the necessity of judicial collection.55

However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. MakatiShangrila
Hotel,56 citing RCPI v. Verchez,57 we held thus: chanRo blesvi rtua lLaw lib rary

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will
not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking
or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid
cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests
of the promissee that may include his expectation interest, which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the contract been performed, or his
reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract not been made; or his restitution
interest, which is his interest in having restored to him any benefit that he has conferred on the other
party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made
the basis for action. The effect of every infraction is to create a new duty, that is, to make
RECOMPENSE to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like proof of his exercise
of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing
liability. (Emphasis ours)

We agree with petitioner that records are bereft of proof to show that respondents delay was indeed
justified by the circumstances that is, One Virtuals advice regarding petitioners alleged breach of
obligations. The lower courts Decision itself belied this contention when it said that plaintiff is not disputing
that it did not complete commissioning work on one of the two systems because One Virtual at that time is
already in default and has not paid GILAT.58 Assuming arguendo that the commissioning work was not
completed, respondent has no one to blame but its principal, One Virtual; if only it had paid its obligation on
time, petitioner would not have been forced to stop operations. Moreover, the deposition of Mr. Erez Antebi,
vice president of Gilat, repeatedly stated that petitioner had delivered all equipment, including the licensed
software; and that the equipment had been installed and in fact, gone into operation.59 Notwithstanding
these compliances, respondent still failed to pay.

As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the
time judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the provisions
of Article 1169 of the Civil Code and of the settled rule that where there has been an extrajudicial demand
before an action for performance was filed, interest on the amount due begins to run, not from the date of
the filing of the complaint, but from the date of that extrajudicial demand.60Considering that respondent
failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the
extrajudicial demand of petitioner was sent on 5 June 2000,61 we agree with the latter that interest must
start to run from the time petitioner sent its first demand letter (5 June 2000), because the obligation was
already due and demandable at that time.

With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames,62 which modified
the guidelines established in Eastern Shipping Lines v. CA63 in relation to Bangko SentralMonetary Board
Circular No. 799 (Series of 2013), to wit: chanRoble svi rtual Lawli bra ry

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance
of credit.

Applying the abovediscussed concepts and in the absence of an agreement as to interests, we are hereby
compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000, its first date of
extrajudicial demand, until the satisfaction of the debt in accordance with the revised guidelines enunciated
in Nacar.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and
Resolution of the Court of Appeals in CAG.R. CV No. 89263 are REVERSED. The Decision of the Regional
Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as the award of legal
interest is concerned. Respondent is hereby ordered to pay legal interest at the rate of 6% per annum from
5 June 2000 until the satisfaction of its obligation under the Suretyship Contract and Purchase Agreement.

SO ORDERED.

LeonardoDe Castro, Bersamin, Villarama, Jr., and Reyes, JJ., concur.

Endnotes:
 .R. No. 204689, January 21, 2015

STRONGHOLD INSURANCE COMPANY, INC., Petitioner, v. SPOUSES RUNE AND LEA

STROEM, Respondents.

DECISION

LEONEN, J.:

For resolution is a Petition for Review1 under Rule 45 of the Rules of Court assailing the Decision2 dated
November 20, 2012 of the Court of Appeals in CA-G.R. CV No. 96017. The Court of Appeals affirmed the
Decision3 of the Regional Trial Court of Makati, Branch 133 in Civil Case No. 02-1108 for collection of a sum
of money.

This case involves the proper invocation of the Construction Industry Arbitration Committees (CIAC)
jurisdiction through an arbitration clause in a construction contract. The main issue here is whether the
dispute liability of a surety under a performance bond is connected to a construction contract and,
therefore, falls under the exclusive jurisdiction of the CIAC.

Spouses Rune and Lea Stroem (Spouses Stroem) entered into an Owners-Contractor Agreement4 with Asis-
Leif & Company, Inc. (Asis-Leif) for the construction of a two-storey house on the lot owned by Spouses
Stroem. The lot was located at Lot 4A, Block 24, Don Celso Tuason Street, Valley Golf Subdivision,
Barangay Mayamot, Antipolo, Rizal.5 chan roble svi rtual lawlib rary

On November 15, 1999, pursuant to the agreement, Asis-Leif secured Performance Bond No.
LP/G(13)83056 in the amount of P4,500,000.00 from Stronghold Insurance Company, Inc.
(Stronghold).6 Stronghold and Asis-Leif, through Ms. Ma. Cynthia Asis-Leif, bound themselves jointly and
severally to pay the Spouses Stroem the agreed amount in the event that the construction project is not
completed.7 cha nrob lesvi rtua llawli bra ry

Asis-Leif failed to finish the project on time despite repeated demands of the Spouses Stroem.8 chanroble svirtual lawlib rary

Spouses Stroem subsequently rescinded the agreement.9 They then hired an independent appraiser to
evaluate the progress of the construction project.10 chan roble svirtual lawlib rary

Appraiser Asian Appraisal Company, Inc.s evaluation resulted in the following percentage of completion:
47.53% of the residential building, 65.62% of the garage, and 13.32% of the swimming pool, fence, gate,
and land development.11 chan roblesv irtuallaw lib rary

On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that the company settle its obligations with
the Spouses Stroem. No response was received from Asis-Leif.12 chan roble svi rtual lawlib rary

On September 12, 2002, the Spouses Stroem filed a Complaint (with Prayer for Preliminary
Attachment)13 for breach of contract and for sum of money with a claim for damages against Asis-Leif, Ms.
Cynthia Asis-Leif, and Stronghold.14 Only Stronghold was served summons. Ms. Cynthia Asis-Leif allegedly
absconded and moved out of the country.15 chanroble svirtual lawlib rary

On July 13, 2010, the Regional Trial Court rendered a judgment in favor of the Spouses Stroem. The trial
court ordered Stronghold to pay the Spouses Stroem ?4,500,000.00 with 6% legal interest from the time of
first demand.16 The dispositive portion of the trial court Decision reads: chanRob lesvi rtua lLawl ibra ry

WHEREFORE, finding plaintiffs cause of action to be sufficiently established being supported by evidence
on records, judgement is hereby rendered in favor of the plaintiff spouses Rune and Lea Stroem and against
the defendant Stronghold Insurance Company Incorporated ordering the latter to pay the plaintiff the sums
of:
chanRoble svirtual Lawlib ra ry

1) Php4,500,000.00 with six (6%) percent legal interest from the time of first demand and interest due
shall earn legal interest from the time of judicial demand until fully paid.

2) Php35,000.00 by way of attorneys fees and other litigation expenses.

Defendant is further ordered to pay the costs of this suit.

SO ORDERED.17

Both Stronghold and the Spouses Stroem appealed to the Court of Appeals.18 chanro blesvi rt uallawl ibra ry

The Court of Appeals affirmed with modification the trial courts Decision. It increased the amount of
attorneys fees to ?50,000.00.19 chan roblesv irt uallawl ibra ry

The dispositive portion of the Court of Appeals Decision reads: chanRoble svirtual Lawli bra ry

WHEREFORE, the appeal of Stronghold Company, Inc[.] is DISMISSED, while the appeal of spouses Rune
and Lea Stroem is PARTLY GRANTED. The November 27, 2009 Decision of the Regional Trial Court of
Makati City is AFFIRMED with MODIFICATION that the award of attorneys fees is increased to
P50,000.00

SO ORDERED.20

On March 20, 2013, this court required the Spouses Stroem to submit their Comment on the Petition.21 chanro blesvi rt uallawli bra ry

We noted the Spouses Stroems Comment on July 31, 2013.22 We also required Stronghold to file its Reply
to the Comment,23 which was noted on December 9, 2013.24 chan roblesv irt uallawl ibra ry

Stronghold argues that the trial court did not acquire jurisdiction over the case and, therefore, the Court of
Appeals committed reversible error when it upheld the Decision of the Regional Trial Court.25 The lower
courts should have dismissed the case in view of the arbitration clause in the agreement and considering
that [Republic Act No. 876] explicitly confines the courts authority only to pass upon the issue of whether
there is [an] agreement . . . providing for arbitration. In the affirmative, the statute ordains that the court
shall issue an order summarily directing the parties to proceed with the arbitration in accordance with the
terms thereof.26 chanro blesvi rt uallawl ibra ry

Moreover, the stipulations in said Agreement are part and parcel of the conditions in the bond. Were it not
for such stipulations in said agreement, [Stronghold] would not have agreed to issue a bond in favor of the
Spouses Stroem. The parties to the bond are ALB/Ms. Asis-[L]eif, Spouses Stroem and [Stronghold] such
that ALB/Ms. Asis-[L]eif never ceased to be a party to the surety agreement.27 chanrob lesvi rtua llawli bra ry

In any case, Strongholds liability under the performance bond is limited only to additional costs for the
completion of the project.28 In addition, the Court of Appeals erred in holding that Stronghold changed its
theory with regard to the notice requirement29 and in modifying the trial courts award of attorneys
fees.30
chan roble svirtuallaw lib rary

On the other hand, the Spouses Stroem argue that Stronghold committed forum shopping warranting
dismissal of the case.31 According to the Spouses Stroem, Stronghold deliberately committed forum
shopping when it filed the present petition despite the pendency of the Spouses Stroems Motion for Partial
Reconsideration of the Court of Appeals Decision dated November 20, 2012.32 chan roble svirtual lawlib rary

More importantly, the Owners-Contractor Agreement is separate and distinct from the Bond. The parties to
the Agreement are ALB/Ms. Asis-Leif and Spouses Stroem, while the parties to the Bond are Spouses
Stroem and Stronghold. The considerations for the two contracts are likewise distinct. Thus, the arbitration
clause in the Agreement is binding only on the parties thereto, specifically ALB/Ms. Asis-Leif and Spouses
Stroem[.]33 chanrob lesvi rtual lawlib rary

Contrary to Strongholds argument, Spouses Stroem argues that stronghold is liable for the full amount of
the performance bond. The terms of the bond clearly show that Stronghold is liable as surety.34 Verily,
notice to Stronghold is not required for its liability to attach.35 chanroble svirtual lawlib rary

The issues for consideration are: chanRoble svirtual Lawli bra ry

(1) Whether the dispute involves a construction contract;

(2) Whether the CIAC has exclusive jurisdiction over the controversy
between the parties;
 (3) Whether the Regional Trial Court should have dismissed the petition
outright as required by law and jurisprudence and referred the
matter to the CIAC; and
(4) Whether petitioner Stronghold Insurance Company, Inc. is liable
under Performance Bond No. LP/G(13)83056.
(a) Whether petitioner Stronghold Insurance Company, Inc. is only
liable as to the extent of any additional cost for the completion of
the project due to any increase in prices for labor and materials.
(b) Whether the case involves ordinary suretyship or corporate
suretyship.
After considering the parties arguments and the records of this case, this court resolves to deny the
Petition.

On forum-shopping

Respondents argue that petitioner committed forum shopping; hence, the case should have been dismissed
outright.

Records show that petitioner received a copy of the Decision of the Court of Appeals on December 5,
2012.36 Petitioner did not file a Motion for Reconsideration of the assailed Decision. It filed before this court
a Motion for Extension of Time To File Petition for Review requesting an additional period of 30 days from
December 20, 2012 or until January 19, 2013 to file the Petition.37 chan roble svi rtual lawlib rary

Respondents filed their Motion for Partial Reconsideration of the Court of Appeals Decision on December 11,
2012.38 They sought the modification of the Decision as to the amounts of moral damages, exemplary
damages, attorneys fees, and costs of the suit.39 chanroblesv irtuallaw lib rary

Respondents alleged in their Comment that as early as January 9, 2013, petitioner received a copy of the
Court of Appeals Resolution requiring Comment on the Motion for Partial Reconsideration.40 Still, petitioner
did not disclose in its Verification and Certification Against Forum Shopping the pendency of respondents
Motion for Partial Reconsideration.41 chanroblesv irt uallawl ibra ry

For its part, petitioner claims that it did not commit forum shopping. It fully disclosed in its Petition that
what it sought to be reviewed was the Decision dated November 20, 2012 of the Court of
Appeals. Petitioner merely exercised its available remedy with respect to the Decision of the Court of
Appeals by filing [the] Petition.42 What the rules mandate to be stated in the Certification Against Forum
Shopping is the status of any other action. This other action involves the same issues and parties but is
an entirely different case.

Indeed, petitioner is guilty of forum shopping.

There is forum shopping when: chanRoble svi rtual Lawli bra ry

as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or
certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an administrative proceeding is
pending[.]43 (Citation omitted)

This court has enumerated the elements of forum-shopping: (a) identity of parties, or at least such parties
as represent the same interests in both actions; (b) identity of rights asserted and reliefs prayed for, the
reliefs being founded on the same facts; and (c) the identity with respect to the two preceding particulars in
the two cases is such that any judgment rendered in the pending cases, regardless of which party is
successful, amount to res judicata in the other case.44 chanrob lesvi rtu allawlib rary

Rule 42, Section 245 in relation to Rule 45, Section 4 of the Rules of Court mandates petitioner to submit a
Certification Against Forum Shopping and promptly inform this court about the pendency of any similar
action or proceeding before other courts or tribunals. The rules purpose is to deter the unethical practice of
pursuing simultaneous remedies in different forums, which wreaks havoc upon orderly judicial
procedure.46 Failure to comply with the rule is a sufficient ground for the dismissal of the petition.47 chan roble svi rtual lawlib rary

Records show that petitioners duly authorized officer certified the following on January 21, 2013: chanRoblesvi rt ualLaw lib rary

4. I further certify that: (a) I have not commenced any other action or proceeding involving the same issues
in the Supreme Court, Court of Appeals, or any other tribunal or agency; (b) to the best of my knowledge,
no such action or proceeding is pending in the Supreme Court, the Court of Appeals or different Divisions
thereof, or any tribunal or agency; (c) if I should thereafter learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different Divisions thereof, or
any other tribunal or agency, I undertake to promptly inform the aforesaid courts and such tribunal or
agency of the fact within five (5) days therefrom.48

Petitioner failed to carry out its duty of promptly informing this court of any pending action or proceeding
before this court, the Court of Appeals, or any other tribunal or agency. This court cannot countenance
petitioners disregard of the rules.

This court has held before that: chanRoblesvi rtua lLawl ibra ry

[u]ltimately, what is truly important to consider in determining whether forum-shopping exists or not is
the vexation caused the courts and parties-litigant by a party who asks different courts and/or
administrative agencies to rule on the same or related causes and/or to grant the same or substantially the
same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different
fora upon the same issue.49 (Emphasis supplied)

On this basis, this case should be dismissed.

On arbitration and the CIACs jurisdiction

Petitioner changed the theory of its case since its participation in the trial court proceedings. It raised the
issue of lack of jurisdiction in view of an arbitration agreement for the first time.

Generally, parties may not raise issues for the first time on appeal.50 Such practice is violative of the rules
and due process and is frowned upon by the courts. However, it is also well-settled that jurisdiction can
never be waived or acquired by estoppel.51 Jurisdiction is conferred by the Constitution or by law.52 Lack
of jurisdiction of the court over an action or the subject matter of an action cannot be cured by the silence,
by acquiescence, or even by express consent of the parties.53 chanrob lesvi rtua llawlib ra ry

Section 4 of Executive Order No. 100854 is clear in defining the exclusive jurisdiction of the CIAC: chanRoblesvirtual Lawlib rary

SECTION 4. Jurisdiction The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines, whether the
dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and
delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines. (Emphasis supplied)

Similarly, Section 35 of Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004 states: chanRoblesvi rtua lLawl ibrary

SEC. 35. Coverage of the Law. - Construction disputes which fall within the original and exclusive jurisdiction
of the Construction Industry Arbitration Commission (the Commission) shall include those between or
among parties to, or who are otherwise bound by, an arbitration agreement, directly or by reference
whether such parties are project owner, contractor, subcontractor, quantity surveyor, bondsman or issuer of
an insurance policy in a construction project.
The Commission shall continue to exercise original and exclusive jurisdiction over construction disputes
although the arbitration is commercial pursuant to Section 21 of this Act. (Emphasis supplied)

In Heunghwa Industry Co., Ltd., v. DJ Builders Corporation,55 this court held that there are two acts which
may vest the CIAC with jurisdiction over a construction dispute. One is the presence of an arbitration clause
in a construction contract, and the other is the agreement by the parties to submit the dispute to the
CIAC.56 chanrob lesvi rtua llawli bra ry

This court has ruled that when a dispute arises from a construction contract, the CIAC has exclusive and
original jurisdiction.57 Construction has been defined as referring to all on-site works on buildings or
altering structures, from land clearance through completion including excavation, erection and assembly and
installation of components and equipment.58 chanroblesv irt uallawl ibra ry

In this case, there is no dispute as to whether the Owners-Contractor Agreement between Asis-Leif and
respondents is a construction contract. Petitioner and respondents recognize that CIAC has jurisdiction over
disputes arising from the agreement.

What is at issue in this case is the parties agreement, or lack thereof, to submit the case to
arbitration. Respondents argue that petitioner is not a party to the arbitration agreement. Petitioner did not
consent to arbitration. It is only respondent and Asis-Leif that may invoke the arbitration clause in the
contract.

This court has previously held that a performance bond, which is meant to guarantee the supply of labor,
materials, tools, equipment, and necessary supervision to complete the project[,]59 is significantly and
substantially connected to the construction contract and, therefore, falls under the jurisdiction of the
CIAC.60chanroble svirtuallaw lib rary

Prudential Guarantee and Assurance Inc. v. Anscor Land, Inc.61 involved circumstances similar to the
present case. In Prudential, property owner Anscor Land, Inc. (ALI) entered into a contract for the
construction of an eight-unit townhouse located in Capitol Hills, Quezon City with contractor Kraft Realty and
Development Corporation (KRDC).62 KRDC secured the completion of the construction project through a
surety and performance bond issued by Prudential Guarantee and Assurance Inc. (PGAI).63 chanroble svirtual lawlib rary

The delay in the construction project resulted in ALIs termination of the contract and claim against the
performance bond.64 ALI [subsequently] commenced arbitration proceedings against KRDC and PGAI in the
CIAC.65 PGAI, however, argued that it was not a party to the construction contract.66 chan roble svirtuallaw lib rary

The CIAC ruled that PGAI was not liable under the performance bond.67 Upon review, the Court of Appeals
held that PGAI was jointly and severally liable with KRDC under the performance bond.68 chanroblesv irt uallawl ibra ry

PGAI appealed the Court of Appeals Decision and claimed that CIAC did not have jurisdiction over the
performance bond.69 This court ruled: cha nRoblesv irt ual Lawlib rary

A guarantee or a surety contract under Article 2047 of the Civil Code of the Philippines is an accessory
contract because it is dependent for its existence upon the principal obligation guaranteed by it.

In fact, the primary and only reason behind the acquisition of the performance bond by KRDC was to
guarantee to ALI that the construction project would proceed in accordance with the contract terms and
conditions. In effect, the performance bond becomes liable for the completion of the construction project in
the event KRDC fails in its contractual undertaking.

Because of the performance bond, the construction contract between ALI and KRDC is guaranteed to be
performed even if KRDC fails in its obligation. In practice, a performance bond is usually a condition or a
necessary component of construction contracts. In the case at bar, the performance bond was so connected
with the construction contract that the former was agreed by the parties to be a condition for the latter to
push through and at the same time, the former is reliant on the latter for its existence as an accessory
contract.

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 EO No. 1008, which has jurisdiction over any dispute arising from or connected
with it.70 (Emphasis supplied, citations omitted)

At first look, the Owners-Contractor Agreement and the performance bond reference each other; the
performance bond was issued pursuant to the construction agreement.

A performance bond is a kind of suretyship agreement. A suretyship agreement is 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 another party, called the obligee.71 In the same vein, a
performance bond is designed to afford the project owner security that the . . . contractor, will faithfully
comply with the requirements of the contract . . . and make good [on the] damages sustained by the project
owner in case of the contractors failure to so perform.72 chan roblesv irt uallawl ibrary

It is settled that the suretys solidary obligation for the performance of the principal debtors obligation is
indirect and merely secondary.73 Nevertheless, the suretys liability to the creditor or promisee of the
principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the
principal.74 cha nrob lesvi rtua llawlib ra ry

Verily, [i]n enforcing a surety contract, the complementary-contracts-construed-together doctrine finds

application. According to this principle, an accessory contract must be read in its entirety and together with
the principal agreement.75 Article 1374 of the Civil Code provides: chanRoble svi rtual Lawli bra ry

ART. 1374. 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.

Applying the complementary-contracts-construed-together doctrine, this court in Prudential held that the
surety willingly acceded to the terms of the construction contract despite the silence of the performance
bond as to arbitration: chanRoblesvi rtua lLawl ibrary

In the case at bar, the performance bond was silent with regard to arbitration. On the other hand, the
construction contract was clear as to arbitration in the event of disputes. Applying the said doctrine, we rule
that the silence of the accessory contract in this case could only be construed as acquiescence to the main
contract. The construction contract breathes life into the performance bond. We are not ready to assume
that the performance bond contains reservations with regard to some of the terms and conditions in the
construction contract where in fact it is silent. On the other hand, it is more reasonable to assume that the
party who issued the performance bond carefully and meticulously studied the construction contract that it
guaranteed, and if it had reservations, it would have and should have mentioned them in the surety
contract.76 (Emphasis supplied)

This court, however, cannot apply the ruling in Prudential to the present case. Several factors
militate against petitioners claim.

The contractual stipulations in this case and in Prudential are different. The relevant provisions of the
Owners-Contractor Agreement in this case state: chanRoblesvirtual Lawlib rary

ARTICLE 5. THE CONTRACT DOCUMENTS

The following documents prepared by the CONTRACTOR shall constitute an integral part of this contract as
fully as if hereto attached or herein stated, except as otherwise modified by mutual agreement of parties,
and attached to this agreement.

Attachment 5.1 Working Drawings

Attachment 5.2 Outline Specifications
Attachment 5.3 Bill of Quantities
Attachment 5.4 CONTRACTOR Business License
.... cralawred

ARTICLE 7. PERFORMANCE (SURETY) BOND

7.1 Within 30 days of the signing of this agreement, CONTRACTOR shall provide to OWNERS a
performance bond, issued by a duly licensed authority acceptable to the OWNERS, and equal to the amount
of PHP 4,500,000.00 (Four Million and Five Hundred Thousand Philippine Pesos), with
the OWNERS as beneficiary.

7.2 The performance bond will guarantee the satisfactory and faithful performance by the CONTRACTOR of
all provisions stated within this contract.

ARTICLE 8. ARBITRATION

8.1 Any dispute between the parties hereto which cannot be amicably settled shall be finally
settled by arbitration in accordance with the provision of Republic Act 876, of The Philippines, as
amended by the Executive Order 1008 dated February 4, 1985.77 (Emphasis in the original)

In contrast, the provisions of the construction contract in Prudential provide: c hanRoble svirtual Lawli bra ry

Article 1
CONTRACT DOCUMENTS

1.1 The following shall form part of this Contract and together with this Contract, are known as the
Contract Documents: chanRoblesvirtual Lawlib rary

a. Bid Proposal

....

d. Notice to proceed

....

j. Appendices A & B (respectively, Surety Bond for Performance and, Supply of Materials by the
Developer)78 (Emphasis supplied)

This court in Prudential held that the construction contract expressly incorporated the performance bond into
the contract.79 In the present case, Article 7 of the Owners-Contractor Agreement merely stated that a
performance bond shall be issued in favor of respondents, in which case petitioner and Asis-Leif Builders
and/or Ms. Ma. Cynthia Asis-Leif shall pay P4,500,000.00 in the event that Asis-Leif fails to perform its duty
under the Owners-Contractor Agreement.80 Consequently, the performance bond merely referenced the
contract entered into by respondents and Asis-Leif, which pertained to Asis-Leifs duty to construct a two-
storey residence building with attic, pool, and landscaping over respondents property.81 chanro blesvi rt uallawl ibra ry

To be clear, it is in the Owners-Contractor Agreement that the arbitration clause is found. The construction
agreement was signed only by respondents and the contractor, Asis-Leif, as represented by Ms. Ma. Cynthia
Asis-Leif. It is basic that [c]ontracts take effect only between the parties, their assigns and heirs[.]82 Not
being a party to the construction agreement, petitioner cannot invoke the arbitration clause. Petitioner,
thus, cannot invoke the jurisdiction of the CIAC.

Moreover, petitioners invocation of the arbitration clause defeats the purpose of arbitration in
relation to the construction business. The state has continuously encouraged the use of dispute
resolution mechanisms to promote party autonomy.83 In LICOMCEN, Incorporated v. Foundation Specialists,
Inc.,84 this court upheld the CIACs jurisdiction in line with the states policy to promote arbitration: chanRob lesvi rtua lLawl ibra ry

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.85 (Citation omitted)

However, where a surety in a construction contract actively participates in a collection suit, it is estopped
from raising jurisdiction later. Assuming that petitioner is privy to the construction agreement, we cannot
allow petitioner to invoke arbitration at this late stage of the proceedings since to do so would go against the
laws goal of prompt resolution of cases in the construction industry.

WHEREFORE, the petition is DENIED. The case is DISMISSED. Petitioners counsel is STERNLY
WARNED that a repetition or similar violation of the rule on Certification Against Forum Shopping will be
dealt with more severely.

SO ORDERED.

G.R. No. 212081, February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner, v. UNITED

PLANNERS CONSULTANTS, INC. (UPCI), Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated March 26, 2014 of the Court of
Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the
Department of Environment and Natural Resources (petitioner). cha nrob lesvi rtua llawlib ra ry

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an Agreement for
Consultancy Services3 (Consultancy Agreement) with respondent United Planners Consultants, Inc.
(respondent) in connection with the LMBs Land Resource Management Master Plan Project (LRMMP).4Under
the Consultancy Agreement, petitioner committed to pay a total contract price of P4,337,141.00, based on a
predetermined percentage corresponding to the particular stage of work accomplished.5 In December 1994,
respondent completed the work required, which petitioner formally accepted on December 27,
1994.6 However, petitioner was able to pay only 47% of the total contract price in the amount of
P2,038,456.30.7 cralawred

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office Report8(TSO)
finding the contract price of the Agreement to be 84.14% excessive.9 This notwithstanding, petitioner, in a
letter dated December 10, 1998, acknowledged its liability to respondent in the amount of P2,239,479.60
and assured payment at the soonest possible time.10 c ralaw red

For failure to pay its obligation under the Consultancy Agreement despite repeated demands, respondent
instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon City, Branch 222 (RTC),
docketed as Case No. Q-07-60321.12 cralaw red

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the arbitration
clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a result, Atty. Alfredo F.
Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission (CIAC) Accredited
Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral Tribunal. The court-referred
arbitration was then docketed as Arbitration Case No. A-001.15 cralaw red

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing
Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings.17 They further agreed to
submit their respective draft decisions in lieu of memoranda of arguments on or before April 21, 2010,
among others.18 cralawred

On the due date for submission of the draft decisions, however, only respondent complied with the given
deadline,19 while petitioner moved for the deferment of the deadline which it followed with another motion
for extension of time, asking that it be given until May 11, 2010 to submit its draft decision.20 c ralawred

In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioners motions and deemed its non-
submission as a waiver, but declared that it would still consider petitioners draft decision if submitted before
May 7, 2010, or the expected date of the final awards promulgation.22 Petitioner filed its draft
decision23 only on May 7, 2010.

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent,
directing petitioner to pay the latter the amount of (a) P2,285,089.89 representing the unpaid progress
billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral Award upon
confirmation by the RTC until fully paid; (b) P2,033,034.59 as accrued interest thereon; (c) ?500,000.00 as
exemplary damages; and (d) P150,000.00 as attorneys fees.25 It also ordered petitioner to reimburse
respondent its proportionate share in the arbitration costs as agreed upon in the amount of P182,119.44.26 cralawred

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely noted without
any action, claiming that it had already lost jurisdiction over the case after it had submitted to the RTC its
Report together with a copy of the Arbitral Award.28 cralawred

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19, 2010 (May 19,
2010 Motion for Reconsideration) and a Manifestation and Motion30 dated June 1, 2010 (June 1, 2010
Manifestation and Motion), asserting that it was denied the opportunity to be heard when the Arbitral
Tribunal failed to consider its draft decision and merely noted its motion for reconsideration.31 It also denied
receiving a copy of the Arbitral Award by either electronic or registered mail.32 For its part, respondent filed
an opposition thereto and moved for the confirmation33 of the Arbitral Award in accordance with the Special
Rules of Court on Alternative Dispute Resolution (Special ADR Rules).34 cralawre d

In an Order35 dated March 30, 2011, the RTC merely noted petitioners aforesaid motions, finding that
copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal, including the
OSG, contrary to petitioners claim. On the other hand, the RTC confirmed the Arbitral Award pursuant to
Rule 11.2 (A)36 of the Special ADR Rules and ordered petitioner to pay respondent the costs of confirming
the award, as prayed for, in the total amount of P50,000.00. From this order, petitioner did not file a motion
for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner despite the RTCs directive therefor. In an Order37 dated
September 12, 2011, the RTC granted respondents motion.38 cralawre d

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its monetary
claims. It also claimed that the issuance of said writ was premature since the RTC should have first resolved
its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation and Motion, and not merely
noted them, thereby violating its right to due process.40 c ralawre d

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioners motion to quash.

It found no merit in petitioners contention that it was denied due process, ruling that its May 19, 2010
Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the CIAC Rules. It
explained that the available remedy to assail an arbitral award was to file a motion for correction of final
award pursuant to Section 17.143 of the CIAC Rules, and not a motion for reconsideration of the said award
itself.44 On the other hand, the RTC found petitioners June 1, 2010 Manifestation and Motion seeking the
resolution of its May 19, 2010 Motion for Reconsideration to be defective for petitioners failure to observe
the three-day notice rule.45 Having then failed to avail of the remedies attendant to an order of confirmation,
the Arbitral Award had become final and executory.46 cralawred

On July 12, 2012, petitioner received the RTCs Order dated July 9, 2012 denying its motion to quash.47 cralawred

Dissatisfied, it filed on September 10, 2012 a petition for certiorari48 before the CA, docketed as CA-G.R.
SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in confirming and
ordering the execution of the Arbitral Award. chanroble svi rtual lawlib rary

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds, namely:
(a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under Rule
19.750 of the Special ADR Rules;51 and (b) the petition was filed out of time, having been filed way beyond
15 days from notice of the RTCs July 9, 2012 Order, in violation of Rule 19.2852 in relation to Rule 19.853 of
said Rules which provide that a special civil action for certiorari must be filed before the CA within 15 days
from notice of the judgment, order, or resolution sought to be annulled or set aside (or until July
27, 2012).

Aggrieved, petitioner filed the instant petition. chanroblesv irt uallawl ibra ry

The Issue Before the Court

The core issue for the Courts resolution is whether or not the CA erred in applying the provisions of the
Special ADR Rules, resulting in the dismissal of petitioners special civil action for certiorari.

The Courts Ruling

The petition lacks merit. chan roble svirtual lawlib rary

I.

Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004,
institutionalized the use of an Alternative Dispute Resolution System (ADR System)55 in the Philippines. The
Act, however, was without prejudice to the adoption by the Supreme Court of any ADR system as a means
of achieving speedy and efficient means of resolving cases pending before all courts in the Philippines.56 cra lawred

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on Alternative
Dispute Resolution (referred herein as Special ADR Rules) that shall govern the procedure to be followed by
the courts whenever judicial intervention is sought in ADR proceedings in the specific cases where it is
allowed.57c ralawre d

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely: (a)
Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b) Referral to
Alternative Dispute Resolution (ADR); (c) Interim Measures of Protection; (d) Appointment of
Arbitrator; (e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator; (g)
Assistance in Taking Evidence; (h) Confirmation, Correction or Vacation of Award in Domestic Arbitration; (i)
Recognition and Enforcement or Setting Aside of an Award in International Commercial Arbitration; (j)
Recognition and Enforcement of a Foreign Arbitral Award; (k) Confidentiality/Protective Orders; and (l)
Deposit and Enforcement of Mediated Settlement Agreements.58 cralawred

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A pivotal
feature of arbitration as an alternative mode of dispute resolution is that it is a product of party autonomy or
the freedom of the parties to make their own arrangements to resolve their own disputes.59 Thus,
Rule 2.3 of the Special ADR Rules explicitly provides that parties are free to agree on the procedure to
be followed in the conduct of arbitral proceedings. Failing such agreement, the arbitral tribunal may
conduct arbitration in the manner it considers appropriate.60 cralawred

In the case at bar, the Consultancy Agreement contained an arbitration clause.61 Hence, respondent, after it
filed its complaint, moved for its referral to arbitration62 which was not objected to by petitioner.63 By its
referral to arbitration, the case fell within the coverage of the Special ADR Rules. However, with respect to
the arbitration proceedings itself, the parties had agreed to adopt the CIAC Rules before the Arbitral Tribunal
in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under Section
17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought, but any of the
parties may file a motion for correction64 of the final award, which shall interrupt the running of the period
for appeal,65 based on any of the following grounds, to wit: chanRob lesvi rtua lLawl ibra ry

a. an evident miscalculation of figures, a typographical or arithmetical error; ChanRoble sVirtualawl ibra ry

b. an evident mistake in the description of any party, person, date, amount, thing or property referred
to in the award; ChanRoblesVi rt ualawlib ra ry

c. where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits
of the decision upon the matter submitted; ChanRoble sVirtualawl ibra ry
 d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the parties in
the Terms of Reference (TOR) and submitted to them for resolution, and

e. where the award is imperfect in a matter of form not affecting the merits of the controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining members.66 cra lawlawlib ra ry

Moreover, the parties may appeal the final award to the CA through a petition for review under Rule 43 of
the Rules of Court.67cralawred

Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it filed the
May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited pleading under the
Section 17.2,68 Rule 17 of the CIAC Rules, thus rendering the same final and executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of the
Special ADR Rules which requires confirmation by the court of the final arbitral award. This is consistent with
Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation of a domestic award to
make the same enforceable: chanRoble svirtual Lawlib ra ry

SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be governed by
Section 2369 of R.A. 876.70 cralawred

A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the regional trial court.

The confirmation of a domestic award shall be made by the regional trial court in accordance
with the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under
E.O. No. 1008. (Emphases supplied) cra lawlawlib rary

During the confirmation proceedings, petitioners did not oppose the RTCs confirmation by filing a petition to
vacate the Arbitral Award under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it seek
reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead, petitioner filed
only on September 10, 2012 a special civil action for certiorari before the CA questioning the propriety of (a)
the RTC Order dated September 12, 2011 granting respondents motion for issuance of a writ of execution,
and (b) Order dated July 9, 2012 denying its motion to quash. Under Rule 19.26 of the Special ADR Rules,
[w]hen the Regional Trial Court, in making a ruling under the Special ADR Rules, has acted without or in
excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and
there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law, a
party may file a special civil action for certiorari to annul or set aside a ruling of the Regional Trial
Court. Thus, for failing to avail of the foregoing remedies before resorting to certiorari, the CA correctly
dismissed its petition. cha nrob lesvi rtua llawlib ra ry

II.

Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul or set
aside the following orders of the Regional Trial Court.

a. Holding that the arbitration agreement is inexistent, invalid or unenforceable; ChanRob les Vi rtualaw lib rary

b. Reversing the arbitral tribunals preliminary determination upholding its jurisdiction; ChanRobles Vi rtualaw lib rary

c. Denying the request to refer the dispute to arbitration; ChanRobles Vi rt u alawlibra ry

d. Granting or refusing an interim relief; ChanRob les Virtualawl ibra ry

e. Denying a petition for the appointment of an arbitrator; ChanRobles Virtualawl ibra ry

f. Confirming, vacating or correcting a domestic arbitral award; ChanRobles Vi rtualaw lib rary
 g. Suspending the proceedings to set aside an international commercial arbitral award and referring
the case back to the arbitral tribunal; ChanRobles Vi rt ualawlib ra ry

h. Allowing a party to enforce an international commercial arbitral award pending appeal; ChanRobles Vi rtua lawlib rary

i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an international
commercial arbitral award; ChanRobles Vi rtualaw lib rary

j. Allowing a party to enforce a foreign arbitral award pending appeal; and

k. Denying a petition for assistance in taking evidence. (Emphasis supplied)

cralawlawl ibra ry

Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition
for certiorari questioning the merits of an arbitral award.

If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that
said certiorari petition should be filed with the [CA] within fifteen (15) days from notice of the judgment,
order or resolution sought to be annulled or set aside. No extension of time to file the petition shall be
allowed.

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly, Rule
19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the Rules of Court
(particularly, Section 4 thereof on the 60-day reglementary period to file a petition for certiorari), which it
claimed to have suppletory application in arbitration proceedings since the Special ADR Rules do not
explicitly provide for a procedure on execution.

The position is untenable.

Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left unexecuted,
would be nothing but an empty victory for the prevailing party.73 cralawred

While it appears that the Special ADR Rules remain silent on the procedure for the execution of a confirmed
arbitral award, it is the Courts considered view that the Rules procedural mechanisms cover not only
aspects of confirmation but necessarily extend to a confirmed awards execution in light of the doctrine of
necessary implication which states that every statutory grant of power, right or privilege is deemed to
include all incidental power, right or privilege. In Atienza v. Villarosa,74 the doctrine was explained, thus: chanRoblesvi rtua lLawl ibra ry

No statute can be enacted that can provide all the details involved in its application. There is always an
omission that may not meet a particular situation. What is thought, at the time of enactment, to be an all-
embracing legislation may be inadequate to provide for the unfolding of events of the future. So-called gaps
in the law develop as the law is enforced. One of the rules of statutory construction used to fill in the gap is
the doctrine of necessary implication. The doctrine states that what is implied in a statute is as much a part
thereof as that which is expressed. Every statute is understood, by implication, to contain all such
provisions as may be necessary to effectuate its object and purpose, or to make effective rights,
powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary
consequences as may be fairly and logically inferred from its terms. Ex necessitate legis. And
every statutory grant of power, right or privilege is deemed to include all incidental power, right
or privilege. This is so because the greater includes the lesser, expressed in the maxim, in eo plus sit,
simper inest et minus.75 (Emphases supplied) c ralawlawli bra ry

As the Court sees it, execution is but a necessary incident to the Courts confirmation of an arbitral award.
To construe it otherwise would result in an absurd situation whereby the confirming court previously
applying the Special ADR Rules in its confirmation of the arbitral award would later shift to the regular Rules
of Procedure come execution. Irrefragably, a courts power to confirm a judgment award under the Special
ADR Rules should be deemed to include the power to order its execution for such is but a collateral and
subsidiary consequence that may be fairly and logically inferred from the statutory grant to regional trial
courts of the power to confirm domestic arbitral awards.

All the more is such interpretation warranted under the principle of ratio legis est anima which provides that
a statute must be read according to its spirit or intent,76 for what is within the spirit is within the statute
although it is not within its letter, and that which is within the letter but not within the spirit is not within the
statute.77 Accordingly, since the Special ADR Rules are intended to achieve speedy and efficient resolution of
disputes and curb a litigious culture,78 every interpretation thereof should be made consistent with these
objectives.

Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as practicable,
should be made to apply not only to the proceedings on confirmation but also to the confirmed awards
execution.

Further, let it be clarified that contrary to petitioners stance resort to the Rules of Court even in a
suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that [t]he
provisions of the Rules of Court that are applicable to the proceedings enumerated in Rule 1.1 of these
Special ADR Rules have either been included and incorporated in these Special ADR Rules or specifically
referred to herein.79 Besides, Rule 1.13 thereof provides that [i]n situations where no specific rule is
provided under the Special ADR Rules, the court shall resolve such matter summarily and be guided by the
spirit and intent of the Special ADR Rules and the ADR Laws.

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed within a
period of fifteen (15) days from notice of the judgment, order or resolution sought to be annulled or set
aside.80 Hence, since petitioners filing of its certiorari petition in CA-G.R. SP No. 126458 was made nearly
two months after its receipt of the RTCs Order dated July 9, 2012, or on September 10, 2012,81 said
petition was clearly dismissible.82c ralawre d

III.

Discounting the above-discussed procedural considerations, the Court still finds that the certiorari petition
had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show that it
was accorded ample opportunity to ventilate its position. There was clearly nothing out of line when the
Arbitral Tribunal denied petitioners motions for extension to file its submissions having failed to show a valid
reason to justify the same or in rendering the Arbitral Award sans petitioners draft decision which was filed
only on the day of the scheduled promulgation of final award on May 7, 2010.83 The touchstone of due
process is basically the opportunity to be heard. Having been given such opportunity, petitioner should only
blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed. chan roble svirtuallaw lib rary

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral Award
against the petitioner, a government agency, in the light of Presidential Decree No. (PD) 144584otherwise
known as the Government Auditing Code of the Philippines.

Section 26 of PD 1445 expressly provides that execution of money judgment against the Government or any
of its subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit: chanRoblesvi rtua lLawl ibra ry

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten
years, the examination and inspection of the books, records, and papers relating to those
accounts; and the audit and settlement of the accounts of all persons respecting funds or
property received or held by them in an accountable capacity, as well as the examination, audit,
and settlement of all debts and claims of any sort due from or owing to the Government or any of
its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or
agencies of the Government, and as herein prescribed, including non-governmental entities subsidized by
the government, those funded by donation through the government, those required to pay levies or
government share, and those for which the government has put up a counterpart fund or those partly
funded by the government. (Emphases supplied)
cralawlawl ibra ry
From the foregoing, the settlement of respondents money claim is still subject to the primary jurisdiction of
the COA despite finality of the confirmed arbitral award by the RTC pursuant to the Special ADR
Rules.85 Hence, the respondent has to first seek the approval of the COA of their monetary claim. This
appears to have been complied with by the latter when it filed a Petition for Enforcement and Payment of
Final and Executory Arbitral Award86 before the COA. Accordingly, it is now the COA which has the
authority to rule on this latter petition.

WHEREFORE, the petition is DENIED. The Decision dated March 26, 2014 of the Court of Appeals in CA-
G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the Department of
Environment and Natural Resources is hereby AFFIRMED.

SO ORDERED. cralawlawlibra ry

G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,

vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B.
COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.

DECISION

LEONEN, J.:

Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a

contract entered into by the corporation they represent if there are allegations of bad faith or malice
in their acts representing the corporation.

This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5,
2006 resolution. The Court of Appeals affirmed the trial court's decision holding that petitioners, as
director, should submit themselves as parties tothe arbitration proceedings between BF Corporation
and Shangri-La Properties, Inc. (Shangri-La).

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-
Laand the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes,
Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.1

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into
agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel
parking structure along EDSA.2

Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
statements.3However, by October 1991, Shangri-La started defaulting in payment.4

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of
the buildings using its own funds and credit despite Shangri-Las default.5 According to BF
Corporation, ShangriLa misrepresented that it had funds to pay for its obligations with BF
Corporation, and the delay in payment was simply a matter of delayed processing of BF
Corporations progress billing statements.6

BF Corporation eventually completed the construction of the buildings.7 Shangri-La allegedly took
possession of the buildings while still owing BF Corporation an outstanding balance.8
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed
to it.9 It also alleged that the Shangri-Las directors were in bad faith in directing Shangri-Las affairs.
Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well
as for the damages that BF Corporation incurred as a result of Shangri-Las default.10

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and
Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporations failure to
submit its dispute to arbitration, in accordance with the arbitration clauseprovided in its contract,
quoted in the motion as follows:11

35. Arbitration

(1) 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 there under or inconnection therewith (including any matter or thing 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.

xxx xxx xxx

(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any right of legal action that either party may have
against the other. . . .12 (Underscoring in the original)

On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13

In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
proceedings.14

On December 8, 1993, petitioners filed an answer to BF Corporations complaint, with compulsory

counter claim against BF Corporation and crossclaim against Shangri-La.15 They alleged that they
had resigned as members of Shangri-Las board of directors as of July 15, 1991.16

After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its
November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III,
and Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17

On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission
of the dispute to arbitration.18

Aggrieved by the Court of Appeals decision, BF Corporation filed a petition for review on certiorari
with this court.19 On March 27, 1998, this court affirmed the Court of Appeals decision, directing that
the dispute be submitted for arbitration.20
Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation and
Shangri-La failed to agree as to the law that should govern the arbitration proceedings.21 On October
27, 1998, the trial court issued the order directing the parties to conduct the proceedings in
accordance with Republic Act No. 876.22

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both
seeking to clarify the term, "parties," and whether Shangri-Las directors should be included in the
arbitration proceedings and served with separate demands for arbitration.23

Petitioners filed their comment on Shangri-Las and BF Corporations motions, praying that they be
excluded from the arbitration proceedings for being non-parties to Shangri-Las and BF
Corporations agreement.24

On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all
defendants in BF Corporations complaint.25 According to the trial court, Shangri-Las directors were
interested parties who "must also be served with a demand for arbitration to give them the
opportunity to ventilate their side of the controversy, safeguard their interest and fend off their
respective positions."26 Petitioners motion for reconsideration ofthis order was denied by the trial
court on January 19, 2005.27

Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of discretion
in the issuance of orders compelling them to submit to arbitration proceedings despite being third
parties to the contract between Shangri-La and BF Corporation.28

In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners petition for certiorari. The
Court of Appeals ruled that ShangriLas directors were necessary parties in the arbitration
proceedings.30 According to the Court of Appeals:

[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code, and that as
directors of the defendant corporation, [they], in accordance with Art. 1217 of the Civil Code, stand to
be benefited or injured by the result of the arbitration proceedings, hence, being necessary parties,
they must be joined in order to have complete adjudication of the controversy. Consequently, if [they
were] excluded as parties in the arbitration proceedings and an arbitral award is rendered, holding
[Shangri-La] and its board of directors jointly and solidarily liable to private respondent BF
Corporation, a problem will arise, i.e., whether petitioners will be bound bysuch arbitral award, and
this will prevent complete determination of the issues and resolution of the controversy.31

The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . . would
be contrary to the policy against multiplicity of suits."32

The dispositive portion of the Court of Appeals decision reads:

WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January 19,
2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED.33

The Court of Appeals denied petitioners motion for reconsideration in the October 5, 2006
resolution.34

On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals
decision and the October 5, 2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made parties to the arbitration proceedings,
pursuant to the arbitration clause provided in the contract between BF Corporation and Shangri-La.

Petitioners argue that they cannot be held personally liable for corporate acts or obligations.36 The
corporation is a separate being, and nothing justifies BF Corporations allegation that they are
solidarily liable with Shangri-La.37Neither did they bind themselves personally nor did they undertake
to shoulder Shangri-Las obligations should it fail in its obligations.38 BF Corporation also failed to
establish fraud or bad faith on their part.39

Petitioners also argue that they are third parties to the contract between BF Corporation and
Shangri-La.40Provisions including arbitration stipulations should bind only the parties.41 Based on our
arbitration laws, parties who are strangers to an agreement cannot be compelled to arbitrate.42

Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to submit to arbitration is against this purpose and may
be tantamount to stipulating for the parties.44

Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III, Alfredo
C.Ramos and Benjamin C. Ramos.45

Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that
Shangri-Lasdirectors, being non-parties to the contract, should not be made personally liable for
Shangri-Las acts.46Since the contract was executed only by BF Corporation and Shangri-La, only
they should be affected by the contracts stipulation.47 BF Corporation also failed to specifically allege
the unlawful acts of the directors that should make them solidarily liable with Shangri-La for its
obligations.48

Meanwhile, in its comment, BF Corporation argued that the courts ruling that the parties should
undergo arbitration "clearly contemplated the inclusion of the directors of the corporation[.]"49 BF
Corporation also argued that while petitioners were not parties to the agreement, they were still
impleaded under Section 31 of the Corporation Code.50 Section 31 makes directors solidarily liable
for fraud, gross negligence, and bad faith.51Petitioners are not really third parties to the agreement
because they are being sued as Shangri-Las representatives, under Section 31 of the Corporation
Code.52

BF Corporation further argued that because petitioners were impleaded for their solidary liability,
they are necessary parties to the arbitration proceedings.53 The full resolution of all disputes in the
arbitration proceedings should also be done in the interest of justice.54

In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral
Tribunal had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied BF
Corporations claims against them.56 Petitioners stated that "[they] were included by the Arbitral
Tribunal in the proceedings conducted . . . notwithstanding [their] continuing objection thereto. . .
."57 They also stated that "[their] unwilling participation in the arbitration case was done ex abundante
ad cautela, as manifested therein on several occasions."58 Petitioners informed the court that they
already manifested with the trial court that "any action taken on [the Arbitral Tribunals decision]
should be without prejudice to the resolution of [this] case."59

Upon the courts order, petitioners and Shangri-La filed their respective memoranda. Petitioners and
Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated their arguments that
they should not be held liable for Shangri-Las default and made parties to the arbitration
proceedings because only BF Corporation and Shangri-La were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability
under Section 31 of the Corporation Code. Shangri-La added that their exclusion from the arbitration
proceedings will result in multiplicity of suits, which "is not favored in this jurisdiction."60 It pointed out
that the case had already been mooted by the termination of the arbitration proceedings, which
petitioners actively participated in.61 Moreover, BF Corporation assailed only the correctness of the
Arbitral Tribunals award and not the part absolving Shangri-Las directors from liability.62

BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required

memorandum.

In its counter-manifestation, BF Corporation pointed out that since "petitioners counterclaims were
already dismissed with finality, and the claims against them were likewise dismissed with finality,
they no longer have any interest orpersonality in the arbitration case. Thus, there is no longer any
need to resolve the present Petition, which mainly questions the inclusion of petitioners in the
arbitration proceedings."64 The courts decision in this case will no longer have any effect on the
issue of petitioners inclusion in the arbitration proceedings.65

The petition must fail.

The Arbitral Tribunals decision, absolving petitioners from liability, and its binding effect on BF
Corporation, have rendered this case moot and academic.

The mootness of the case, however, had not precluded us from resolving issues so that principles
may be established for the guidance of the bench, bar, and the public. In De la Camara v. Hon.
Enage,66 this court disregarded the fact that petitioner in that case already escaped from prison and
ruled on the issue of excessive bails:

While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted,
still, as set forth at the opening of this opinion, the fact that this case is moot and academic should
not preclude this Tribunal from setting forth in language clear and unmistakable, the obligation of
fidelity on the part of lower court judges to the unequivocal command of the Constitution that
excessive bail shall not be required.67

This principle was repeated in subsequent cases when this court deemed it proper to clarify
important matters for guidance.68

Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in
accordance with Shangri-Laand BF Corporations agreement, in order to determine if the distinction
between Shangri-Las personality and their personalities should be disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid litigation
and settle disputes amicably and more expeditiously by themselves and through their choice of
arbitrators.

The policy in favor of arbitration has been affirmed in our Civil Code,69 which was approved as early
as 1949. It was later institutionalized by the approval of Republic Act No. 876,70 which expressly
authorized, made valid, enforceable, and irrevocable parties decision to submit their controversies,
including incidental issues, to arbitration. This court recognized this policy in Eastboard Navigation,
Ltd. v. Ysmael and Company, Inc.:71
As a corollary to the question regarding the existence of an arbitration agreement, defendant raises
the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to arbitration, said
agreement is void and without effect for it amounts to removing said dispute from the jurisdiction of
the courts in which the parties are domiciled or where the dispute occurred. It is true that there are
authorities which hold that "a clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone, is contrary to public policy and cannot oust
the courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603),
however, there are authorities which favor "the more intelligent view that arbitration, as an
inexpensive, speedy and amicable method of settling disputes, and as a means of avoiding litigation,
should receive every encouragement from the courts which may be extended without contravening
sound public policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern
view when it reproduced in the new Civil Code the provisions of the old Code on Arbitration. And
only recently it approved Republic Act No. 876 expressly authorizing arbitration of future
disputes.72 (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are
liberally construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc.,73 this court said:

Being an inexpensive, speedy and amicable method of settling disputes, 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. It is thus regarded as the "wave of the future" in international civil and commercial
disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be
a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.74(Emphasis supplied)

A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations
that would render effective an arbitration clause was later expressed in Republic Act No. 9285:75

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements
to resolve their disputes. Towards this end, the State shall encourage and actively promote the use
of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. As such, the State shall provide means for the use of ADR as an
efficient tool and an alternative procedure for the resolution of appropriate cases. Likewise, the State
shall enlist active private sector participation in the settlement of disputes through ADR. This Act
shall be without prejudice to the adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof as a means of achieving speedy and
efficient means of resolving cases pending before all courts in the Philippines which shall be
governed by such rules as the Supreme Court may approve from time to time.

....

SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the
policy of the law in favor of arbitration.Where action is commenced by or against multiple parties,
one or more of whomare parties who are bound by the arbitration agreement although the civil action
may continue as to those who are not bound by such arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for purposes
ofavoiding litigation and expediting resolution of the dispute, that interpretation shall be adopted.
Petitioners main argument arises from the separate personality given to juridical persons vis--vis
their directors, officers, stockholders, and agents. Since they did not sign the arbitration agreement
in any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration Tribunal in
accordance with the arbitration agreement. Moreover, they had already resigned as directors of
Shangri-Laat the time of the alleged default.

Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and
distinct from Shangri-La.

A corporation is an artificial entity created by fiction of law.76 This means that while it is not a person,
naturally, the law gives it a distinct personality and treats it as such. A corporation, in the legal
sense, is an individual with a personality that is distinct and separate from other persons including its
stockholders, officers, directors, representatives,77 and other juridical entities. The law vests in
corporations rights,powers, and attributes as if they were natural persons with physical existence
and capabilities to act on their own.78 For instance, they have the power to sue and enter into
transactions or contracts. Section 36 of the Corporation Code enumerates some of a corporations
powers, thus:

Section 36. Corporate powers and capacity. Every corporation incorporated under this Code has
the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury
stocks in accordance with the provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;
 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and

11. To exercise such other powers asmay be essential or necessary to carry out its purpose
or purposes as stated in its articles of incorporation. (13a)

Because a corporations existence is only by fiction of law, it can only exercise its rights and powers
through itsdirectors, officers, or agents, who are all natural persons. A corporation cannot sue or
enter into contracts without them.

A consequence of a corporations separate personality is that consent by a corporation through its

representatives is not consent of the representative, personally. Its obligations, incurred through
official acts of its representatives, are its own. A stockholder, director, or representative does not
become a party to a contract just because a corporation executed a contract through that
stockholder, director or representative.

Hence, a corporations representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities incurred on
or in behalf of the corporation.

Petitioners are also correct that arbitration promotes the parties autonomy in resolving their
disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation79 that an
arbitration clause shall not apply to persons who were neither parties to the contract nor assignees
of previous parties, thus:

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

arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.80 (Citations
omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:

The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties
is part of that contract and is itself a contract. As a rule, contracts are respected as the law between
the contracting parties and produce effect as between them, their assigns and heirs. Clearly, only
parties to the Agreement . . . are bound by the Agreement and its arbitration clause as they are the
only signatories thereto.82 (Citation omitted)

This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co.,
Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84

As a general rule, therefore, a corporations representative who did not personally bind himself or
herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made
pursuant to an agreement entered into by the corporation. He or she is generally not considered a
party to that agreement.

However, there are instances when the distinction between personalities of directors, officers,and
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate
fiction.

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as
a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues."85 It is also warranted in alter ego
cases "where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another corporation."86

When corporate veil is pierced, the corporation and persons who are normally treated as distinct
from the corporation are treated as one person, such that when the corporation is adjudged liable,
these persons, too, become liable as if they were the corporation.

Among the persons who may be treatedas the corporation itself under certain circumstances are its
directors and officers. Section 31 of the Corporation Code provides the instances when directors,
trustees, or officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other
persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed inhim in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be
liable as a trustee for the corporation and must account for the profits which otherwise would have
accrued to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation may be made solidarily
liable with it for all damages suffered by the corporation, its stockholders or members, and other
persons in any of the following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful
corporate act;

b) The director or trustee was guilty of gross negligence or bad faith in directing corporate
affairs; and

c) The director or trustee acquired personal or pecuniary interest in conflict with his or her
duties as director or trustee.

Solidary liability with the corporation will also attach in the following instances:

a) "When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto";87

b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation";88 and

c) "When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action."89
When there are allegations of bad faith or malice against corporate directors or representatives, it
becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist towarrant the courts or tribunals
to disregard the distinction between the corporation and the persons representing it. The
determination of these circumstances must be made by one tribunal or court in a proceeding
participated in by all parties involved, including current representatives of the corporation, and those
persons whose personalities are impliedly the sameas the corporation. This is because when the
court or tribunal finds that circumstances exist warranting the piercing of the corporate veil, the
corporate representatives are treated as the corporation itself and should be held liable for corporate
acts. The corporations distinct personality is disregarded, and the corporation is seen as a mere
aggregation of persons undertaking a business under the collective name of the corporation.

Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging
malice orbad faith on their part in directing the affairs of the corporation, complainants are effectively
alleging that the directors and the corporation are not acting as separate entities. They are alleging
that the acts or omissions by the corporation that violated their rights are also the directors acts or
omissions.90 They are alleging that contracts executed by the corporation are contracts executed by
the directors. Complainants effectively pray that the corporate veilbe pierced because the cause of
action between the corporation and the directors is the same.

In that case, complainants have no choice but to institute only one proceeding against the
parties. Under the Rules of Court, filing of multiple suits for a single cause of action is prohibited.
1wphi1

Institution of more than one suit for the same cause of action constitutes splitting the cause of action,
which is a ground for the dismissal ofthe others. Thus, in Rule 2:

Section 3. One suit for a single cause of action. A party may not institute more than one suit for a
single cause of action. (3a)

Section 4. Splitting a single cause of action;effect of. If two or more suits are instituted on the
basis of the same cause of action, the filing of one or a judgment upon the merits in any one is
available as a ground for the dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be found to be indistinct
that we rule that petitioners may be compelled to submit to arbitration.

However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we are
not overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration principle that
only parties to an arbitration agreement may be compelled to submit to arbitration. In that case, this
court recognizedthat persons other than the main party may be compelled to submit to arbitration,
e.g., assignees and heirs. Assignees and heirs may be considered parties to an arbitration
agreement entered into by their assignor because the assignors rights and obligations are
transferred to them upon assignment. In other words, the assignors rights and obligations become
their own rights and obligations. In the same way, the corporations obligations are treated as the
representatives obligations when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas,
this court affirmed its policy against multiplicity of suits and unnecessary delay. This court said that
"to split the proceeding into arbitration for some parties and trial for other parties would "result in
multiplicity of suits, duplicitous procedure and unnecessary delay."91 This court also intimated that the
interest of justice would be best observed if it adjudicated rights in a single proceeding.92 While the
facts of that case prompted this court to direct the trial court to proceed to determine the issues of
thatcase, it did not prohibit courts from allowing the case to proceed to arbitration, when
circumstances warrant.

Hence, the issue of whether the corporations acts in violation of complainants rights, and the
incidental issue of whether piercing of the corporate veil is warranted, should be determined in a
single proceeding. Such finding would determine if the corporation is merely an aggregation of
persons whose liabilities must be treated as one with the corporation.

However, when the courts disregard the corporations distinct and separate personality from its
directors or officers, the courts do not say that the corporation, in all instances and for all purposes,
is the same as its directors, stockholders, officers, and agents. It does not result in an absolute
confusion of personalities of the corporation and the persons composing or representing it. Courts
merely discount the distinction and treat them as one, in relation to a specific act, in order to extend
the terms of the contract and the liabilities for all damages to erring corporate officials who
participated in the corporations illegal acts. This is done so that the legal fiction cannot be used to
perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the
corporate veil, parties who are normally treated as distinct individuals should be made to participate
in the arbitration proceedings in order to determine ifsuch distinction should indeed be disregarded
and, if so, to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the
existence of circumstances that render petitioners and the other directors solidarily liable. It ruled
that petitioners and Shangri-Las other directors were not liable for the contractual obligations of
Shangri-La to BF Corporation. The Arbitral Tribunals decision was made with the participation of
petitioners, albeit with their continuing objection. In view of our discussion above, we rule that
petitioners are bound by such decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and
resolution of October 5, 2006 are AFFIRMED.

SO ORDERED.

G.R. No. 198075 September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner,

vs.
MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.

DECISION

PEREZ, J.:

This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C.A.-
G.R. SP No. 116865.

The facts:

The Donation
Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered
owner of a parcel of land located at Km. 16, South Superhighway, Paraaque City (subject
land).3 Within the subject land are buildings and other improvements dedicated to the business of
FKI.4

In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor of herein
respondent Makati Rotary Club Foundation, Incorporated by way of a conditional donation.6 The
respondent accepted the donation with all of its conditions.7 On 26 May1975, FKI and the
respondent executed a Deed of Donation8evidencing their consensus.

The Lease and the Amended Deed of Donation

One of the conditions of the donation required the respondent to lease the subject land back to FKI
under terms specified in their Deed of Donation.9 With the respondents acceptance of the donation,
a lease agreement between FKI and the respondent was, therefore, effectively incorporated in the
Deed of Donation.

Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as follows:

1. The period of the lease is for twenty-five (25) years,10 or until the 25th of May 2000;

2. The amount of rent to be paid by FKI for the first twenty-five (25) years is P40,126.00 per
annum .11

The Deed of Donation also stipulated that the lease over the subject property is renewable for
another period of twenty-five (25) years " upon mutual agreement" of FKI and the respondent.12 In
which case, the amount of rent shall be determined in accordance with item 2(g) of the Deed of
Donation, viz:

g. The rental for the second 25 years shall be the subject of mutual agreement and in case of
disagreement the matter shall be referred to a Board of three Arbitrators appointed and with powers
in accordance with the Arbitration Law of the Philippines, Republic Act 878, whose function shall be
to decide the current fair market value of the land excluding the improvements, provided, that, any
increase in the fair market value of the land shall not exceed twenty five percent (25%) of the original
value of the land donated as stated in paragraph 2(c) of this Deed. The rental for the second 25
years shall not exceed three percent (3%) of the fair market value of the land excluding the
improvements as determined by the Board of Arbitrators.13

In October 1976, FKI and the respondent executed an Amended Deed of Donation14 that reiterated
the provisions of the Deed of Donation , including those relating to the lease of the subject land.

Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of
Donation , FKI was able to continue in its possession and use of the subject land.

2000 Lease Contract

Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation
was set to expire, or on 23 May 2000, FKI and respondent executed another contract of lease ( 2000
Lease Contract )15covering the subject land. In this 2000 Lease Contract, FKI and respondent
agreed on a new five-year lease to take effect on the 26th of May 2000, with annual rents ranging
from P4,000,000 for the first year up to P4,900,000 for the fifth year.16 The 2000 Lease Contract also
contained an arbitration clause enforceable in the event the parties come to disagreement about the"
interpretation, application and execution" of the lease, viz :

19. Governing Law The provisions of this 2000 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2000 Lease Contract shall
be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.17 (Emphasis supplied)

2005 Lease Contract

After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for another
five (5) years. This new lease (2005 Lease Contract )18 required FKI to pay a fixed annual rent
of P4,200,000.19 In addition to paying the fixed rent, however, the 2005 Lease Contract also
obligated FKI to make a yearly " donation " of money to the respondent.20 Such donations ranged
from P3,000,000 for the first year up to P3,900,000for the fifth year.21 Notably, the 2005 Lease
Contract contained an arbitration clause similar to that in the 2000 Lease Contract, to wit:

19. Governing Law The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall
be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.22 (Emphasis supplied)

The Assignment and Petitioners Refusal to Pay

From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease
Contract.23 But in June of 2008, FKI sold all its rights and properties relative to its business in favor of
herein petitioner Koppel, Incorporated.24 On 29 August 2008, FKI and petitioner executed an
Assignment and Assumption of Lease and Donation25 wherein FKI, with the conformity of the
respondent, formally assigned all of its interests and obligations under the Amended Deed of
Donation and the 2005 Lease Contract in favor of petitioner.

The following year, petitioner discontinued the payment of the rent and " donation " under the 2005
Lease Contract.

Petitioners refusal to pay such rent and "donation " emanated from its belief that the rental
stipulations of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be given
effect because they violated one of the" material conditions " of the donation of the subject land, as
stated in the Deed of Donation and Amended Deed of Donation.26

According to petitioner, the Deed of Donation and Amended Deed of Donation actually established
not only one but two (2) lease agreements between FKI and respondent, i.e. , one lease for the first
twenty-five (25)years or from 1975 to 2000, and another lease for the next twenty-five (25)years
thereafter or from 2000 to 2025. 27 Both leases are material conditions of the donation of the subject
land.
Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease
was not fixed in the Deed of Donation and Amended Deed of Donation , both deeds nevertheless
prescribed rules and limitations by which the same may be determined. Such rules and limitations
ought to be observed in any succeeding lease agreements between petitioner and respondent for
they are, in themselves, material conditions of the donation of the subject land.28

In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation
that supposedly limits the amount of rent for the lease over the second twenty-five (25) years to only
" three percent (3%) of the fair market value of the subject land excluding the improvements.29

For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract
cannot be enforced as they are clearly, in view of their exorbitant exactions, in violation of the
aforementioned threshold in item 2(g) of the Deed of Donation and Amended Deed of Donation .
Consequently, petitioner insists that the amount of rent it has to pay thereon is and must still be
governed by the limitations prescribed in the Deed of Donation and Amended Deed of Donation.30

The Demand Letters

On 1 June 2009, respondent sent a letter (First Demand Letter)31 to petitioner notifying the latter of
its default " per Section 12 of the 2005 Lease Contract " and demanding for the settlement of the rent
and " donation " due for the year 2009. Respondent, in the same letter, further intimated of canceling
the 2005 Lease Contract should petitioner fail to settle the said obligations.32 Petitioner received the
First Demand Letter on2 June 2009.33

On 22 September 2009, petitioner sent a reply34 to respondent expressing its disagreement over the
rental stipulations of the 2005 Lease Contract calling them " severely disproportionate,"
"unconscionable" and "in clear violation to the nominal rentals mandated by the Amended Deed of
Donation." In lieu of the amount demanded by the respondent, which purportedly totaled
to P8,394,000.00, exclusive of interests, petitioner offered to pay only P80,502.79,35 in accordance
with the rental provisions of the Deed of Donation and Amended Deed of Donation.36 Respondent
refused this offer.37

On 25 September 2009, respondent sent another letter (Second Demand Letter)38 to petitioner,
reiterating its demand for the payment of the obligations already due under the 2005 Lease Contract.
The Second Demand Letter also contained a demand for petitioner to " immediately vacate the
leased premises " should it fail to pay such obligations within seven (7) days from its receipt of the
letter.39 The respondent warned of taking " legal steps " in the event that petitioner failed to comply
with any of the said demands.40 Petitioner received the Second Demand Letter on 26September
2009.41

Petitioner refused to comply with the demands of the respondent. Instead, on 30 September 2009,
petitioner filed with the Regional Trial Court (RTC) of Paraaque City a complaint42 for the rescission
or cancellation of the Deed of Donation and Amended Deed of Donation against the respondent.
This case is currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-
0346.

The Ejectment Suit

On 5 October 2009, respondent filed an unlawful detainer case43 against the petitioner before the
Metropolitan Trial Court (MeTC) of Paraaque City. The ejectment case was raffled to Branch 77
and was docketed as Civil Case No. 2009-307.
On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim.44 In it, petitioner
reiterated its objection over the rental stipulations of the 2005 Lease Contract for being violative of
the material conditions of the Deed of Donation and Amended Deed of Donation.45 In addition to the
foregoing, however, petitioner also interposed the following defenses:

1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer
case in view of the insufficiency of respondents demand.46 The First Demand Letter did not
contain an actual demand to vacate the premises and, therefore, the refusal to comply there
with does not give rise to an action for unlawful detainer.47

2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same
until the disagreement between the parties is first referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.48

3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would
not lie as the 2005 Lease Contract is void abinitio.49 The stipulation in the 2005 Lease
Contract requiring petitioner to give yearly " donations " to respondent is a simulation, for
they are, in fact, parts of the rent. 50 Such grants were only denominated as " donations " in
the contract so that the respondentanon-stock and non-profit corporationcould evade
payment of the taxes otherwise due thereon.51

In due course, petitioner and respondent both submitted their position papers, together with their
other documentary evidence.52 Remarkably, however, respondent failed to submit the Second
Demand Letter as part of its documentary evidence.

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment53 in favor of the petitioner. While the MeTC refused
to dismiss the action on the ground that the dispute is subject to arbitration, it nonetheless sided with
the petitioner with respect to the issues regarding the insufficiency of the respondents demand and
the nullity of the 2005 Lease Contract.54 The MeTC thus disposed:

WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to

costs.

SO ORDERED.55

The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to Branch
274 of the RTC of Paraaque City and was docketed as Civil Case No. 10-0255.

On 29 October 2010, the RTC reversed56 the MeTC and ordered the eviction of the petitioner from
the subject land:

WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan Trial
Court, Branch 77, Paraaque City, is hereby reversed, judgment is thus rendered in favor of the
plaintiff-appellant and against the defendant-appellee, and ordering the latter

(1) to vacate the lease[d] premises made subject of the case and to restore the possession
thereof to the plaintiff-appellant;
 (2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two
Thousand Four Hundred Thirty Six Pesos (P9,362,436.00), penalties and net of 5%
withholding tax, for the lease period from May 25, 2009 to May 25, 2010 and such monthly
rental as will accrue during the pendency of this case;

(3) to pay attorneys fees in the sum of P100,000.00 plus appearance fee of P3,000.00;

(4) and costs of suit.

As to the existing improvements belonging to the defendant-appellee, as these were built in good
faith, the provisions of Art. 1678of the Civil Code shall apply.

SO ORDERED.57

The ruling of the RTC is premised on the following ratiocinations:

1. The respondent had adequately complied with the requirement of demand as a

jurisdictional precursor to an unlawful detainer action.58 The First Demand Letter, in
substance, contains a demand for petitioner to vacate when it mentioned that it was a notice
" per Section12 of the 2005 Lease Contract."59 Moreover, the issue of sufficiency of the
respondents demand ought to have been laid to rest by the Second Demand Letter which,
though not submitted in evidence, was nonetheless admitted by petitioner as containing a"
demand to eject " in its Answer with Compulsory Counterclaim.60

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract
while, at the same time, impugn such contracts validity.61 Even assuming that it can,
petitioner still did not file a formal application before the MeTC so as to render such
arbitration clause operational.62 At any rate, the MeTC would not be precluded from
exercising its jurisdiction over an action for unlawful detainer, over which, it has exclusive
original jurisdiction.63

3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not
able to adduce any evidence to support its allegation that the same is void.64 There was, in
this case, no evidence that respondent is guilty of any tax evasion.65

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed66 the decision of the RTC:

WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court of
Paraaque City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

xxxx

SO ORDERED.67

Hence, this appeal.

On 5 September 2011, this Court granted petitioners prayer for the issuance of a Temporary
Restraining Order68staying the immediate implementation of the decisions adverse to it.
 OUR RULING

Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in
overlooking the significance of the arbitration clause incorporated in the 2005 Lease Contract . As
the Court sees it, that is a fatal mistake.

For this reason, We grant the petition.

Present Dispute is Arbitrable Under the

Arbitration Clause of the 2005 Lease
Agreement Contract

Going back to the records of this case, it is discernable that the dispute between the petitioner and
respondent emanates from the rental stipulations of the 2005 Lease Contract. The respondent
insists upon the enforce ability and validity of such stipulations, whereas, petitioner, in substance,
repudiates them. It is from petitioners apparent breach of the 2005 Lease Contract that respondent
filed the instant unlawful detainer action.

One cannot escape the conclusion that, under the foregoing premises, the dispute between the
petitioner and respondent arose from the application or execution of the 2005 Lease Contract .
Undoubtedly, such kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract
to wit:

19. Governing Law The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall
be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.69 (Emphasis supplied)

The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the "
interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to
arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive enough so as
to include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract
including the one that presently besets petitioner and respondent.

The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain
legal effects. However, before discussing what these legal effects are, We shall first deal with the
challenges posed against the application of such arbitration clause.

Challenges Against the Application of the

Arbitration Clause of the 2005 Lease
Contract

Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as
well as the MeTC, RTC and the Court of Appeals, vouched for the non-application of the same in the
instant case. A plethora of arguments was hurled in favor of bypassing arbitration. We now address
them.
At different points in the proceedings of this case, the following arguments were offered against the
application of the arbitration clause of the 2005 Lease Contract:

1. The disagreement between the petitioner and respondent is non-arbitrable as it will

inevitably touch upon the issue of the validity of the 2005 Lease Contract.71 It was submitted
that one of the reasons offered by the petitioner in justifying its failure to pay under the 2005
Lease Contract was the nullity of such contract for being contrary to law and public
policy.72 The Supreme Court, in Gonzales v. Climax Mining, Ltd.,73 held that " the validity of
contract cannot be subject of arbitration proceedings " as such questions are " legal in nature
and require the application and interpretation of laws and jurisprudence which is necessarily
a judicial function ." 74

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract
while, at the same time, impugn such contracts validity.75

3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the
2005 Lease Contract , petitioner still did not file a formal application before the MeTC so as
to render such arbitration clause operational.76 Section 24 of Republic Act No. 9285 requires
the party seeking arbitration to first file a " request " or an application therefor with the court
not later than the preliminary conference.77

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR)

proceedings before the RTC.78 Hence, a further referral of the dispute to arbitration would
only be circuitous.79 Moreover, an ejectment case, in view of its summary nature, already
fulfills the prime purpose of arbitration, i.e. , to provide parties in conflict with an expedient
method for the resolution of their dispute.80 Arbitration then would no longer be necessary in
this case.81

None of the arguments have any merit.

First. As highlighted in the previous discussion, the disagreement between the petitioner and
respondent falls within the all-encompassing terms of the arbitration clause of the 2005 Lease
Contract. While it may be conceded that in the arbitration of such disagreement, the validity of the
2005 Lease Contract, or at least, of such contracts rental stipulations would have to be determined,
the same would not render such disagreement non-arbitrable. The quotation from Gonzales that was
used to justify the contrary position was taken out of context. A rereading of Gonzales would fix its
relevance to this case.

In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and
Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical Assistance
Agreement and other mining related agreements entered into by private parties.82

Grounds invoked for the nullification of such agreements include fraud and unconstitutionality.83 The
pivotal issue that confronted the Court then was whether the PA-MGB has jurisdiction over that
particular arbitration complaint. Stated otherwise, the question was whether the complaint for
arbitration raises arbitrable issues that the PA-MGB can take cognizance of.

Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any
jurisdiction to take cognizance of the complaint for arbitration, this Court pointed out to the provisions
of R.A. No. 7942, or the Mining Act of 1995, which granted the PA-MGB with exclusive original
jurisdiction only over mining disputes, i.e., disputes involving " rights to mining areas," "mineral
agreements or permits," and " surface owners, occupants, claim holders or concessionaires"
requiring the technical knowledge and experience of mining authorities in order to be
resolved.84 Accordingly, since the complaint for arbitration in Gonzales did not raise mining disputes
as contemplated under R.A. No. 7942 but only issues relating to the validity of certain mining related
agreements, this Court held that such complaint could not be arbitrated before the PA-MGB.85 It is in
this context that we made the pronouncement now in discussion:

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.86 (Emphasis supplied)

The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground
that the issue raised therein, i.e. , the validity of contracts, is per se non-arbitrable. The real
consideration behind the ruling was the limitation that was placed by R.A. No. 7942 upon the
jurisdiction of the PA-MGB as an arbitral body . Gonzales rejected the complaint for arbitration
because the issue raised therein is not a mining dispute per R.A. No. 7942 and it is for this reason,
and only for this reason, that such issue is rendered non-arbitrable before the PA-MGB. As stated
beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only to mining disputes.87

Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines,
Inc. v. San Fernando Regal Trading, Inc.88 In Cargill , this Court answered the question of whether
issues involving the rescission of a contract are arbitrable. The respondent in Cargill argued against
arbitrability, also citing therein Gonzales . After dissecting Gonzales , this Court ruled in favor of
arbitrability.89 Thus, We held:

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.90(Emphasis ours)

Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding
the fact that it assails the validity of such contract. This is due to the doctrine of separability.91

Under the doctrine of separability, an arbitration agreement is considered as independent of the

main contract.92Being a separate contract in itself, the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the main contract.93
Once again instructive is Cargill, wherein this Court held that, as a further consequence of the
doctrine of separability, even the very party who repudiates the main contract may invoke its
arbitration clause.94

Third . The operation of the arbitration clause in this case is not at all defeated by the failure of the
petitioner to file a formal "request" or application therefor with the MeTC. We find that the filing of a
"request" pursuant to Section 24 of R.A. No. 9285 is not the sole means by which an arbitration
clause may be validly invoked in a pending suit.

Section 24 of R.A. No. 9285 reads:

SEC. 24. Referral to Arbitration . - A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requests not later that the
pre-trial conference, or upon the request of both parties thereafter, refer the parties to arbitration
unless it finds that the arbitration agreement is null and void, inoperative or incapable of being
performed. [Emphasis ours; italics original]

The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M.
No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR
Rules):

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause or in a submission agreement, may request
the court to refer the parties to arbitration in accordance with such agreement.

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is
filed . - The request for referral shall be made not later than the pre-trial conference. After the pre-
trial conference, the court will only act upon the request for referral if it is made with the agreement
of all parties to the case.

(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed
but the parties subsequently enter into an arbitration agreement, they may request the court to refer
their dispute to arbitration at any time during the proceedings.

Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall
state that the dispute is covered by an arbitration agreement.

A part from other submissions, the movant shall attach to his motion an authentic copy of the
arbitration agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date and time
when it would be heard. The party making the request shall serve it upon the respondent to give him
the opportunity to file a comment or opposition as provided in the immediately succeeding Rule
before the hearing. [Emphasis ours; italics original]

Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a pending
action filed in violation of the arbitration agreement x x x may request the court to refer the parties to
arbitration in accordance with such agreement."
In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A. No. 9285,
the Special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a
pending suit solely via such "request." After all, non-compliance with an arbitration agreement is a
valid defense to any offending suit and, as such, may even be raised in an answer as provided in our
ordinary rules of procedure.95

In this case, it is conceded that petitioner was not able to file a separate " request " of arbitration
before the MeTC. However, it is equally conceded that the petitioner, as early as in its Answer with
Counterclaim ,had already apprised the MeTC of the existence of the arbitration clause in the 2005
Lease Contract96 and, more significantly, of its desire to have the same enforced in this case.97 This
act of petitioner is enough valid invocation of his right to arbitrate. Fourth . The fact that the petitioner
and respondent already under went through JDR proceedings before the RTC, will not make the
subsequent conduct of arbitration between the parties unnecessary or circuitous. The JDR system is
substantially different from arbitration proceedings.

The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation
which entails the submission of a dispute before a " JDR judge " who shall merely " facilitate
settlement " between the parties in conflict or make a " non-binding evaluation or assessment of the
chances of each partys case."98 Thus in JDR, the JDR judge lacks the authority to render a
resolution of the dispute that is binding upon the parties in conflict. In arbitration, on the other hand,
the dispute is submitted to an arbitrator/s a neutral third person or a group of thereof who shall
have the authority to render a resolution binding upon the parties.99

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the
subsequent conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an
amicable settlement before the JDR may, in fact, be supplemented by their resort to arbitration
where a binding resolution to the dispute could finally be achieved. This situation precisely finds
application to the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the
enforcement of the arbitration clause of the 2005 Lease Contract . Notwithstanding the summary
nature of ejectment cases, arbitration still remains relevant as it aims not only to afford the parties an
expeditious method of resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and
foremost, a product of party autonomy or the freedom of the parties to " make their own
arrangements to resolve their own disputes."100 Arbitration agreements manifest not only the desire
of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not more
so, the parties mutual aspiration to achieve such resolution outside of judicial auspices, in a more
informal and less antagonistic environment under the terms of their choosing. Needless to state, this
critical feature can never be satisfied in an ejectment case no matter how summary it may be.

Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease
Agreement in this case, We shall now proceed with the discussion of its legal effects.

Legal Effect of the Application of the

Arbitration Clause

Since there really are no legal impediments to the application of the arbitration clause of the 2005
Contract of Lease in this case, We find that the instant unlawful detainer action was instituted in
violation of such clause. The Law, therefore, should have governed the fate of the parties and this
suit:
R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue
arising out of an agreement providing for 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, shall stay the 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.[Emphasis supplied]

R.A. No. 9285

Section 24. Referral to Arbitration. - A court before which an action is brought in a matter which is
the subject matter of an arbitration agreement shall, if at least one party so requests not later that the
pre-trial conference, or upon the request of both parties thereafter, refer the parties to arbitration
unless it finds that the arbitration agreement is null and void, in operative or incapable of being
performed. [Emphasis supplied]

It is clear that under the law, the instant unlawful detainer action should have been stayed;101 the
petitioner and the respondent should have been referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract . The MeTC, however, did not do so in violation of the lawwhich
violation was, in turn, affirmed by the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all
proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with
Counterclaim the point when the petitioner and the respondent should have been referred to
arbitration. This case must, therefore, be remanded to the MeTC and be suspended at said point.
Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated and set
aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract.

This Court is not unaware of the apparent harshness of the Decision that it is about to make.
Nonetheless, this Court must make the same if only to stress the point that, in our jurisdiction, bona
fide arbitration agreements are recognized as valid;102 and that laws,103 rules and regulations104 do
exist protecting and ensuring their enforcement as a matter of state policy. Gone should be the days
when courts treat otherwise valid arbitration agreements with disdain and hostility, if not outright "
jealousy,"105 and then get away with it. Courts should instead learn to treat alternative means of
dispute resolution as effective partners in the administration of justice and, in the case of arbitration
agreements, to afford them judicial restraint.106 Today, this Court only performs its part in upholding a
once disregarded state policy.

Civil Case No. CV 09-0346

This Court notes that, on 30 September 2009, petitioner filed with the RTC of Paraaque City, a
complaint107 for the rescission or cancellation of the Deed of Donation and Amended Deed of
Donation against the respondent. The case is currently pending before Branch 257 of the RTC,
docketed as Civil Case No. CV 09-0346.

This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may
involve matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease Contract.
However, since the records of Civil Case No. CV 09-0346 are not before this Court, We can never
know with true certainty and only speculate. In this light, let a copy of this Decision be also served to
Branch 257of the RTC of Paraaque for its consideration and, possible, application to Civil Case No.
CV 09-0346.

WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby

render a Decision:

1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch
77, of Paraaque City in relation to Civil Case No. 2009-307 after the filing by petitioner of its
Answer with Counterclaim ;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by
petitioner of its Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No.

116865,

b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of
Paraaque City in Civil Case No. 10-0255,

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of
Paraaque City in Civil Case No. 2009-307; and

4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in
the 1976 Amended Deed of Donation.

Let a copy of this Decision be served to Branch 257 of the RTC of Paraaque for its consideration
and, possible, application to Civil Case No. CV 09-0346.

No costs.

SO ORDERED.

G.R. No. 196171 December 10, 2012

RCBC CAPITAL CORPORATION, Petitioners,

vs.
BANCO DE ORO UNIBANK, INC., Respondent.

X- - - - - - - - - - - - - - - - - - - - - - - - - -X

G.R. No. 199238

BANCO DE ORO UNIBANK, INC., Petitioner,

vs.
COURT OF APPEALS and RCBC CAPITAL CORPORATION, Respondents.

DECISION
VILLARAMA, JR., J.:

Before the Court are two consolidated petitions separately filed by the parties in an arbitration case
administered by the International Chamber of Commerce-International Court of Arbitration (ICC-ICA)
pursuant to the arbitration clause in their contract.

The Case

In G.R. No. 196171, a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, RCBC Capital Corporation (RCBC) seeks to reverse the Court of Appeals (CA)
Decision1 dated December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set aside the
June 24, 2009 Order2 of the Regional Trial Court (RTC) of Makati City, Branch 148 in SP Proc. Case
No. M-6046.

In G.R. No. 199238,a petition for certiorari under Rule 65, Banco De Oro Unibank, Inc. (BDO)assails
the Resolution3 dated September 13, 2011 in CA-G.R. SP No. 120888 which denied BDOs
application for the issuance of a stay order and/or temporary restraining order (TRO)/preliminary
injunction against the implementation of the Writ of Execution4 dated August 22, 2011 issued by the
Makati City RTC, Branch 148 in SP Proc. Case No. M-6046.

Factual Antecedents

On May 24, 2000, RCBC entered into a Share Purchase Agreement5 (SPA) with Equitable-PCI
Bank, Inc. (EPCIB), George L. Go and the individual shareholders6 of Bankard, Inc. (Bankard) for the
sale to RCBC of 226,460,000 shares (Subject Shares) of Bankard, constituting 67% of the latters
capital stock. After completing payment of the contract price (P1,786,769,400), the corresponding
deeds of sale over the subject shares were executed in January 2001.

The dispute between the parties arose sometime in May 2003 when RCBC informed EPCIB and the
other selling shareholdersof an overpayment of the subject shares, claiming there was an
overstatement of valuation of accounts amounting to P478 million and that the sellers violated their
warrantyunder Section 5(g)of the SPA.7

As no settlement was reached, RCBC commenced arbitration proceedings with the ICC-ICA in
accordance with Section 10 of the SPA which states:

Section 10.Arbitration

Should there be any dispute arising between the parties relating to this Agreement including the
interpretation or performance hereof which cannot be resolved by agreement of the parties within
fifteen (15) days after written notice by a party to another, such matter shall then be finally settled by
arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce
in force as of the time of arbitration, by three arbitrators appointed in accordance with such rules.
The venue of arbitration shall be in Makati City, Philippines and the arbitration proceedings shall be
conducted in the English language. Substantive aspects of the dispute shall be settled by applying
the laws of the Philippines. The decision of the arbitrators shall be final and binding upon the parties
hereto and the expenses of arbitration (including without limitation the award of attorneys fees to the
prevailing party) shall be paid as the arbitrators shall determine.8

In its Request for Arbitration9 dated May 12, 2004, Claimant RCBC charged Bankard with deviating
from and contravening generally accepted accounting principles and practices, due to which the
financial statements of Bankard prior to the stock purchase were far from fair and accurate, and
resulted in the overpayment of P556 million. For this violation of sellersrepresentations and
warranties under the SPA, RCBC sought its rescission, as well as payment of actual damages in the
amount of P573,132,110, legal interest on the purchase price until actual restitution, moral damages
and litigation and attorneys fees, with alternative prayer for award of damages in the amount of at
least P809,796,082 plus legal interest.

In their Answer,10 EPCIB, Go and the other selling individual shareholders (Respondents) denied
RCBCs allegations contending that RCBCs claim is one for overpayment or price reduction under
Section 5(h) of the SPA which is already time-barred, the remedy of rescission is unavailable, and
even assuming that rescission is permitted by the SPA, RCBC failed to file its claim within a
reasonable time. They further asserted that RCBC is not entitled to its alternative prayer for
damages, being guilty of laches and failing to set out the details of the breach as required under
Section 7 of the SPA. A counterclaim for litigation expenses and costs of arbitration in the amount of
US$300,000, as well as moral and exemplary damages, was likewise raised by the Respondents.

RCBC submitted a Reply11 to the aforesaid Answer.

Subsequently, the Arbitration Tribunal was constituted. Mr. Neil Kaplan was nominated by RCBC;
Justice Santiago M. Kapunan (a retired Member of this Court) was nominated by the Respondents;
and Sir Ian Barker was appointed by the ICC-ICA as Chairman.

On August 13, 2004, the ICC-ICA informed the parties that they are required to pay US$350,000 as
advance on costs pursuant to Article 30 (3) of the ICC Rules of Arbitration (ICC Rules). RCBC paid
its share of US$107,000, the balance remaining after deducting payments of US$2,500 and
US$65,000 it made earlier. Respondents share of the advance on costs was thus fixed at
US$175,000.

Respondents filed an Application for Separate Advances on Costs12 dated September 17, 2004
under Article 30(2) of the ICC Rules, praying that the ICC fix separate advances on the cost of the
parties respective claims and counterclaims, instead of directing them to share equally on the
advance cost of Claimants (RCBC) claim. Respondents deemed this advance cost allocation to be
proper, pointing out that the total amount of RCBCs claim is substantially higher more than 40
times the total amount of their counterclaims, and that it would be unfair to require them to share in
the costs of arbitrating what is essentially a price issue that is now time-barred under the SPA.

On September 20, 2004, the ICC-ICA informed Respondents that their application for separate
advances on costs was premature pending the execution of the Terms of Reference (TOR).13 The
TOR was settled by the parties and signed by the Chairman and Members of the Arbitral Tribunal by
October 11, 2004. On December 3, 2004,14the ICC-ICA denied the application for separate
advances on costs and invited anew the Respondents to pay its share in the advance on costs.
However, despite reminders from the ICC-ICA, Respondents refused to pay their share in the
advance cost fixed by the ICC-ICA. On December 16, 2004, the ICC-ICA informed the parties that if
Respondents still failed to pay its share in the advance cost, it would apply Article 30(4) of the ICC
Rules and request the Arbitration Tribunal to suspend its work and set a new time limit, and if such
requested deposit remains unpaid at the expiry thereof, the counterclaims would be considered
withdrawn.15

In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC to pay the said amount in
substitution of Respondents.It also granted an extension until January 17, 2005 within which to pay
the balance of the advance cost (US$175,000). RCBC replied that it was not willing to shoulder the
share of Respondents in the advance on costs but nevertheless requested for a clarification as to
the effect of such refusal to substitute for Respondentsshare.16

On March 10, 2005, the ICC-ICA instructed the Arbitration Tribunal to suspend its work and granted
the parties a final time-limit of 15 days to pay the balance of the advanceon costs, failing which the
claims shall be considered withdrawn, without prejudice to their reintroduction at a later date in
another proceeding. The parties were advised that if any of them objects to the measure, it should
make a request in writing within such period.17 For the same reason of non-receipt of the balance of
the advance cost, the ICC-ICA issued Procedural Order No. 3 for the adjournment of the substantive
hearings and granting the Respondents a two-month extension within which to submit their brief of
evidence and witnesses.

RCBC objected to the cancellation of hearings, pointing out that Respondents have been given
ample time and opportunity to submit their brief of evidence and prepare for the hearings and that
their request for postponement serves no other purpose but to delay the proceedings. It alleged that
Respondents unjustified refusal to pay their share in the advance on costs warrants a ruling that
they have lost standing to participate in the proceedings. It thus prayed that Respondents be
declared as in default, the substantive hearings be conducted as originally scheduled, and RCBC be
allowed to submit rebuttal evidence and additional witness statements.18

On December 15, 2005, the ICC-ICA notified the parties of its decision to increase the advances on
costs from US$350,000 to US$450,000 subject to later readjustments, and again invited the
Respondents to pay the US$100,000 increment within 30 days from notice. Respondents, however,
refused to pay the increment, insisting that RCBC should bear the cost of prosecuting its own claim
and that compelling the Respondents to fund such prosecution is inequitable. Respondents
reiterated that it was willing to pay the advance on costs for their counterclaim.19

On December 27, 2005, the ICC-ICA advised that it was not possible to fix separate advances on
costs as explained in its December 3, 2004 letter, and again invited Respondents to pay their share
in the advance on costs. Respondents response contained in the letter dated January 6, 2006 was
still the same: it was willing to pay only the separate advance on costs of their counterclaim.20 In view
of Respondents continuing refusal to pay its equal share in the advance on costs and increment,
RCBC wrote the ICC-ICA stating that the latter should compel the Respondents to pay as otherwise
RCBC will be prejudiced and the inaction of the ICC-ICA and the Arbitration Tribunal will detract from
the effectiveness of arbitration as a means of settling disputes. In accordance with Article 30(4) of
the ICC Rules, RCBC reiterated its request to declare the Respondents as in default without any
personality to participate in the proceedings not only with respect to their counterclaims but also to
the claim of RCBC.21

Chairman Ian Barker, in a letter dated January 25, 2006, stated in part:

xxxx

2. The Tribunal has no power under the ICC Rules to order the Respondents to pay the
advance on costs sought by the ICC or to give the Claimant any relief against the
Respondents refusal to pay. The ICC Rules differ from, for example, the Rules of the LCIA
(Article 24.3) which enables a party paying the share of costs which the other party has
refused to pay, to recover "that amount as a debt immediately due from the defaulting party."

3. The only sanction under the ICC Rules is contained within Article 30 (4). Where a request
for an advance on costs has not been complied with, after consultation with the Tribunal, the
Secretary-General may direct the Tribunal to suspend its work. After expiry of a time limit, all
 claims and counterclaims are then considered as withdrawn. This provision cannot assist a
Claimant who is anxious to litigate its claim. Such a Claimant has to pay the sums requested
(including the Respondents share) if it wishes the arbitration to proceed.

4. It may be possible for a Claimant in the course of the arbitral hearing (or whenever
costs are being considered by the Tribunal) to make submissions based on the failure
of the Respondents to pay their share of the costs advance.What relief, if any, would
have to be then determined by the Tribunal after having heard submissions from the
Respondents.

5. I should be pleased if the Claimant will advise the Tribunal of its intention in relation to the
costs advance. If the costs are not paid, the arbitration cannot proceed.22 (Italics in the
original; emphasis supplied)

RCBC paid the additional US$100,000 under the second assessment to avert suspension of the
Arbitration Tribunals proceedings.

Upon the commencement of the hearings, the Arbitration Tribunal decided that hearings will be
initially confined to issues of liability (liability phase) while the substantial issues will be heard on a
later date (quantum phase).

Meanwhile, EPCIBs corporate name was officially changed to Banco De Oro (BDO)-EPCIB after its
merger with BDO was duly approved by the Securities and Exchange Commission. As such, BDO
assumed all the obligations and liabilities of EPCIB under the SPA.

On September 27, 2007, the Arbitration Tribunal rendered a Partial Award23 (First Partial Award) in
ICC-ICA Case No. 13290/MS/JB/JEM,as follows:

15 AWARD AND DIRECTIONS

15.1 The Tribunal makes the following declarations by way of Partial Award:

(a) The Claimants claim is not time-barred under the provisions of this SPA.

(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches
from pursuing its claim.

(c) As detailed in the Partial Award, the Claimant has established the following
breaches by the Respondents of clause 5(g) of the SPA:

i) the assets, revenue and net worth of Bankard were overstated by reason of
its policy on and recognition of Late Payment Fees;

ii) reported receivables were higher than their realisable values by reason of
the bucketing method, thus overstating Bankards assets; and

iii) the relevant Bankard statements were inadequate and misleading in that
their disclosures caused readers to be misinformed about Bankards
accounting policies on revenue and receivables.
 (d) Subject to proof of loss the Claimant is entitled to damages for the foregoing
breaches.

(e) The Claimant is not entitled to rescission of the SPA.

(f) All other issues, including any issue relating to costs, will be dealt with in a
further or final award.

15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial
Award to deal with the determination of quantum and in particular, whether there should be
an Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to assist the
Tribunal in this regard.

15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan).
Justice Kapunan is unable to agree with the majoritys conclusion on the claim of estoppel
brought by the Respondents.24(Emphasis supplied)

On October 26, 2007, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No. M-
6046)amotion to confirm the First Partial Award, while Respondents filed a motion to vacate the
same.

ICC-ICA by letter25 dated October 12, 2007 increased the advance on costs from US$450,000 to
US$580,000. Under this third assessment, RCBC paid US$130,000 as its share on the increment.
Respondents declined to pay its adjudged total share of US$290,000 on account of its filing in the
RTC of a motion to vacate the First Partial Award.26 The ICC-ICA then invited RCBC to substitute for
Respondents in paying the balance of US$130,000 by December 21, 2007.27 RCBC complied with
the request, making its total payments in the amount of US$580,000.28

While RCBC paid Respondents share in the increment (US$130,000), it reiterated its plea that
Respondents be declared as in default and the counterclaimsdeemed as withdrawn.29

Chairman Barkers letter dated December 18, 2007 states in part:

xxxx

8. Contrary to the Complainants view, the Tribunal has no jurisdiction to declare that the
Respondents have no right to participate in the proceedings concerning the claim. Article
30(4) of the ICC Rules applies only to any counterclaim of the Respondents.

9. The Tribunal interprets the Claimants latest letter as an application by the Claimant
to the Tribunal for the issue of a partial award against the Respondents in respect of
their failure to pay their share of the ICCs requests for advance on costs.

10. I should be grateful if the Claimant would confirm that this is the situation. If so, the
Claimant should propose a timetable for which written submissions should be made by both
parties. This is an application which can be considered by the Tribunal on written
submissions.30 (Emphasis supplied)

RCBC, in a letter dated December 26, 2007, confirmed the Arbitration Tribunals interpretation that it
was applying for a partial award against Respondents failure to pay their share in the advance on
costs.31
Meanwhile, on January 8, 2008, the Makati City RTC, Branch 148 issued an order in SP Proc. Case
No. M-6046 confirming the First Partial Award and denying Respondents separate motions to
vacate and to suspend and inhibit Barker and Kaplan. Respondents motion for reconsideration was
likewise denied. Respondents directly filed with this Court a petition for review on certiorari under
Rule 45, docketed as G.R. No. 182248 and entitled Equitable PCI Banking Corporation v. RCBC
Capital Corporation.32 In our Decision dated December 18, 2008, we denied the petition and affirmed
the RTCs ruling confirming the First Partial Award.

On January 18, 2008, the Arbitration Tribunal set a timetable for the filing of submission by the
parties on whether it should issue a Second Partial Award in respect of the Respondents refusal to
pay an advance on costs to the ICC-ICA.

In compliance, RCBC filed on February 7, 2008an Application for Reimbursement of Advance on

Costs Paid, praying for the issuance of a partial award directing the Respondents to reimburse its
payment in the amount of US$290,000 representing Respondents share in the Advance on Costs
and to consider Respondents counterclaim for actual damages in the amount of US$300,000, and
moral and exemplary damages as withdrawn for their failure to pay their equal share in the advance
on costs. RCBC invoked the plain terms of Article 30 (2) and (3) to stress the liability of Respondents
to share equally in paying the advance on costs where the Arbitration Tribunal has fixed the same.33

Respondents, on the other hand, filed their Opposition34 to the said application alleging that the
Arbitration Tribunal has lost its objectivity in an unnecessary litigation over the payment of
Respondents share in the advance costs. They pointed out that RCBCs letter merely asked that
Respondents be declared as in default for their failure to pay advance costs but the Arbitration
Tribunal, while denying the request offered an alternative to RCBC: a Partial Award for
Respondents share in the advance costs even if it was clear from the language of RCBCs
December 11, 2007 letter that it had no intention of litigating for the advance costs. Chairman
Barker, after ruling earlier that it cannot grant RCBCs request to declare the Respondents as having
no right to participate in the proceedings concerning the claim, interpreted RCBCs letter as an
application for the Arbitration Tribunal to issue a partial award in respect of such refusal of
Respondents to pay their share in the advance on costs, and subsequently directed the parties to
make submissions on the matter.Aside from violating their right to due process and to be heard by
an impartial tribunal, Respondents also argued that in issuing the award for advance cost, the
ArbitrationTribunal decided an issue beyond the terms of the TOR.

Respondents also emphasized that the parties agreed on a two-part arbitration: the first part of the
Tribunals proceedings would determine Respondents liability, if any, for alleged violation of Section
5(g) and (h) of the SPA; and the second part of the proceedings would determine the amounts owed
by one party to another as a consequence of a finding of liability or lack thereof. An award for
"reimbursement of advances for costs" clearly falls outside the scope of either proceedings. Neither
can the Tribunal justify such proceedings under Article 23 of the ICC Rules (Conservatory and
Interim Measures) because that provision does not contemplate an award for the reimbursement of
advance on costs in arbitration cases. Respondents further asserted that since the advances on
costs have been paid by the Claimant (RCBC), the main claim and counterclaim may both be heard
by the Arbitration Tribunal.

In his letter dated March 13, 2008, Chairman Barker advised the parties, as follows:

1. The Tribunal acknowledges the Respondents response to the Claimants application for a
Partial Award, based on the Respondents failure to pay their share of the costs, as
requested by the ICC.
 2. The Tribunal notes that neither party has referred to an article by Mat[t]hew Secomb
on this very subject which appears in the ICC Bulletin Vol. 14 No.1 (Spring 2003). To
assist both sides and to ensure that the Tribunal does not consider material on which the
parties have not been given an opportunity to address, I attach a copy of this article, which
also contains reference to other scholarly works on the subject.

3. The Tribunal will give each party seven days within which to submit further written
comments as a consequence of being alerted to the above authorities.35(Additional emphasis
supplied)

The parties complied by submitting their respective comments.

RCBC refuted Respondents allegation of partiality on the part of Chairman Barker and reiterated the
prayer in its application for reimbursement of advance on costs paid to the ICC-ICA. RCBC
contended that based on Mr. Secombs article, whether the "contractual" or "provisional measures"
approach is applied, the Arbitration Tribunal is vested with jurisdiction and authority to render an
award with respect to said reimbursement of advance cost paid by the non-defaulting party.36

Respondents, on the other hand, maintained that RCBCs application for reimbursement of advance
cost has no basis under the ICC Rules. They contended that no manifest injustice can be inferred
from an act of a party paying for the share of the defaulting party as this scenario is allowed by the
ICC Rules. Neither can a partial award for advance cost be justified under the "contractual approach"
since the matter of costs for arbitration is between the ICC and the parties, not the Arbitration
Tribunal and the parties. An arbitration tribunal can issue decisions on costs only for those costs not
fixed by the ICC.37

Respondents reiterated their position that Article 30(3) envisions a situation whereby a party would
refuse to pay its share on the advance on costs and provides a remedy therefor the other party
"shall be free to pay the whole of the advance on costs." Such partys reimbursement for payments
of the defaulting partys share depends on the final arbitral award where the party liable for costs
would be determined. This is the only remedy provided by the ICC Rules.38

On May 28, 2008, the Arbitration Tribunal rendered the Second Partial Award,39 as follows:

7 AWARD

7.1 Having read and considered the submissions of both parties, the Tribunal AWARDS,
DECLARES AND ORDERS as follows:

(a) The Respondents are forthwith to pay to the Claimant the sum of US$290,000.

(b) The Respondents counterclaim is to be considered as withdrawn.

(c) All other questions, including interest and costs, will be dealt with in a subsequent
award.40

The above partial award was received by RCBC and Respondents on June 12, 2008.

On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial Award41 in the Makati City RTC,
Branch 148 (SP Proc. Case No. M-6046). On July 10, 2008, RCBC filed in the same court a Motion
to Confirm Second Partial Award.42
EPCIB raised the following grounds for vacating the Second Partial Award: (a) the award is void ab
initio having been rendered by the arbitrators who exceeded their power or acted without it; and (b)
the award was procured by undue means or issued with evident partiality or attended by
misbehavior on the part of the Tribunal which resulted in a material prejudice to the rights of the
Respondents. EPCIB argued that there is no express agreement either in the SPA or the ICC Rules
for such right of reimbursement. There is likewise no implied agreement because from the ICC
Rules, the only inference is that the parties agreed to await the dispositions on costs liability in the
Final Award, not before.

On the ruling of the Arbitration Tribunal that Respondents application for costs are not
counterclaims, EPCIB asserted that this is contrary to Philippine law as it is basic in our jurisdiction
that counterclaims for litigation expenses, moral and exemplary damages are proper counterclaims,
which rule should be recognized in view of Section 10 of the SPA which provides that "substantive
aspects of the dispute shall be settled by applying the laws of the Philippines." Finally, EPCIB takes
issue with Chairman Barkers interpretation of RCBCs December 11, 2007 letter as an application
for a partial award for reimbursement of the substituted payments. Such conduct of Chairman Barker
is prejudicial and proves his evident partiality in favor of RCBC.

RCBC filed its Opposition,43 asserting that the Arbitration Tribunal had jurisdiction to consider
Respondents counterclaim as withdrawn, the same having been abandoned by not presenting any
computation or substantiation by evidence, their only computation relates only to attorneys fees
which are simply cost of litigation properly brought at the conclusion of the arbitration. It also pointed
out that the Arbitration Tribunal was empowered by the parties arbitral clause to determine the
manner of payment of expenses of arbitration, and that the Second Partial Award was based on
authorities and treatiseson the mandatory and contractual nature of the obligation to pay advances
on costs.

In its Reply,44 EPCIB contended that RCBC had the option to agree to its proposal for separate
advances on costs but decided against it; RCBCs act of paying the balance of the advance cost in
substitution of EPCIB was for the purpose of having EPCIB defaulted and the latters counterclaim
withdrawn. Having agreed to finance the arbitration until its completion, RCBC is not entitled to
immediate reimbursement of the amount it paid in substitution of EPCIB under an interim award, as
its right to a partial or total reimbursement will have to be determined under the final award. EPCIB
asserted that the matter of reimbursement of advance cost paid cannot be said to have properly
arisen during arbitration. EPCIB reiterated that Chairman Barkers interpretation of RCBCs
December 11, 2007 letter as an application for interim award for reimbursement is tantamount to a
promise that the award will be issued in due course.

After a further exchange of pleadings, and other motions seeking relief from the court in connection
with the arbitration proceedings (quantum phase), the Makati City RTC, Branch 148 issued the
Order45 dated June 24, 2009 confirming the Second Partial Award and denying EPCIBs motion to
vacate the same. Said court held that since the parties agreed to submit any dispute under the SPA
to arbitration and to be bound by the ICC Rules, they are also bound to pay in equal shares the
advance on costs as provided in Article 30 (2) and (3). It noted that RCBC was forced to pay the
share of EPCIB in substitution of the latter to prevent a suspension of the arbitration proceedings,
while EPCIBs non-payment seems more like a scheme to delay such proceedings. On the
Arbitration Tribunals ruling on EPCIBs counterclaim, no error was committed in considering it
withdrawn for failure of EPCIB to quantify and substantiate it with supporting evidence. As to
EPCIBs claim for attorneys fees, the RTC agreed that these should be brought only at the close of
arbitration.
EPCIB moved to reconsider the June 24, 2009 Order and for the voluntary inhibition of the Presiding
Judge (Judge Oscar B. Pimentel) on the ground that EPCIBs new counsel represented another
client in another case before him in which said counsel assailed his conduct and had likewise sought
his inhibition. Both motions were denied in the Joint Order46 dated March 23, 2010.

On April 14, 2010, EPCIB filed in the CA a petition for review47 with application for TRO and/or writ of
preliminary injunction (CA-G.R. SP No. 113525) in accordance with Rule 19, Section 4 of the Special
Rules of Court on Alternative Dispute Resolution48 (Special ADR Rules). EPCIB assailed the Makati
City RTC, Branch 148 in denying its motion to vacate the Second Partial Award despite (a) said
award having been rendered in excess of jurisdiction or power, and contrary to public policy; (b) the
fact that it was issued with evident partiality and serious misconduct; (c) the award deals with a
dispute not contemplated within the terms of submission to arbitration or beyond the scope of such
submission, which therefore ought to be vacated pursuant to Article 34 of the UNCITRAL Model
Law; and (d) the Presiding Judge having exhibited bias and prejudice against BDO and its counsel
as confirmed by his pronouncements in the Joint Order dated March 23, 2010 in which, instead of
recusing himself, he imputed malice and unethical conduct in the entry of appearance of Belo Gozon
Elma Asuncion and Lucila Law Offices in SP Proc. Case No. M-6046, which warrants his voluntary
inhibition.

Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the Final Award,49 as follows:

15 AWARD

15.1 The Tribunal by a majority (Sir Ian Barker & Mr. Kaplan) awards, declares and adjudges as
follows:

(a) the Respondents are to pay damages to the Claimant for breach of the sale and
purchase agreement for Bankard shares in the sum of P348,736,920.29.

(b) The Respondents are to pay to the Claimant the sum of US$880,000 in respect of the
costs of the arbitration as fixed by the ICC Court.

(c) The Respondents are to pay to the Claimant the sum of US$582,936.56 for the fees and
expenses of Mr. Best.

(d) The Respondents are to pay to the Claimant their expenses of the arbitration as follows:

(i) Experts fees P7,082,788.55

(ii) Costs of without prejudice meeting P22,571.45

(iii) Costs of arbitration hearings P553,420.66

(iv) Costs of transcription service P483,597.26

Total P8,144,377.62

(e) The Respondents are to pay to the Claimant the sum of P7,000,000 for party-and-party
legal costs.

(f) The Counterclaims of the Respondents are all dismissed.

 (g) All claims of the Claimant are dismissed, other than those referred to above.

15.2 Justice Kapunan does not agree with the majority of the members of the Tribunal and has
issued a dissenting opinion. He has refused to sign this Award.50

On July 1, 2010 BDO filed in the Makati City RTC a Petition to Vacate Final Award Ad
Cautelam,51 docketed as SP Proc. Case No. M-6995, which was raffled to Branch 65.

On July 28, 2010, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No. M-6046) a
Motion to Confirm Final Award.52 BDO filed its Opposition With Motion to Dismiss53 on grounds that a
Petition to Vacate Final Award Ad Cautelamhad already been filed in SP Proc. Case No. M-6995.
BDO also pointed out that RCBC did not file the required petition but instead filed a mere motion
which did not go through the process of raffling to a proper branch of the RTC of Makati City and the
payment of the required docket/filing fees. Even assuming that Branch 148 has jurisdiction over
RCBCs motion to confirm final award, BDO asserted that RCBC had filed before the Arbitration
Tribunal an Application for Correction and Interpretation of Award under Article 29 of the ICC Rules,
which is irreconcilable with its Motion to Confirm Final Award before said court. Hence, the Motion to
Confirm Award was filed precipitately.

On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc. Case No. M-6995 (Branch 65)
praying for the dismissal of BDOs Petition to Vacate Final Award or the transfer of the same to
Branch 148 for consolidation with SP Proc. Case No. M-6046. RCBC contended that BDOs filing of
its petition with another court is a blatant violation of the Special ADR Rules and is merely a
subterfuge to commit forum-shopping. BDO filed its Opposition to the Omnibus Motion.54

On October 28, 2010, Branch 65 issued a Resolution55 denying RCBCs omnibus motion and
directing the service of the petition to RCBC for the latters filing of a comment thereon. RCBCs
motion for reconsideration was likewise denied in the said courts Order dated December 15, 2010.
RCBC then filed its Opposition to the Petition to Vacate Final Award Ad Cautelam.

Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case No. M-6046) issued an
Order56 confirming the Final Award "subject to the correction/interpretation thereof by the Arbitral
Tribunal pursuant to the ICC Rules and the UNCITRAL Model Law," and denying BDOs Opposition
with Motion to Dismiss.

On December 30, 2010, George L. Go, in his personal capacity and as attorney-in-fact of the other
listed shareholders of Bankard, Inc. in the SPA (Individual Shareholders), filed a petition in the CA,
CA-G.R. SP No. 117451, seeking to set aside the above-cited November 10, 2010 Order and to
enjoin Branch 148 from further proceeding in SP Proc. Case No. M-6046. By Decision57 dated June
15, 2011, the CA dismissed the said petition. Their motion for reconsideration of the said decision
was likewise denied by the CA in its Resolution58 dated December 14, 2011.

On December 23, 2010, the CA rendered its Decision in CA-G.R. SP No. 113525, the dispositive
portion of which states:

WHEREFORE, premises considered, the following are hereby REVERSED and SET ASIDE:

1. the Order dated June 24, 2009 issued in SP Proc. Case No. M-6046 by the Regional Trial
Court of Makati City, Branch 148, insofar as it denied the Motion to Vacate Second Partial
Award dated July 8, 2008 and granted the Motion to Confirm Second Partial Award dated
July 10, 2008;
 2. the Joint Order dated March 23, 2010 issued in SP Proc. Case No. M-6046 by the
Regional Trial Court of Makati City, Branch 148, insofar as it denied the Motion For
Reconsideration dated July 28, 2009 relative to the motions concerning the Second Partial
Award immediately mentioned above; and

3. the Second Partial Award dated May 28, 2008 issued in International Chamber of
Commerce Court of Arbitration Reference No. 13290/MS/JB/JEM.

SO ORDERED.59

RCBC filed a motion for reconsideration but the CA denied the same in its Resolution60 dated March
16, 2011. On April 6, 2011, it filed a petition for review on certiorari in this Court (G.R. No. 196171).

On February 25, 2011, Branch 65 rendered a Decision61 in SP Proc. Case No. M-6995, as follows:

WHEREFORE, premises considered, the Final Award dated June 16, 2010 in ICC Ref. No.
13290/MS/JB/JEM is hereby VACATED with cost against the respondent.

SO ORDERED.62

In SP Proc. Case No. M-6046, Branch 148 issued an Order63 dated August 8, 2011 resolving the
following motions: (1) Motion for Reconsideration filed by BDO, Go and Individual Shareholders of
the November 10, 2010 Order confirming the Final Award; (2) RCBCs Omnibus Motion to expunge
the motion for reconsideration filed by Go and Individual Shareholders, and for execution of the Final
Award; (3) Motion for Execution filed by RCBC against BDO; (4) BDOs Motion for Leave to File
Supplement to the Motion for Reconsideration; and (5) Motion for Inhibition filed by Go and
Individual Shareholders. Said Order decreed:

WHEREFORE, premises considered, it is hereby ORDERED, to wit:

1. Banco De Oros Motion for Reconsideration, Motion for Leave to File Supplement to
Motion for Reconsideration, and Motion to Inhibit are DENIED for lack of merit.

2. RCBC Capitals Motion to Expunge, Motion to Execute against Mr. George L. Go and the
Bankard Shareholders, and the Motion to Execute against Banco De Oro are
hereby GRANTED.

3. The damages awarded to RCBC Capital Corporation in the amount of PhP348,736,920.29

is subject to an interest of 6% per annum reckoned from the date of RCBC Capitals extra-
judicial demand or from May 5, 2003 until the confirmation of the Final Award. Likewise, this
compounded amount is subject to 12% interest per annum from the date of the confirmation
of the Final Award until its satisfaction. The costs of the arbitration amounting to
US$880,000.00, the fees and expenses of Mr. Best amounting to US$582,936.56, the
Claimants expenses of the arbitration amounting to PhP8,144,377.62, and the party-and-
party legal costs amounting to PhP7,000,000.00 all ruled in favor of RCBC Capital
Corporation in the Final Award of the Arbitral Tribunal dated June 16, 2010 are subject to
12% legal interest per annum, also reckoned from the date of the confirmation of the Final
Award until its satisfaction.

4. Pursuant to Section 40 of R.A. No. 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 in relation to Rule 39 of the Rules of Court, since the Final Award
 have been confirmed, the same shall be enforced in the same manner as final and executory
decisions of the Regional Trial Court, let a writ of execution be issued commanding the
Sheriff to enforce this instant Order confirming this Courts Order dated November 10, 2010
that judicially confirmed the June 16, 2010 Final Award.

SO ORDERED.64

Immediately thereafter, RCBC filed an Urgent Motion for Issuance of a Writ of Execution.65 On
August 22, 2011, after approving the execution bond, Branch 148 issued a Writ of Execution for the
implementation of the said courts "Order dated August 8, 2011 confirming the November 10, 2010
Order that judicially confirmed the June 16, 2010 Final Award x x x."66

BDO then filed in the CA, a "Petition for Review (With Application for a Stay Order or Temporary
Restraining Order and/or Writ of Preliminary Injunction," docketed as CA-G.R. SP No. 120888. BDO
sought to reverse and set aside the Orders dated November 10, 2010 and August 8, 2011, and any
writ of execution issued pursuant thereto, as well as the Final Award dated June 16, 2010 issued by
the Arbitration Tribunal.

In its Urgent Omnibus Motion67 to resolve the application for a stay order and/or TRO/writ of
preliminary injunction, and to quash the Writ of Execution dated August 22, 2011 and lift the Notices
of Garnishment dated August 22, 2011, BDO argued that the assailed orders of execution (Writ of
Execution and Notice of Garnishment) were issued with indecent haste and despite the non-
compliance with the procedures in Special ADR Rules of the November 10, 2010 Order confirming
the Final Award. BDO was not given sufficient time to respond to the demand for payment or to elect
the method of satisfaction of the judgment debt or the property to be levied upon. In any case, with
the posting of a bond by BDO, Branch 148 has no jurisdiction to implement the appealed orders as it
would pre-empt the CA from exercising its review under Rule 19 of the Special ADR Rules after
BDO had perfected its appeal. BDO stressed that the bond posted by RCBC was for a measly sum
of P3,000,000.00 to cause execution pending appeal of a monetary award that may
reach P631,429,345.29. RCBC also failed to adduce evidence of "good cause" or "good reason" to
justify discretionary execution under Section 2(a), Rule 39 of the Rules of Court.

BDO further contended that the writ of execution should be quashed for having been issued with
grave abuse of discretion amounting to lack or excess of jurisdiction as Branch 148 modified the
Final Award at the time of execution by imposing the payment of interests though none was provided
therein nor in the Order confirming the same.

During the pendency of CA-G.R. SP No. 120888, Branch 148 continued with execution proceedings
and on motion by RCBC designated/deputized additional sheriffs to replace Sheriff Flora who was
supposedly physically indisposed.68 These court personnel went to the offices/branches of BDO
attempting to serve notices of garnishment and to levy the furniture, fixtures and equipment.

On September 12, 2011, BDO filed a Very Urgent Motion to Lift Levy and For Leave to Post
Counter-Bond69before Branch 148 praying for the lifting of the levy of BDO Private Bank, Inc. (BPBI)
shares and the cancellation of the execution sale thereof scheduled on September 15, 2011, which
was set for hearing on September 14, 2011. BDO claimed that the levy was invalid because it was
served by the RTC Sheriffs not to the authorized representatives of BPBI, as provided under Section
9(b), Rule 39 in relation to Section 7, Rule 57 of the Rules of Court stating that a notice of levy on
shares of stock must be served to the president or managing agent of the company which issued the
shares. However, BDO was advised by court staff that Judge Sarabia was on leave and the case
could not be set for hearing.
In its Opposition to BDOs application for injunctive relief, RCBC prayed for its outright denial as
BDOs petition raises questions of fact and/or law which call for the CA to substitute its judgment
with that of the Arbitration Tribunal, in patent violation of applicable rules of procedure governing
domestic arbitration and beyond the appellate courts jurisdiction. RCBC asserted that BDOs
application has become moot and academic as the writ of execution was already implemented
and/or enforced. It also contended that BDO has no clear and unmistakable right to warrant
injunctive relief because the issue of jurisdiction was already ruled upon in CA-G.R. SP No. 117451
which dismissed the petition filed by Go and the Individual Shareholders of Bankard questioning the
authority of Branch 148 over RCBCs motion to confirm the Final Award despite the earlier filing by
BDO in another branch of the RTC (Branch 65) of a petition to vacate the said award.

On September 13, 2011, BDO, to avert the sale of the BPBI shares scheduled on September 15,
2011 and prevent further disruption in the operations of BDO and BPBI, paid under protest by
tendering a Managers Check in the amount of P637,941,185.55, which was accepted by RCBC as
full and complete satisfaction of the writ of execution. BDO manifested before Branch 148 that such
payment was made without prejudice to its appeal before the CA.70

On even date, the CA denied BDOs application for a stay order and/or TRO/preliminary injunction
for non-compliance with Rule 19.25 of the Special ADR Rules. The CA ruled that BDO failed to show
the existence of a clear right to be protected and that the acts sought to be enjoined violated any
right. Neither was BDO able to demonstrate that the injury to be suffered by it is irreparable or not
susceptible to mathematical computation.

BDO did not file a motion for reconsideration and directly filed with this Court a petition for certiorari
with urgent application for writ of preliminary mandatory injunction (G.R. No. 199238).

The Petitions

In G.R. No. 196171, RCBC set forth the following grounds for the reversal of the CA Decision dated
December 23, 2010:

I.

THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF THIS
HONORABLE COURT AND COMMITTED REVERSIBLE ERROR IN VACATING THE
SECOND PARTIAL AWARD ON THE BASIS OF CHAIRMAN BARKERS ALLEGED
PARTIALITY, WHICH IT CLAIMS IS INDICATIVE OF BIAS CONSIDERING THAT THE
ALLEGATIONS CONTAINED IN BDO/EPCIBS PETITION FALL SHORT OF THE
JURISPRUDENTIAL REQUIREMENT THAT THE SAME BE SUPPORTED BY CLEAR AND
CONVINCING EVIDENCE.

II.

THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF THIS
HONORABLE COURT AND COMMITTED REVERSIBLE ERROR WHEN IT REVERSED
THE ARBITRAL TRIBUNALS FINDINGS OF FACT AND LAW IN THE SECOND PARTIAL
AWARD IN PATENT CONTRAVENTION OF THE SPECIAL ADR RULES WHICH
EXPRESSLY PROHIBITS THE COURTS, IN AN APPLICATION TO VACATE AN
ARBITRAL AWARD, FROM DISTURBING THE FINDINGS OF FACT AND/OR
INTERPRE[TA]TION OF LAW OF THE ARBITRAL TRIBUNAL.71

BDO raises the following arguments in G.R. No. 199238:

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN PERFUNCTORILY DENYING PETITIONER BDOS
APPLICATION FOR STAY ORDER, AND/OR TEMPORARY RESTRAINING ORDER AND
PRELIMINARY INJUNCTION DESPITE THE EXISTENCE AND CONCURRENCE OF ALL THE
ELEMENTS FOR THE ISSUANCE OF SAID PROVISIONAL RELIEFS

A. PETITIONER BDO HAS CLEAR AND UNMISTAKABLE RIGHTS TO BE PROTECTED

BY THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED FOR, WHICH, HOWEVER,
WERE DISREGARDED BY PUBLIC RESPONDENT WHEN IT DENIED PETITIONER
BDOS PRAYER FOR ISSUANCE OF A STAY ORDER AND/OR TRO

B. PETITIONER BDOS RIGHT TO DUE PROCESS AND EQUAL PROTECTION OF THE

LAW WAS GROSSLY VIOLATED BY THE RTC-MAKATI CITY BRANCH 148, THE
DEPUTIZED SHERIFFS AND RESPONDENT RCBC CAPITAL, WHICH VIOLATION WAS
AIDED BY PUBLIC RESPONDENTS INACTION ON AND EVENTUAL DENIAL OF THE
PRAYER FOR STAY ORDER AND/OR TRO

C. DUE TO THE ACTS AND ORDERS OF RTC BRANCH 148, PETITIONER BDO
SUFFERED IRREPARABLE DAMAGE AND INJURY, AND THERE WAS DIRE AND
URGENT NECESSITY FOR THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED FOR
WHICH PUBLIC RESPONDENT DENIED IN GRAVE ABUSE OF DISCRETION 72

Essentially, the issues to be resolved are: (1) whether there is legal ground to vacate the Second
Partial Award; and (2) whether BDO is entitled to injunctive relief in connection with the execution
proceedings in SP Proc. Case No. M-6046.

In their TOR, the parties agreed on the governing law and rules as follows:

Laws to be Applied

13 The Tribunal shall determine the issues to be resolved in accordance with the laws of the
Republic of the Philippines.

Procedure to be Applied

14 The proceedings before the Tribunal shall be governed by the ICC Rules of Arbitration (1 January
1998) and the law currently applicable to arbitration in the Republic of the Philippines.73

As stated in the Partial Award dated September 27, 2007, although the parties provided in Section
10 of the SPA that the arbitration shall be conducted under the ICC Rules, it was nevertheless
arbitration under Philippine law since the parties are both residents of this country. The provisions of
Republic Act No. 87674 (RA 876),as amended by Republic Act No. 928575 (RA 9285)principally
applied in the arbitration between the herein parties.76

The pertinent provisions of R.A. 9285 provide:

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.

xxxx

SEC. 41. Vacation Award. A party to a domestic arbitration may question the arbitral award with
the appropriate regional trial court in accordance with the rules of procedure to be promulgated by
the Supreme Court only on those grounds enumerated in Section 25 of Republic Act No. 876. Any
other ground raised against a domestic arbitral award shall be disregarded by the regional trial court.

Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award:

Rule 11.4. Grounds.(A) To vacate an arbitral award. The arbitral award may be vacated on the
following grounds:

a. The arbitral award was procured through corruption, fraud or other undue means;

b. There was evident partiality or corruption in the arbitral tribunal or any of its
members;

c. The arbitral tribunal was guilty of misconduct or any form of misbehavior that has
materially prejudiced the rights of any party such as refusing to postpone a hearing upon
sufficient cause shown or to hear evidence pertinent and material to the controversy;

d. One or more of the arbitrators was disqualified to act as such under the law and willfully
refrained from disclosing such disqualification; or

e. The arbitral tribunal exceeded its powers, or so imperfectly executed them, such that a
complete, final and definite award upon the subject matter submitted to them was not made.

The award may also be vacated on any or all of the following grounds:

a. The arbitration agreement did not exist, or is invalid for any ground for the revocation of a
contract or is otherwise unenforceable; or

b. A party to arbitration is a minor or a person judicially declared to be incompetent.

xxxx

In deciding the petition to vacate the arbitral award, the court shall disregard any other ground than
those enumerated above. (Emphasis supplied)

Judicial Review

At the outset, it must be stated that a review brought to this Court under the Special ADR Rules is
not a matter of right. Rule 19.36 of said Rules specified the conditions for the exercise of this
Courts discretionary review of the CAs decision.

Rule 19.36.Review discretionary.A review by the Supreme Court is not a matter of right, but of
sound judicial discretion, which will be granted only for serious and compelling reasons resulting
in grave prejudice to the aggrieved party. The following, while neither controlling nor fully
measuring the courts discretion, indicate the serious and compelling, and necessarily, restrictive
nature of the grounds that will warrant the exercise of the Supreme Courts discretionary
powers, when the Court of Appeals:

a. Failed to apply the applicable standard or test for judicial review prescribed in these
Special ADR Rules in arriving at its decision resulting in substantial prejudice to the
aggrieved party;

b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court that
rendered such final order or decision;

c. Failed to apply any provision, principle, policy or rule contained in these Special ADR
Rules resulting in substantial prejudice to the aggrieved party; and

d. Committed an error so egregious and harmful to a party as to amount to an undeniable

excess of jurisdiction.

The mere fact that the petitioner disagrees with the Court of Appeals determination of questions of
fact, of law or both questions of fact and law, shall not warrant the exercise of the Supreme Courts
discretionary power. The error imputed to the Court of Appeals must be grounded upon any of
the above prescribed grounds for review or be closely analogous thereto.

A mere general allegation that the Court of Appeals has committed serious and substantial error or
that it has acted with grave abuse of discretion resulting in substantial prejudice to the petitioner
without indicating with specificity the nature of such error or abuse of discretion and the serious
prejudice suffered by the petitioner on account thereof, shall constitute sufficient ground for the
Supreme Court to dismiss outright the petition. (Emphasis supplied)

The applicable standard for judicial review of arbitral awards in this jurisdiction is set forth in Rule
19.10 which states:

Rule 19.10. Rule on judicial review on arbitration in the Philippines.--As a general rule, the court can
only vacate or set aside the decision of an arbitral tribunal upon a clear showing that the award
suffers from any of the infirmities or grounds for vacating an arbitral award under Section 24
of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or for
setting aside an award in an international arbitration under Article 34 of the Model Law, or for such
other grounds provided under these Special Rules.

xxxx

The court shall not set aside or vacate the award of the arbitral tribunal merelyon the ground that the
arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court cannot substitute
its judgment for that of the arbitral tribunal. (Emphasis supplied)

The above rule embodied the stricter standard in deciding appeals from arbitral awards established
by jurisprudence. In the case of Asset Privatization Trust v. Court of Appeals,77 this Court held:

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the
law or as to the facts.Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators.They will not review the
findings of law and fact contained in an award, and will not undertake to substitute their judgment for
that of the arbitrators, since any other rule would make an award the commencement, not the end, of
litigation.Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the
arbitrators, are insufficient to invalidate an award fairly and honestly made. Judicial review of an
arbitration is, thus, more limited than judicial review of a trial.78

Accordingly, we examine the merits of the petition before us solely on the statutory ground raised for
vacating the Second Partial Award: evident partiality, pursuant to Section 24 (b) of the Arbitration
Law (RA 876) and Rule 11.4 (b) of the Special ADR Rules.

Evident Partiality

Evident partiality is not defined in our arbitration laws. As one of the grounds for vacating an arbitral
award under the Federal Arbitration Act (FAA) in the United States (US), the term "encompasses
both an arbitrators explicit bias toward one party and an arbitrators inferred bias when an arbitrator
fails to disclose relevant information to the parties."79

From a recent decision80 of the Court of Appeals of Oregon, we quote a brief discussion of the
common meaning of evident partiality:

To determine the meaning of "evident partiality," we begin with the terms themselves. The common
meaning of "partiality" is "the inclination to favor one side."Websters Third New Int'l
Dictionary 1646 (unabridged ed 2002); see also id. (defining "partial" as "inclined to favor one party
in a cause or one side of a question more than the other: biased, predisposed" (formatting in
original)). "Inclination," in turn, means "a particular disposition of mind or character : propensity,
bent" or "a tendency to a particular aspect, state, character, or action."Id. at 1143 (formatting in
original); see also id. (defining "inclined" as "having inclination, disposition, or tendency").

The common meaning of "evident" is "capable of being perceived esp[ecially] by sight : distinctly
visible : being in evidence : discernable[;] * * * clear to the understanding : obvious, manifest,
apparent."Id. at 789 (formatting in original); see also id. (stating that synonyms of "evident" include
"apparent, patent, manifest, plain, clear, distinct, obvious, [and] palpable" and that, "[s]ince evident
rather naturally suggests evidence, it may imply the existence of signs and indications that
must lead to an identification or inference" (formatting in original)). (Emphasis supplied)

Evident partiality in its common definition thus implies "the existence of signs and indications that
must lead to an identification or inference" of partiality.81 Despite the increasing adoption of
arbitration in many jurisdictions, there seems to be no established standard for determining the
existence of evident partiality. In the US, evident partiality "continues to be the subject of somewhat
conflicting and inconsistent judicial interpretation when an arbitrators failure to disclose prior
dealings is at issue."82

The first case to delineate the standard of evident partiality in arbitration proceedings
was Commonwealth Coatings Corp. v. Continental Casualty Co., et al.83 decided by the US Supreme
Court in 1968. The Court therein addressed the issue of whether the requirement of impartiality
applies to an arbitration proceeding. The plurality opinion written by Justice Black laid down the rule
that the arbitrators must disclose to the parties "any dealings that might create an impression of
possible bias,"84 and that underlying such standard is "the premise that any tribunal permitted by law
to try cases and controversies not only must be unbiased but also must avoid even the appearance
of bias."85 In a separate concurring opinion, Justice White joined by Justice Marshall, remarked that
"[t]he Court does not decide today that arbitrators are to be held to the standards of judicial decorum
of Article III judges, or indeed of any judges."86 He opined that arbitrators should not automatically be
disqualified from an arbitration proceeding because of a business relationship where both parties are
aware of the relationship in advance, or where the parties are unaware of the circumstances but the
relationship is trivial. However, in the event that the arbitrator has a "substantial interest" in the
transaction at hand, such information must be disclosed.

Subsequent cases decided by the US Court of Appeals Circuit Courts adopted different approaches,
given the imprecise standard of evident partiality in Commonwealth Coatings.

In Morelite Construction Corp. v. New York District Council Carpenters Benefit Funds,87 the Second
Circuit reversed the judgment of the district court and remanded with instructions to vacate the
arbitrators award, holding that the existence of a father-son relationship between the arbitrator and
the president of appellee union provided strong evidence of partiality and was unfair to appellant
construction contractor. After examining prior decisions in the Circuit, the court concluded that

x x x we cannot countenance the promulgation of a standard for partiality as insurmountable as

"proof of actual bias" -- as the literal words of Section 10 might suggest. Bias is always difficult, and
indeed often impossible, to "prove." Unless an arbitrator publicly announces his partiality, or is
overheard in a moment of private admission, it is difficult to imagine how "proof" would be obtained.
Such a standard, we fear, occasionally would require that we enforce awards in situations that are
clearly repugnant to our sense of fairness, yet do not yield "proof" of anything.

If the standard of "appearance of bias" is too low for the invocation of Section 10, and "proof
of actual bias" too high, with what are we left? Profoundly aware of the competing forces that have
already been discussed, we hold that "evident partiality" within the meaning of 9 U.S.C. 10 will
be found where a reasonable person would have to conclude that an arbitrator was partial to
one party to the arbitration.x x x88 (Emphasis supplied)

In Apperson v. Fleet Carrier Corporation,89 the Sixth Circuit agreed with the Morelite courts analysis,
and accordingly held that to invalidate an arbitration award on the grounds of bias, the challenging
party must show that "a reasonable person would have to conclude that an arbitrator was partial" to
the other party to the arbitration.

This "myriad of judicial interpretations and approaches to evident partiality" resulted in a lack of a
uniform standard, leaving the courts "to examine evident partiality on a case-by-case basis."90 The
case at bar does not present a non-disclosure issue but conduct allegedly showing an arbitrators
partiality to one of the parties.

EPCIB/BDO, in moving to vacate the Second Partial Award claimed that the Arbitration Tribunal
exceeded its powers in deciding the issue of advance cost not contemplated in the TOR, and that
Chairman Barker acted with evident partiality in making such award. The RTC held that BDO failed
to substantiate these allegations. On appeal, the CA likewise found that the Arbitration Tribunal did
not go beyond the submission of the parties because the phrasing of the scope of the agreed issues
in the TOR ("[t]he issues to be determined by the Tribunal are those issues arising from the said
Request for Arbitration, Answer and Reply and such other issues as may properly arise during the
arbitration")is broad enough to accommodate a finding on the liability and the repercussions of
BDOs failure to share in the advances on costs. Section 10 of the SPA also gave the Arbitration
Tribunal authority to decide how the costs should be apportioned between them.

However, the CA found factual support in BDOs charge of partiality, thus:

On the issue on evident partiality, the rationale in the American case of Commonwealth Coatings
Corp. v. Continental Cas. Co. appears to be very prudent. In Commonwealth, the United States
Supreme Court reasoned that courts "shouldbe even more scrupulous to safeguard the impartiality
of arbitrators than judges, since the former have completely free rein to decide the law as well as the
facts, and are not subject to appellate review" in general. This taken into account, the Court applies
the standard demanded of the conduct of magistrates by analogy. After all, the ICC Rules
require that an arbitral tribunal should act fairly and impartially. Hence, an arbitrators conduct
should be beyond reproach and suspicion. His acts should be free from the appearances of
impropriety.

An examination of the circumstances claimed to be illustrative of Chairman Barkers partiality is

indicative of bias. Although RCBC had repeatedly asked for reimbursement and the withdrawal of
BDOs counterclaims prior to Chairman Barkers December 18, 2007 letter, it is baffling why it is
only in the said letter that RCBCs prayer was given a complexion of being an application for
a partial award. To the Court, the said letter signaled a preconceived course of action that the
relief prayed for by RCBC will be granted.

That there was an action to be taken beforehand is confirmed by Chairman Barkers furnishing the
parties with a copy of the Secomb article. This article ultimately favored RCBC by advancing its
cause. Chairman Barker makes it appear that he intended good to be done in doing so but
due process dictates the cold neutrality of impartiality. This means that "it is not enough[that]
cases [be decided] without bias and favoritism. Nor is it sufficient thatprepossessions [be rid of].
[A]ctuations should moreover inspire that belief." These put into the equation, the furnishing of the
Secomb article further marred the trust reposed in Chairman Barker. The suspicion of his partiality
on the subject matter deepened. Specifically, his act established that he had pre-formed opinions.

Chairman Barkers providing of copies of the said text is easily interpretable that he had prejudged
the matter before him. In any case, the Secomb article tackled bases upon which the Second Partial
Award was founded. The subject article reflected in advance the disposition of the ICC arbitral
tribunal. The award can definitely be viewed as an affirmation that the bases in the Secomb article
were adopted earlier on. To the Court, actuations of arbitrators, like the language of judges, "must be
guarded and measured lest the best of intentions be misconstrued."

x x x x91 (Emphasis supplied)

We affirm the foregoing findings and conclusion of the appellate court save for its reference to
the obiter in Commonwealth Coatings that arbitrators are held to the same standard of conduct
imposed on judges. Instead, the Court adopts the reasonable impression of partiality standard,
which requires a showing that a reasonable person would have to conclude that an arbitrator was
partial to the other party to the arbitration. Such interest or bias, moreover, "must be direct, definite
and capable of demonstration rather than remote, uncertain, or speculative."92 When a claim of
arbitrators evident partiality is made, "the court must ascertain from such record as is available
whether the arbitrators conduct was so biased and prejudiced as to destroy fundamental fairness."93

Applying the foregoing standard, we agree with the CA in finding that Chairman Barkers act of
furnishing the parties with copies of Matthew Secombs article, considering the attendant
circumstances,is indicative of partiality such that a reasonable man would have to conclude that he
was favoring the Claimant, RCBC. Even before the issuance of the Second Partial Award for the
reimbursement of advance costs paid by RCBC, Chairman Barker exhibited strong inclination to
grant such relief to RCBC, notwithstanding his categorical ruling that the Arbitration Tribunal "has no
power under the ICC Rules to order the Respondents to pay the advance on costs sought by the
ICC or to give the Claimantany relief against the Respondents refusal to pay."94 That Chairman
Barker was predisposed to grant relief to RCBC was shown by his act of interpreting RCBCs letter,
which merely reiterated its plea to declare the Respondents in default and consider all counterclaims
withdrawn as what the ICC Rules provide as an application to the Arbitration Tribunal to issue a
partial award in respect of BDOs failure to share in the advance costs. It must be noted that RCBC
in said letter did not contemplate the issuance of a partial order, despite Chairman Barkers previous
letter which mentioned the possibility of granting relief upon the parties making submissions to the
Arbitration Tribunal. Expectedly, in compliance with Chairman Barkers December 18, 2007 letter,
RCBC formally applied for the issuance of a partial award ordering BDO to pay its share in the
advance costs.

Mr. Secombs article, "Awards and Orders Dealing With the Advance on Costs in ICC Arbitration:
Theoretical Questions and Practical Problems"95 specifically dealt with the situation when one of the
parties to international commercial arbitration refuses to pay its share on the advance on costs. After
a brief discussion of the provisions of ICC Rules dealing with advance on costs, which did not
provide for issuance of a partial award to compel payment by the defaulting party, the author stated:

4. As we can see, the Rules have certain mechanisms to deal with defaulting parties. Occasionally,
however, parties have sought to use other methods to tackle the problem of a party refusing to pay
its part of the advance on costs. These have included seeking an order or award from the arbitral
tribunal condemning the defaulting party to pay its share of the advance on costs. Such applications
1w phi1

are the subject of this article.96

By furnishing the parties with a copy of this article, Chairman Barker practically armed RCBC with
supporting legal arguments under the "contractual approach" discussed by Secomb. True enough,
RCBC in its Application for Reimbursement of Advance Costs Paid utilized said approach as it
singularly focused on Article 30(3)97 of the ICC Rules and fiercely argued that BDO was contractually
bound to share in the advance costs fixed by the ICC.98 But whether under the "contractual
approach" or "provisional approach" (an application must be treated as an interim measure of
protection under Article 23 [1] rather than enforcement of a contractual obligation), both treated in
the Secomb article, RCBC succeeded in availing of a remedy which was not expressly allowed by
the Rules but in practice has been resorted to by parties in international commercial arbitration
proceedings. It may also be mentioned that the author, Matthew Secomb, is a member of the ICC
Secretariat and the "Counsel in charge of the file", as in fact he signed some early communications
on behalf of the ICC Secretariat pertaining to the advance costs fixed by the ICC.99 This bolstered
the impression that Chairman Barker was predisposed to grant relief to RCBC by issuing a partial
award.

Indeed, fairness dictates that Chairman Barker refrainfrom suggesting to or directing RCBC towards
a course of action to advance the latters cause, by providing it with legal arguments contained in an
article written by a lawyer who serves at the ICC Secretariat and was involved or had participation --
insofar as the actions or recommendations of the ICC in the case. Though done purportedly to
assist both parties, Chairman Barkers act clearly violated Article 15 of the ICC Rules declaring that
"[i]n all cases, the Arbitral Tribunal shall act fairly and impartially and ensure that each party has a
reasonable opportunity to present its case." Having pre-judged the matter in dispute, Chairman
Barker had lost his objectivity in the issuance of the Second Partial Award.

In fine, we hold that the CA did not err in concluding that the article ultimately favored RCBC as it
reflected in advance the disposition of the Arbitral Tribunal, as well as "signalled a preconceived
course of action that the relief prayed for by RCBC will be granted." This conclusion is further
confirmed by the Arbitral Tribunals pronouncements in its Second Partial Award which not only
adopted the "contractual approach" but even cited Secombs article along with other references,
thus:
6.1 It appears to the Tribunal that the issue posed by this application is essentially a contractual one.
xxx

xxxx

6.5 Matthew Secomb, considered these points in the article in 14 ICC Bulletin No. 1 (2003) which
was sent to the parties. At Para. 19, the learned author quoted from an ICC Tribunal (Case No.
11330) as follows:

"The Arbitral Tribunal concludes that the partiesin arbitrations conducted under the ICC Rules have
a mutually binding obligation to pay the advance on costs as determined by the ICC Court, based on
Article 30-3 ICC Rules which by reference forms part of the parties agreement to arbitration
under such Rules."100

The Court, however, must clarify that the merits of the parties arguments as to the propriety of the
issuance of the Second Partial Award are not in issue here. Courts are generally without power to
amend or overrule merely because of disagreement with matters of law or facts determined by the
arbitrators. They will not review the findings of law and fact contained in an award, and will not
undertake to substitute their judgment for that of the arbitrators. A contrary rule would make an
arbitration award the commencement, not the end, of litigation.101 It is the finding of evident partiality
which constitutes legal ground for vacating the Second Partial Award and not the Arbitration
Tribunals application of the ICC Rules adopting the "contractual approach" tackled in Secombs
article.

Alternative dispute resolution methods or ADRs like arbitration, mediation, negotiation and
conciliation are encouraged by this Court. By enabling parties to resolve their disputes amicably,
they provide solutions that are less time-consuming, less tedious, less confrontational, and more
productive of goodwill and lasting relationship.102 Institutionalization of ADR was envisioned as "an
important means to achieve speedy and impartial justice and declog court dockets."103 The most
important feature of arbitration, and indeed, the key to its success, is the publics confidence and
trust in the integrity of the process.104 For this reason, the law authorizes vacating an arbitral award
when there is evident partiality in the arbitrators.

Injunction Against Execution Of Arbitral Award

Before an injunctive writ can be issued, it is essential that the following requisites are present: (1)
there must be a right inesse or the existence of a right to be protected; and (2) the act against which
injunction to be directed is a violation of such right. The onus probandi is on movant to show that
there exists a right to be protected, which is directly threatened by the act sought to be enjoined.
Further, there must be a showing that the invasion of the right is material and substantial and that
there is an urgent and paramount necessity for the writ to prevent a serious damage.105

Rule 19.22 of the Special ADR Rules states:

Rule 19.22. Effect of appeal.The appeal shall not stay the award, judgment, final order or
resolution sought to be reviewed unless the Court of Appeals directs otherwise upon such terms as it
may deem just.

We find no reversible error or grave abuse of discretion in the CAs denial of the application for stay
order or TRO upon its finding that BDO failed to establish the existence of a clear legal right to enjoin
execution of the Final Award confirmed by the Makati City RTC, Branch 148, pending resolution of
its appeal.It would be premature to address on the merits the issues raised by BDO in the present
petition considering that the CA still has to decide on the validity of said court's orders confirming the
Final Award. But more important, since BOO had already paid P637,941,185.55 m manager's check,
albeit under protest, and which payment was accepted by RCBC as full and complete satisfaction of
the writ of execution, there is no more act to be enjoined.

Settled is the rule that injunctive reliefs are preservative remedies for the protection of substantive
rights and interests. Injunction is not a cause of action in itself, but merely a provisional remedy, an
adjunct to a main suit. When the act sought to be enjoined has become fait accompli, the prayer for
provisional remedy should be denied. 106

Thus, the Court ruled in Gov. Looyuko107 that when the events sought to be prevented by injunction
or prohibition have already happened, nothing more could be enjoined or prohibited. Indeed, it is a
universal principle of law that an injunction will not issue to restrain the performance of an act
already done. This is so for the simple reason that nothing more can be done in reference thereto. A
writ of injunction becomes moot and academic after the act sought to be enjoined has already been
consummated.

WHEREFORE, premises considered, the petition m G.R. No. 199238 is DENIED. The Resolution
dated September 13,2011 ofthe Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.

The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the Court of
Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 199650 June 26, 2013

J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,

vs.
UTILITY ASSURANCE CORPORATION, Respondent.

DECISION

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision1 dated January 27,2011 and Resolution2 dated
December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112808.

The Facts

On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its
Chairman, Joo Han Lee, and Martin E. Mabunay, doing business under the name and style of Seven
Shades of Blue Trading and Services, entered into a Construction Agreement3 whereby the latter
undertook to build the former's 72-room condominium/hotel (Condotel Building 25) located at the
Fairways & Bluewaters Golf & Resort in Boracay Island, Malay, Aklan. The project,
costing P42,000,000.00, was to be completed within one year or 365 days reckoned from the first
calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down
payment (20% of contract price). The P8,400,000.00 down payment was fully paid on January 14,
2008.4Payment of the balance of the contract price will be based on actual work finished within 15
days from receipt of the monthly progress billings. Per the agreed work schedule, the completion
date of the project was December 2008.5 Mabuhay also submitted the required Performance
Bond6 issued by respondent Utility Assurance Corporation (UTASSCO) in the amount equivalent to
20% down payment or P8.4 million.

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

In the Joint Construction Evaluation Result and Status Report8 signed by Mabunay assisted by Arch.
Elwin Olavario, and Joo Han Lee assisted by Roy V. Movido, the following findings were accepted
as true, accurate and correct:

III STATUS OF PROJECT AS OF 14 NOVEMBER 2008

1) After conducting a joint inspection and evaluation of the project to determine the actual
percentage of accomplishment, the contracting parties, assisted by their respective technical
groups, SSB assisted by Arch. Elwin Olavario and JPLUS assisted by Engrs. Joey Rojas and
Shiela Botardo, concluded and agreed that as of 14 November 2008, the project is only
Thirty One point Thirty Nine Percent (31.39%) complete.

2) Furthermore, the value of construction materials allocated for the completion of the project
and currently on site has been determined and agreed to be ONE MILLION FORTY NINE
THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND FORTY FIVE CENTAVOS
(P1,049,364.45)

3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th
and 9th billings, is Three point Eighty Five Percent (3.85%) with a gross value
of P1,563,553.34 amount creditable to SSB after deducting the withholding tax
is P1,538,424.84

4) The unrecouped amount of the down payment is P2,379,441.53 after deducting the cost
of materials on site and the net billable amount reflected in the reconciled and consolidated
8th and 9th billings. The uncompleted portion of the project is 68.61% with an estimated
value per construction agreement signed 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
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 under this decision, plus interest thereon at the rate of
12% per annum computed from the date he is notified of such payment made by respondent
Utassco to claimant until fully paid, and to pay Utassco P100,000.00 as attorneys fees.

SO ORDERED.17

Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil
Procedure, as amended.

In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance
Bond did not clearly state the limitation of the suretys liability. Pursuant to Article 137718 of the Civil
Code, the CA said that the provision should be construed in favor of petitioner considering that the
obscurely phrased provision was drawn up by respondent and Mabunay. Further, the appellate court
stated that respondent could not possibly guarantee the down payment because it is not Mabunay
who owed the down payment to petitioner but the other way around. Consequently, the completion
by Mabunay of 31.39% of the construction would not lead to the extinguishment of respondents
liability. The P8.4 million was a limit on the amount of respondents liability and not a limitation as to
the obligation or undertaking it guaranteed.

However, the CA reversed the CIACs ruling that Mabunay had incurred delay which entitled
petitioner to the stipulated liquidated damages and unrecouped down payment. Citing Aerospace
Chemical Industries, Inc. v. Court of Appeals,19 the appellate court said that not all requisites in order
to consider the obligor or debtor in default were present in this case. It held that it is only from
December 24, 2008 (completion date) that we should reckon default because the Construction
Agreement provided only for delay in the completion of the project and not delay on a monthly basis
using the work schedule approved by petitioner as the reference point. Hence, petitioners
termination of the contract was premature since the delay in this case was merely speculative; the
obligation was not yet demandable.

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed
Decision dated 13 January 2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009
is hereby REVERSED and SET ASIDE. Accordingly, the Writ of Execution dated 24 November 2010
issued by the same tribunal is hereby ANNULLED and SET ASIDE.

SO ORDERED.20

Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial
reconsideration. Both motions were denied.

The Issues

Before this Court petitioner seeks to reverse the CA insofar as it denied petitioners claims under the
Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC Decision. Specifically,
petitioner alleged that

A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE

ALTERNATIVE DISPUTE RESOLUTION ACT AND THE SPECIAL RULES ON
ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF
JURISDICTION TO REVIEW ARBITRAL AWARDS.

B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL

AWARD ON AN ISSUE THAT WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN
THE TERMS OF REFERENCE, NOT ASSIGNED AS ANERROR, AND NOT ARGUED IN
ANY OF THE PLEADINGS FILED BEFORE THE COURT.

C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF

AEROSPACE CHEMICAL INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94,
WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS.21

Our Ruling
On the procedural issues raised, we find no merit in petitioners contention that with the
institutionalization of alternative dispute resolution under Republic Act (R.A.) No. 9285,22 otherwise
known as the Alternative Dispute Resolution Act of 2004, the CA was divested of jurisdiction to
review the decisions or awards of the CIAC. Petitioner erroneously relied on the provision in said law
allowing any party to a domestic arbitration to file in the Regional Trial Court (RTC) a petition either
to confirm, correct or vacate a domestic arbitral award.

We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or
decisions of the CIAC in construction disputes. On the contrary, Section 40 thereof expressly
declares that confirmation by the RTC is not required, thus:

SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be governed
by Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with
the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008. (Emphasis supplied.)

Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award of the
CIAC is final and unappealable, except on questions of law, which are appealable to the Supreme
Court. With the amendments introduced by R.A. No. 7902 and promulgation of the 1997 Rules of
Civil Procedure, as amended, the CIAC was included in the enumeration of quasijudicial agencies
whose decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such
review of the CIAC award may involve either questions of fact, of law, or of fact and law.23

Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this
Court and which took effect on October 30, 2009. Since R.A. No. 9285 explicitly excluded CIAC
awards from domestic arbitration awards that need to be confirmed to be executory, said awards are
therefore not covered by Rule 11 of the Special ADR Rules,24 as they continue to be governed by
EO No. 1008, as amended and the rules of procedure of the CIAC. The CIAC Revised Rules of
Procedure Governing Construction Arbitration25 provide for the manner and mode of appeal from
CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. A petition for review from a final award may be taken by any of
the parties within fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43
of the Rules of Court.

As to the alleged error committed by the CA in deciding the case upon an issue not raised or
litigated before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred delay in
the performance of his obligations under the Construction Agreement was the very first issue
stipulated in the Terms of Reference26(TOR), which is distinct from the issue of the extent of
respondents liability under the Performance Bond.
Indeed, resolution of the issue of delay was crucial upon which depends petitioners right to the
liquidated damages pursuant to the Construction Agreement. Contrary to the CIACs findings, the
CA opined that delay should be reckoned only after the lapse of the one-year contract period, and
consequently Mabunays liability for liquidated damages arises only upon the happening of such
condition.

We reverse the CA.

Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a
cause imputable to the former. It is the non-fulfillment of an obligation with respect to time.27

Article 1169 of the Civil Code provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.

xxxx

It is a general rule that one who contracts to complete certain work within a certain time is liable for
the damage for not completing it within such time, unless the delay is excused or waived.28

The Construction Agreement provides in Article 10 thereof the following conditions as to completion
time for the project

1. The CONTRACTOR shall complete the works called for under this Agreement within ONE
(1) YEAR or 365 Days reckoned from the 1st calendar day after signing of the Notice of
Award and Notice to Proceed and receipt of down payment.

2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by
OWNER within Seven (7) days after signing of this Agreement and full payment of 20% of
the agreed contract price. Said detailed work schedule shall follow the general schedule of
activities and shall serve as basis for the evaluation of the progress of work by
CONTRACTOR.29

In this jurisdiction, the following requisites must be present in order that the debtor may be in default:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance judicially or extrajudicially.30

In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to
perform or complete the project was not yet demandable as of November 19, 2008 when petitioner
terminated the contract, because the agreed completion date was still more than one month away
(December 24, 2008). Since the parties contemplated delay in the completion of the entire project,
the CA concluded that the failure of the contractor to catch up with schedule of work activities did not
constitute delay giving rise to the contractors liability for damages.

We cannot sustain the appellate courts interpretation as it is inconsistent with the terms of the
Construction Agreement. Article 1374 of the Civil Code requires that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly. Here, the work schedule approved by petitioner was intended, not only
to serve as its basis for the payment of monthly progress billings, but also for evaluation of the
progress of work by the contractor. Article 13.01 (g) (iii) of the Construction Agreement provides that
the contractor shall be deemed in default if, among others, it had delayed without justifiable cause
the completion of the project "by more than thirty (30) calendar days based on official work schedule
duly approved by the OWNER."31

Records showed that as early as April 2008, or within four months after Mabunay commenced work
activities, the project was already behind schedule for reasons not attributable to petitioner. In the
succeeding months, Mabunay was still unable to catch up with his accomplishment even as
petitioner constantly advised him of the delays, as can be gleaned from the following notices of delay
sent by petitioners engineer and construction manager, Engr. Sheila N. Botardo:

April 30, 2008

Seven Shades of Blue

Boracay Island
Malay, Aklan
1w phi1

Attention : Mr. Martin Mabunay

General Manager
Thru : Engr. Reynaldo Gapasin

Project : Villa Beatriz

Subject : Notice of Delay

Dear Mr. Mabunay:

This is to formalize our discussion with your Engineers during our meeting last April 23, 2008
regarding the delay in the implementation of major activities based on your submitted construction
schedule. Substantial delay was noted in concreting works that affects your roof framing that should
have been 40% completed as of this date. This delay will create major impact on your over-all
schedule as the finishing works will all be dependent on the enclosure of the building.

In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of
critical materials on site. We would highly appreciate if you could attend our next regular meeting so
we could immediately address this matter. Thank you.

Very truly yours,

Engr. Sheila N. Botardo

Construction Manager LMI/FEPI32

October 15, 2008

xxxx

Dear Mr. Mabunay,

We have noticed continuous absence of all the Engineers that you have assigned on-site to
administer and supervise your contracted work. For the past two (2) weeks, your company does not
have a Technical Representative manning the jobsite considering the critical activities that are in
progress and the delays in schedule that you have already incurred. In this regard, we would highly
recommend the immediate replacement of your Project Engineer within the week.

We would highly appreciate your usual attention on this matter.

x x x x33

November 5, 2008

xxxx

Dear Mr. Mabunay,

This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008
regarding the construction of the Field Office and Stock Room for Materials intended for Villa Beatriz
use only. We understand that you have committed to complete it November 5, 2008 but as of this
date there is no improvement or any ongoing construction activity on the said field office and
stockroom.

We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is
badly needed. We will highly appreciate if this matter will be given your immediate attention.

Thank you.

x x x x34

November 6, 2008

xxxx

Dear Mr. Mabunay,

We would like to call your attention regarding the decrease in your manpower assigned on site. We
have observed that for the past three (3) weeks instead of increasing your manpower to catch up
with the delay it was reduced to only 8 workers today from an average of 35 workers in the previous
months.

Please note that based on your submitted revised schedule you are already delayed by
approximately 57% and this will worsen should you not address this matter properly.

We are looking forward for [sic] your cooperation and continuous commitment in delivering this
project as per contract agreement.

x x x x35

Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects
and engineers of petitioner and Mabunay and it was found that as of November 14, 2008, the project
was only 31.39% complete and that the uncompleted portion was 68.61% with an estimated value
per Construction Agreement 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.

12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of
any further act and deed, authorizes the OWNER to deduct any amount that may be due under Item
(a) above, from any and all money or amounts due or which will become due to the CONTRACTOR
by virtue of this Agreement and/or to collect such amounts from the Performance Bond filed by the
CONTRACTOR in this Agreement.36 (Emphasis supplied.)

Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which
provide:

ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in
case of breach thereof.

ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.

ART. 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the
measure of damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation in order to ensure performance and
has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force
of the obligation by the threat of greater responsibility in the event of breach.37 The amount agreed
upon answers for damages suffered by the owner due to delays in the completion of the project.38 As
a precondition to such award, however, there must be proof of the fact of delay in the performance of
the obligation.39

Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor
to complete the project within the stipulated period or the extension granted by the owner. However,
this will not defeat petitioners claim for damages nor respondents liability under the Performance
Bond. Mabunay was clearly in default considering the dismal percentage of his accomplishment
(32.38%) of the work he contracted on account of delays in executing the scheduled work activities
and repeated failure to provide sufficient manpower to expedite construction works. The events of
default and remedies of the Owner are set forth in Article 13, which reads:

ARTICLE 13 DEFAULT OF CONTRACTOR:

13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.

xxxx

g. In case the CONTRACTOR has done any of the following:

(i.) has abandoned the Project

(ii.) without reasonable cause, has failed to commence the construction or has suspended
the progress of the Project for twenty-eight days

(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty
(30) calendar days based on official work schedule duly approved by the OWNER

(iv.) despite previous written warning by the OWNER, is not executing the construction works
in accordance with the Agreement or is persistently or flagrantly neglecting to carry out its
obligations under the Agreement.

(v.) has, to the detriment of good workmanship or in defiance of the Owners instructions to
the contrary, sublet any part of the Agreement.

13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the
OWNER may after giving fourteen (14) calendar days notice in writing to the CONTRACTOR, enter
upon the site and expel the CONTRACTOR therefrom without voiding this Agreement, or releasing
the CONTRACTOR from any of its obligations, and liabilities under this Agreement. Also without
diminishing or affecting the rights and powers conferred on the OWNER by this Agreement and the
OWNER may himself complete the work or may employ any other contractor to complete the work. If
the OWNER shall enter and expel the CONTRACTOR under this clause, the OWNER shall be
entitled to confiscate the performance bond of the CONTRACTOR to compensate for all kinds of
damages the OWNER may suffer. All expenses incurred to finish the Project shall be charged to the
CONTRACTOR and/or his bond. Further, the OWNER shall not be liable to pay the CONTRACTOR
until the cost of execution, damages for the delay in the completion, if any, and all; other expenses
incurred by the OWNER have been ascertained which amount shall be deducted from any money
due to the CONTRACTOR on account of this Agreement. The CONTRACTOR will not be
compensated for any loss of profit, loss of goodwill, loss of use of any equipment or property, loss of
business opportunity, additional financing cost or overhead or opportunity losses related to the
unaccomplished portions of the work.40 (Emphasis supplied.)

As already demonstrated, the contractors default in this case pertains to his failure to substantially
perform the work on account of tremendous delays in executing the scheduled work activities.
Where a party to a building construction contract fails to comply with the duty imposed by the terms
of the contract, a breach results for which an action may be maintained to recover the damages
sustained thereby, and of course, a breach occurs where the contractor inexcusably fails to perform
substantially in accordance with the terms of the contract.41

The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate
the Performance Bond to answer for all kinds of damages it may suffer as a result of the contractors
failure to complete the building. Having elected to terminate the contract and expel the contractor
from the project site under Article 13 of the said Agreement, petitioner is clearly entitled to the
proceeds of the bond as indemnification for damages it sustained due to the breach committed by
Mabunay. Such stipulation allowing the confiscation of the contractors performance bond partakes
of the nature of a penalty clause. A penalty clause, expressly recognized by law, is an accessory
undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. It
functions to strengthen the coercive force of obligation and to provide, in effect, for what could be the
liquidated damages resulting from such a breach. The obligor would then be bound to pay the
stipulated indemnity without the necessity of proof on the existence and on the measure of damages
caused by the breach. It is well-settled that so long as such stipulation does not contravene law,
morals, or public order, it is strictly binding upon the obligor.42

Respondent, however, insists that it is not liable for the breach committed by Mabunay because by
the terms of the surety bond it issued, its liability is limited to the performance by said contractor to
the extent equivalent to 20% of the down payment. It stresses that with the 32.38% completion of the
project by Mabunay, its liability was extinguished because the value of such accomplishment already
exceeded the sum equivalent to 20% down payment (P8.4 million).

The appellate court correctly rejected this theory of respondent when it ruled that the Performance
Bond guaranteed the full and faithful compliance of Mabunays obligations under the Construction
Agreement, and that nowhere in law or jurisprudence does it state that the obligation or undertaking
by a surety may be apportioned.

The pertinent portions of the Performance Bond provide:

The conditions of this obligation are as follows:

Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION
AND DEVELOPMENT, INC. to post a bond of the abovestated sum to guarantee 20% down
payment for the construction of Building 25 (Villa Beatriz) 72-Room Condotel, The Lodgings inside
Fairways and Bluewater, Boracay Island, Malay, Aklan.

Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated
sum to secure the full and faithful performance on his part of said contract.

It is a special provision of this undertaking that the liability of the surety under this bond shall in no
case exceed the sum of P8,400,000.00 Philippine Currency.
Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants,
terms, conditions and agreements stipulated in said contract, then this obligation shall be null and
void; otherwise to remain in full force and effect.43 (Emphasis supplied.)

While the above condition or specific guarantee is unclear, the rest of the recitals in the bond
unequivocally declare that it secures the full and faithful performance of Mabunays obligations under
the Construction Agreement with petitioner. By its nature, a performance bond guarantees that the
contractor will perform the contract, and usually provides that if the contractor defaults and fails to
complete the contract, the surety can itself complete the contract or pay damages up to the limit of
the bond.44 Moreover, the rule is that if the language of the bond is ambiguous or uncertain, it will be
construed most strongly against a compensated surety and in favor of the obligees or beneficiaries
under the bond, in this case petitioner as the Project Owner, for whose benefit it was ostensibly
executed.45

The imposition of interest on the claims of petitioner is likewise in order. As we held in

Commonwealth Insurance Corporation v. Court of Appeals46

Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds
was made on the condition that its liability shall in no case exceed the amount of the said bonds.

We are not persuaded. Petitioners argument is misplaced.

Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and
reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more
recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we have
sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest,
even if in thus paying, its liability becomes more than the principal obligation. The increased liability
is not because of the contract but because of the default and the necessity of judicial collection.

Petitioners liability under the suretyship contract is different from its liability under the law. There is
1wphi1

no question that as a surety, petitioner should not be made to pay more than its assumed obligation
under the surety bonds. However, it is clear from the above-cited jurisprudence that petitioners
liability for the payment of interest is not by reason of the suretyship agreement itself but because of
the delay in the payment of its obligation under the said agreement.47 (Emphasis supplied; citations
omitted.)

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27,
2011 and Resolution dated December 8, 2011 of the Court of Appeals in CA-G.R. SP No. 112808
are hereby REVERSED and SET ASIDE.

The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration
Commission Is hereby REINSTATED with the following MODIFICATIONS:

"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges,
orders and directs:

1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full
amount of the Performance Bond, P8,400,000.00, pursuant to Art. 13 of the Construction
Agreement dated December 24, 2007, with interest at the rate of 6% per annum computed
from the date of the filing of the complaint until the finality of this decision, and 12% per
annum computed from the date this decision becomes final until fully paid; and
 2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent
Utassco will have paid to claimant under this decision, plus interest thereon at the rate of
12% per annum computed from the date he is notified of such payment made by respondent
Utassco to claimant until fully paid, and to pay Utassco P100,000.00 as attorney's fees.

SO ORDERED.

With the above modifications, the Writ of Execution dated November 24, 2010 issued by the CIAC
Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REINSTATED and UPHELD.

No pronouncement as to costs.

SO ORDERED.