G.R. No. 174938 October 1, 2014 35.

Arbitration

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners, (1) Provided always that in case any dispute or difference shall arise between the Owner or the Project
vs. Manager on his behalf and the Contractor, either during the progress or after the completion or
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO, abandonment of the Works as to the construction of this Contract or as to any matter or thing of
MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents. 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
DECISION
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
LEONEN, J.: 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.
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 xxx xxx xxx
representing the corporation.
(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the Arbitrators
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5, 2006 shall be a condition precedent to any right of legal action that either party may have against the other.
resolution. The Court of Appeals affirmed the trial court's decision holding that petitioners, as director, . . .12 (Underscoring in the original)
should submit themselves as parties tothe arbitration proceedings between BF Corporation and Shangri-
La Properties, Inc. (Shangri-La).
On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-Laand
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend proceedings.14
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
On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory
counter claim against BF Corporation and crossclaim against Shangri-La.15 They alleged that they had
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into
resigned as members of Shangri-La’s board of directors as of July 15, 1991.16
agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel
parking structure along EDSA.2
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
Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17
statements.3However, by October 1991, Shangri-La started defaulting in payment.4

On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of the
of the dispute to arbitration.18
buildings using its own funds and credit despite Shangri-La’s 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 Corporation’s progress billing statements.6 Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on certiorari with
this court.19On March 27, 1998, this court affirmed the Court of Appeals’ decision, directing that the
dispute be submitted for arbitration.20
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
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
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed to
27, 1998, the trial court issued the order directing the parties to conduct the proceedings in accordance
it.9 It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs.
with Republic Act No. 876.22
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-La’s default.10
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both seeking
to clarify the term, "parties," and whether Shangri-La’s directors should be included in the arbitration
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and
proceedings and served with separate demands for arbitration.23
Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure to
submit its dispute to arbitration, in accordance with the arbitration clauseprovided in its contract, quoted
in the motion as follows:11

1
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be
excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF Corporation’s
agreement.24
On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all
defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s 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 ShangriLa’s 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 Corporation’s allegation that they are solidarily
liable with Shangri-La.37Neither did they bind themselves personally nor did they undertake to shoulder
Shangri-La’s 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-
La’sdirectors, being non-parties to the contract, should not be made personally liable for Shangri-La’s
acts.46 Since the contract was executed only by BF Corporation and Shangri-La, only they should be
affected by the contract’s 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.50Section 31 makes directors solidarily liable for
fraud, gross negligence, and bad faith.51 Petitioners are not really third parties to the agreement
because they are being sued as Shangri-La’s 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 Corporation’s
claims against them.56Petitioners 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 Tribunal’s decision] should be without
prejudice to the resolution of [this] case."59
Upon the court’s 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-La’s 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
2
petitioners actively participated in.61 Moreover, BF Corporation assailed only the correctness of the
Arbitral Tribunal’s award and not the part absolving Shangri-La’s 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 court’s 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 Tribunal’s 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 Corporation’s agreement, in order to determine if the distinction between
Shangri-La’s 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.
3
Petitioners’ main argument arises from the separate personality given to juridical persons vis-à-vis their 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
directors, officers, stockholders, and agents. Since they did not sign the arbitration agreement in any officers and employees; and
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
11. To exercise such other powers asmay be essential or necessary to carry out its purpose or
time of the alleged default.
purposes as stated in its articles of incorporation. (13a)

Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and distinct
Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers
from Shangri-La.
through itsdirectors, officers, or agents, who are all natural persons. A corporation cannot sue or enter
into contracts without them.
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,
A consequence of a corporation’s separate personality is that consent by a corporation through its
is an individual with a personality that is distinct and separate from other persons including its
representatives is not consent of the representative, personally. Its obligations, incurred through official
stockholders, officers, directors, representatives,77 and other juridical entities. The law vests in
acts of its representatives, are its own. A stockholder, director, or representative does not become a
corporations rights,powers, and attributes as if they were natural persons with physical existence and
party to a contract just because a corporation executed a contract through that stockholder, director or
capabilities to act on their own.78 For instance, they have the power to sue and enter into transactions
representative.
or contracts. Section 36 of the Corporation Code enumerates some of a corporation’s powers, thus:

Hence, a corporation’s representatives are generally not bound by the terms of the contract executed
Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the
by the corporation. They are not personally liable for obligations and liabilities incurred on or in behalf
power and capacity:
of the corporation.

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

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
2. Of succession by its corporate name for the period of time stated in the articles of clause shall not apply to persons who were neither parties to the contract nor assignees of previous
incorporation and the certificate ofincorporation; parties, thus:

3. To adopt and use a corporate seal; 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)
4. To amend its articles of incorporation in accordance with the provisions of this Code;

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

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;
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
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks
the contracting parties and produce effect as between them, their assigns and heirs. Clearly, only parties
in accordance with the provisions of this Code; and to admit members to the corporation if it
to the Agreement . . . are bound by the Agreement and its arbitration clause as they are the only
be a non-stock corporation;
signatories thereto.82 (Citation omitted)

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co., Inc.83 and
otherwise deal with such real and personal property, including securities and bonds of other
Stanfilco Employees v. DOLE Philippines, Inc., et al.84
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;
As a general rule, therefore, a corporation’s representative who did not personally bind himself or herself
to an arbitration agreement cannot be forced to participate in arbitration proceedings made pursuant
8. To enter into merger or consolidation with other corporations as provided in this Code;
to an agreement entered into by the corporation. He or she is generally not considered a party to that
agreement.
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,
However, there are instances when the distinction between personalities of directors, officers,and
domestic or foreign, shall give donations in aid of any political party or candidate or for
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate
purposes of partisan political activity;
fiction.

4
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 corporation’s 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.1âwphi1 Under the Rules of Court, filing of multiple suits for a single cause of action is
prohibited. 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 assignor’s rights and obligations are transferred to them upon
assignment. In other words, the assignor’s rights and obligations become their own rights and
obligations. In the same way, the corporation’s obligations are treated as the representative’s
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,
5
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 corporation’s acts in violation of complainant’s 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 corporation’s 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
corporation’s 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-La’s other directors were not liable for the contractual obligations of Shangri-
La to BF Corporation. The Arbitral Tribunal’s 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.

6
SECOND DIVISION On February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc.
and/or its nominee as party.9 Under the amended Joint Venture Agreement, D.M. Consunji, Inc.
shall be an additional investor of Northrail.10 It shall subscribe to 20% of the increase in Northrail's
G.R. No. 173137, January 11, 2016
authorized capital stock.11chanroblesvirtuallawlibrary

BASES CONVERSION DEVELOPMENT AUTHORITY, Petitioner, v. DMCI PROJECT DEVELOPERS, On February 8, 1996, BCDA and the other parties to the Joint Venture Agreement, including D.M.
INC., Respondent. Consunji, Inc. and/or its nominee, entered into a Memorandum of Agreement.12 Under this
agreement, the parties agreed that the initial seed capital of P600 million shall be infused to
G.R. NO. 173170 Northrail.13 Of that amount, P200 million shall be D.M. Consunji, Inc.'s share, which shall be converted
to equity upon NorthraiPs privatization.14 Later, D.M. Consunji, Inc.'s share was increased to P300
NORTH LUZON RAILWAYS CORPORATION, Petitioner, v. DMCI PROJECT DEVELOPERS, million.15chanroblesvirtuallawlibrary
INC.Respondent.
Upon BCDA and Northrail's request,16 DMCI Project Developers, Inc. (DMCI-PDI) deposited P300 million
into NorthraiPs account with Land Bank of the Philippines.17 The deposit was made on August 7,
DECISION 199618for its "future subscription of the Northrail shares of stocks."19 In NorthraiPs 1998 financial
statements submitted to the Securities and Exchange Commission, this amount was reflected as
LEONEN, J.: "Deposits For Future Subscription."20 At that time, NorthraiPs application to increase its authorized
capital stock was still pending with the Securities and Exchange
Commission.21chanroblesvirtuallawlibrary
An arbitration clause in a document of contract may extend to subsequent documents of contract
executed for the same purpose. Nominees of a party to and beneficiaries of a contract containing an In letters22dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the other parties that
arbitration clause may become parties to a proceeding initiated based on that arbitration clause. DMCI-PDI shall be its designated nominee for all the agreements it entered and would enter
with them in connection with the railroad project. Pertinent portions of the letters provide:
On June 10, 1995, Bases Conversion Development Authority (BCDA) entered into a Joint Venture
Agreement1 with Philippine National Railways (PNR) and other foreign
corporations.2chanroblesvirtuallawlibrary [I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA,
DMCI would like to notify all the parties that it is designating PDI as its nominee in both agreements
Under the Joint Venture Agreement, the parties agreed to construct a railroad system from Manila and such other agreements that may be signed by the parties in furtherance of or in connection with
to Clark with possible extensions to Subic Bay and La Union and later, possibly to Ilocos Norte and the PROJECT. By this nomination, all the rights, obligations, warranties and commitments of DMCI under
Nueva Ecija.3 BCDA shall establish North Luzon Railways Corporation (Northrail) for purposes of the JVA and MOA shall henceforth be assumed performed and delivered by PDI.23 (Emphasis supplied)
constructing, operating, and managing the railroad system.4 The Joint Venture Agreement contained
the following provision: Later, Northrail withdrew from the Securities and Exchange Commission its application for increased
authorized capital stock.24 Moreover, according to DMCI-PDI, BCDA applied for Official Development
Assistance from Obuchi Fund of Japan.25 This required Northrail to be a 100% government-owned and
ARTICLE XVI controlled corporation.26chanroblesvirtuallawlibrary
ARBITRATION
On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail the return of its P300
million deposit.27 DMCI-PDI cited Northrail's failure to increase its authorized capital stock as reason for
16. If any dispute arise hereunder which cannot be settled by mutual accord between the the demand.28 BCDA and Northrail refused to return the deposit29 for the following reasons:
parties to such dispute, then that dispute shall be referred to arbitration. The
arbitration shall be held in whichever place the parties to the dispute decide and failing a) At the outset, DMCI PDI/FBDC's participation in Northrail was as a joint venture partner and co-
mutual agreement as to a location within twenty-one (21) days after the occurrence investor in the Manila Clark Rapid Railway Project, and as such, was granted corresponding
of the dispute, shall be held in Metro Manila and shall be conducted in accordance representation in the Northrail Board.
with the Philippine Arbitration Law (Republic Act No. 876) supplemented by the Rules
of Conciliation and Arbitration of the International Chamber of Commerce. All award b) DMCI PDI/FBDC was privy to all the deliberations of the Northrail Board and participated in the
of such arbitration shall be final and binding upon the parties to the dispute.5 decisions made and policies adopted to pursue the project.

c) DMCI PDI/FBDC had full access to the financial statements of Northrail and was regularly informed
BCDA organized and incorporated Northrail.6 Northrail was registered with the Securities and Exchange of the corporation's financial condition.30chanrobleslaw
Commission on August 22, 1995.7chanroblesvirtuallawlibrary
Upon BCDA's request, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 116,
BCDA invited investors to participate in the railroad project's financing and implementation. Among Series of 200131 on June 27, 2001. The OGCC stated that "since no increase in capital stock was
those invited were D.M. Consunji, Inc. and Metro Pacific Corporation.8chanroblesvirtuallawlibrary implemented, it is but proper to return the investments of both FBDC and
DMCI[.]"32chanroblesvirtuallawlibrary

7
In a January 19, 2005 letter,33 DMCI-PDI reiterated the request for the refund of its P300 million deposit
for future Northrail subscription. On March 18, 2005, BCDA denied34 DMCI-PDI's request:
We regret to say that we are of the position that the P300 [million] contribution should not be returned
to DMCI for the following reasons:
a. the P300 million was in the nature of a contribution, not deposits for future
subscription; and
The issue in this case is whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration.
BCDA argued that only the parties to an arbitration agreement can be bound by that agreement.53 The
arbitration clause that DMCI-PDI sought to enforce was in the Joint Venture Agreement, to which DMCI-
PDI was not a party.54 There was also no evidence that the right to compel arbitration under the Joint
Venture Agreement was assigned to DMCI-PDI.55 Assuming that there was such an assignment, BCDA
did not consent to or recognize it.56 Therefore, the trial court's conclusion that DMCI-PDI was D.M.
Consunji, Inc.'s assignee had no basis.57 In BCDA's view, DMCI-PDI had no right to compel BCDA to
submit to arbitration.58chanroblesvirtuallawlibrary

b. DMCI, as a joint venture partner, must share in profits and losses.35 BCDA also argued that the trial court decided the Motion to Dismiss in violation of the parties' right to
due process. The trial court should have conducted a hearing so that the parties could have presented
their respective positions on the issue of assignment. The trial court merely accepted DMCI-PDI's
On August 17, 2005,36 DMCI-PDI served a demand for arbitration to BCDA and Northrail, citing the allegations, without basis.59chanroblesvirtuallawlibrary
arbitration clause in the June 10, 1995 Joint Venture Agreement.37 BCDA and Northrail failed to
respond.38chanroblesvirtuallawlibrary In a separate Petition for Review,60 Northrail argued that it cannot be compelled to submit itself to
arbitration because it was not a party to the arbitration agreement.61chanroblesvirtuallawlibrary
DMCI-PDI filed before the Regional Trial Court of Makati39 a Petition to Compel Arbitration40 against
BCDA and Northrail, pursuant to the alleged arbitration clause in the Joint Venture Agreement.41 DMCI- Northrail also argued that DMCI-PDI cannot initiate an action to compel BCDA and Northrail to
PDI prayed for "an order directing the parties to proceed to arbitration in accordance with the terms arbitration because DMCI-PDI itself was not a party to the arbitration agreement. DMCI-PDI was not
and conditions of the agreement."42chanroblesvirtuallawlibrary D.M. Consunji, Inc.'s assignee because BCDA did not consent to that
assignment.62chanroblesvirtuallawlibrary
BCDA filed a Motion to Dismiss43 on the ground that there was no arbitration clause that DMCI-PDI
could enforce since DMCI-PDI was not a party to the Joint Venture Agreement containing the arbitration In its Comment63 on BCDA's Petition, DMCI-PDI argued that Rule 45 was a wrong mode of appeal.64 The
clause.44 Northrail filed a separate Motion to Dismiss45 on the ground that the court did not have issues raised by BCDA did not involve questions of law.65chanroblesvirtuallawlibrary
jurisdiction over it and that DMCI-PDI had no cause for arbitration against
it.46chanroblesvirtuallawlibrary DMCI-PDI pointed out that BCDA breached their agreement when it failed to apply the P300 million
deposit to Northrail subscriptions. It turned out that such application was rendered impossible by the
In the Decision47 dated February 9, 2006, the trial court denied BCDA's and Northrail's Motions to alleged loan requirement that Northrail be wholly owned by the government and by Northrail's
Dismiss and granted DMCI-PDI's Petition to Compel Arbitration. The dispositive portion of the decision withdrawal from the Securities and Exchange Commission of its application for an increase in authorized
reads: capital stock.66chanroblesvirtuallawlibrary

DMCI-PDI also argued that it is an assignee and nominee of D.M. Consunji, Inc., which is a party to the
WHEREFORE, the petition is granted. The parties are ordered to present their dispute to arbitration in
contracts. Therefore, it is also a party to the arbitration clause.67chanroblesvirtuallawlibrary
accordance with Article XVI of the Joint Agreement.
DMCI-PDI contended that the arbitration agreement extended to all documents relating to the
SO ORDERED.48chanrobleslaw
project.68Even though the agreement was expressed only in the Joint Venture Agreement, its effect
extends to the amendment to the Joint Venture Agreement and Memorandum of
The trial court ruled that the arbitration clause in the Joint Venture Agreement should cover all
Agreement.69chanroblesvirtuallawlibrary
subsequent documents including the amended Joint Venture Agreement and the Memorandum of
Agreement. The three (3) documents constituted one contract for the formation and funding of
DMCI-PDI emphasized that BCDA had always recognized it as D.M. Consunji's assignee in its
Northrail.49chanroblesvirtuallawlibrary
correspondences with the OGCC and with the President of DMCI, Mr. Isidro Consunji.70 In those letters,
BCDA described DMCI-PDI's participation as being the "joint venture partner . . . and co-investor in the
The trial court also ruled that even though DMCI-PDI was not a signatory to the Joint Venture Agreement
Manila Clark Rapid Railway Project[.]"71 Hence, it is now estopped from denying its personality in this
and the Memorandum of Agreement, it was an assignee of D.M. Consunji, Inc.'s rights. Therefore, it
case.72chanroblesvirtuallawlibrary
could invoke the arbitration clause in the Joint Venture Agreement.50chanroblesvirtuallawlibrary
We rule for DMCI-PDI.chanRoblesvirtualLawlibrary
In an Order51 dated June 9, 2006, the trial court denied BCDA and Northrail's Motion for Reconsideration
of the February 9, 2006 trial court Decision.
I
BCDA filed a Rule 45 Petition before this court, assailing the February 9, 2006 trial court Order granting The state has a policy in favor of arbitration
DMCI-PDI's Petition to Compel Arbitration and the June 9, 2006 Order denying BCDA and Northrail's
Motion for Reconsideration.52chanroblesvirtuallawlibrary At the outset, we must state that BCDA and Northrail invoked the correct remedy. Rule 45 is applicable

8
when the issues raised before this court involved purely questions of law. In Villamor v. who are bound by the arbitration agreement although the civil action may continue as to those who are
Balmores:73chanroblesvirtuallawlibrary not bound by such arbitration agreement.

[t]here is a question of law "when there is doubt or controversy as to what the law is on a certain [set] Hence, we resolve the issue of whether DMCI-PDI may compel BCDA and Northrail to submit to
of facts." The test is "whether the appellate court can determine the issue raised without reviewing or arbitration proceedings in light of the policy in favor of arbitration.
evaluating the evidence." Meanwhile, there is a question of fact when there is "doubt ... as to the truth
or falsehood of facts." The question must involve the examination of probative value of the evidence BCDA and Northrail assail DMCI-PDI's right to compel them to submit to arbitration based on the
presented.74chanroblesvirtuallawlibrary assumption that DMCI-PDI was not a party to the agreement containing the arbitration clause.

BCDA and Northrail primarily ask us to construe the arbitration clause in the Joint Venture Agreement. Three documents � (a) Joint Venture Agreement, (b) amended Joint Venture Agreement, and (c)
They assert that the clause does not bind DMCI-PDI and Northrail. This issue is a question of law. It Memorandum of Agreement � represent the agreement between BCDA, Northrail, and D.M. Consunji,
does not require us to examine the probative value of the evidence presented. The prayer is essentially Inc. Among the three documents, only the Joint Venture Agreement contains the arbitration clause.
for this court to determine the scope of an arbitration clause. DMCI-PDI was allegedly not a party to the Joint Venture Agreement.

Arbitration is a mode of settling disputes between parties.75 Like many alternative dispute resolution To determine the coverage of the arbitration clause, the relation among the three documents and DMCI-
processes, it is a product of the meeting of minds of parties submitting a pre-defined set of disputes. PDI's involvement in the execution of these documents must first be understood.
They agree among themselves to a process of dispute resolution that avoids extended litigation.
The Joint Venture Agreement was executed by BCDA, PNR, and some foreign corporations.84 The
The state adopts a policy in favor of arbitration. Republic Act No. 9285 76
expresses this policy: purpose of the Joint Venture Agreement was for the construction of a railroad system from Manila to
Clark with a possible extension to Subic Bay and later to San Fernando, La Union, Laoag, Ilocos Norte,
and San Jose, Nueva Ejica.85 Under the Joint Venture Agreement, BCDA agreed to incorporate Northrail,
SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party
which shall have an authorized capital stock of F5.5 billion.86 The parties agreed that BCDA/PNR shall
autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements
have a 30% equity with Northrail.87 Other Filipino partners shall have a total of 50% equity, while
to resolve their disputes. Towards this end, the State shall encourage and actively promote the use of
foreign partners shall have at most 20% equity.88 Pertinent provisions of the Joint Venture Agreement
Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice
are as follows:
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 JOINT VENTURE AGREEMENT
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 KNOW ALL MEN BY THESE PRESENTS:
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. (Emphasis supplied) This Joint Venture Agreement (JVA) made and executed at Makati, Metro Manila, this__ day of June
1995 by and between:
Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as early as
1949 when our Civil Code was approved.77 Republic Act No. 87678 later explicitly recognized the validity The BASES CONVERSION DEVELOPMENT AUTHORITY
and enforceability of parties' decision to submit disputes and related issues to
arbitration.79chanroblesvirtuallawlibrary . . . hereinafter referred to as BASECON;

Arbitration agreements are liberally construed in favor of proceeding to arbitration.80 We adopt the The PHILIPPINE NATIONAL RAILWAYS ...;
interpretation that would render effective an arbitration clause if the terms of the agreement allow for
such interpretation.81 In LM Power Engineering Corporation v. Capitol Industrial Construction Groups, The following corporations collectively referred to as the Foreign Group:
Inc.,82 this court said:
a) CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A... .;
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
b) ENTRECANALES Y TAVORA, SA . . .;
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
c) CUBIERTAS MZOV, S.A. . . .;
should be resolved in favor of arbitration.83chanrobleslaw
d) COBRA, S.A....; and
This manner of interpreting arbitration clauses is made explicit in Section 25 of Republic Act No. 9285:
e) Others who may later participate in the JVA.chanRoblesvirtualLawlibrary
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
-and-
more of whom are parties to an arbitration agreement, the court shall refer to arbitration those parties

9
 develop, construct, manage, own, lease, sublease and operate establishments and facilities of all kinds
EUROMA DEVELOPMENT CORPORATION . . . related to the railroad system;
. . . .chanRoblesvirtualLawlibrary
WITNESSETH:
ARTICLE IV

. . . . PARTICIPATION/TRANSFER/ENCUMBRANCE OF SHARES

WHEREAS, a project identified pursuant to the aforesaid policy is the establishment of a Premier 4.1 NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by the parties
International Airport Complex located at the former Clark Air Base as expressed in Executive Order 174 to this JVA in accordance with the following equity proportion/participation:
s. 1994 in order to accommodate the expected heavy flow of passenger and cargo traffic to and from
the Philippines, to start the development of the Northern Luzon Grid and to accelerate the development
Foreign Group��������������� � � �� �� up to 20%
of Central Luzon and finally to decongest Metro Manila of its vehicular traffic;
Euroma/Filipino partners����������������� 50%
BASECON/PNR������������������� � � � � �� 30%
WHEREAS, in order to implement and provide such a mass transit and access system, the parties
hereto agreed to construct a double-trac[k] railway system from Manila to Clark with a possible
. . . .
extension to Subic Bay and later to San Fernando, La Union, as the second phase, and finally to Laoag,
Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of the project, hereinafter referred to as
4.4 The shares owned by Filipino stockholders including BASECON, PNR, EUROMA Development
the PROJECT;
Corporation and hereinafter to be owned by Filipino corporations shall not be less than sixty percent
(60%) at any given time.
ARTICLE I . . . .chanRoblesvirtualLawlibrary
DEFINITION OF TERMS
ARTICLE XVI
. . . .
ARBITRATION
1.5 "PROJECT" means the construction, operation and management of a double-track railway system
from Manila to Clark with an extension to Subic Bay, and a possible extension to San Fernando, La
16. If any dispute arise hereunder which cannot be settled by mutual accord between the parties to
Union, as the second phase, and finally to Laoag, Ilocos Norte and to San Jose, Nueva Ecija, as the
such dispute, then that dispute shall be referred to arbitration. The arbitration shall be held in whichever
third phase of the PROJECT.
place the parties to the dispute decide and failing mutual agreement as to a location within twenty-one
(21) days after the occurrence of the dispute, shall be held in Metro Manila and shall be conducted in
1.6 "North Luzon Railways Corporation (NORTHRAIL)["] means the joint venture corporation to
accordance with the Philippine Arbitration Law (Republic Act No. 876) as supplemented by the Rules of
be established in accordance with Article II hereof.
Conciliation and Arbitration of the International Chamber of Commerce. All award of such arbitration
. . . .chanRoblesvirtualLawlibrary
shall be final and binding upon the parties to the dispute.

ARTICLE II
ARTICLE XVII
THE NORTH LUZON RAILROAD CORPORATION
ASSIGNMENT

2.1 BASECON shall establish and incorporate in accordance with the laws of the Republic of the
17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any
Philippines a corporation to be known as NORTH LUZON RAILWAYS CORPORATION
encumbrance of its rights or any part of its rights and obligations hereunder or any shares of stocks of
(NORTHRAIL) with an initial capitalization of one hundred million pesos (PI 00,000,000.00).
NORTHRAIL to any person, firm or corporation without the prior written consent of the other parties or
except as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and this Agreement.
2.2 NORTHRAIL shall eventually have an authorized capital stock of FIVE BILLION FIVE HUNDRED
MILLION PESOS (P 5.5 Billion) divided into 55,000,000 shares with par value of P 100 per share.
17.2 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their
. . . .chanRoblesvirtualLawlibrary
respective successors and permitted assignees and designees or nominees whenever
possible.89chanrobleslaw
ARTICLE III
The Joint Venture Agreement was amended on February 8, 199690 to include D.M. Consunji, Inc. and/or
PURPOSE OF NORTHRAIL its nominee as party.91 The participations of the parties in Northrail were also modified. Pertinent
provisions of the amended Joint Venture Agreement are reproduced as follows:
A. PRIMARY PURPOSE

3.1 To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to

10
This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and SRG.............................................. up to 10%
executed at_____________ , Metro Manila, on this 8th day of February 1996 by and DMCI..................................................... 20%
among:chanRoblesvirtualLawlibrary BASECON/PNR............................. up to 30%
Others..................................................... 40%
BASES CONVERSION DEVELOPMENT AUTHORITY . . . hereinafter referred to as BASECON;

with

PHILIPPINE NATIONAL RAILWAYS ... 3. In Article 4.4, the Filipino corporations whose total shares in NORTHRAIL's
capital stock, which should not be less than sixty percent (60%) at any given
and time, shall include D.M. CONSUNJI, INC.93 (Underscoring supplied)

The following corporations collectively referred to as the FOREIGN GROUP:

On February 8, 1996, the same date of the execution of the amended Joint Venture Agreement, the
CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A.. . .; same parties executed a Memorandum of Agreement94 "to set up the mechanics for raising the seed
capitalization needed by NORTHRAIL[.]"95 Pertinent provisions of the Memorandum of Agreement are
ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV, S.A. . . .; reproduced as follows:

COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and WITNESSETH THAT

Other investors who may later participate in the Joint Venture;chanRoblesvirtualLawlibrary WHEREAS, the Manila - Clark Rapid Railway System Project, hereinafter referred to as the Project, was
identified as one of the major infrastructure projects to accelerate the development of Central Luzon,
and particularly the former U.S. bases at Clark and Subic;
. . . .

Other local investors to be represented by EUROMA DEVELOPMENT CORPORATION . . . WHEREAS, the North Luzon Railways Corporation (NORTHRAIL) was organized and incorporated to
implement the development, construction, operation and maintenance of the railway system in Northern
and Luzon;

P.M. CONSUNJI. INC. and/or its nominee . . . WHEREAS, NORTHRAIL is wholly owned and controlled by BASECON;

WITNESSETH THAT WHEREAS, the privatization of NORTHRAIL is necessary in order to accelerate the implementation of
the Project by tapping the financial resources and expertise of the private sector;
WHEREAS, a Joint Venture Agreement (JVA) was executed on the 10 th of June 1995 between . . . .
BASECON, PNR, FOREIGN GROUP, and EUROMA;
. . . . WHEREAS, the Parties of the Joint Venture Agreement (JVA) of 10 June 1995, namely BASECON, PNR,
SPANISH RAILWAY GROUP and EUROMA, agreed to invite other private investors to help in the financing
NOW, THEREFORE, for and in consideration of the foregoing premises and of the mutual covenant and implementation of the Project, and to raise the required equity in order to accelerate the
contained therein, THE PARTIES HEREBY AGREE that the JVA should be amended as follows: privatization of NORTHRAIL;

WHEREAS, DMCI and other private investors. . . have manifested their desire to be strategic partners
1. In Article 1.3, D.M. CONSUNJI, INC. shall be included as strategic partner, in implementing the Project;
being one of the Philippine registered companies selected by BASECON, PNR
and the Lead Group on the basis of its qualifications for the implementation WHEREAS, DMCI and other private investors have the financial capability to implement the Project;
of the Project.
WHEREAS, Phase I of the Project covers the Manila - Clark section of the North Luzon railway network
2. Article 4.1 should read as follows: as defined by the JVA of 10 June 1995 . . .[;]
. . . .chanRoblesvirtualLawlibrary
"NORTHRAIL shall increase its authorized capital stock upon the subscription
thereon by the Parties to this JVA in accordance with the following equity ARTICLE I
proportion/participation: PURPOSE

1.1 Purpose. This Agreement is entered into by the Parties in order to set up the mechanics for raising
11
the seed capitalization needed by NORTHRAIL to accelerate the implementation of the Project. Agreement � raised the seed capitalization of Northrail from P100 million as indicated in the first
. . . .chanRoblesvirtualLawlibrary agreement to P600 million, in order to accelerate the implementation of the same project defined in the
first agreement.
ARTICLE II
TERMS OF AGREEMENT The Memorandum of Agreement is an implementation of the Joint Venture Agreement and the amended
Joint Venture Agreement. It could not exist without referring to the provisions of the original and
. . . . amended Joint Venture Agreements. It assumes a prior knowledge of its terms. Thus, it referred to
"North Luzon railway network as defined by the JVA of 10 June 1995[.]"99chanroblesvirtuallawlibrary
2.1 The Parties agree to put up the necessary seed capitalization needed by NORTHRAIL to fast-track
the implementation of the Rapid Rail Transit System Project according to the following schedule: In other words, each document of agreement represents a step toward the implementation of the
project, such that the three agreements must be read together for a complete understanding of the
parties' whole agreement. The Joint Venture Agreement, the amended Joint Venture Agreement, and
BCDA/PNR...................... PHP 300 Million
the Memorandum of Agreement should be treated as one contract because they all form part of a whole
DMCI..................................................... PHP 200 Million
agreement.
SRG...................................................... PHP 100 Million
TOTAL................................................... PHP 600 Million
Hence, the arbitration clause in the Joint Venture Agreement should not be interpreted as applicable
. . . .
only to the Joint Venture Agreement's original parties. The succeeding agreements are deemed part of
or a continuation of the Joint Venture Agreement. The arbitration clause should extend to all the
2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and others are committed to be converted to
agreements and its parties since it is still consistent with all the terms and conditions of the amendments
equity when NORTHRAIL is privatized.96chanroblesvirtuallawlibrary
and supplements.chanRoblesvirtualLawlibrary
There is no rule that a contract should be contained in a single document.97 A whole contract may be
contained in several documents that are consistent with one other.98chanroblesvirtuallawlibrary II

Moreover, at any time during the lifetime of an agreement, circumstances may arise that may cause BCDA and Northrail argued that they did not consent to D.M. Consunji, Inc.'s assignment of rights to
the parties to change or add to the terms they previously agreed upon. Thus, amendments or DMCI-PDI. Therefore, DMCI-PDI did not validly become a party to any of the agreement. Section 17.1
supplements to the agreement may be executed by contracting parties to address the circumstances of the Joint Venture Agreement provides that rights under the agreement may not be assigned,
or issues that arise while a contract subsists. transferred, or conveyed without the consent of the other party.100 Thus:

When an agreement is amended, some provisions are changed. Certain parts or provisions may be 17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any
added, removed, or corrected. These changes may cause effects that are inconsistent with the wordings encumbrance of its rights or any part of its rights and obligations hereunder or any shares of stocks of
of the contract before the changes were applied. In that case, the old provisions shall be deemed to NORTHRAIL to any person, firm or corporation without the prior written consent of the other parties or
have lost their force and effect, while the changes shall be deemed to have taken effect. Provisions that except as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and the
are not affected by the changes usually remain effective. Agreement.101chanroblesvirtuallawlibrary

When a contract is supplemented, new provisions that are not inconsistent with the old provisions are However, Section 17.2 of the Joint Venture Agreement provides that the agreement shall be binding on
added. The nature, scope, and terms and conditions are expanded. In that case, the old and the new nominees:
provisions form part of the contract.
17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their
A reading of all the documents of agreement shows that they were executed by the same parties. respective successors and permitted assignees and designees or nominees whenever
Initially, the Joint Venture Agreement was executed only by BCD A, PNR, and the foreign corporations. applicable.102 (Emphasis supplied)
When the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee,
D.M. Consunji, Inc. and/or its nominee were deemed to have been also a party to the original Joint The principal parties to the agreement after its amendment include D.M. Consunji, Inc. and/or its
Venture Agreement executed by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc. and/or nominee:
its nominee became bound to the terms of both the Joint Venture Agreement and its amendment.
AMENDMENT TO THE JOINT VENTURE AGREEMENT
Moreover, each document was executed to achieve the single purpose of implementing the railroad
project, such that documents of agreement succeeding the original Joint Venture Agreement merely
This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and
amended or supplemented the provisions of the original Joint Venture Agreement.
executed at _____________ , Metro Manila, on this 8th day of February 1996 by and among:
The first agreement � the Joint Venture Agreement � defined the project, its purposes, the parties,
BASES CONVERSION DEVELOPMENT AUTHORITY . . .
the parties' equity participation, and their responsibilities. The second agreement � the amended Joint
Venture Agreement �- only changed the equity participation of the parties and included D.M. Consunji,
Inc. and/or its nominee as party to the railroad project. The third agreement � the Memorandum of with

12
 In Philippine Coconut Producers Federation, Inc. (COCOFED) v. Republic,107 this court defined
PHILIPPINE NATIONAL RAILWAYS . . .chanRoblesvirtualLawlibrary "nominee" as follows:

and In its most common signification, the term "nominee'' refers to one who is designated to act for another
usually in a limited way; a person in whose name a stock or bond certificate is registered but who is
. . . . not the actual owner thereof is considered a nominee." Corpus Juris Secundum describes a nominee as
one:
D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created
pursuant to the laws of the Republic of the Philippines . . .103 (Emphasis ". . . designated to act for another as his representative in a rather limited sense. It has no connotation,
supplied)chanRoblesvirtualLawlibrary however, other than that of acting for another, in representation of another or as the grantee of another.
In its commonly accepted meaning the term connoted the delegation of authority to the nominee in a
MEMORANDUM OF AGREEMENT representative or nominal capacity only, and does not connote the transfer or assignment to the
nominee of any property in, or ownership of, the rights of the person nominating him."108 (Citations
This Agreement made and executed at Pasig, Metro Manila, Philippines on this 8[th] day of February omitted)
1996 by and among:
Contrary to BCDA and Northrail's position, therefore, the agreement's prohibition against transfers,
BASES CONVERSION DEVELOPMENT AUTHORITY . . .chanRoblesvirtualLawlibrary conveyance, and assignment of rights without the consent of the other party does not apply to
nomination.
with
DMCI-PDI is a party to all the agreements, including the arbitration agreement. It may, thus, invoke
the arbitration clause against all the parties.chanRoblesvirtualLawlibrary
PHILIPPINE NATIONAL RAILWAYS ...chanRoblesvirtualLawlibrary
III
and
Northrail, although not a signatory to the contracts, is also bound by the arbitration agreement.

D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created
pursuant to the laws of the Republic of the Philippines . . .104 (Emphasis supplied)
Based on DMCI-PDFs letter to BCDA and Northrail dated April 4, 1997, D.M. Consunji, Inc. designated
DMCI-PDI as its nominee for the agreements it entered into in relation to the project:
[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA,
DMCI would like to notify all the parties that it is designating PDI as its nominee in both agreements
and such other agreements that may be signed by the parties in furtherance of or in connection with
the PROJECT. By this nomination, all the rights, obligations, warranties and commitments of DMCI under
the JVA and MOA shall henceforth be assumed performed and delivered by PDI.105 (Emphasis supplied)
In Lanuza v. BF Corporation,109 we recognized that there are instances when non-signatories to a
contract may be compelled to submit to arbitration.110 Among those instances is when a non-signatory
is allowed to invoke rights or obligations based on the contract.111chanroblesvirtuallawlibrary
The subject of BCDA and D.M. Consunji, Inc.'s agreement was the construction and operation of a
railroad system. Northrail was established pursuant to this agreement and its terms, and for the same
purpose, thus:
ARTICLE III
PURPOSE OF NORTHRAIL

Thus, lack of consent to the assignment is irrelevant because there was no assignment or transfer of
rights to DMCI-PDI. DMCI-PDI was D.M. Consunji, Inc.'s nominee. A. PRIMARY PURPOSE

Section 17.2 of the Joint Venture Agreement clearly shows an intent to treat assignment and nomination 3.1. To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to
differently. develop, construct, manage, own, lease, sublease and operate establishments and facilities of all kinds
related to the railroad system[.]112chanrobleslaw
17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their
Northrail's capitalization and the composition of its subscribers are also subject to the provisions of the
respective successors and permitted assignees and designees or nominees whenever
original and amended Joint Venture Agreements, and the subsequent Memorandum of Agreement. It
applicable.106 (Emphasis supplied)
was pursuant to the terms of these agreements that Northrail demanded from D.M. Consunji, Inc. the
infusion of its share in subscription.
Assignment involves the transfer of rights after the perfection of a contract. Nomination pertains to the
act of naming the party with whom it has a relationship of trust or agency.
Therefore, Northrail cannot deny understanding that its existence, purpose, rights, and obligations are
tied to the agreements. When Northrail demanded for the amount of D.M. Consunji, Inc.'s subscription
based on the agreements and later accepted the latter's funds, it proved that it was bound by the
13
agreements' terms. It is also deemed to have accepted the term that such funds shall be used for its
privatization. It cannot choose to demand the enforcement of some of its provisions if it is in its favor,
and then later by whim, deny being bound by its terms.

Hence, when BCDA and Northrail decided not to proceed with Northrail's privatization and the transfer
of subscriptions to D.M. Consunji, Inc., any obligation to return its supposed subscription attached not
only to BCDA as party to the agreement but primarily to Northrail as beneficiary that impliedly accepted
the terms of the agreement and received D.M. Consunji, Inc.'s funds.

There is, therefore, merit to DMCI-PDI's argument that if the Civil Code113 gives third party beneficiaries
to a contract the right to demand the contract's fulfillment in its favor, the reverse should also be
true.114A beneficiary who communicated his or her acceptance to the terms of the agreement before its
revocation may be compelled to abide by the terms of an agreement, including the arbitration clause.
In this case, Northrail is deemed to have communicated its acceptance of the terms of the agreements
when it accepted D.M. Consunji, Inc.'s funds.

Finally, judicial efficiency and economy require a policy to avoid multiplicity of suits. As we said
in Lanuza:

Moreover, in Heirs ofAugusto 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."
This court also intimated that the interest of justice would be best observed if it adjudicated rights in a
single proceeding. While the facts of that case prompted this court to direct the trial court to proceed
to determine the issues of that case, it did not prohibit courts from allowing the case to proceed to
arbitration, when circumstances warrant.115chanrobleslaw

WHEREFORE, the petitions are DENIED. The February 9, 2006 Regional Trial Court Decision and the
June 9, 2006 Regional Trial Court Order are AFFIRMED.

SO ORDERED.cralawlawlibrary

14
SECOND DIVISION of the TPAA, the parties could go directly to courts when a direct and/or blatant violation of the
provisions of the TPAA had been committed. The RTC also opined that the complaint filed before the
DENR did not constitute forum shopping because there was neither identity of parties nor identity of
G.R. No. 220546, December 07, 2016
reliefs sought.

LUZON IRON DEVELOPMENT GROUP CORPORATION AND CONSOLIDATED IRON SANDS,

Luzon Iron and Consolidated Iron moved for reconsideration, but the RTC denied their motion in its
LTD.,Petitioners, v. BRIDESTONE MINING AND DEVELOPMENT CORPORATION AND ANACONDA
September 18, 2013 Order.
MINING AND DEVELOPMENT CORPORATION, Respondents.

Undaunted, they filed their petition for review with prayer for the issuance of a writ of preliminary
DECISION
injunction and/or TRO before the CA.

MENDOZA, J.:
The CA Ruling

This petition for review on certiorari with prayer for the issuance of a writ of preliminary injunction
In its September 8, 2015 Decision, the CA affirmed the March 18, 2013 and September 18, 2013 RTC
and/or temporary restraining order (TRO) seeks to reverse and set aside the September 8, 2015
Orders in denying the motions to dismiss and the supplemental motions to dismiss. It agreed that the
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 133296, which affirmed the March 18,
court acquired jurisdiction over the person of Consolidated Iron because the summons may be validly
20132 and September 18, 20133 Orders of the Regional Trial Court, Branch 59, Makati City (RTC), in
served through its agent Luzon Iron, considering that the latter was merely the business conduit of the
the consolidated case for rescission of contract and damages.
former. The CA also sustained the jurisdiction of the RTC over the subject matter opining that the
arbitration clause in the TPAA provided for an exception where parties could directly go to court.
The Antecedents.
Further, the CA also disregarded the averment of forum shopping, explaining that in the complaint
On October 25, 2012, respondents Bridestone Mining and Development Corporation (Bridestone) and before the RTC, both Consolidated Iron and Luzon Iron were impleaded but in the complaint before the
Anaconda Mining and Development Corporation (Anaconda) filed separate complaints before the RTC DENR only the latter was impleaded. It stated that there was no identity of relief and no identity of
for rescission of contract and damages against petitioners Luzon Iron Development Group Corporation cause of action.
(Luzon Iron) and Consolidated Iron Sands, Ltd. (Consolidated Iron), docketed as Civil Case No. 12-1053
and Civil Case No. 12-1054, respectively. Both complaints sought the rescission of the Tenement
Hence, this appeal raising the following:
Partnership and Acquisition Agreement (TPAA)4 entered into by Luzon Iron and Consolidated Iron, on
one hand, and Bridestone and Anaconda, on the other, for the assignment of the Exploration Permit
Application of the former in favor of the latter. The complaints also sought the return of the Exploration ISSUES
Permits to Bridestone and Anaconda.5
I
Thereafter, Luzon Iron and Consolidated Iron filed their Special Appearance with Motion to
Dismiss6separately against Bridestone's complaint and Anaconda's complaint. Both motions to dismiss
WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT ACQUIRED
presented similar grounds for dismissal. They contended that the RTC could not acquire jurisdiction
JURISDICTION OVER THE PERSON OF CONSOLIDATED IRON;
over Consolidated Iron because it was a foreign corporation that had never transacted business in the
Philippines. Likewise, they argued that the RTC had no jurisdiction over the subject matter because of
an arbitration clause in the TPAA. II

On December 19, 2012, the RTC ordered the consolidation of the two cases.7 Subsequently, Luzon Iron WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT HAS
and Consolidated Iron filed their Special Appearance and Supplement to Motions to Dismiss,8 dated JURISDICTION OVER THE SUBJECT MATTER OF THE CONSOLIDATED CASES; AND
January 31, 2013, seeking the dismissal of the consolidated cases. The petitioners alleged that
Bridestone and Anaconda were guilty of forum shopping because they filed similar complaints before III
the Department of Environment and Natural Resources (DENR), Mines and Geosciences Bureau,
Regional Panel of Arbitrators against Luzon Iron.
WHETHER THE COURT OF APPEALS ERRED IN RULING THAT BRIDESTONE/ANACONDA WERE
NOT GUILTY OF FORUM SHOPPING.9
The RTC Orders

In its March 18, 2013 Order, the RTC denied the motions to dismiss, as well as the supplemental motion
to dismiss, finding that Consolidated Iron was doing business in the Philippines, with Luzon Iron as its
resident agent. The RTC ruled that it had jurisdiction over the subject matter because under clause 14.8
Petitioners Luzon Iron and Consolidated Iron insist that the RTC has no jurisdiction over the latter
because it is a foreign corporation which is neither doing business nor has transacted business in the
Philippines. They argue that there could be no means by which the trial court could acquire jurisdiction
15
over the person of Consolidated Iron under any mode of service of summons. The petitioners claim that
the service of summons to Consolidated Iron was defective because the mere fact that Luzon Iron was
a wholly-owned subsidiary of Consolidated Iron did not establish that Luzon Iron was the agent of
Consolidated Iron. They emphasize that Consolidated Iron and Luzon Iron are two distinct and separate
entities.
The petitioners further assert that the trial court had no jurisdiction over the consolidated cases because
of the arbitration clause set forth in the TPAA. They reiterate that Luzon Iron and Consolidated Iron
were guilty of forum shopping because their DENR complaint contained similar causes of action and
reliefs sought. They stress that the very evil sought to be prevented by the prohibition on forum
shopping had occurred when the DENR and the RTC issued conflicting orders in dismissing or upholding
the complaints filed before them.
Position of Respondents
In their Comment/Opposition,10 dated January 7, 2016, respondents Bridestone and Anaconda
countered that the RTC validly acquired jurisdiction over the person of Consolidated Iron. They posited
that Consolidated Iron was doing business in the Philippines as Luzon Iron was merely its conduit. Thus,
they insisted that summons could be served to Luzon Iron as Consolidated Iron's agent. Likewise, they
denied that they were guilty of forum shopping as the issues and the reliefs prayed for in the complaints
before the RTC and the DENR differed.
Further, the respondents asserted that the trial court had jurisdiction over the complaints because the
TPAA itself allowed a direct resort before the courts in exceptional circumstances. They cited paragraph
14.8 thereof as basis explaining that when a direct and/or blatant violation of the TPAA had been
committed, a party could go directly to the courts. They faulted the petitioners in not moving for the
referral of the case for arbitration instead of merely filing a motion to dismiss. They added that actions
that are subject to arbitration agreement were merely suspended, and not dismissed.
Reply of Petitioners
In their Reply,11 dated April 29, 2016, the petitioners stated that Consolidated Iron was not necessarily
doing business in the Philippines by merely establishing a wholly-owned subsidiary in the form of Luzon
Iron. Also, they asserted that Consolidated Iron had not been validly served the summons because
Luzon Iron is neither its resident agent nor its representative in the Philippines. The petitioners explained
that Luzon Iron, as a wholly-owned subsidiary, had a separate and distinct personality from
Consolidated Iron.
The petitioners explained that Paragraph 14.8 of the TPAA should not be construed as an authority to
directly resort to court action in case of a direct and/or blatant violation of the TPAA because such
interpretation would render the arbitration clause nugatory. They contended that, even for the sake of
argument, the judicial action under the said provisions was limited to issues or matters which were
inexistent in the present case. They added that a party was not required to file a formal request for
arbitration before an arbitration clause became operational. Lastly, they insisted that the respondents
were guilty of forum shopping in simultaneously filing complaints before the trial court and the DENR.
The Court's Ruling
The petition is impressed with merit.
Filing of complaints
before the RTC and the
DENR is forum shopping
Forum shopping is committed when multiple suits involving the same parties and the same causes of
action are filed, either simultaneously or successively, for the purpose of obtaining a favorable judgment
through means other than appeal or certiorari.12 The prohibition on forum shopping seeks to prevent
the possibility that conflicting decisions will be rendered by two tribunals.13
In Spouses Arevalo v. Planters Development Bank,14 the Court elaborated that forum shopping vexed
the court and warranted the dismissal of the complaints. Thus:
Forum shopping is the act of litigants who repetitively avail themselves of multiple judicial remedies in
different fora, simultaneously or successively, all substantially founded on the same transactions and
the same essential facts and circumstances; and raising substantially similar issues either pending in
or already resolved adversely by some other court; or for the purpose of increasing their chances of
obtaining a favorable decision, if not in one court, then in another. The rationale against forum-
shopping is that a party should not be allowed to pursue simultaneous remedies in two
different courts, for to do so would constitute abuse of court processes which tends to
degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and
adds to the congestion of the heavily burdened dockets of the courts.
xxxx
What is essential in determining the existence of forum-shopping is the vexation caused the
courts and litigants by a party who asks different courts and/or administrative agencies to
rule on similar or related causes and/or grant the same or substantially similar reliefs, in the
process creating the possibility of conflicting decisions being rendered upon the same issues.
xxxx
We emphasize that the grave evil sought to be avoided by the rule against forum-shopping is the
rendition by two competent tribunals of two separate and contradictory decisions. To avoid any
confusion, this Court adheres strictly to the rules against forum shopping, and any violation
of these rules results in the dismissal of a case. The acts committed and described herein can
possibly constitute direct contempt.15 [Emphases supplied]
There is forum shopping when the following elements are present: (a) identity of parties, or at least
such parties representing the same interests in both actions; (b) identity of rights asserted and reliefs
prayed for, the relief being founded on the same facts; and (c) the identity of the two preceding
particulars, such that any judgment rendered in the other action will, regardless of which party is
successful, amounts tores judicata in the action under consideration.16 All the above-stated elements
are present in the case at bench.
First, there is identity of parties. In both the complaints before the RTC and the DENR, Luzon Iron was
impleaded as defendant while Consolidated Iron was only impleaded in the complaint before the RTC.
Even if Consolidated Iron was not impleaded in the DENR complaint, the element still exists. The
requirement is only substantial, and not absolute, identity of parties; and there is substantial identity
of parties when there is community of interest between a party in the first case and a party in the
16
second case, even if the latter was not impleaded in the other case.17 Consolidated Iron and Luzon Iron
had a common interest under the TPAA as the latter was a wholly-owned subsidiary of the former.
Second, there is identity of causes of action. A reading of the complaints filed before the RTC and the
DENR reveals that they had almost identical causes of action and they prayed for similar reliefs as they
ultimately sought the return of their respective Exploration Permit on the ground of the alleged
violations of the TPAA committed by the petitioners.18 In Yap v. Chua,19 the Court ruled that identity of
causes of action did not mean absolute identity.
Hornbook is the rule that identity of causes of action does not mean absolute identity; otherwise, a
party could easily escape the operation of res judicata by changing the form of the action or the relief
sought. The test to determine whether the causes of action are identical is to ascertain
whether the same evidence will sustain both actions, or whether there is an identity in the
facts essential to the maintenance of the two actions. If the same facts or evidence would
sustain both, the two actions are considered the same, and a judgment in the first case is a
bar to the subsequent action. Hence, a party cannot, by varying the form of action or adopting a
different method of presenting his case, escape the operation of the principle that one and the same
cause of action shall not be twice litigated between the same parties or their privies. xxx 20 [Emphases
supplied]
In the case at bench, both complaints filed before different fora involved similar facts and issues, the
resolution of which depends on analogous evidence. Thus, the filing of two separate complaints by the
petitioners with the RTC and the DENR clearly constitutes forum shopping.
It is worth noting that the very evil which the prohibition against forum shopping sought to prevent had
happened�the RTC and the DENR had rendered conflicting decisions. The trial court ruled that it had
jurisdiction notwithstanding the arbitration clause in the TPAA. On the other hand, the DENR found that
it was devoid of jurisdiction because the matter was subject to arbitration.
Summons were not
validly served
Section 12 of Rule 14 of the Revised Rules of Court provides that "[w]hen the defendant is a foreign
private juridical entity which has transacted business in the Philippines, service may be made on
its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on
the government official designated by law to that effect, or on any of its officers or agents within the
Philippines."
The Rule on Summons, as it now reads, thus, makes the question whether Consolidated Iron was "doing
business in the Philippines" irrelevant as Section 12, Rule 14 of the Rules of Court was broad enough
to cover corporations which have "transacted business in the Philippines."
In fact, under the present legal milieu, the rules on service of summons on foreign private juridical
entities had been expanded as it recognizes additional modes by which summons may be served. A.M
No. 11-3-6-SC21 thus provides:
Section 12. Rule 14 of the Rules of Court is hereby amended to read as follows:
"SEC. 12. Service upon foreign private juridical entity. � When the defendant is a foreign private
juridical entity which has transacted business in the Philippines, service may be made on its resident
agent designated in accordance with law for that purpose, or, if there be no such agent, on the
government official designated by law to that effect, or on any of its officers or agents within the
Philippines.
If the foreign private juridical entity is not registered in the Philippines or has no resident agent, service
may, with leave of court, be effected out of the Philippines through any of the following means:
a) By personal service coursed through the appropriate court in the foreign country with the assistance
of the Department of Foreign Affairs;
b) By publication once in a newspaper of general circulation in the country where the defendant may
be found and by serving a copy of the summons and the court order by registered mail at the last
known address of the defendant;
c) By facsimile or any recognized electronic means that could generate proof of service; or
d) By such other means as the court may in its discretion direct."
The petitioners are mistaken in arguing that it cannot be served summons because under Section 15,
Rule 14 of the Rules of Court, extrajudicial service of summons may be resorted to only when the action
is in rem or quasi in rem and not when the action is in personam. The premise of the petitioners is
erroneous as the rule on extraterritorial service of summons provided in Section 15, Rule 14 of the
Rules of Court is a specific provision dealing precisely with the service of summons on a defendant
which does not reside and is not found in the Philippines. On the other hand, Section 12, Rule 14 thereof,
specifically applies to a defendant foreign private juridical entity which had transacted business in
the Philippines. Both rules may provide for similar modes of service of summons, nevertheless, they
should only be applied in particular cases, with one applicable to defendants which do not reside and
are not found in the Philippines and the other to foreign private juridical entities which had transacted
business in the Philippines.
In the case at bench, it is crystal clear that Consolidated Iron transacted business in the Philippines as
it was a signatory in the TPAA that was executed in Makati. Hence, as the respondents argued, it may
be served with the summons in accordance with the modes provided under Section 12, Rule 14 of the
Rules of Court.
In Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc.,23 the Court elucidated on the means
by which summons could be served on a foreign juridical entity, to wit:
On this score, we find for the petitioners. Before it was amended by A.M. No. 11-3-6-SC, Section 12 of
Rule 14 of the Rules of Court reads:
SEC. 12. Service upon foreign private juridical entity. � When the defendant is a foreign private juridical
entity which has transacted business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no such agent, on the government
official designated by law to that effect, or on any of its officers or agents within the Philippines.
17
Elucidating on the above provision of the Rules of Court, this Court declared in Pioneer International,
Ltd. v. Guadiz, Jr. that when the defendant is a foreign juridical entity, service of summons maybe
made upon:
1. Its resident agent designated in accordance with law for that
purpose;chanrobleslaw
2. The government official designated by law to receive summons if the corporation does
not have a resident agent; or,
3. Any of the corporation's officers or agents within the Philippines.24[Emphasis
supplied]
The Court, however, finds that Consolidated Iron was not properly served with summons through any
of the permissible modes under the Rules of Court. Indeed, Consolidated Iron was served with summons
through Luzon Iron. Such service of summons, however, was defective.
It is undisputed that Luzon Iron was never registered before the Securities and Exchange Commission
(SEC) as Consolidated Iron's resident agent. Thus, the service of summons to Consolidated Iron through
Luzon Iron cannot be deemed a service to a resident agent25cralawred under the first mode of service.
Likewise, the respondents err in insisting that Luzon Iron could be served summons as an agent of
Consolidated Iron, it being a wholly-owned subsidiary of the latter. The allegations in the complaint
must clearly show a connection between the principal foreign corporation and its alleged agent
corporation with respect to the transaction in question as a general allegation of agency will not
suffice.26 In other words, the allegations of the complaint taken as whole should be able to convey that
the subsidiary is but a business conduit of the principal or that by reason of fraud, their separate and
distinct personality should be disregarded.27 A wholly-owned subsidiary is a distinct and separate entity
from its mother corporation and the fact that the latter exercises control over the former does not justify
disregarding their separate personality. It is true that under the TPAA, Consolidated Iron wielded great
control over the actions of Luzon Iron under the said agreement. This, nonetheless, does not warrant
the conclusion that Luzon Iron was a mere conduit of Consolidated Iron. In Pacific Rehouse Corporation
v. CA,28 the Court ruled:
Albeit the RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary E-
Securities, "[c]ontrol, by itself, does not mean that the controlled corporation is a mere instrumentality
or a business conduit of the mother company. Even control over the financial and operational
concerns of a subsidiary company does not by itself call for disregarding its corporate
fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal
purpose behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent
is lacking in this case.29[Emphasis supplied]
In the case at bench, the complaint merely contained a general statement that Luzon Iron was the
resident agent of Consolidated Iron, and that it was a wholly-owned subsidiary of the latter. There was
no allegation showing that Luzon Iron was merely a business conduit of Consolidated Iron, or that the
latter exercised control over the former to the extent that their separate and distinct personalities should
be set aside. Thus, Luzon Iron cannot be deemed as an agent of Consolidated Iron in connection with
the third mode of service of summons.
To reiterate, the Court did not acquire jurisdiction over Consolidated Iron because the service of
summons, coursed through Luzon Iron, was defective. Luzon Iron was neither the resident agent nor
the conduit or agent of Consolidated Iron.
On the abovementioned procedural issues alone, the dismissal of the complaints before the RTC was
warranted. Even granting that the complaints were not procedurally defective, there still existed enough
reason for the trial court to refrain from proceeding with the case.
Controversy must be
referred for arbitration
The petitioners insisted that the RTC had no jurisdiction over the subject matter because under
Paragraph 15.1 of the TPAA, any dispute out of or in connection with the TPAA must be resolved by
arbitration. The said provision provides:
If, for any reasonable reason, the Parties cannot resolve a material fact, material event or any dispute
arising out of or in connection with this TPAA, including any question regarding its existence, validity or
termination, within 90 days from its notice, shall be referred to and finally resolved by arbitration in
Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre
("SIAC Rules") for the time being in force, which rules are deemed to be incorporated by reference in
this clause 15.1.30
The RTC, as the CA agreed, countered that Paragraph 14.8 of the TPAA allowed the parties to directly
resort to courts in case of a direct and/or blatant violation of the provisions of the TPAA. Paragraph 14.8
stated:
Each Party agrees not to commence or procure the commencement of any challenge or claim, action,
judicial or legislative enquiry, review or other investigation into the sufficiency, validity, legality or
constitutionality of (i) the assignments of the Exploration Permit Applications(s) (sic) to LIDGC, (ii) any
other assignments contemplated by this TPAA, and/or (iii) or (sic) any agreement to which the
Exploration Permit Application(s) may be converted, unless a direct and/or blatant violation of the
provisions of the TPAA has been committed.31
In Bases Conversion Development Authority v. DMCI Project Developers, Inc.,32 the Court emphasized
that the State favored arbitration, to wit:
The state adopts a policy in favor of arbitration. Republic Act No. 9285 expresses this policy:
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 parties 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.
18
Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as
early as 1949 when our Civil Code was approved. Republic Act No. 876 later explicitly recognized
the validity and enforceability of parties' decision to submit disputes and related issues to arbitration.
Arbitration agreements are liberally construed in favor of proceeding to arbitration. We adopt
the interpretation that would render effective an arbitration clause if the terms of the
agreement allow for such interpretation.33[Emphases supplied]
Thus, consistent with the state policy of favoring arbitration, the present TPAA must be construed in
such a manner that would give life to the arbitration clause rather than defeat it, if such interpretation
is permissible. With this in mind, the Court views the interpretation forwarded by the petitioners as
more in line with the state policy favoring arbitration.
Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in such a way that the arbitration clause
is given life, especially since such construction is possible in the case at bench. A synchronized reading
of the abovementioned TPAA provisions will show that a claim or action raising the sufficiency, validity,
legality or constitutionality of: (a) the assignments of the EP to Luzon Iron; (b) any other assignments
contemplated by the TPAA; or (c) any agreement to which the EPs may be converted, may be instituted
only when there is a direct and/or blatant violation of the TPAA. In turn, the said action or claim is
commenced by proceeding with arbitration, as espoused in the TPAA.
The Court disagrees with the respondents that Paragraph 14.8 of the TPAA should be construed as an
exception to the arbitration clause where direct court action may be resorted to in case of direct and/or
blatant violation of the TPAA occurs. If such interpretation is to be espoused, the arbitration clause
would be rendered inutile as practically all matters may be directly brought before the courts. Such
construction is anathema to the policy favoring arbitration.
A closer perusal of the TPAA will also reveal that paragraph 14 and all its sub-paragraphs are general
provisions, whereas paragraphs 15 and all its sub-clauses specifically refer to arbitration. When general
and specific provisions are inconsistent, the specific provision shall be paramount and govern the
general provision.34
The petitioners' failure to refer the case for arbitration, however, does not render the arbitration clause
in the TPAA inoperative. In Koppel, Inc. v. Makati Rotary Club Foundation, Inc. (Koppel),35 the Court
explained that an arbitration clause becomes operative, notwithstanding the lack of a formal request,
when a party has appraised the trial court of the existence of an arbitration clause, viz:
xxx 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.
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.
xxxx
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 xxx 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.
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 Contract and, more significantly, of its desire to have the same enforced in this
case. This act of petitioner is enough valid invocation of his right to arbitrate. xxx36 [Emphases
supplied; italics in the original]
It is undisputed that the petitioners Luzon Iron and Consolidated Iron never made any formal request
for arbitration. As expounded in Koppel, however, a formal request is not the sole means of invoking
an arbitration clause in a pending suit. Similar to the said case, the petitioners here made the RTC
aware of the existence of the arbitration clause in the TPAA as they repeatedly raised this as an issue
in all their motions to dismiss. As such, it was enough to activate the arbitration clause and, thus,
should have alerted the RTC in proceeding with the case.
Moreover, judicial restraint should be exercised pursuant to the competence-competence principle
embodied in Rule 2.4 of the Special Rules of Court on Alternative Dispute Resolution.37 The said
provision reads:
RULE 2.4. Policy Implementing Competence-Competence Principle. � The arbitral tribunal shall be
accorded the first opportunity or competence to rule on the issue of whether or not it has the
competence or jurisdiction to decide a dispute submitted to it for decision, including any objection with
respect to the existence or validity of the arbitration agreement. When a court is asked to rule upon
issue/s affecting the competence or jurisdiction of an arbitral tribunal in a dispute brought
before it, either before or after the arbitral tribunal is constituted, the court must exercise
judicial restraint and defer to the competence or jurisdiction of the arbitral tribunal by
allowing the arbitral tribunal the first opportunity to rule upon such issues.
19
Where the court is asked to make a determination of whether the arbitration agreement is null and
void, inoperative or incapable of being performed, under this policy of judicial restraint, the court must
make no more than a prima facie determination of that issue.

Unless the court, pursuant to such prima facie determination, concludes that the arbitration agreement
is null and void, inoperative or incapable of being performed, the court must suspend the action before
it and refer the parties to arbitration pursuant to the arbitration agreement. [Emphasis supplied]

Generally, the action of the court is stayed if the matter raised before it is subject to arbitration.38 In
the case at bench, however, the complaints filed before the RTC should have been dismissed considering
that the petitioners were able to establish the ground for their dismissal, that is, violating the prohibition
on forum shopping. The parties, nevertheless, are directed to initiate arbitration proceedings as
provided under Paragraph 15.1 of the TPAA.

WHEREFORE, the petition is GRANTED. The September 8, 2015 Decision of the Court of Appeals in
CA-G.R. SP No. 133296, affirming the March 18, 2013 and September 18, 2013 Orders of the Regional
Trial Court, Branch 59, Makati City, is hereby SET ASIDE. The complaints in Civil Case Nos. 12-1053
and 12-1054 are DISMISSED. The parties, however, are ORDERED to commence arbitration
proceedings pursuant to Paragraph 15.1 of the Tenement Partnership and Acquisition Agreement.

SO ORDERED.

20
G.R. No. 198226 July 18, 2014
ABOITIZ TRANSPORT SYSTEM CORPORATION and ABOITIZ SHIPPING
CORPORATION, Petitioners,
vs.
CARLOS A. GOTHONG LINES, INC. and VICTOR S. CHIONGBIAN, Respondents.
x-----------------------x
G.R. No. 198228
ABOITIZ TRANSPORT SYSTEM CORPORATION, Petitioner,
vs.
CARLOS A. GOTHONG LINES, INC. and VICTOR S. CHIONGBIAN, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in these petitions for review on certiorari1 are the Orders dated August 13, 2010,2 April 15,
2011,3 and July 6, 20114 of the Regional Trial Court of Cebu City, Branch 20 (RTC) in Civil Case No.
CEB-34951, which confirmed the notice of dismissal filed by respondent Carlos A. Gothong Lines, Inc.
(CAGLI) and, consequently, dismissed the case without prejudice, denied petitioners Aboitiz Transport
System Corporation (ATSC) and Aboitiz Shipping Corporation’s (ASC) motion for reconsideration, and
deemed ATSC’s motion to exclude respondent Victor S. Chiongbian (respondent Chiongbian) from
arbitration moot and academic, respectively.
The Facts
ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz, Gothong, and Chiongbian
families, respectively, entered into an Agreement5 dated January 8, 1996, which was signed by Jon
Ramon Aboitiz for ASC, Benjamin D. Gothong (Gothong) for CAGLI, and respondent Chiongbian for WLI.
In the said Agreement, ASC and CAGLI agreed to transfer their shipping assets to WLI inexchange for
the latter’s shares of capital stock. The parties likewise agreed that WLI would run the merged shipping
business and be renamed "WG&A, Inc." Pertinently, Section 11.06 of the Agreement provides that all
disputes arising out of or in connection with the Agreement shall be finally settled by arbitration in
accordance with Republic Act No. (RA) 876, otherwise known as "The Arbitration Law," 6 and that each
of the parties shall appoint one arbitrator, and the three arbitrators would then appoint the fourth
arbitrator who shall act as Chairman.
Among the attachments to the Agreement was a letter7 dated January 8, 1996 written by respondent
Chiongbian and addressed to Gothong, stating that WLI committed to acquire from CAGLI’s inventory
certain spare parts and materials not exceeding ₱400 Million. In this relation, a valuation of CAGLI’s
inventory was conducted wherein it was shown that the same amounted to ₱514 Million.8 Thereafter,
WLI received inventory valued at ₱558.89 Million, but only paid CAGLI the amount of ₱400 Million as
agreed upon in the Agreement.9 Dissatisfied, CAGLI sent to WLI various letters in 2001, demanding
that the latter pay or return the inventory that it received in excess of ₱400 Million.10
Sometime in 2002, the Chiongbian and Gothong families decided to sell their respective interests in
WLI/WG&A to the Aboitiz family. This resulted in the execution of a Share Purchase
Agreement11 whereby Aboitiz Equity Ventures (AEV) agreed to purchase and acquire the WLI/WG&A
shares of the Chiongbian and Gothong families. Thereafter, the corporate name of WLI/WG&A was
changed to ATSC.12
Six (6) years later, or in 2008, CAGLI sent a letter13 dated February 14, 2008 to ATSC demanding that
the latter pay the excess inventory it delivered to WLI amounting to 158,399,700.00. CAGLI likewise
demanded AEV and respondent Chiongbian that they refer their dispute to arbitration.14 In response,
AEV countered that the excess inventory had already been returned to CAGLI and that it should not be
included in the dispute, considering that it is an entity separate and distinct from ATSC.15 Thus, CAGLI
was constrained to file a complaint16 before the RTC against Chiongbian, ATSC, ASC, and AEV to compel
them to submit to arbitration.
For their part, ATSC and AEV moved for the dismissal of the case, contending that CAGLI did not have
a cause of action for arbitration since its claim had already been paid or otherwise, extinguished, and,
in any event, said action had already prescribed.17
The RTC Proceedings
In an Order18 dated December 4, 2009, the RTC dismissed the complaint only with respect to AEV for
lack of cause of action,19 but not as to the other defendants. Thereafter, the RTC issued an Order20 dated
February 26, 2010, directing CAGLI, respondent Chiongbian, ATSC, and ASC to proceed to arbitration,
and accordingly, the parties appointed their respective arbitrators, with ATSC and ASC doing so only on
an ad cautelam basis.21
Meanwhile, ATSC filed a Motion for Reconsideration/To Exclude22 dated March 25, 2010 praying that
respondent Chiongbian be excluded from the arbitration proceedings since the latter was not a party to
the Agreement. Pending resolution of the said motion,CAGLI filed a Notice of Dismissal23 dated July 8,
2010, averring that it has decided to withdraw its complaint in view of the fact that the opposing parties
had not filed their respective responsive pleadings.
In an Order24 dated August 13, 2010, the RTC found CAGLI’s Notice of Dismissal meritorious, and, thus,
confirmed the same and ordered the case dismissed without prejudice. Dissatisfied, ATSC and ASC
moved for reconsideration25 which was, however, denied in an Order26 dated April 15, 2011. In said
Order, the RTC cited Section 1 of Rule 17 of the Rules of Court which allows the plaintiff to file a notice
of dismissal of the complaint as a matter of right "before service of the answer or a motion for summary
judgment." It further ruled that, save for the condition that no answer or motion for summary judgment
had been priorly filed, nothing in the rules or law expressly prohibits or restricts the right of the plaintiff
to withdraw the complaint by mere notice of dismissal at any stage of the proceedings.27
Separately, the RTC issued an Order28 dated July 6, 2011, denying ATSC’s Motion for Reconsideration/To
Exclude, holding that the issue raised in the said motion has been rendered moot and academic in view
of the confirmation of CAGLI’s notice of dismissal.
Hence, the instant petitions.
The Issues Before the Court
21
The issues for the Court’s resolution are as follows: (a) whether or not the RTC was correct in confirming
CAGLI’s notice of dismissal and, consequently, dismissing the case without prejudice; and (b) whether
or not respondent Chiongbian should be excluded from the arbitration proceedings.
The Court’s Ruling
The petition is meritorious.
A. Propriety of CAGLI’s Notice of Dismissal.
At the outset, the Court notes that the nature of the complaint filed by CAGLI before the RTC is for the
enforcement of an arbitration agreement, governed by Section 6 of RA 876, viz.:
Section 6. Hearing by court. – A party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing
of the hearing of such application shall be served either personally or by registered mail upon the party
in default. The court shall hear the parties, and upon being satisfied that the making of the agreement
or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed
to arbitration in accordance with the terms of the agreement. If the making of the agreement or default
be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in
writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. Ifthe finding be that a written provision for arbitration was made and
there is a default in proceeding thereunder, an order shall be made summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof.
x x x x (Emphasis supplied)
In the case of Gonzales v. Climax Mining, Ltd. (Gonzales),29 the Court had instructed that the special
proceeding under the above-quoted provision is the procedural mechanism for the enforcement of the
contract to arbitrate.30 RA 876 explicitly confines the court’s authority only to pass upon the issue of
whether there is or there is no agreement in writing providing for arbitration. If there is such agreement,
the court shall issue an order summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof; otherwise,the proceeding shall be dismissed.31 To stress, such
proceeding is merelya summary remedy to enforce the agreement to arbitrate and the duty of the court
is not to resolve the merits of the parties’ claims but only to determine if they should proceed to
arbitration or not.32
In the present case, the records show that the primary relief sought for in CAGLI’s complaint, i.e., to
compel the parties to submit to arbitration,33 had already been granted by the RTC through its
Order34 dated February 26, 2010. Undeniably, such Order partakes of a judgment on the merits of the
complaint for the enforcement ofthe arbitration agreement.
At this point, although no responsive pleading had been filed by ATS C,35 it is the rules on appeal, or
other proceedings after rendition of a judgment or final order – no longer those on notice of dismissal
– that come into play. Verily, upon the rendition of a judgment or final order, 36 the period "before
service of the answer or of a motion for summary judgment," mentioned in Section 137 of Rule 17 of
the Rules of Court when a notice of dismissal may be filed by the plaintiff, no longer applies. As a
consequence, a notice of dismissal filed by the plaintiff at such judgment stage should no longer be
entertained or confirmed.1âwphi1
In view of the foregoing, it was anerror on the part of the RTC to have confirmed the notice of dismissal
and to have dismissed the complaint without prejudice.
B. Parties covered by Arbitration Proceedings.
Section 2 of RA 876 specifies who may be subjected to arbitration, to wit:
Sec. 2. Persons and matters subject to arbitration. – Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy existing between them atthe time of the
submission and which may be the subject of an action, or the parties to any contract may in such
contract agree to settle byarbitration a controversy thereafter arising between them. Such submission
or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract.
xxxx
In Gonzales, the Court explained that "[d]isputes do not go to arbitration unless and until the parties
have agreed to abide by the arbitrator’s decision. Necessarily, a contract is required for arbitration to
take place and to be binding."38Furthermore, in Del Monte Corporation – USA v. Court of Appeals,39 the
Court stated that "[t]he provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of that contract. As a rule, contracts are respected as the law between
the contracting parties and produce effectas between them, their assigns and heirs."40 Succinctly put,
only those parties who have agreed to submit a controversy to arbitration who, as against each other,
may be compelled to submit to arbitration. In the present case, Section 11.06 of the Agreement, which
embodies the Arbitration Agreement among the parties, provides:
All disputes arising out of or inconnection with this Agreement including any issue as to this Agreement's
validity or enforceability, which cannot be settled amicably among the parties, shall be finally settled
by arbitration in accordance with the Arbitration Law (Republic Act No. 876) by an arbitration tribunal
composed of four (4) arbitrators. Each of the parties shall appoint one (1) arbitrator, the three (3) to
appoint the fourth arbitrator who shall act as Chairman. Any award by the arbitration tribunal shall be
final and binding upon the parties and shall be enforced by judgment of the Courts of Cebu or Metro
Manila.41
The three parties to the Agreement and necessarily to the arbitration agreement embodied therein are:
(a) ASC, (b) CAGLI, and (c) WLI/WG&A/ATSC. Contracts, like the subject arbitration agreement, take
effect only between the parties, their assigns and heirs.42 Respondent Chiongbian, having merely
physically signed the Agreement as a representative of WLI, is not a party thereto and to the arbitration
agreement contained therein. Neither is he an assignee or an heir of any of the parties to the arbitration
agreement. Hence, respondent Chiongbian cannot be included in the arbitration proceedings.
WHEREFORE, the petitions are GRANTED. The Orders dated August 13, 2010, April 15, 2011, and July
6, 2011 of the Regional Trial Court of Cebu City, Branch 20 (RTC) in Civil Case No. CEB-34951 are
hereby REVERSED and SET ASIDE. The Order dated February 26, 2010 of the RTC is REINSTATED with
MODIFICATION excluding Victor S. Chiongbian from the arbitration proceedings.
SO ORDERED.
22
G.R. No. 211504 Federal, represented by new counsel (Domingo, Dizon, Leonardo and Rodillas Law Office), moved to
dismiss the case on the ground that CIAC had no jurisdiction over the case inasmuch as the Contract
of Service between Federal and Power had been a mere draft that was never finalized or signed by the
FEDERAL BUILDERS, INC., Petitioner
parties. Federal contended that in the absence of the agreement for arbitration, the CIAC had no
vs
jurisdiction to hear and decide the case.7
POWER FACTORS, INC., Respondent

On February 8, 2010, the CIAC issued an order setting the case for hearing, and directing that Federal's
DECISION
motion to dismiss be resolved after the reception of evidence of the parties.8

BERSAMIN, J.:
Federal did not thereafter participate in the proceedings until the CIAC rendered the Final Award dated
May 12, 2010,9 disposing:
An agreement to submit to voluntary arbitration for purposes of vesting jurisdiction over a construction
dispute in the Construction Industry Arbitration Commission (CIAC) need not be contained in the
In summary: Respondent Federal Builders, Inc. is hereby ordered to pay claimant Power Factors, Inc.
construction contract, or be signed by the parties. It is enough that the agreement be in writing.
the following sums:

The Case
1. Unpaid balance on the original contract ₱4,276,614.75;
Federal Builders Inc. (Federal) appeals to reverse the decision promulgated on August 12,
2013,1 whereby the Court of Appeals (CA) affirmed the adverse decision rendered on May 12, 2010 by 2. Unpaid balance on change order nos. 1, 2, 3, 4, 5,
the Construction Industry Arbitration Commission (CIAC) with modification of the total amount 6, 7, 8, & 9 3,006,970.32;
awarded.2
3. Interest to May 13, 2010 1,686,149.94;

Antecedents 4. Attorney's Fees 250,000.00;

Federal was the general contractor of the Bullion Mall under a construction agreement with Bullion 5. Cost of Arbitration 149,503.86;
Investment and Development Corporation (BIDC). In 2004, Federal engaged respondent Power Factors
Inc. (Power) as its subcontractor for the electric works at the Bullion Mall and the Precinct Building for ₱9 ,369 ,238.87
₱l8,000,000.00.3

On February 19, 2008, Power sent a demand letter to Federal claiming the unpaid amount of
₱ll,444,658.97 for work done by Power for the Bullion Mall and the Precinct Building. Federal replied
that its outstanding balance under the original contract only amounted to ₱1,641,513.94, and that the
demand for payment for work done by Power after June 21, 2005 should be addressed directly to
BIDC.4 Nonetheless, Power made several demands on Federal to no avail.
On October 29, 2009, Power filed a request for arbitration in the CIAC invoking the arbitration clause
of the Contract of Service reading as follows:
15. ARBITRATION COMMITTEE - All disputes, controversies or differences, which may arise between
the parties herein, out of or in relation to or in connection with this Agreement, or for breach thereof
shall be settled by the Construction Industry Arbitration Commission (CIAC) which shall have original
and exclusive jurisdiction over the aforementioned disputes.5
On November 20, 2009, Atty. Vivencio Albano, the counsel of Federal, submitted a letter to the CIAC
manifesting that Federal agreed to arbitration and sought an extension of 15 days to file its answer,
which request the CIAC granted.
The foregoing amount shall earn legal interest at the rate of 6% per annum from the date of this Final
Award until this award becomes final and executory, Claimant shall then be entitled to 12% per
annumuntil the entire amount is fully satisfied by Respondent.
Federal appealed the award to the CA insisting that the CIAC had no jurisdiction to hear and decide the
case; and that the amounts thereby awarded to Power lacked legal and factual bases.
On August 12, 2013, the CA affirmed the CIAC's decision with modification as to the amounts due to
Power,10 viz.:
WHEREFORE, the CIAC Final Award dated 12 May 20l0 in CIAC Case No. 31-2009 is hereby AFFIRMED
with MODIFICATION. As modified, FEDERAL BUILDERS, INC. is ordered to pay POWER FACTORS, INC.
the following:
1. Unpaid balance on the original
₱4,276,614.75;
contract

On December 16, 2009, Atty. Albano filed his withdrawal of appearance stating that Federal had
meanwhile engaged another counsel.6

23

2. Unpaid balance on change
2,864,113.32;
orders
3. Attorney's Fees 250,000.00;
4. Cost of Arbitration 149,503.86;
The interest to be imposed on the net award (unpaid balance on the original contract and change order)
amounting to P.7, 140,728.07 awarded to POWER FACTORS INC. shall be six (6%) per annum, reckoned
from 4 July 2006 until this Decision becomes final and executory. Further, the total award due to POWER
FACTORS INC. shall be subjected to an interest of twelve percent (12%) per annumcomputed from the
time this judgment becomes final and executory, until full satisfaction.
SO ORDERED.11
Anent jurisdiction, the CA explained that the CIAC Revised Rules of Procedure stated that the agreement
to arbitrate need not be signed by the parties; that the consent to submit to voluntary arbitration was
not necessary in view of the arbitration clause contained in the Contract of Service; and that Federal's
contention that its former counsel's act of manifesting its consent to the arbitration stipulated in the
draft Contract of Service did not bind it was inconsequential on the issue of jurisdiction.12
Concerning the amounts awarded, the CA opined that the CIAC should not have allowed the increase
based on labor-cost escalation because of the absence of the agreement between the parties on such
escalation and because there was no authorization in writing allowing the adjustment or increase in the
cost of materials and labor.13
After the CA denied Federal's motion for reconsideration on February 19, 2004, 14 Federal has come to
the Court on appeal.
Issue
The issues to be resolved are: (a) whether the CA erred in upholding CIAC's jurisdiction over the present
case; and (b) whether the CA erred in holding that Federal was liable to pay Power the amount of
₱7,140,728.07.
Ruling of the Court
The appeal is bereft of merit.
1.
The parties had an effective agreement to submit to voluntary arbitration; hence, the CIAC had
jurisdiction
The need to establish a proper arbitral machinery to settle disputes expeditiously was recognized by
the Government in order to promote and maintain the development of the country's construction
industry. With such recognition came the creation of the CIAC through Executive Order No. 1008 (E.O.
No. 1008), also known as The Construction Industry Arbitration Law. Section 4 of E.O. No. 1008
provides:
Sec. 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines, whether
the dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. x x x
Under the CIAC Revised Rules of Procedure Governing Construction Arbitration (CIAC Revised
Rules), all that is required for the CIAC to acquire jurisdiction is for the parties of any construction
contract to agree to submit their dispute to arbitration.15 Also, Section 2.3 of the CIAC Revised
Rules states that the agreement may be reflected in an arbitration clause in their contract or by
subsequently agreeing to submit their dispute to voluntary arbitration. The CIAC Revised Rules clarifies,
however, that the agreement of the parties to submit their dispute to arbitration need not be signed or
be formally agreed upon in the contract because it can also be in the form of other modes of
communication in writing, viz.:
RULE 4 - EFFECT OF AGREEMENT TO ARBITRATE
SECTION 4.1. Submission to CIAC jurisdiction - An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing
or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission.
4.1.1 When a contract contains a clause for the submission of a future controversy to arbitration, it is
not necessary for the parties to enter into a submission agreement before the Claimant may invoke the
jurisdiction of CIAC.
4.1.2 An arbitration agreement or a submission to arbitration shall be in writing, but it need not be
signed by the parties, as long as the intent is clear that the parties agree to submit a present or future
controversy arising from a construction contract to arbitration. It may be in the form of exchange of
letters sent by post or by telefax, telexes, telegrams, electronic mail or any other mode of
communication.
The liberal application of procedural rules as to the form by which the agreement is embodied is the
objective of the CIAC Revised Rules. Such liberality conforms to the letter and spirit of E.O. No. 1008
itself which emphasizes that the modes of voluntary dispute resolution like arbitration are always
preferred because they settle disputes in a speedy and amicable manner. They likewise help in
alleviating or unclogging the judicial dockets. Verily, E.O. No. 1008 recognizes that the expeditious
resolution of construction disputes will promote a healthy partnership between the Government and the
private sector as well as aid in the continuous growth of the country considering that the construction
industry provides employment to a large segment of the national labor force aside from its being a
leading contributor to the gross national product.16
Worthy to note is that the jurisdiction of the CIAC is over the dispute, not over the contract between
the parties.17Section 2.1, Rule 2 of the CIAC Revised Rules particularly specifies that the CIAC has
original and exclusive jurisdiction over construction disputes, whether such disputes arise from or are
merely connected with the construction contracts entered into by parties, and whether such disputes
24
arise before or after the completion of the contracts. Accordingly, the execution of the contracts and Moreover, Federal asserted the original contract to support its claim against Power. If Federal would
the effect of the agreement to submit to arbitration are different matters, and the signing or non-signing insist that the remaining amount due to Power was only ₱l,641,513.94 based on the original
of one does not necessarily affect the other. In other words, the formalities of the contract have nothing contract,21 it was really inconsistent for Federal to rely on the draft when it is beneficial to its side, and
to do with the jurisdiction of the CIAC. to reject its efficacy and existence just to relieve itself from the CIAC's unfavorable decision.

Federal contends that there was no mutual consent and no meeting of the minds between it and Power
as to the operation and binding effect of the arbitration clause because they had rejected the draft
service contract.
The contention of Federal deserves no consideration.
Under Article 1318 of the Civil Code, a valid contract should have the following essential elements,
namely: (a) consent of the contracting parties;
(b) object certain that is the subject matter of the contract; and (c) cause or consideration. Moreover,
a contract does not need to be in writing in order to be obligatory and effective unless the law specifically
requires so.
Pursuant to Article 135618 and Article 135719 of the Civil Code, contracts shall be obligatory in whatever
form they may have been entered into, provided that all the essential requisites for their validity are
present. Indeed, there was a contract between Federal and Power even if the Contract of Service was
unsigned. Such contract was obligatory and binding between them by virtue of all the essential elements
for a valid contract being present.
The agreement contemplated in the CIAC Revised Rules to vest jurisdiction of the CIAC over the parties'
dispute is not necessarily an arbitration clause to be contained only in a signed and finalized construction
contract. The agreement could also be in a separate agreement, or any other form of written
communication, as long as their intent to submit their dispute to arbitration is clear. The fact that a
contract was signed by both parties has nothing to do with the jurisdiction of the CIAC, and this is the
explanation why the CIAC Revised Rules itself expressly provides that the written communication or
agreement need not be signed by the parties.
Although the agreement to submit to arbitration has been expressly required to be in writing and signed
by the parties therein by Section 422 of Republic Act No. 876 (Arbitration Law),23 the requirement is
conspicuously absent from the CIAC Revised Rules, which even expressly allows such agreement not to
be signed by the parties therein.24 Brushing aside the obvious contractual agreement in this case
warranting the submission to arbitration is surely a step backward.25 Consistent with the policy of
encouraging alternative dispute resolution methods, therefore, any doubt should be resolved in favor
of arbitration.26 In this connection, the CA correctly observed that the act of Atty. Albano in manifesting
that Federal had agreed to the form of arbitration was unnecessary and inconsequential considering the
recognition of the value of the Contract of Service despite its being an unsigned draft.
2.

It clearly appears that the works promised to be done by Power were already executed albeit still Amounts as modified by the CA are correct
incomplete; that Federal paid Power ₱l ,000,000.00 representing the originally proposed downpayment,
and the latter accepted the payment; and that the subject of their dispute concerned only the amounts
We find no reversible error regarding the amounts as modified by the CA. Power did not sufficiently
still due to Power. The records further show that Federal admitted having drafted the Contract of
establish that the change or increase of the cost of materials and labor was to be separately determined
Services containing the following clause on submission to arbitration, to wit:
and approved by both parties as provided under Article 1724 of the Civil Code. As such, Federal should
not be held liable for the labor cost escalation.
15. ARBITRATION COMMITTEE -All disputes, controversies or differences, which may arise between the
Parties herein, out of or in relation to or in connection with this Agreement, or for breach thereof shall
WHEREFORE, the Court AFFIRMS the decision promulgated on August 12, 2013; and ORDERS the
be settled by the Construction Industry Arbitration Commission (CIAC) which shall have original and
petitioner to pay the costs of suit.
exclusive jurisdiction over the aforementioned disputes.20

SO ORDERED.
With the parties having no issues on the provisions or parts of the Contract of Service other than that
pertaining to the downpayment that Federal was supposed to pay, Federal could not validly insist on
the lack of a contract in order to defeat the jurisdiction of the CIAC. As earlier pointed out, the
CIAC Revised Rules specifically allows any written mode of communication to show the parties' intent
or agreement to submit to arbitration their present or future disputes arising from or connected with
their contract.

The CIAC and the CA both found that the parties had disagreed on the amount of the
downpayment.1âwphi1 On its part, Power indicated after receiving and reviewing the draft of the
Contract of Service that it wanted 30% as the downpayment. Even so, Power did not modify anything
else in the draft, and returned the draft to Federal after signing it. It was Federal that did not sign the
draft because it was not amenable to the amount as modified by Power. It is notable that the arbitration
clause written in the draft of Federal was unchallenged by the parties until their dispute arose.

25
G.R. No. 184295 July 30, 2014
1) BTRP Schedule III 560 days 711 days 127%

NATIONAL TRANSMISSION CORPORATION, Petitioner, 2) BTRP Schedule I 270 days 406 days 170%
vs.
ALPHAOMEGA INTEGRATED CORPORATION, Respondent.
3) Makban Substation 365 days 452 days 124%

DECISION 4) Bacolod Substation 360 days 289 days 80%

PERLAS-BERNABE, J.: 5) Bunawan Substation 330 days 130 days 39%

Assailed in this petition for review on certiorari1 are the Decision2 dated April 8, 2008 and the 6) Quiot Substation 300 days 131 days 44%
Resolution3 dated August 27, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 99454 affirming with
modification the Final Award4of the Construction Industry Arbitration Commission (CIAC) Arbitral 2119 days7
Tribunal in favor of respondent Alphaomega Integrated Corporation (AIC) by increasing petitioner
National· Transmission Corporation's (TRANSCO) liability from Pl 7,495,117.44 to Pl 8,896,673.31.
AIC prayed for judgment declaring all six (6) contracts rescinded and ordering TRANSCO to pay, in
addition to what had already been paid under the contracts, moral damages, exemplary damages, and
The Facts
attorney’s fees at ₱100,000.00 each, and a total of ₱40,201,467.19 as actual and compensatory
damages.8
AIC, a duly licensed transmission line contractor, participated in the public biddings conducted by
TRANSCO and was awarded six ( 6) government construction projects, namely: (a) Contract .for the
TRANSCO, for its part, contended that: (a) it had conducted Detailed Engineering prior to the conduct
Construction & Erection of Batangas Transmission Reinforcement Project Schedule III (BTRP Schedule
of the bidding; and (b) it had obtained the necessary government permits and endorsements from the
III Project); (b) Contract for the Construction & Erection of Batangas Transmission Reinforcement
affected LGUs. It asserted that AIC was guilty of frontloading– that is,collecting the bulk of the contract
Project Schedule I (BTRP Schedule I Project); (c) Contract for the Construction,Erection & Installation
price for work accomplished at the early stages of the project and then abandoning the later stagesof
of 230 KV and 69 KV S/S Equipment and Various Facilities for Makban Substation under the Batangas
the project which has a lower contract price9 –and that it disregarded the workable portions of the
Transmission Reinforcement Project (Schedule II) (Makban Substation Project); (d) Contract for the
projects not affected by the lack of supplies and drawings. TRANSCO further argued that AIC was
Construction, Erection & Installation of 138 & 69 KV S/S Equipment for Bacolod Substation under the
estopped from asking for standby fees to cover its overhead expenses during project suspensions
Negros III-Panay III Substation Projects (Schedule II) (Bacolod Substation Project); (e) Contract for
considering that the delays, such as the unresolved right-of-way issues and non-availability of materials,
the Construction, Erection & Installation of 138 & 69 KV Substation Equipment for the New Bunawan
were factors already covered by the time extensions and suspensions of work allowed under the
Switching Station Project (Bunawan Substation Project); and (f) Contract for the Construction, Erection contracts.10
& Installation of 138 and 69 KV Substation Equipment for Quiot Substation Project (Quiot Substation
Project).5
On April 18, 2007, the CIAC Arbitral Tribunal rendered its Final Award11 in CIAC Case No. 21-2006
ordering the payment of actual and compensatory damages which AIC would not have suffered had it
In the course of the performance ofthe contracts, AIC encountered difficulties and incurred losses
not been for the project delays attributable to TRANSCO. It found ample evidence to support the claim
allegedly due to TRANSCO’s breach of their contracts, prompting it to surrender the projects to
for the increase in subcontract cost in BTRP Schedule I, as well as such items of cost as house and yard
TRANSCO under protest. In accordance with an express stipulation in the contracts that disagreements
rentals, electric bills, water bills, and maintained personnel, but disallowed the claims for
shall be settled by the parties through arbitration before the CIAC, AIC submitted a request for
communications bills, maintenance costs for idle equipment, finance charges, and materials cost
arbitration before the CIAC on August 28, 2006, and, thereafter, filed an Amended Complaint against
increases.12 According to the Arbitral Tribunal, even if AIC itself made the requests for contract time
TRANSCO alleging that the latter breached the contracts by its failure to: (a) furnish the required
extensions, this did not bar its claim for damages as a result of project delayssince a contrary ruling
Detailed Engineering; (b) arrange a well-established right-of-way to the project areas; (c) secure the
would allow TRANSCO to profit from its own negligence and leave AIC to suffer serious material
necessary permits and clearances from the concerned local government units (LGUs); (d) ensure a
prejudice as a direct consequence of that negligence leaving it without any remedy at law.13 The Arbitral
continuous supply of construction materials; and (e) carry out AIC’s requests for power shut down. The
Tribunal upheld AIC’s right to rescind the contracts in accordancewith Resolution No. 018-2004 of the
aforementioned transgressions resultedin protracted delays and contract suspensions for each
Government Procurement Policy Board (GPPB), which explicitly gives the contractor the right to
project,6 as follows:
terminate the contract if the works are completely stopped for a continuous period of at least 60
calendar days, through no fault of its own, due to the failure of the procuring entity to deliver within a
reasonable time, supplied materials, right-of-way, or other items that it is obligated to furnish under
Contract Original Duration of Percentage (%) the terms of the contract, among others.14 The dispositive portion of the Arbitral Tribunal’s Final Award
Contract Transco-Approved of Original reads:
Duration Suspension and/or Contract
Extensions Duration
WHEREFORE, Respondent, National Transmission Corporation [TRANSCO] is hereby ordered to pay
Claimant, Alphaomega Integrated Corporation, the following sums:
26

(a) For BTRP Schedule III - ₱6,423,496.67
(b) For BTRP Schedule I - 5,214,202.30
(c) For Makban Substation - 3,075,870.95
(d) For Bacolod Substation - 1,362,936.77
(e) For Bunawan Substation - 820,481.72
(f) For Quiot Substation - 598, 129.03
TOTAL ₱17,495,117.44
Each Party shall shoulder its own cost of arbitration.
The foregoing amount of ₱17,495,117.44 shall earn interest at the rate of six percent (6%) per annum
from the date of promulgation of this Final Award until it becomes final and executory. Thereafter, the
Final Award, including accrued interest, shall earn interest at the rate of 12% per annum until the entire
amount due is fully paid.15(Emphasis supplied)
Unconvinced, TRANSCO instituted a petition for review16 with the CA.
Before filing its comment17 to the petition, AIC moved for the issuance of a writ of execution,18 not for
the amount of 17,495,117.44 awarded in the Final Award, but for the increased amount of
18,967,318.49.19 It sought correction of the discrepancies between the amount of the award appearing
in the dispositive portion20 and the body of the Final Award.21 The Arbitral Tribunal, however, denied
AIC’s motion, holding that while the CIAC Revised Rules of Procedure Governing Construction Arbitration
(CIAC Rules) would have allowed the correction of the Final Award for evident miscalculation of figures,
typographical or arithmetical errors, AIC failed to file its motionfor the purpose within the time limitation
of 15 days from its receipt of the Final Award.22
The CA Ruling
In the Decision dated April 8, 2008, the CAaffirmed the Arbitral Tribunal’s factual findings that
23
TRANSCOfailed to exercise due diligence in resolving the problems regarding the right-of-way and the
lack of materials before undertaking the bidding process and entering into the contracts with AIC. 24 It
found no merit in TRANSCO’s allegation that AIC refused to perform the remaining workable portions
of the projects not affected by problems of right-of-way, shutdowns, supplies and drawings, firstly,
because the certificates ofaccomplishments issued by TRANSCO in the course of project implementation
signifying its satisfaction with AIC’s performance negate such claim and, secondly, because all the
orders issued by TRANSCO suspended the contracts not only in part but in their entirety, thus,
permitting no work activity at all during such periods.25
The CA upheld the Arbitral Tribunal’s Final Award as having been sufficiently established by evidence
but modified the total amount of the award after noting a supposed mathematical error in the
computation. Setting aside TRANSCO’s objections, it ruled that when a case is brought to a superior
court on appeal every aspect of the case is thrown open for review,26 hence, the subject error could be
rectified. The CA held that the correct amount of the award should be ₱18,896,673.31, and not
₱17,495,117.44 as stated in the Arbitral Tribunal’s Final Award.27Dissatisfied, TRANSCO moved for
reconsideration28 but was, however, denied by the CA in a Resolution29 dated August 27, 2008, hence,
the instant petition.
The Issues Before the Court
The essential issues for the Court’s consideration are whether or not the CA erred (a) in affirming the
CIAC Arbitral Tribunal’s findings that AIC was entitled to its claims for damages as a result of project
delays, and (b) in increasing the total amount of compensation awarded in favor of AIC despite the
latter’s failure to raise the allegedly erroneous computation of the award before the CIAC in a timely
manner, that is, within fifteen (15) days from receipt of the Final Award as provided under Section 17.1
of the CIAC Rules.
The Court’s Ruling
TRANSCO seeks through this petition a recalibration of the evidencepresented before the CIAC
ArbitralTribunal, insisting that AIC is not entitled to any damages not only because it had previously
waived all claims for standby fees in case of project delays but had eventually failed to perform the
workable portions of the projects. This is evidently a factual question which cannot be the proper subject
of the present petition. Section 1, Rule 45 of the Rules of Court provides that a petition for review on
certiorariunder the said rule, as in this case, "shall raise only questions of law which must be distinctly
set forth." Thus, absent any of the existing exceptions impelling the contrary, the Court is, as a general
rule, precluded from delving on factual determinations, as what TRANSCO essentially seeks in this case.
Similar to the foregoing is the Court’s ruling in Hanjin Heavy Industries and Construction Co., Ltd. v.
Dynamic Planners and Construction Corp.,30 the pertinent portions ofwhich are hereunder quoted:
Dynamic maintains that the issues Hanjin raised in its petitions are factual in nature and are, therefore,
not proper subject of review under Section 1 of Rule 45, prescribing that a petition under the said rule,
like the one at bench, "shall raise only questions of law which must be distinctly set forth." Dynamic’s
contention is valid topoint as, indeed, the matters raised by Hanjin are factual, revolving as they do on
the entitlement of Dynamic to the awards granted and computed by the CIAC and the CA. Generally,
this would be a question of fact that this Court would not delve upon. Imperial v. Jauciansuggests as
much. There, the Court ruled that the computation of outstanding obligation is a question of fact:
Arguing that she had already fully paid the loan x x x, petitioner alleges that the two lower courts
misappreciated the facts when they ruled that she still had an outstanding balance of ₱208,430.
This issue involves a question of fact. Such question exists when a doubt or difference arises as to the
truth or the falsehood of alleged facts; and when there is need for a calibration of the evidence,
considering mainly the credibility of witnesses and the existence and the relevancy of specific
surrounding circumstances, their relation to each other and to the whole, and the probabilities of the
situation. (G.R. No. 149004, April 14, 2004, 427 SCRA 517, 523-524.)
The rule, however, precluding the Court from delving on the factual determinations of the CA, admits
of several exceptions. In Fuentes v. Court of Appeals, we held that the findings of facts of the CA, which
are generally deemed conclusive, may admit review by the Court in any of the following instances,
among others:
(1) when the factual findings of the [CA] and the trial court are contradictory;
27
 (2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made bythe [CA] from its findings of fact is manifestly mistaken,
absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the [CA], in making its findings, goes beyond the issues of the case, and such findings
are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the [CA] is premised on a misapprehension of facts;
(7) when the [CA] fails to notice certain relevant facts which, if properly considered, will justify
a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on which
they are based; and
(10) when the findings of fact of the [CA] are premised on the absence of evidence but such
findings are contradicted by the evidence on record. (G.R. No. 109849, February 26, 1997,
268 SCRA 703, 709)
Significantly, jurisprudence teaches that mathematical computations as well as the propriety of the
arbitral awards are factual determinations. And just as significant is that the factual findings of the CIAC
and CA—in each separate appealed decisions—practically dovetail with each other. The perceptible
essential difference, at least insofar as the CIAC’s Final Award and the CA Decision in CA-G.R. SP No.
86641 are concerned, rests merely on mathematical computations or adjustments of baseline amounts
which the CIAC may have inadvertently utilized.31 (Emphases and underscoring supplied)
In any case, the Court finds no reason to disturb the factual findings of the CIAC Arbitral Tribunal on
the matter of AIC’s entitlement to damages which the CA affirmed as being well supported by evidence
and properly referred to in the record. It is well-settled that findings of fact of quasijudicial bodies,
which have acquired expertise because their jurisdiction is confined to specific matters, are generally
accorded not only respect, but also finality, especially when affirmed by the CA.32 The CIAC possesses
that required expertise in the field of construction arbitration and the factual findings of its construction
arbitrators are final and conclusive, not reviewable by this Court on appeal.33
While the CA correctly affirmed infull the CIAC Arbitral Tribunal’s factual determinations, it improperly
modified the amount of the award in favor of AIC, which modification did not observe the proper
procedure for the correction of an evident miscalculation of figures, including typographical or
arithmetical errors, in the arbitral award. Section 17.1 of the CIAC Rules mandates the filing of a motion
for the foregoing purpose within fifteen (15) days from receipt thereof, viz.:
Section 17.1 Motion for correction of final award– Any of the parties may file a motion for correction of
the Final Award within fifteen (15) days from receipt thereof upon any of the following grounds:
a. An evident miscalculation of figures, a typographical or arithmetical error; (Emphasis supplied)
xxxx
Failure to file said motion would consequentlyrender the award final and executory under Section 18. 1
of the same rules, viz.:
Section 18.1 Execution of Award – A final arbitral award shall become executory upon the lapse of
fifteen (15) days from receipt thereof by the parties.1âwphi1
AIC admitted that it had ample time to file a motion for correction of the Final Award but claimed to
have purposely sat on its right to seek correction supposedly as a strategic move against
TRANSCO34 and, instead, filed with the CIAC Arbitral Tribunal on June 13, 2007 a "Motion for Issuance
of Writ of Execution for the Total Amount of 18,967,318.49 as Embodied in the Final Award."35 The
Arbitral Tribunal eventually denied AIC’s aforesaid motion for execution because, despite its merit, the
Arbitral Tribunal could not disregard the time-limitation under the CIAC Rules.36 Clearly, having failed
to move for the correction of the Final Award and, thereafter, having opted to file insteada motion for
execution of the arbitral tribunal’s unopposed and uncorrected Final Award, AIC cannot now question
against the correctness of the CIAC’s disposition. Notably, while there is jurisprudential authority stating
that "[a] clerical error in the judgment appealed from may be corrected by the appellate court,"37 the
application of that rule cannot be made in this case considering that the CIAC Rules provides for a
specific procedureto deal with particular errors involving "[a]n evident miscalculation of figures, a
typographical or arithmetical error." Indeed, the rule iswell entrenched: Specialis derogat generali.
When two rules apply to a particular case, thatwhich was specially designed for the said case must
prevail over the other.38
Furthermore, it must be emphasized that the petition for review before the CA was filed by
TRANSCO.39 AIC never elevated before the courts the matter concerning the discrepancy between the
amount of the award stated in the body of the Final Award and the total award shown in its dispositive
portion. The issue was touched upon bythe CA only after AIC raised the same through its Comment
(With Motion to Acknowledge Actual Amount of Award)40 to TRANSCO’s petition for review. The CA
should not have modified the amount of the award to favor AIC because it is well-settled that no relief
can be granted a party who does not appeal41 and that a party who did not appeal the decision may not
obtain any affirmative relief from the appellate court other than what he had obtained from the lower
court, if any, whose decision is brought up on appeal.42 The disposition, as stated in the fallo of the
CIAC Arbitral Tribunal's Final Award, should therefore stand.43
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 8, 2008 of the Court of Appeals
in CA-G.R. SP No. 99454 is hereby AFFIRMED with MODIFICATION. The compensation awarded in favor
of Alphaomega Integrated Corporation in the amount of ₱17,495,117.44, as shown in the fallo of the
·construction Industry Arbitration Commission's Final Award dated April 18, 2007, stands.
SO ORDERED.
28
 corporate in nature as they arose between the relations of a stockholder and the corporation, and not
from an employee and employer relationship.14 Thus, the LA dismissed the case for lack of
jurisdiction,15prompting Vital to file his complaint16 for payment of unpaid salaries, separation and
retirement benefits, and damages on July 19, 2007 before the RTC, docketed as Civil Case No. 8694. 17
G.R. No. 211588, September 09, 2015

The RTC Ruling

WORLD'S BEST GAS, INC., Petitioner, v. HENRY VITAL, JOINED BY HIS WIFE FLOSERFINA
VITAL, Respondents. In a Decision18 dated December 12, 2011, the RTC, acting as a special commercial court, oppositely
found that Vital was an employee of WBGI and thereby, upheld his claim of P845,000.00 and
DECISION P250,000.00 in unpaid salaries and separation pay. However, the RTC offset these amounts, including
the P500,000.00 due from WBGFs acquisition of Vital's shares of stocks, against the P923,843.59
payable to WBGI from ERJ Enterprises, thus, awarding Vital the net amount of P671,156.41, with legal
PERLAS-BERNABE, J.:
interest from date of demand until full payment, P50,000.00 as attorney's fees and costs of suit plus
litigation expenses.19
Before the Court is a petition for review on certiorari1 filed by petitioner World's Best Gas, Inc. (WBGI)
assailing the Decision2 dated September 30, 2013 and the Resolution3 dated March 4, 2014 of the Court The RTC ratiocinated that since the positions of Internal Auditor and Personnel Manager were not
of Appeals (CA) in CA-G.R. SP No. 123497, which affirmed the Decision4 dated December 12, 2011 of provided for in WBGI's By-Laws, Vital was not a corporate officer but an employee entitled to
the Regional Trial Court of Bataan, Branch 2 (RTC) in Civil Case No. 8694 finding WBGI liable to employment benefits. It also maintained that it had jurisdiction to rule on the main intra-corporate
respondent Henry Vital (Vital) for his unpaid salaries and separation pay. controversy, together with the question of damages and employment benefits.20
�
The Facts Aggrieved, WBGI elevated the case to the CA on appeal.21
�
Vital was one of the incorporators of WBGI, holding P500,000.00 worth of shares of stocks therein.5 As The CA Ruling
a separate business venture, Vital and his wife, respondent Floserfina Vital (respondents), sourced
Liquefied Petroleum Gas (LPG) from WBGI and distributed the same through ERJ Enterprises owned by In a Decision22 dated September 30, 2013, the CA dismissed the appeal, agreeing with the RTC's finding
them.6 As of respondents' last statement of account, their outstanding balance with WBGI for that Vital was an employee of WGBI. While the CA observed that the RTC's award of employment
unpaid LPG amounted to P923,843.59.7 benefits to Vital was improper, as the same was under the exclusive jurisdiction of the labor arbiters, it
still ruled on said claim, reasoning that it has the eventual authority to review the labor courts' decision
On January 6, 1999, Vital was appointed as Internal Auditor and Personnel Manager by WBGI's on the matter.23
President/CEO and continued to serve as such until his mandatory retirement on September 25,
2003.8Upon his retirement, WBGI's Board of Directors computed Vital's retirement benefits at WBGI filed a motion for reconsideration24 which was, however, denied in a Resolution25 dated March 4,
P82,500.00 by multiplying his P15,000.00 monthly pay by 5.5 years, which was the number of years 2014; hence, the present petition.
he served as Internal Auditor and Personnel Manager. WBGI also agreed to acquire Vital's
P500,000.00 shares of stocks at par value.9 The Issue Before the Court

After offsetting the P500,000.00 due from WBGI's acquisition of his shares of stocks against ERJ The main issue to be resolved is whether or not the CA erred in ruling upon Vital's claim of P845,000.00
Enterprises' P923,843.59 outstanding balance to WBGI, Vital claimed that the unpaid salaries and and P250,000.00 in unpaid salaries and separation pay.
separation pay due him amounted to P845,000.00 and P250,000.00, respectively, leaving a net
amount of P671,156.41 payable to him. WBGI rejected Vital's claim and contended that after offsetting, The Court's Ruling
Vital actually owed it P369,156.19.10
The petition is partly meritorious.
On January 4, 2006, Vital filed a complaint before the National Labor Relations Commission (NLRC)
� Regional Arbitration Branch III (RAB), docketed as NLRC Case No. RAB-III-01-9671-06, for non- At the outset, it should be pointed out that the instant case actually involves three (3) distinct causes
payment of separation and retirement benefits, underpayment of salaries/wages and of action, namely, (1) Vital's claim for P845,000.00 and P250,000.00 in unpaid salaries and separation
13thmonth pay, illegal reduction of salary and benefits, and damages.11 pay; (2) the P923,843.59 in arrearages payable to WBGI from ERJ Enterprises, which was admitted by
Vital but not claimed by WBGI; and (3) Vital's claim of P500,000.00 due from WBGI's acquisition of
For its part, WBGI averred that the Labor Arbiter (LA) had no jurisdiction over the complaint because Vital's shares of stocks. All of the foregoing were threshed out by the RTC in its December 12, 2011
Vital is not an employee, but a mere incorporator and stockholder of WBGI, hence, no employer- Decision, and effectively upheld by the CA on appeal.
employee relationship exists between them.12
However, the RTC's adjudication of the first cause of action was improper since the same is one which
The LA Ruling arose from Vital and WBGI's employer-employee relations, involving an amount exceeding P5,000.00,
hence, belonging to the jurisdiction of the labor arbiters pursuant to Article 217 of the Labor Code:
In a Decision13 dated May 3, 2006, the LA found that the issues between Vital and WBGI are intra-

29
Art. 217. Jurisdiction of the Labor Arbiters and the Commission. Resolution dated March 4, 2014 of the Court of Appeals in CA-G.R. SP No. 123497 are hereby SET
ASIDE. A new one is entered:chanRoblesvirtualLawlibrary
(a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive
jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the (a) DISMISSING respondent Henry Vital's (Vital) labor claims of P845,000.00 and P250,000.00 in
parties for decision without extension, even in the absence of stenographic notes, the following cases unpaid salaries and separation pay against petitioner World's Best Gas, Inc.'s (WBGI), WITHOUT
involving all workers, whether agricultural or non-agricultural:chanRoblesvirtualLawlibrary PREJUDICE as stated in this Decision; and

�1. Unfair labor practice cases;ChanRoblesVirtualawlibrary (b) RECOGNIZING WBGI's liability to Vital in the amount of P500,000.00 due from the acquisition of
his shares of stocks. This amount is, however, OFFSET against the P923,843.59 in arrearages payable
�2. Termination disputes;ChanRoblesVirtualawlibrary to WBGI by ERJ Enterprises owned by Vital and his wife, respondent Floserfma Vital, leaving a net
amount of P423,843.59, which WBGI may claim in a separate case as stated in this Decision.
�3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages,
rates of pay, hours of work and other terms and conditions of employment;ChanRoblesVirtualawlibrary SO ORDERED.chanroblesvirtuallawlibrary

�4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-
employee relations;
�
�5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality
of strikes and lockouts; and
�
�6. Except claims for Employees' Compensation, Social Security, Medicare and maternity benefits, all
other claims arising from employer-employee relations, including those of persons in
domestic or household service, involving an amount exceeding five thousand pesos
(P5,000.00) regardless of whether accompanied with a claim for reinstatement.
�
�x x x x
Having no subject matter jurisdiction to resolve claims arising from employer-employee relations, the
RTC's ruling on Vital's claim of P845,000.00 and P250,000.00 in unpaid salaries and separation pay is,
thus, null and void, and therefore, cannot perpetuate even if affirmed on appeal,26 rendering the CA's
ratiocination that it "has the eventual authority to review the labor courts' decision on the matter"27direly
infirm. As a result, WBGI's petition is meritorious on this score. However, since the dismissal is grounded
on lack of jurisdiction, then the same should be considered as a dismissal without prejudice.28As such,
Vital may re-file29the same claim, including those related thereto (e.g., moral and exemplary
damages, and attorney's fees) before the proper labor tribunal.

Contrary to its lack of jurisdiction over claims arising from employer-employee relations, the RTC has:
(a) general jurisdiction to adjudicate on the P923,843.59 in arrearages payable to WBGI from ERJ
Enterprises, which was admitted by Vital but not claimed by WBGI;30 and (b) special jurisdiction,
as a special commercial court, to adjudicate on Vital's claim of P500,000.00 from WBGI's
acquisition of his shares of stocks.31 Indeed, even acting as a special commercial court, the RTC's
general jurisdiction to adjudicate on the first-mentioned claim is retained.

With the RTC's jurisdiction established over the above-mentioned causes of action, Vital's claim
of P500,000.00 due from WBGI's acquisition of his shares of stocks should therefore be offset against
the P923,843.59 in arrearages payable to WBGI by ERJ Enterprises owned by respondents, as prayed
for by him. Hence, no amount can be adjudicated in Vital's favor, since it is the respondents who, after
due computation, would be left liable to WBGI in the net amount of P423,843.59. This notwithstanding,
WBGI cannot recover this latter amount in this case since it never interposed a permissive
counterclaim therefor in its answer.32 It is well-settled that courts cannot grant a relief not prayed for
in the pleadings or in excess of what is being sought by the party.33WBGI may, however, opt to file
a separate collection suit, including those related thereto (e.g., moral and exemplary
damages, and attorney's fees), to recover such sum.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated September 30, 2013 and the
30
EN BANC In this connection, we respectfully request that we be allowed to effect the payment of the separation
benefits to our employees before your Office and with your kind intervention to ensure that we
are properly guided by the provisions of law in this undertaking.10 (Emphasis supplied)
G.R. No. 203355, August 18, 2015
On March. 16, 2010, petitioners Lito Feliciano (Feliciano), Edgar Solis (Solis), and Nestor Salin (Salin)
received their respective separation pays, signed the corresponding check vouchers and
LEO R. ROSALES, EDGAR SOLIS JONATHAN G. RANIOLA, LITO FELICIANO, RAYMUNDO executed Quitclaims and Release before Labor Arbiter Melchisedek A. Guan (LA Guan) of NLRC� SRAB-
DIDAL, JR., NESTOR SALIN, ARNULFO S. ABRIL, RUBEN FLORES, DANTE FERMA AND IV San Pablo Office.11cralawrednad
MELCHOR SELGA, Petitioners, v. NEW A.N.J.H. ENTERPRISES & N.H. OIL MILL CORPORATION,
NOEL AWAYAN, MA. FE AWAYAN, BYRON ILAGAN, HEIDI A. ILAGAN AND AVELINO On March 27, 2010, petitioner Leo Rosales (Rosales) similarly received his separation pay from Noel
AWAYAN, Respondents. and signed a Quitclaim and Release.12 On March 29, 2010, the other petitioners, Amulfo Abril (Abril),
Raymundo Didal (Didal), Ruben Flores (Flores), Melchor Selga (Selga), Jonathan Ranola (Ranola), and
DECISION Dante Ferma (Ferma) also received their separation benefits and signed their respective Quitclaims and
Release and check vouchers.13cralawrednad

VELASCO JR., J.: Following the payments thus made to petitioners and their execution of Quitclaims and Release, LA
Guan issued four (4) Orders, to wit: three Orders all dated March 22, 2010 for petitioners Feliciano,
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the September Solis, and Salin;14 and one Order dated April 8, 2010 for petitioners Abril, Flores, Didal, Ferma, Rosales,
5, 2012 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 124395, which, in turn, affirmed the Selga and Ranola.15 In the said Orders, LA Guan declared the "labor dispute" between New ANJH and
Resolutions of the National Labor Relations Commission (NLRC) dated December 28, 20112 and petitioners as "dismissed with prejudice on ground of settlement."16cralawrednad
February 28, 20123 in NLRC-LAC Case No. 07-001796-11.
Petitioners, however, filed a complaint for illegal dismissal, docketed as NLRC Case No. RAB-IV-04-
Respondent New ANJH Enterprises (New ANJH) is a sole proprietorship owned by respondent Noel 00649-10-L, with NLRC Regional Arbitration Branch IV (NLRC-RAB-IV) in Calamba City. They alleged in
Awayan (Noel). Petitioners are its former employees who worked as machine operators, drivers, their complaint that while New ANJH stopped its operations on March 15, 2010, it resumed its operations
helpers, lead and boiler men. as NH Oil using the same machineries and with the same owners and management.17 Petitioners thus
claimed that the sale of the assets of New ANJH to NH Oil was a circumvention of their security of
Allegedly due to dwindling capital, on February 11, 2010, Noel wrote the Director of the Department of tenure.
Labor and Employment (DOLE) Region IV-A a letter regarding New ANJH's impending cessation of
operations and the sale of its assets to respondent NH Oil Mill Corporation (NH Oil), as well as the In a Decision dated April 29, 2011,18 Executive Labor Arbiter Generoso V. Santos (ELA Santos) found
termination of thirty-three (33) employees by reason thereof.4 On February 13, 2010, Noel met with that petitioners had been illegally dismissed and ordered their reinstatement and the payment of One
the 33 affected employees, which included petitioners, to inform them of his plan.5 On even date, he Million Six Thousand Forty-Five and 87/100 Pesos (P1,006,045.87) corresponding to the petitioners' full
gave the employees uniformly-worded Notices dated February 12, 20106 informing them of the backwages less the amount paid to them as their respective "separation pay." In ruling for the
cessation of operations of New ANJH effective March 15, 2010 and the sale of its assets to a corporation. petitioners, ELA Santos ratiocinated that the buyer "in the 'impending sale' undisclosed in the notices
Noel also offered the employees, including petitioners, their separation pay. of [petitioners] is divulged by subsequent development to be practically the same as the seller." Hence,
for ELA Santos, it was extremely difficult to conclude that the sale was genuine and can validly justify
On March 5, 2010, Noel signed a Deed of Sale selling the equipment, machines, tools and/or other the termination of the petitioners.
devices being used by New ANJH Enterprises for the manufacturing and/or extraction of coconut oil for
P950,000 to NH Oil, as represented by respondent Heidi A. Ilagan (Heidi), Noel's sister.7cralawrednad Respondents filed their Notice of Appeal with Appeal Memorandum19 along with a Verified Motion to
Reduce Bond20 with the NLRC. They also posted 60% of the award ordered by the LA, or Six Hundred
Parenthetically, the Articles of Incorporation of NH Oil were prepared on January 27, 2010 with Noel Three Thousand Six Hundred Twenty-Seven and 52/100 Pesos (P603,627.52), as their appeal
appearing to have more than two-thirds (2/3) of the subscribed capital stock of the corporation.8 The bond.21cralawrednad
remaining shares had been subscribed by Heidi and other members of the Awayan family.9cralawrednad
Meanwhile, petitioners also filed a Memorandum of Partial Appeal contending that ELA Santos erred in
On March 8, 2010, respondents New ANJH and Noel filed before the NLRC Sub-Regional Arbitration failing to award them moral and exemplary damages.22cralawrednad
Branch No. IV (NLRC-SRAB-IV), San Pablo City a "Letter Request for Intervention," which was docketed
as SRAB-IV-03-5066-10-L. The letter request reads:cralawlawlibrary On September 24, 2011, the NLRC issued a Decision23 denying respondents' Verified Motion to Reduce
Bond for lack of merit and so dismissing their appeal for non-perfection. In the same Decision, the NLRC
also granted petitioners' partial appeal by modifying ELA Santos' Decision to include the award of
Please be informed that the business operations of the New ANJH Enterprises, a single Proprietorship P20,000.00 to each petitioner as moral and exemplary damages.24cralawrednad
engaged in oil extraction situated in San Pablo City, will be permanently closed effective 15 March
2010 due to lack of capital caused by enormous uncollected receivables/debts and the necessity for the Respondents filed their Motion for Reconsideration with Motion to Admit Additional Appeal Cash
plant to undergo general repairs and maintenance. Bond25cralawredwith corresponding payment of additional cash bond.26cralawrednad
x x x x While the motion was opposed by petitioners,27 the NLRC, in its Resolution dated December 28,
2011,28reversed its earlier Decision and ordered the dismissal of petitioners' complaint on the ground
31
that it was barred by the Orders issued by LA Guan under the doctrine of res judicata. Further, the In any case, the rule that the filing of a motion to reduce bond shall not stop the running of the period
NLRC pointed out that the sale of New ANJH's assets to NH Oil Mill was in the exercise of sound to perfect an appeal is not absolute. The Court may relax the rule. In Intertranz Container Lines, Inc.
management prerogative and there was no proof that it was made to defeat petitioners' security of v. Bautista, the Court held:cralawlawlibrary
tenure. "Jurisprudence tells us that in labor cases, an appeal from a decision involving a monetary award may
be perfected only upon the posting of cash or surety bond. The Court, however, has relaxed this
In its Resolution dated February 28, 2012,29 the NLRC denied petitioners' Motion for Reconsideration. requirement under certain exceptional circumstances in order to resolve controversies on their merits.
Hence, petitioners filed a petition for certiorari with the CA. These circumstances include: (1) fundamental consideration of substantial justice; (2) prevention of
miscarriage of justice or of unjust enrichment; and (3) special circumstances of the case combined with
In the assailed Decision,30 the appellate court denied the petition for certiorari, thereby affirming the its legal merits, and the amount and the issue involved."32 (emphasis and underscoring supplied)
NLRC's Resolutions dated December 28, 2011 and February 28, 2012. In this case, the NLRC had reconsidered its original position and declared that the 60% bond was
reasonable given the merits of the justification provided by respondents in their Motion to Reduce Bond,
In its Decision, the appellate court held that private respondents had substantially complied with the as supplemented by their Motion for Reconsideration with Motion to Admit Additional Appeal Cash Bond.
rule requiring the posting of an appeal bond equivalent to the total award given to the employees. More The CA affirmed the merits of the grounds cited by respondents in their motions and the reasonableness
importantly, so the CA held, the Orders rendered by LA Guan in NLRC Case No. SRAB� IV-03-5066- of the bond originally posted by respondents. This is in accord with the guidelines established
10-L were considered final and binding upon the parties and had the force and effect of a judgment in McBurnie v. Ganzon,33 where this Court declared that the posting of a provisional cash or surety bond
rendered by the labor arbiter. Thus, the appellate court declared that the petitioners' complaint for equivalent to ten percent (10%) of the monetary award subject of the appeal is sufficient provided that
illegal dismissal was already barred by res judicata. there is meritorious ground therefor, viz:cralawlawlibrary
[O]n the matter of the filing and acceptance of motions to reduce appeal bond, as provided in Section
Aggrieved by the CA's Decision, petitioners are now before this Court on a petition for review on 6, Rule VI of the 2011 NLRC Rules of Procedure, the Court hereby RESOLVES that henceforth, the
certiorari. following guidelines shall be observed:cralawlawlibrary
(a) The filing of a motion to reduce appeal bond shall be entertained by the NLRC subject to the following
We find the petition to be with merit. conditions: (1) there is meritorious ground; and (2) a bond in a reasonable amount is posted;

The suspension of the period to perfect the appeal upon the filing of a motion to reduce bond (b) For purposes of compliance with condition no. (2), a motion shall be accompanied by the posting of
a provisional cash or surety bond equivalent to ten percent (10%) of the monetary award subject
On the issue of perfecting the appeal, the CA was correct when it pointed out that Rule VI of the New of the appeal, exclusive of damages and attorney's fees;
Rules of Procedure of the NLRC provides that a motion to reduce bond shall be entertained "upon the
posting of a bond in a reasonable amount in relation to the monetary award." As to what the "reasonable (c) Compliance with the foregoing conditions shall suffice to suspend the running of the 10-day
amount" is, the NLRC has wide discretion in determining the reasonableness of the bond for purposes reglementary period to perfect an appeal from the labor arbiter's decision to the NLRC;
of perfecting an appeal. In Garcia v. KJ Commercial,31 this Court explained:cralawlawlibrary
The filing of a motion to reduce bond and compliance with the two conditions stop the running of the (d) The NLRC retains its authority and duty to resolve the motion to reduce bond and determine the
period to perfect an appeal. x x x final amount of bond that shall be posted by the appellant, still in accordance with the standards of
meritorious grounds and reasonable amount; and
x x x x
(e) In the event that the NLRC denies the motion to reduce bond, or requires a bond that
The NLRC has full discretion to grant or deny the motion to reduce bond, and it may rule on exceeds the amount of the provisional bond, the appellant shall be given a fresh period of
the motion beyond the 10-day period within which to perfect an appeal. Obviously, at the time ten (10) days from notice of the NLRC order within which to perfect the appeal by posting
of the filing of the motion to reduce bond and posting of a bond in a reasonable amount, there is no the required appeal bond.34 emphasis and underscoring added)
assurance whether the appellant's motion is indeed based on "meritorious ground" and whether the It is noted that the respondents have eventually posted the full amount of the award ordered by the
bond he or she posted is of a "reasonable amount." Thus, the appellant always runs the risk of failing labor arbiter. Thus, given the absence of grave abuse of discretion on the part of the NLRC and the
to perfect an appeal. affirmation of the CA of the reasonableness of the motions and the amount of bond posted, there is no
ground for this Court to reverse the CA's finding that the appeal had been perfected.
x x x In order to give full effect to the provisions on motion to reduce bond, the appellant must be
allowed to wait for the ruling of the NLRC on the motion even beyond the 10-day period to Res Judicata does not bar the filing of the complaints for illegal dismissal
perfect an appeal. If the NLRC grants the motion and rules that there is indeed meritorious ground
and that the amount of the bond posted is reasonable, then the appeal is perfected. If the NLRC On the matter of the application of the doctrine of res judicata, however, this Court is loath to sustain
denies the motion, the appellant may still file a motion for reconsideration as provided under the finding of the appellate court and the NLRC. For res judicata to apply, the concurrence of the
Section 15, Rule VII of the Rules. If the NLRC grants the motion for reconsideration and rules following requisites must be verified: (1) the former judgment is final; (2) it is rendered by a court
that there is indeed meritorious ground and that the amount of the bond posted is having jurisdiction over the subject matter and the parties; (3) it is a judgment or an order on the
reasonable, then the appeal is perfected. If the NLRC denies the motion, then the decision of the merits; (4) there is-between the first and the second actions-identity of parties, of subject matter, and
labor arbiter becomes final and executory. of causes of action.35cralawrednad

x x x The petitioners dispute the existence of all of the foregoing requisites. First, petitioners contend that LA
Guan does not have jurisdiction to issue the Orders in SRAB-IV-03-5066-10-L since, in the first place,
32
Noel's letter� request for guidance in the payment of separation pay is allegedly not a "labor dispute." Piercing the veil of corporate existence is justified in the present case.

Article 219 (previously Article 212) of the Labor Code defines a "labor dispute" as "any controversy The application of the doctrine of piercing the veil of corporate fiction is frowned upon. However, this
or matter concerning terms and conditions of employment or the association or representation Court will not hesitate to disregard the corporate fiction if it is used to such an extent that injustice,
of persons in negotiating, fixing, maintaining, changing or arranging the terms and conditions of fraud, or crime is committed against another in disregard of his rights.39cralawrednad
employment, regardless of whether the disputants stand in the proximate relation of employer and
employee." As separation pay concerns a term and condition of employment, Noel's request to be In this case, petitioners advance the application of the doctrine because they were terminated from
guided in the payment thereof is clearly a labor dispute under the Labor Code. employment on the pretext that there will be an impending permanent closure of the business as a
result of an intended sale of its assets to an undisclosed corporation, and that there will be a change in
The proper payment of separation pay further falls under the jurisdiction of the labor arbiter pursuant the management. The termination notices received by petitioners identically read:cralawlawlibrary
to Art. 224 (previously Art. 217) of the Labor Code, as it is mandated as a necessary condition for the Nais po naming ipaabot sa inyo na ang New ANJH Enterprises ay ihihinto na ang operasyon dahil sa
termination of employees, viz,:cralawlawlibrary nagpasya ako bilang may-ari na ipagbili na ang ari-arian nito sa iba kung kayat magkakaroon ng
Art. 224. Jurisdiction of the Labor Arbiters and the Commission. pagpapalit sa pamumunuan nito.

(a) Except as otherwise provided under this Code,the Labor Arbiters shall have original and exclusive
jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non� agricultural:ChanRoblesvirtualLawlibrary
���� 1. Unfair labor practice cases;
���� 2. Termination disputes;
���� x x x x
6. Except claims for employees compensation, social security, medicare and maternity
benefits, all other claims arising from employer-employee relations, including
those of persons in domestic or household service, involving an amount exceeding
five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for
reinstatement. (Emphasis supplied)
The invocation of the labor arbiter's jurisdiction by way of a letter� request instead of a complaint is of
no moment, as it is well-settled that the application of technical rules of procedure is relaxed in labor
cases.
The third requisite, however, is not present. The Orders rendered by LA Guan cannot be considered as
constituting a judgment on the merits. The Orders simply manifest that petitioners "are amenable to
the computations made by the company respecting their separation pay." Nothing more. They do not
clearly state the petitioners' right or New ANJH's corresponding duty as a result of the
termination.36cralawrednad
Kaugnay po nito at ayon sa itinatadhana ng batas ay nais kong ipaabot sa inyo na 30 araw matapos
ninyong matanggap ang pasabing ito o simula sa Marso 15, 2010 ay ititigil na ang operasyon ng New
ANJH Enterprises at sa nasabi ring petsa ay matatapos na rin ang pagtratrabaho o "employment" ninyo
sa New ANJH Enterprises.40
Subsequent events, however, revealed that the buyer of the assets of their employer was a corporation
owned by the same employer and members of his family. Furthermore, the business re-opened in less
than a month under the same management.
Admittedly, mere ownership by a single stockholder of all or nearly all of the capital stock of the
corporation does not by itself justify piercing the corporate veil. Nonetheless, in this case, other
circumstances show that the buyer of the assets of petitioners' employer is none other than his alter
ego.41 We quote with approval the observations of ELA Santos:cralawlawlibrary
Respondents did not allege that they informed complainants neither did they state in the notices of
termination that the buyer in the "impending sale" is NH Oil Mill. Pondering on these observations, this
Office finds it too difficult to surmise that respondents' omission was not deliberate, and so this Office
holds that Noel was not in good faith in dealing with complainants. The information disclosed by the
Certificate of Registration and Articles of Incorporation of NH Oil Mill explains respondents' motive. Its
stockholders are members of [Noel's] family known to complainants, and Noel is the
controlling stockholder and director. The immediate resumption of operation after cessation of
operation on March 15, 2010 further explains it. While complainants failed to prove that the stockholders
in NH Oil Mill were those who managed ANJH, respondents did not dispute that there was no
change in the management people, premises, tools, devices, equipment, and machinery
under NH Oil Mill. The buyer in the "impending sale" undisclosed in the notices to
complainants is divulged by subsequent development to be practically the same as the seller.
These things are inconsistent with good faith.
x x x x

Similarly, the fourth requisite is- also absent. While there may be substantial identity of the parties,
there is no identity of subject matter or cause of action. In SME Bank, Inc. v. De Guzman,37 this Court
held that the acceptance of separation pay is an issue distinct from the legality of the dismissal of the
employees. We held:cralawlawlibrary
The conformity of the employees to the corporation's act of considering them as terminated and their
subsequent acceptance of separation pay does not remove the taint of illegal dismissal. Acceptance
of separation pay does not bar the employees from subsequently contesting the legality of
their dismissal, nor does it estop them from challenging the legality of their separation from the
service.38 (Emphasis supplied)
In the absence of the third and fourth requisites, the appellate court should have proceeded to rule on
the validity of petitioners' termination.
Here, complainants' employment was terminated for the alleged sale of assets of ANJH to NH Oil Mill
that would allegedly entail [a] change of management. The Deed of Sale dated March 5, 2010 [that]
respondents presented (Annex "20", respondents position paper) to prove the "sale," states that [for]
the consideration of Nine Hundred Fifty Thousand Pesos (Php950,000.00), Noel sold to NH Oil Mill the
equipment, machines, tool and/or other devises being used by ANJH for manufacturing and/or
extraction of coconut oil. This Office cannot simply accept it as sufficient proof of sale by the seller to a
distinct and separate entity.
x x x x
The subscribed capital stock of Noel and Heidi [in NH Oil] are worth Php790,000.00 and Php190,000.00,
respectively, or the total of Php980,000.00. Respondents claim that Noel was managing ANJH
33
and Heidi was its Secretary. The Deed of Sale is signed by Noel and Heidi, Noel as [sellerl,
and Heidi as representative of NH Oil Mill.Respondents did not enumerate what [were] the
equipment etc. subject of the "sale," and how they were depreciated, and what [were] the
equipment/machines owned by Avelino and rented by NH Oil Mill and for how much? Therefrom, it is
extremely difficult to conclude by quantum of evidence acceptable to [a] reasonable mind, [that] the
"sale to a distinct entity" is genuine. And while the notices of termination state that there would be [a]
change in management, this Office notes that respondents do not deny that Noel and Heidi
continue to manage NH Oil Mill. Therefore, as far as complainants' employment is concerned, this
Office pierces the veil of corporate fiction of NH Oil Mill and finds that the purported sale thereto of the
assets of ANJH is insufficient to validly terminate such employment. This Office cannot rule otherwise
without running afoul to the mandate of the Constitution securing to the workingman his employment,
and guaranteeing to him full protection. So this Office declares that complainants were illegally
dismissed.42 (emphasis and underscoring supplied)
Clearly, the milieu of the present case compels this Court to remove NH Oil's corporate mask as it had
become, and was used as, a shield for fraud, illegality and inequity against the petitioners.

WHEREFORE, the instant petition is GRANTED and the Decision dated September 5, 2012 of the Court
of Appeals in CA-G.R. SP No. 124395, affirming the Resolutions of the National Labor Relations
Commission (NLRC) dated December 28, 2011 and February 28, 2012 in NLRC-LAC Case No. 07-
001796-11, is hereby REVERSED and SET ASIDE. The Decision of Executive Labor Arbiter Generoso
Santos in NLRC Case No. RAB-IV-04-00649-10-L to the effect that petitioners were illegally dismissed
is REINSTATED.

SO ORDERED.chanrobles v

34

G.R. No. 192573 October 22, 2014
RICARDO N. AZUELO, Petitioner,
vs.
ZAMECO II ELECTRIC COOPERATIVE, INC., Respondent.
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision2 dated February 26, 2010 and Resolution3 dated June 10, 2010 issued
by the Court of Appeals (CA) in CA-G.R. SP No. 107762, which affirmed the Decision4 dated September
22, 2008 and Resolution5 dated December 15, 2008 of the National Labor Relations Commission (NLRC)
in NLRC NCR CA No. 052567-07.
The Facts
Petitioner Ricardo N. Azuelo (Azuelo) was employed by the respondent ZAMECO II Electric Cooperative,
Inc. (ZAMECO) as a maintenance worker. It appears that sometime in March 2006, Azuelo filed with
the Regional Arbitration Branch (RAB) of the NLRC in San Fernando City, Pampanga a Complaint6 for
illegal dismissal and non-payment of benefits against ZAMECO. The complaint was docketed as NLRC
Case No. RAB III-03-9912-06 and was assigned to Labor Arbiter (LA) Mariano" L. Bactin (LA Bactin).
After several mediations, LA Bactin ordered the parties to submit their respective position papers on
July 14, 2006.
On July 14, 2006, Azuelo, instead of submitting his position paper, moved that the submission of his
position paper be extended to August 4, 2006, which was granted by LA Bactin. On August 4, 2006,
Azuelo again failed to submit his position paper. LA Bactin then directed Azuelo to submit his position
papers on August 22, 2006. On the said date, Azuelo, instead of submitting his position paper, moved
for the issuance of an order directing ZAMECO to furnish him with a complete copy of the investigation
report as regards his dismissal. ZAMECO opposed the said motion, asserting that it has already
furnished Azuelo with a copy of its investigation report.
On November 6, 2006, LA Bactin issued an Order,7 which reads:
Record shows that respondent has already filed its position paper while complainant, despite ample
opportunity given him, failed to file his[,] leaving this office with no option but to dismiss this case for
lack of interest.
WHEREFORE, let this case be, as it is hereby dismissed for lack of[merit].
SO ORDERED.8
Azuelo received a copy of LA Bactin's Order dated November 6, 2006 on November 17, 2006. On
November 21, 2006, Azuelo again filed a complaint with the RAB of the NLRC in San Fernando City,
Pampanga for illegal dismissal with money claims against ZAMECO, containing the same allegations in
his first complaint. The case was docketed as NLRC Case No. RAB-III-11-10779-06 and was assigned
to LA Reynaldo V. Abdon (LA Abdon).
On December 20, 2006, ZAMECO filed a Motion to Dismiss9 the second complaint filed by Azuelo on the
ground of res judicata. ZAMECO pointed out that Azuelo had earlier filed a similar complaint, which was
dismissed by LA Bactin due to his unreasonable failure to submit his position paper despite ample
opportunity given to him by LA Bactin. ZAMECO likewise averred that Azuelo should have appealed from
LA Bactin's Order dated November 6, 2006 instead of filing a complaint for illegal dismissal anew.
Azuelo opposed ZAMECO's motion to dismiss,10 alleging that the dismissal of his first complaint by LA
Bactin was without prejudice. He explained that his failure to submit his position paper was due to
ZAMECO's refusal to furnish him with the complete documents pertaining to his illegal dismissal. He
further claimed that, since the dismissal of his first complaint was without prejudice, his remedy was
either to file a motion for reconsideration or to re-file the case within 10 days from receipt of the order
of dismissal.
On March 12, 2007, LA Abdon issued an Order,11 which dismissed Azuelo's second complaint for illegal
dismissal on the ground of res judicata. LA Abdon pointed out that the dismissal of Azuelo's first
complaint for illegal dismissal was with prejudice; that the appropriate remedy available to Azuelo
against LA Bactin's dismissal of the first complaint was to appeal from the same and not to file a second
complaint for illegal dismissal.
On appeal, the NLRC, in its Decision12 dated September 22, 2008, affirmed the Order issued on March
12, 2007 by LA Abdon. The NLRC pointed out that LA Bactin gave Azuelo ample opportunity to submit
his position paper, which he still failed to do. That his failure to prosecute his action for unreasonable
length of time indeed warranted the dismissal of his first complaint, which is deemed to be with
prejudice, unless otherwise stated. Considering that the Order issued on November 6, 2006 by LA Bactin
did not qualify the nature of the dismissal of the first complaint, the NLRC opined that the said dismissal
is with prejudice. Thus, the filing of the second complaint for illegal dismissal is already barred by the
prior dismissal of Azuelo' s first complaint.
Azuelo sought reconsideration13 of the Decision dated September 22, 2008 but it was denied by the
NLRC in its Resolution14 dated December 15, 2008.
Azuelo then filed a petition for certiorari15 with the CA, alleging that the NLRC gravely abused its
discretion in ruling that the dismissal of his first complaint was with prejudice, thus constituting a bar
to the filing anew of his complaint for illegal dismissal against ZAMECO. He likewise asserted that, since
the dismissal of his first complaint was without prejudice, the remedy available to him, contrary to LA
Abdon's ruling, was to re-file his complaint, which he did.
On February 26, 2010, the CA rendered the herein assailed Decision,16 which denied the petition for
certiorari filed by Azuelo. The CA held that the NLRC did not commit any abuse of discretion in affirming
the dismissal of Azuelo' s second complaint for illegal dismissal on the ground of res judicata. That the
dismissal of the first complaint, which was with prejudice, bars the filing of a subsequent complaint for
illegal dismissal based on the same allegations.
Azuelo's Motion for Reconsideration17 was denied by the CA in its Resolution18 dated June 10, 2010.
Hence, the instant petition.
35
Issue
Essentially, the issue set forth by Azuelo for the Court's resolution is whether the dismissal of his first
complaint for illegal dismissal, on the ground of lack of interest on his part to prosecute the same, bars
the filing of another complaint for illegal dismissal against ZAMECO based on the same allegations.
Ruling of the Court
The petition is denied.
At the outset, it should be stressed that in a petition for review under Rule 45 of the Rules of Court,
such as the instant petition, where the CA' s disposition in a labor case is sought to be calibrated, the
Court's review is quite limited. In ruling for legal correctness, the Court has to view the CA decision in
the same context that the petition for certiorari it ruled upon was presented to it; the Court has to
examine the CA decision from the prism of whether it correctly determined the presence or absence of
grave abuse .of discretion in the NLRC decision before it, not on the basis of whether the NLRC decision
on the merits of the case was correct.19 "The phrase 'grave abuse of discretion' is well-defined in our
jurisprudence. It exists where an act of a court or tribunal is performed with a capricious or whimsical
exercise of judgment equivalent to lack of jurisdiction. The abuse of discretion must be so patent and
gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty enjoined
by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and
despotic manner by reason of passion or personal hostility."20
After a thorough review of the records of the instant case, the Court finds that the CA did not commit
any reversible error in upholding the dismissal of Azuelo's second complaint for illegal dismissal on the
ground of res judicata. The NLRC did not abuse its discretion in ruling that the Order issued on November
6, 2006 by LA Bactin, which dismissed the first complaint filed by Azuelo, was an adjudication on the
merits.
At the core of the instant petition is the determination of the nature of the dismissal of Azuelo's first
complaint, i.e., whether the dismissal is with prejudice as held by the labor tribunals. The Order issued
on November 6, 2006 by LA Bactin is silent as to the nature of the dismissal; it merely stated that the
complaint was dismissed due to Azuelo's failure, despite ample opportunity afforded him, to submit his
position paper.
Ultimately, the question that has to be resolved is this - whether the dismissal of a complaint for illegal
dismissal due to the unreasonable failure of the complainant to submit his position paper amounts to a
dismissal with prejudice.
The 2005 Revised Rules of Procedure of the NLRC (2005 Revised Rules), the rules applicable at the time
of the controversy, is silent as to the nature of the dismissal of a complaint on the ground of
unreasonable failure to submit a position paper by the complainant. Nevertheless, the 2005 Revised
Rules, particularly Section 3, Rule I thereof, provides for the suppletory application of the Rules of Court
to arbitration proceedings before the LAs and the NLRC in the absence of any applicable provisions
therein, viz:
Section 3. Suppletory Application of the Rules of Court. - In the absence of any applicable provisions in
these Rules, and in order to effectuate the objectives of the Labor Code, the pertinent provisions of the
Rules of Court of the Philippines may, in the interest of expeditious dispensation of labor justice and
whenever practicable and convenient, be applied by analogy or in a suppletory character and effect.
(Emphases ours)
The unjustified failure of a complainant in arbitration proceedings before the LA to submit his position
paper is akin to the case of a complainant's failure to prosecute his action for an unreasonable length
of time in ordinary civil proceedings. In both cases, the complainants are remiss, sans reasonable cause,
to prove the material allagations in their respective complaints. Accordingly, the Court sees no reason
not to apply the rules relative to unreasonable failure to prosecute an action in ordinary civil proceedings
to the unjustified failure of a complainant to submit his position paper in arbitration proceedings before
the LA.
In this regard, Section 3, Rule 17 of the Rules of Court provides that:
Section 3. Dismissal due to fault of plaintiff. – If, for no justifiable cause, the plaintiff fails to appear on
the date of the presentation of his evidence in chief on the complaint, or to prosecute his action for an
unreasonable length of time, or to comply with these Rules or any order of the court, the complaint
may be dismissed upon motion of the defendant or upon the court's own motion, without prejudice to
the right of the defendant to prosecute his counterclaim in the same or in a separate action. This
dismissal shall have the effect of an adjudication upon the merits, unless otherwise declared by the
court. (Emphases ours)
"The dismissal of a case for failure to prosecute has the effect of adjudication on the merits, and is
necessarily understood to be with prejudice to the filing of another action, unless otherwise provided in
the order of dismissal. Stated differently, the general rule is that dismissal of a case for failure to
prosecute is to be regarded as an adjudication on the merits and with prejudice to the filing of another
action, and the only exception is when the order of dismissal expressly contains a qualification that the
dismissal is without prejudice."21
Thus, in arbitration proceedings before the LA, the dismissal of a complaint on account of the
unreasonable failure of the complainant to submit his position paper is likewise regarded as an
adjudication on the merits and with prejudice to the filing of another complaint, except when the
LA's order of dismissal expressly states otherwise.
As already stated, the Order dated November 6, 2006, which dismissed Azuelo's first complaint due to
his unreasonable failure to submit his position paper is unqualified. It is thus considered as an
adjudication on the merits and with prejudice to filing of another complaint. Accordingly, the NLRC did
not abuse its discretion when it affirmed LA Abdon' s dismissal of the second complaint for illegal
dismissal. Azuelo' s filing of a second complaint for illegal dismissal against ZAMECO based on the same
allegations cannot be permitted lest the rule on res judicata be transgressed.
"Under the rule of res judicata, a final judgment or decree on the merits by a court of competent
jurisdiction is conclusive of the rights of the parties or their privies, in all later suits and on all points
and matters determined in the previous suit. The term literally means a 'matter adjudged, judicially
acted upon, or settled by judgment.' The principle bars a subsequent suit involving the same parties,
subject matter, and cause of action. The rationale for the rule is that 'public policy requires that
controversies must be settled with finality at a given point in time."'22
Azuelo's insistence that the dismissal of his first complaint by LA Bactin was without prejudice since he
was not remiss in pursuing his complaint for illegal dismissal is plainly untenable. To stress, the Order
36
dated November 6, 2006 was unqualified; hence, the dismissal is deemed with prejudice pursuant to expeditious disposition of labor cases is mandated not only for the benefit of the employees, but of the
Section 3, Rule 17 of the Rules of Court. In any case, the Court finds Azuelo's failure to file his position employers as well.
paper, despite ample opportunity therefor, unjustified. On this score, LA Abdon' s observation is
instructive, thus:
It should be made clear that when the law tilts the scale of justice in favor of labor, it is but a recognition
of the inherent economic inequality between labor and management. The intent is to balance the scale
That complainant failed to prosecute his action for unreasonable length of time before Labor Arbiter of justice; to put up the two parties on relatively equal positions. There may be cases where the
Bactin is supported by the records of the case. Records show that as early as July 14, 2006, complainant circumstances warrant favoring labor over the interests of management but never should the scale be
was already required to submit his position paper on said date. However, instead of submitting one, he so tilted if the result is an injustice to the employer, Justicia remini regarda est (Justice is to be denied
requested for "more time" or until August 4, 2006 within which to submit his position paper x x x. Came to none).26
August 4, 2006, complainant failed to submit the required position paper and again requested for an
extension of time until August 22, 2006. The reason given was due [to] "voluminous workload" xx x.
Lastly, the Court notes that Azuelo sought the wrong remedy in assailing the Order dated November 6,
Despite the extensions given to complainant, the latter failed to submit his position paper on due date.
2006 issued by LA Bactin. Considering that the dismissal of Azuelo's first complaint was already an
Instead, what complainant submitted on August 22, 2006 is a Motion For the Issuance of Order Directing
adjudication on the merits, he should have filed a verified memorandum of appeal with the RAB of the
Respondent to Furnish Complainant The Complete Copy of Investigation Report. As correctly ruled by
NLRC in San Fernando City, Pampanga within 10 calendar days from receipt of the said order pursuant
Labor Arbiter Abdon, the filing of the said motion is of no moment. The fact remains that more than
to Section 1, Rule VI of the 2005 Revised Rules instead of re-filing his complaint for illegal
one (1) month has already lapsed from the time complainant was first required to submit his position
dismissal.27 His failure to do so rendered LA Bactin' s Order dated November 6, 2006, which dismissed
paper on July 14, 2006 up to the last extension on August 22, 2006. Further, if complainant really
his first complaint for illegal dismissal, final and executory.
intends to prosecute his case within the reasonable time, he should not have waited for August 22,
2006 to file said motion.
WHEREFORE, in consideration of the foregoing disquisitions, the petition is DENIED. The Decision dated
February 26, 2010 and Resolution dated June 10, 2010 of the Court of Appeals in CA-G.R. SP No.
It is also worth stressing that under Section 7, Rule V of the NLRC Rules of Procedure, parties are
107762 are hereby AFFIRMED.
directed to submit position paper within an inextendible period of ten (10) calendar days from the date
of termination of the mandatory conciliation and mediation conference. Clearly, complainant went
beyond this period.23 (Emphasis and italics in the original) SO ORDERED.

If indeed Azuelo could not prepare his position paper due to the alleged refusal of ZAMECO to furnish irtuallawlibrary
him with its investigation report on his dismissal, he should have immediately sought the issuance of
an order directing ZAMECO to produce the said investigation report. However, Azuelo only moved for
the production of the investigation report on the due date of the third extension of time granted him by
LA Bactin to submit his position paper. It is thus apparent that Azuelo's motion seeking the production
of the investigation report is merely a ruse to further extend the period given to Azuelo within which to
submit his position paper.

Nonetheless, Azuelo contended that technical rules of procedure, such as the rule on dismissals of
actions due to the fault of the plaintiff under Section 3, Rule 17 of the Rules of Court, does not apply to
proceedings before the LAs and the NLRC. Hence, Azuelo claimed, LA Abdon erred in dismissing his
second complaint for illegal dismissal.

The Court does not agree.

Indeed, technical rules of procedure are not binding in labor cases.1âwphi1 The LAs and the NLRC are
mandated to use every and all reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of the law or procedure.24 Nevertheless, though technical
rules of procedure are not ends in themselves, they are necessary for an effective and expeditious
administration of justice.25

The non-applicability of technical rules of procedure in labor cases should not be made a license to
disregard the rights of employers against unreasonable and/or unjustified claims. Azuelo was given
sufficient chances to establish his claim against ZAMECO, which he failed to do when he did not submit
his position paper despite several extensions granted him. He cannot now be allowed to raise anew his
supposed illegal dismissal as it would be plainly unjust to ZAMECO. It bears stressing that the
37
 G.R. No. 168612 December 10, 2014 On August 18, 1997 and with the previous collective bargaining agreements already expired, PHILEC
selected Lipio for promotion from Machinist under Pay Grade VIII 7 to Foreman I under Pay Grade
B.8 PHILEC served Lipio a memorandum,9 instructing him to undergo training for the position of
PHILIPPINE ELECTRIC CORPORATION (PHILEC), Petitioner,
Foreman I beginning on August 25, 1997. PHILEC undertook to pay Lipio training allowance as provided
vs.
in the memorandum:
COURT OF APPEALS, NATIONAL CONCILIATION AND MEDIATION BOARD (NCMB),
Department of Labor and Employment, RAMON T. JIMENEZ, in his capacity as Voluntary
Arbitrator, PHILEC WORKERS' UNION (PWU), ELEODORO V. LIPIO, and EMERLITO C. This will confirm your selection and that you will undergo training for the position of Foreman I (PG B)
IGNACIO, Respondents. of the Tank Finishing Section, Distribution Transformer Manufacturing and Repair effective August 25,
1997.
DECISION
You will be trained as a Foreman I,and shall receive the following training allowance until you have
completed the training/observation period which shall not exceed four (4) months.
LEONEN, J.:

An appeal to reverse or modify a Voluntary Arbitrator's award or decision must be filed before the Court First Month ----- 350.00
of Appeals within 10 calendar days from receipt of the award or decision.
Second month ----- 815.00
This is a petition1 for review on certiorari of the Court of Appeals’ decision2 dated May 25, 2004,
dismissing the Philippine Electric Corporation’s petition for certiorari for lack of merit. Philippine Electric Third month ----- 815.00
Corporation (PHILEC) is a domestic corporation "engaged in the manufacture and repairs of high voltage
transformers."3 Among its rank-and-file employees were Eleodoro V. Lipio (Lipio) and Emerlito C. Fourth month ----- 815.00
Ignacio, Sr. (Ignacio, Sr.), former members of the PHILEC Workers’ Union (PWU).4 PWU is a legitimate
labor organization and the exclusive bargaining representative of PHILEC’s rank-and-file employees.5
Please be guided accordingly.10
From June 1, 1989 to May 31, 1997, PHILEC and its rank-and-file employees were governed by
collective bargaining agreements providing for the following step increases in an employee’s basic salary
Ignacio, Sr., then DT-Assembler with Pay Grade VII,11 was likewise selected for training for the position
in case of promotion:6
of Foreman I.12 On August 21, 1997, PHILEC served Ignacio, Sr. a memorandum,13 instructing him to
undergo training with the following schedule of allowance:
Rank-and-File (PWU)
Pay This will confirm your selection and that you will undergo training for the position of Foreman I (PG B)
Grade June 1, 1989 to June 1, 1992 to June 1, 1994 to of the Assembly Section, Distribution Transformer Manufacturing and Repair effective
May 31, 1992 May 31, 1994 May 31, 1997
August 25, 1997.
I – II 50 60 65

II – III 60 70 78 You will be trained as a Foreman I,and shall receive the following training allowance until you have
completed the training/observation period which shall not exceed four (4) months.
III – IV 70 80 95

IV – V 80 110 120 First Month ----- 255.00

V- VI 100 140 150 Second month ----- 605.00

VI – VII 120 170 195 Third month ----- 1,070.00

VII – VIII 170 230 255 Fourth month ----- 1,070.00

VIII – IX 220 290 340

Please be guided accordingly.14
IX – X 260 350 455

38
On September 17, 1997, PHILEC and PWU entered into a new collective bargaining agreement, effective I
retroactively on June 1, 1997 and expiring on May 31, 1999.15 Under Article X, Section 4 of the June 1,
1997 collective bargaining agreement, a rank-and-file employee promoted shall be entitled to the
WHETHER OR NOT PHILEC VIOLATED SECTION 4 (Step Increases) ARTICLE X (Wage and Position
following step increases in his or her basic salary:16
Standardization) OF THE EXISTING COLLECTIVE BARGAINING AGREEMENT (CBA) IN IMPLEMENTING
THE STEP INCREASES RELATIVE TO THE PROMOTION OF INDIVIDUAL COMPLAINANTS.
Section 4. STEP INCREASES. [Philippine Electric Corporation] shall adopt the following step increases
on the basic salary in case of promotion effective June 1, 1997. Such increases shall be based on the
II
scale below or upon the minimum of the new pay grade to which the employee is promoted, whichever
is higher:
WHETHER OR NOT PHILEC’s MANNER OF IMPLEMENTING THE STEP INCREASES IN CONNECTION WITH
THE PROMOTION OF INDIVIDUAL COMPLAINANTS IN RELATION TO THE PROVISIONS OF SECTION 4,
Pay Grade Step Increase ARTICLE X OF THE CBA CONSTITUTES UNFAIR LABOR PRACTICE.21
I - II ₱80.00
II - III ₱105.00 In their submission agreement, PWU and PHILEC designated Hon. Ramon T. Jimenez as Voluntary
III - IV ₱136.00 Arbitrator (Voluntary Arbitrator Jimenez).22
IV - V ₱175.00
Voluntary Arbitrator Jimenez, in the order23 dated January 4, 1999, directed the parties to file their
V - VI ₱224.00
respective position papers.
VI - VII ₱285.00
VII - VIII ₱361.00 In its position paper,24 PWU maintained that PHILEC failed to follow the schedule of step increases under
VIII - IX ₱456.00 Article X, Section 4 of the June 1, 1997 collective bargaining agreement. Machinist I, Lipio’s position
IX - X ₱575.00 before he underwent training for Foreman I, fell under Pay Grade VIII, while Foreman I fell under Pay
Grade X. Following the schedule under Article X, Section 4 of the June 1, 1997 collective bargaining
To be promoted, a rank-and-file employee shall undergo training or observation and shall receive
agreement and the formula under Article IX, Section 1(f), Lipio should be paid training allowance equal
training allowance as provided in Article IX, Section 1(f) of the June 1, 1997 collective bargaining
to the step increase for pay grade bracket VIII-IX for the first month of training. For the succeeding
agreement:17
months, Lipio should be paid an allowance equal to the step increase for pay grade bracket VIII-IX plus
the step increase for pay grade bracket IX-X, thus:25
Section 1. JOB POSTING AND BIDDING:

.... First Month ----- ₱456.00

Second month ----- ₱1,031.00

(f) Allowance for employees under Training or Observation shall be on a graduated basis as follows:

Third month ----- ₱1,031.00

For the first month of training, the allowance should be equivalent to one step increase of the next
higher grade. Every month thereafter the corresponding increase shall be equivalent to the next higher
Fourth month ----- ₱1,031.00.
grade until the allowance for the grade applied for is attained.

As an example, if a Grade I employee qualifies for a Grade III position, he will receive the training
allowance for Grade I to Grade II for the first month. On the second month, he will receive the training
allowance for Grade I to Grade II plus the allowance for Grade II to Grade III. He will then continue to
receive this amount until he finishes his training or observation period.18
Claiming that the schedule of training allowance stated in the memoranda served on Lipio and
Ignacio,Sr. did not conform to Article X, Section 4 of the June 1, 1997 collective bargaining agreement,
PWU submitted the grievance to the grievance machinery.19
With respect to Ignacio, Sr., he was holding the position of DTAs sembler under Pay Grade VII when
hewas selected to train for the position of Foreman I under Pay Grade X. Thus, for his first month of
training, Ignacio, Sr. should be paid training allowance equal to the step increase under pay grade
bracket VII-VIII. For the second month, he should be paid an allowance equal to the step increase
under pay grade bracket VIIVIII plus the step increase under pay grade bracket VIII-IX. For the third
and fourth months, Ignacio, Sr. should receive an allowance equal to the amount he received for the
second month plus the amount equal to the step increase under pay grade bracket IX-X, thus:26

First Month ----- ₱361.00

PWU and PHILEC failed to amicably settle their grievance. Thus, on December 21, 1998, the parties
filed a submission agreement20 with the National Conciliation and Mediation Board, submitting the
Second month ----- ₱817.00
following issues to voluntary arbitration:

39
 Third month ----- ₱1,392.00 V-VI ₱150.00

Fourth month ----- ₱1,392.00. VI-VII ₱195.00

VII-VIII ₱255.00
For PHILEC’s failure to apply the schedule of step increases under Article X of the June 1, 1997 collective
bargaining agreement, PWU argued that PHILEC committed an unfair labor practice under Article VIII-IX A ₱350.00
24827 of the Labor Code.28
IX-X A-B ₱465.00
In its position paper,29 PHILEC emphasized that it promoted Lipio and Ignacio, Sr. while it was still
negotiating a new collective bargaining agreement with PWU. Since PHILEC and PWU had not yet X-XI B-C ₱570.00
negotiated a new collective bargaining agreement when PHILEC selected Lipio and Ignacio, Sr. for
training, PHILEC applied the "Modified SGV" pay grade scale in computing Lipio’s and Ignacio, Sr.’s XI-XII C-D ₱710.00
training allowance.30
D-E ₱870.00
This "Modified SGV" pay grade scale, which PHILEC and PWU allegedly agreed to implement beginning
on May 9, 1997, covered both rank-and-file and supervisory employees.31 According to PHILEC, its past E-F ₱1,055.00
collective bargaining agreements withthe rank-and-file and supervisory unions resulted in an overlap of
union membership in Pay Grade IX of the rank-and-file employees and Pay Grade A of the supervisory
employees.32 Worse, past collective bargaining agreements resulted in rank-and-file employees under Pay grade bracket I–IX covered rank-and-file employees, while pay grade bracket A–F covered
Pay Grades IX and X enjoying higher step increases than supervisory employees under Pay Grades A supervisory employees.35
and B:33

Under the "Modified SGV" pay grade scale, the position of Foreman I fell under Pay Grade B. PHILEC
Pay Grade then computed Lipio’s and Ignacio, Sr.’s training allowance accordingly.36
Pay Grade Scale
Scale under the
Step Increase under the Step Increase
Rank-and-File PHILEC disputed PWU’s claim of unfair labor practice. According to PHILEC, it did not violate its collective
Supervisory CBA
CBA bargaining agreement with PWU when it implemented the "Modified SGV" scale. Even assuming that it
violated the collective bargaining agreement, PHILEC argued that its violation was not "gross" or a
VIII-IX ₱340.00 A ₱290.00 "flagrant and/or malicious refusal to comply with the economic provisions of [the collective bargaining
agreement]."37 PHILEC, therefore, was not guilty of unfair labor practice.38
IX-X ₱455.00 A-B ₱350.00

Voluntary Arbitrator Jimenez held in the decision39 dated August 13, 1999, that PHILEC violated its
To preserve the hierarchical wage structure within PHILEC’s enterprise, PHILEC and PWU allegedly collective bargaining agreement with PWU.40 According to Voluntary Arbitrator Jimenez, the June 1,
agreed to implement the uniform pay grade scale under the "Modified SGV" pay grade system, thus: 34 1997 collective bargaining agreement governed when PHILEC selected Lipio and Ignacio, Sr. for
promotion on August 18 and 21, 1997.41 The provisions of the collective bargaining agreement being
the law between the parties, PHILEC should have computed Lipio’s and Ignacio, Sr.’s training allowance
Pay Grade based on Article X, Section 4 of the June 1, 1997 collective bargaining agreement.42
Step Increase
Rank-and-File Supervisory As to PHILEC’s claim that applying Article X, Section 4 would result in salary distortion within PHILEC’s
enterprise, Voluntary Arbitrator Jimenez ruled that this was "a concern that PHILEC could have
I – II ₱65.00 anticipated and could have taken corrective action"43 before signing the collective bargaining
agreement.
II-III ₱78.00
Voluntary Arbitrator Jimenez dismissed PWU’s claim of unfair labor practice.44 According to him,
III-IV ₱95.00 PHILEC’s acts "cannot be considered a gross violation of the [collective bargaining agreement] nor . . .
[a] flagrant and/or malicious refusal to comply withthe economic provisions of the [agreement]."45
IV-V ₱120.00

40
Thus, Voluntary Arbitrator Jimenez ordered PHILEC to pay Lipio and Ignacio, Sr. training allowance The issue for our resolution is whether Voluntary Arbitrator Jimenez gravely abused his discretion in
based on Article X, Section 4 and Article IX, Section 1 of the June 1, 1997 collective bargaining directing PHILEC to pay Lipio’s and Ignacio, Sr.’s training allowance based on Article X, Section 4 of the
agreement.46 June 1, 1997 rank-and-file collective bargaining agreement.

PHILEC received a copy of Voluntary Arbitrator Jimenez’s decision on August 16, 1999.47 On August 26, This petition should be denied.
1999, PHILEC filed a motion for partial reconsideration48 of Voluntary Arbitrator Jimenez’s decision.
I
In the resolution49 dated July 7, 2000, Voluntary Arbitrator Jimenez denied PHILEC’s motion for partial
reconsideration for lack of merit. PHILEC received a copy of the July 7, 2000 resolution on August 11,
The Voluntary Arbitrator’s decision
2000.50
dated August 13, 1999 is already final and
executory
On August 29, 2000, PHILEC filed a petition51 for certiorari before the Court of Appeals, alleging that
Voluntary Arbitrator Jimenez gravely abused his discretion in rendering his decision.52 PHILEC
We note that PHILEC filed before the Court of Appeals a petition for certiorari under Rule 65 of the Rules
maintained that it did not violate the June 1, 1997 collective bargaining agreement.53 It applied the
ofCourt against Voluntary Arbitrator Jimenez’s decision.69
"Modified SGV" pay grade rates toavoid salary distortion within its enterprise.54

This was not the proper remedy.

In addition, PHILEC argued that Article X, Section 4 of the collective bargaining agreement did not apply
to Lipio and Ignacio, Sr. Considering that Lipio and Ignacio, Sr. were promoted to a supervisory position,
their training allowance should be computed based on the provisions of PHILEC’s collective bargaining
agreement with ASSET, the exclusive bargaining representative of PHILEC’s supervisory employees.55
The Court of Appeals affirmed Voluntary Arbitrator Jimenez’s decision.56 It agreed that PHILEC was
bound to apply Article X, Section 4 of its June 1, 1997 collective bargaining agreement with PWU in
computing Lipio’s and Ignacio, Sr.’s training allowance.57 In its decision, the Court of Appeals denied
due course and dismissed PHILEC’s petition for certiorari for lack of merit.58
PHILEC filed a motion for reconsideration, which the Court of Appeals denied in the resolution59 dated
June 23, 2005.
On August 3, 2005, PHILEC filed its petition for review on certiorari before this court, 60 insisting that it
did not violate its collective bargaining agreement with PWU.61 PHILEC maintains that Lipio and Ignacio,
Sr. were promoted to a position covered by the pay grade scale for supervisory
employees.62 Consequently, the provisions of PHILEC’s collective bargaining agreement with its
supervisory employees should apply, not its collective bargaining agreement with PWU.63 To insist on
applying the pay grade scale in Article X, Section 4, PHILEC argues, would result in a salary distortion
within PHILEC.64
Instead, the proper remedy to reverse or modify a Voluntary Arbitrator’s or a panel of Voluntary
Arbitrators’ decision or award is to appeal the award or decision before the Court of Appeals. Rule 43,
Sections 1 and 3 of the Rules of Court provide:
Section 1. Scope.
This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of orauthorized by any quasi-judicial agency in the
exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central
Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian Reform under Republic Act No.
6657, Government Service Insurance System, Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law.
....

In the resolution65 dated September 21, 2005,this court ordered PWU to comment on PHILEC’s petition
for review on certiorari.
In its comment,66 PWU argues that Voluntary Arbitrator Jimenez did not gravely abuse his discretion in
rendering his decision. He correctly applied the provisions of the PWU collective bargaining agreement,
the law between PHILEC and its rank-and-file employees, in computing Lipio’s and Ignacio, Sr.’s training
allowance.67
On September 27, 2006, PHILEC filed its reply,68 reiterating its arguments in its petition for review on
certiorari.
Sec. 3. Where to appeal.
An appeal under this Rule may be taken to the Court of Appeals within the period and in the manner
herein provided, whether the appeal involves questions of fact, of law, or mixed questions of fact and
law. (Emphasis supplied)
A Voluntary Arbitrator or a panel of Voluntary Arbitrators has the exclusive original jurisdiction over
grievances arising from the interpretation or implementation of collective bargaining agreements.
Should the parties agree, a Voluntary Arbitrator or a panel of Voluntary Arbitrators shall also resolve
the parties’ other labor disputes, including unfair labor practices and bargaining deadlocks. Articles 261
and 262 of the Labor Code provide:

41
ART. 261. JURISDICTION OF VOLUNTARY ARBITRATORS OR PANEL OF VOLUNTARY ARBITRATORS.
The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction
to hear and decide all unresolved grievances arising from the interpretation or implementation of the
Collective Bargaining Agreement and those arising from the interpretation or enforcement of company
personnel policies referred to in the immediately preceding article. Accordingly, violations of a Collective
Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair
labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For
purposes of this article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or
malicious refusal to comply with the economic provisions of such agreement.
The Commission, its Regional Offices and the Regional Directors of the Department of Labor and
Employment shall not entertain disputes, grievances, or matters under the exclusive and original
jurisdiction of the Voluntary Arbitrator orpanel of Voluntary Arbitrators and shall immediately dispose
and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective
Bargaining Agreement.
ART. 262. JURISDICTION OVER OTHER LABOR DISPUTES.
An "instrumentality" is anything used as a means or agency. Thus, the terms governmental "agency"
or "instrumentality" are synonymous in the sense that either of them is a means by which a government
acts, or by which a certain government act or function is performed. The word "instrumentality," with
respect to a state, contemplates an authority to which the state delegates governmental power for the
performance of a state function. An individual person, like an administrator or executor, is a judicial
instrumentality in the settling of an estate, in the same manner that a sub-agent appointed by a
bankruptcy court is an instrumentality of the court, and a trustee in bankruptcy of a defunct corporation
is an instrumentality of the state.
The voluntary arbitrator no less performs a state function pursuant to a governmental power delegated
to him under the provisions therefor in the Labor Code and he falls, therefore, within the contemplation
of the term "instrumentality" in the aforequoted Sec. 9 of B.P. 129.74 (Citations omitted)
Since the office of a Voluntary Arbitrator or a panel of Voluntary Arbitrators is considered a quasi-judicial
agency, this court concluded that a decision or award rendered by a Voluntary Arbitrator is appealable
before the Court of Appeals. Under Section 9 of the Judiciary Reorganization Act of 1980, the Court of
Appeals has the exclusive original jurisdiction over decisions or awards of quasi-judicial agencies and
instrumentalities:

Section 9. Jurisdiction. The Court of Appeals shall exercise:

The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also
hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.
....
In Luzon Development Bank v. Association of Luzon Development Bank Employees,70 this court ruled
that the proper remedy against the award or decision of the Voluntary Arbitratoris an appeal before the 3. Exclusive appellate jurisdiction over all final judgements, resolutions, orders or awardsof Regional
Court of Appeals. This court first characterized the office ofa Voluntary Arbitrator or a panel of Voluntary Trial Courts and quasijudicial agencies, instrumentalities, boards or commission, including the Securities
Arbitrators as a quasi-judicial agency, citing Volkschel Labor Union, et al. v. NLRC71 and Oceanic Bic and Exchange Commission, the Social Security Commission, the Employees Compensation Commission
Division (FFW) v. Romero:72 and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme
Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree
No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and
In Volkschel Labor Union, et al. v. NLRC, et al.,on the settled premise that the judgments of courts and
subparagraph 4 of the fourth paragraph of Section 17 of the Judiciary Act of 1948. (Emphasis supplied)
awards of quasi-judicial agencies must become final at some definite time, this Court ruled that the
awards of voluntary arbitrators determine the rights of parties; hence, their decisions have the same
legal effect as judgments of a court. In Oceanic Bic Division (FFW), et al. v. Romero, et al., this Court Luzon Development Bankwas decided in 1995 but remains "good law."75 In the 2002 case of Alcantara,
ruled that "a voluntary arbitrator by the nature of her functions acts in a quasi-judicial capacity." Under Jr. v. Court of Appeals,76 this court rejected petitioner Santiago Alcantara, Jr.’s argument that the Rules
these rulings, it follows that the voluntary arbitrator, whether acting solely or in a panel, enjoys in law of Court, specifically Rule 43, Section 2, superseded the Luzon Development Bank ruling:
the status of a quasijudicial agency but independent of, and apart from, the NLRC since his decisions
are not appealable to the latter.73 (Citations omitted)
Petitioner argues, however, that Luzon Development Bank is no longer good law because of Section 2,
Rule 43 of the Rules of Court, a new provision introduced by the 1997 revision. The provision reads:
This court then stated that the office of a Voluntary Arbitrator or a panel of Voluntary Arbitrators, even
assuming that the office is not strictly a quasi-judicial agency, may be considered an instrumentality,
SEC. 2. Cases not covered. -This Rule shall not apply to judgments or final orders issued under the
thus:
Labor Code of the Philippines.

Assuming arguendo that the voluntaryarbitrator or the panel of voluntary arbitrators may not strictly
The provisions may be new to the Rules of Court but it is far from being a new law. Section 2, Rule 42
be considered as a quasi-judicial agency, board or commission, still both he and the panel are
of the 1997 Rules of Civil Procedure, as presently worded, is nothing more but a reiteration of the
comprehended within the concept of a "quasi-judicial instrumentality." It may even be stated that it
exception to the exclusive appellate jurisdiction of the Court of Appeals, as provided for in Section 9,
was to meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators
Batas Pambansa Blg. 129,7 as amended by Republic Act No. 7902:8
here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry
Arbitration Commission, that the broader term "instrumentalities" was purposely included in the above-
quoted provision. (3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including
the Securities and Exchange Commission, the Employees’ Compensation Commission and the Civil

42
Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in
accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442,
as amended, the provisions of this Act and of subparagraph (1) of the third paragraph and subparagraph
(4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
The Court took into account this exception in Luzon Development Bank but, nevertheless, held that the
decisions of voluntary arbitrators issued pursuant to the Labor Codedo not come within its ambit:
x x x. The fact that [the voluntary arbitrator’s] functions and powers are provided for in the Labor Code
does not place him within the exceptions to said Sec. 9 since he is a quasi-judicial instrumentality as
contemplated therein. It will be noted that, although the Employees’ Compensation Commission is also
provided for in the Labor Code, Circular No. 1-91, which is the forerunner of the present Revised
Administrative Circular No. 1-95, laid down the procedure for the appealability of its decisions to the
Court of Appeals under the foregoing rationalization, and this was later adopted by Republic Act No.
7902 in amending Sec. 9 of B.P. 129.
A fortiori, the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be
appealable to the Court of Appeals, in line with the procedure outlined in Revised Administrative Circular
No. 1-95, just like those of the quasi-judicial agencies, boards and commissions enumerated
therein.77 (Emphases in the original)
This court has since reiterated the Luzon Development Bankruling in its decisions.78
Article 262-A of the Labor Code provides that the award or decision of the Voluntary Arbitrator "shall
befinal and executory after ten (10) calendar days from receipt of the copy of the award or decision by
the parties":
Art. 262-A. PROCEDURES. The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have the
power to hold hearings, receive evidences and take whatever action isnecessary to resolve the issue or
issues subject of the dispute, including efforts to effect a voluntary settlement between parties.
All parties to the dispute shall beentitled to attend the arbitration proceedings. The attendance of any
third party or the exclusion of any witness from the proceedings shall be determined by the Voluntary
Arbitrator or panel of Voluntary Arbitrators. Hearing may be adjourned for cause or upon agreement by
the parties.
Unless the parties agree otherwise, it shall be mandatory for the Voluntary Arbitrator or panel of
Voluntary Arbitrators to render an award or decision within twenty (20) calendar days from the date of
submission of the dispute to voluntary arbitration.
The award or decision of the Voluntary Arbitrator or panel of Voluntary Arbitrators shall contain the
facts and the law on which it is based. It shall be final and executory after ten (10) calendar days from
receipt of the copy of the award or decision by the parties.
Upon motion of any interested party, the Voluntary Arbitrator or panel of Voluntary Arbitrators or the
Labor Arbiter in the region where the movant resides, in case of the absence or incapacity of the
Voluntary Arbitrator or panel of Voluntary Arbitrators, for any reason, may issue a writ of execution
requiring either the sheriff of the Commission or regular courts or any public official whomthe parties
may designate in the submission agreement to execute the final decision, order or award. (Emphasis
supplied)
Thus, in Coca-Cola Bottlers Philippines, Inc. Sales Force UnionPTGWO-BALAIS v. Coca Cola-Bottlers
Philippines, Inc.,79 this court declared that the decision of the Voluntary Arbitrator had become final and
executory because it was appealed beyond the 10-day reglementary period under Article 262-A of the
Labor Code.
It is true that Rule 43, Section 4 of the Rules of Court provides for a 15-day reglementary period for
filing an appeal:
Section 4. Period of appeal. — The appeal shall be taken within fifteen (15) days from notice of the
award, judgment, final order or resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioner's motion for new trial or reconsideration
duly filed in accordance with the governing law of the court or agency a quo. Only one (1) motion for
reconsideration shall be allowed. Upon proper motion and the payment of the full amount of the docket
fee before the expiration of the reglementary period, the Court of Appeals may grant an additional
period of fifteen (15) days only within which to file the petition for review. No further extension shall be
granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Emphasis
supplied)
The 15-day reglementary period has been upheld by this court in a long line of cases.80 In AMA
Computer College-Santiago City, Inc. v. Nacino,81 Nippon Paint Employees Union-OLALIA v. Court of
Appeals,82 Manila Midtown Hotel v. Borromeo,83 and Sevilla Trading Company v. Semana,84 this court
denied petitioners’ petitions for review on certiorari since petitioners failed to appeal the Voluntary
Arbitrator’s decision within the 15-day reglementary period under Rule43. In these cases, the Court of
Appeals had no jurisdiction to entertain the appeal assailing the Voluntary Arbitrator’s decision.
Despite Rule 43 providing for a 15-day period to appeal, we rule that the Voluntary Arbitrator’s decision
mustbe appealed before the Court of Appeals within 10 calendar days from receipt of the decision as
provided in the Labor Code.
Appeal is a "statutory privilege,"85 which may be exercised "only in the manner and in accordance
withthe provisions of the law."86 "Perfection of an appeal within the reglementary period is not only
mandatory but also jurisdictional so that failure to doso rendered the decision final and executory, and
deprives the appellate court of jurisdiction to alter the final judgment much less to entertain the
appeal."87
We ruled that Article 262-A of the Labor Code allows the appeal of decisions rendered by Voluntary
Arbitrators.88Statute provides that the Voluntary Arbitrator’s decision "shall befinal and executory after
ten (10) calendar days from receipt of the copy of the award or decision by the parties." Being provided
in the statute,this 10-day period must be complied with; otherwise, no appellate court willhave
jurisdiction over the appeal. This absurd situation occurs whenthe decision is appealed on the 11th to
15th day from receipt as allowed under the Rules, but which decision, under the law, has already
become final and executory.
Furthermore, under Article VIII, Section 5(5) of the Constitution, this court "shall not diminish, increase,
or modify substantive rights" in promulgating rules of procedure in courts.89 The 10-day period to appeal
under the Labor Code being a substantive right, this period cannot be
43
diminished, increased, or modified through the Rules of Court.90
In Shioji v. Harvey,91 this court held that the "rules of court, promulgated by authority of law, have the
force and effect of law, if not in conflict with positive law."92 Rules of Court are "subordinate to the
statute."93 In case of conflict between the law and the Rules of Court, "the statute will prevail."94
The rule, therefore, is that a Voluntary Arbitrator’s award or decision shall be appealed before the Court
of Appeals within 10 days from receipt of the award or decision. Should the aggrieved party choose to
file a motion for reconsideration with the Voluntary Arbitrator,95 the motion must be filed within the
same 10-day period since a motion for reconsideration is filed "within the period for taking an appeal."96
A petition for certiorari is a special civil action "adopted to correct errors of jurisdiction committed by
the lower court or quasi-judicial agency, or when there is grave abuse of discretion on the part of such
court or agency amounting to lack or excess of jurisdiction."97 An extraordinary remedy,98 a petition for
certiorari may be filed only if appeal is not available.99 If appeal is available, an appeal must be taken
even if the ground relied upon is grave abuse of discretion.100
As an exception to the rule, this court has allowed petitions for certiorari to be filed in lieu of an appeal
"(a) when the public welfare and the advancement of public policy dictate; (b) when the broader
interests of justice so require; (c) when the writs issued are null; and (d) when the questioned order
amounts to an oppressive exercise of judicial authority."101
In Unicraft Industries International Corporation, et al. v. The Hon. Court of Appeals,102 petitioners filed
a petition for certiorari against the Voluntary Arbitrator’s decision. Finding that the Voluntary Arbitrator
rendered an award without giving petitioners an opportunity to present evidence, this court allowed
petitioners’ petition for certiorari despite being the wrong remedy. The Voluntary Arbitrator’s award,
thiscourt said, was null and void for violation of petitioners’ right to due process. This court decided the
case on the merits.
In Leyte IV Electric Cooperative, Inc. v. LEYECO IV Employees Union-ALU,103 petitioner likewise filed a
petition for certiorari against the Voluntary Arbitrator’s decision, alleging that the decision lacked basis
in fact and in law. Ruling that the petition for certiorari was filed within the reglementary period for
filing an appeal, this court allowed petitioner’s petition for certiorari in "the broader interests of
justice."104
In Mora v. Avesco Marketing Corporation,105 this court held that petitioner Noel E. Mora erred in filing a
petition for certiorari against the Voluntary Arbitrator’s decision. Nevertheless, this court decided the
case on the merits "in the interest of substantial justice to arrive at the proper conclusion that is
conformable to the evidentiary facts."106
None of the circumstances similar to Unicraft, Leyte IV Electric Cooperative, and Moraare present in this
case. PHILEC received Voluntary Arbitrator Jimenez’s resolution denying its motion for partial
reconsideration on August 11, 2000.107 PHILEC filed its petition for certiorari before the Court ofAppeals
on August 29, 2000,108 which was 18 days after its receipt of Voluntary Arbitrator Jimenez’s resolution.
The petition for certiorari was filed beyond the 10-day reglementary period for filing an appeal. We
cannot consider PHILEC’s petition for certiorari as an appeal.
There being no appeal seasonably filed in this case, Voluntary Arbitrator Jimenez’s decision became
final and executory after 10 calendar days from PHILEC’s receipt of the resolution denying its motion
for partial reconsideration.109 Voluntary Arbitrator Jimenez’s decision is already "beyond the purview of
this Court to act upon."110
II
PHILEC must pay training allowance
based on the step increases provided in
the June 1, 1997 collective bargaining
agreement
The insurmountable procedural issue notwithstanding, the case will also fail on its merits. Voluntary
Arbitrator Jimenez correctly awarded both Lipio and Ignacio, Sr. training allowances based on the
amounts and formula provided in the June 1, 1997 collective bargaining agreement.
A collective bargaining agreement is "a contract executed upon the request of either the employer or
the exclusive bargaining representative of the employees incorporating the agreement reached after
negotiations with respect to wages, hours of work and all other terms and conditions of employment,
including proposals for adjusting any grievances or questions arising under such agreement." 111 A
collective bargaining agreement being a contract, its provisions "constitute the law between the
parties"112 and must be complied with in good faith.113
PHILEC, as employer, and PWU, as the exclusive bargaining representative of PHILEC’s rank-and-file
employees, entered into a collective bargaining agreement, which the parties agreed to make effective
from June 1, 1997 to May 31, 1999. Being the law between the parties, the June 1, 1997 collective
bargaining agreement must govern PHILEC and its rank-and-file employees within the agreed period.
Lipio and Ignacio, Sr. were rank-and-file employees when PHILEC selected them for training for the
position of Foreman I beginning August 25, 1997. Lipio and Ignacio, Sr. were selected for training during
the effectivity of the June 1, 1997 rank-and-file collective bargaining agreement. Therefore, Lipio’s and
Ignacio, Sr.’s training allowance must be computed based on Article X, Section 4 and ArticleIX, Section
1(f) of the June 1, 1997 collective bargaining agreement.
Contrary to PHILEC’s claim, Lipio and Ignacio, Sr. were not transferred out of the bargaining unit when
they were selected for training. Lipio and Ignacio, Sr. remained rank-and-file employees while they
trained for the position of Foreman I. Under Article IX, Section 1(e) of the June 1, 1997 collective
bargaining agreement,114 a trainee who is "unable to demonstrate his ability to perform the work . . .
shall be reverted to his previous assignment. . . ."115According to the same provision, the trainee "shall
hold that job on a trial or observation basis and . . . subject to prior approval of the authorized
management official, be appointed to the position in a regular capacity."116
Thus, training is a condition precedent for promotion. Selection for training does not mean automatic
transfer out of the bargaining unit of rankand-file employees.
Moreover, the June 1, 1997 collective bargaining agreement states that the training allowance of a
rank-and-file employee "whose application for a posted job is accepted shall [be computed] in
accordance with Section (f) of [Article IX]."117 Since Lipio and Ignacio, Sr. were rank-and-file employees
when they applied for training for the position of Foreman I, Lipio’s and Ignacio, Sr.’s training allowance
must be computed based on Article IX, Section 1(f) of the June 1, 1997 rank-and-file collective
bargaining agreement.
44
PHILEC allegedly applied the "Modified SGV" pay grade scale to prevent any salary distortion within
PHILEC’s enterprise. This, however, does not justify PHILEC’s non-compliance with the June 1, 1997
collective bargaining agreement. This pay grade scale is not provided in the collective bargaining
agreement. In Samahang Manggagawa sa Top Form Manufacturing United Workers of the Philippines
(SMTFM-UWP) v. NLRC,118 this court ruled that "only provisions embodied in the [collective bargaining
agreement] should be so interpreted and complied with. Where a proposal raised by a contracting party
does not find print in the [collective bargaining agreement], it is not part thereof and the proponent has
no claim whatsoever to its implementation."119
Had PHILEC wanted the "Modified SGV" pay grade scale applied within its enterprise, "it could have
requested or demanded that [the ‘Modified SGV’ scale] be incorporated in the [collective bargaining
agreement]."120 PHILEC had "the means under the law to compel [PWU] to incorporate this specific
economic proposal in the [collective bargaining agreement]."121 It "could have invoked Article 252 of
the Labor Code"122 to incorporate the "Modified SGV" pay grade scale in its collective bargaining
agreement with PWU. But it did not. Since this "Modified SGV" pay grade scale does not appear in
PHILEC’s collective bargaining agreement with PWU, PHILEC cannot insist on the "Modified SGV" pay
grade scale’s application. We reiterate Voluntary Arbitrator Jimenez’s decision dated August 13, 1999
where he said that:
. . . since the signing of the current CBA took place on September 27, 1997, PHILEC, by oversight, may
have overlooked the possibility of a wage distortion occurring among ASSET-occupied positions. It is
surmised that this matter could have been negotiated and settled with PWU before the actual signing
of the CBA on September 27. Instead, PHILEC, again, allowed the provisions of Art. X, Sec. 4 of the
CBA to remain the way it is and is now suffering the consequences of its laches.123 (Emphasis in the
original)
We note that PHILEC did not dispute PWU’s contention that it selected several rank-and-file employees
for training and paid them training allowance based on the schedule provided in the collective bargaining
agreement effective at the time of the trainees’ selection.124 PHILEC cannot choose when and to whom
to apply the provisions of its collective bargaining agreement. The provisions of a collective bargaining
agreement must be applied uniformly and complied with in good faith.
Given the foregoing, Lipio’s and Ignacio, Sr.’s training allowance should be computed based on Article
X, Section 4 in relation to Article IX, Section 1(f) of the June 1, 1997 rank-and-file collective bargaining
agreement. Lipio, who held the position of Machinist before selection for training as Foreman I, should
receive training allowance based on the following schedule:
First Month ----- ₱456.00
Second month ----- ₱1,031.00
Third month ----- ₱1,031.00
Fourth month ----- ₱1,031.00
Ignacio, Sr., who held the position of DT-Assembler before selection for training as Foreman I, should
receive training allowance based on the following schedule:
First Month ----- ₱361.00
Second month ----- ₱817.00
Third month ----- ₱1,392.00
Fourth month ----- ₱1,392.00
Considering that Voluntary Arbitrator Jimenez’s decision awarded sums of money, Lipio and Ignacio,
Sr. are entitled to legal interest on their training allowances. Voluntary Arbitrator Jimenez’s decision
having become final and executory on August 22, 2000, PHILEC is liable for legal interest equal to 12%
per annum from finality of the decision until full payment as this court ruled in Eastern Shipping Lines,
Inc. v. Court of Appeals:125
When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest. . . shall be 12% per annum from such finality until its satisfaction, this interim period
being deemed to be by then as equivalent to a forbearance of credit.126
The 6% legal interest under CircularNo. 799, Series of 2013, of the Bangko Sentral ng Pilipinas Monetary
Board shall not apply, Voluntary Arbitrator Jimenez’s decision having become final and executory prior
to the effectivity of the circular on July 1, 2013.1avvphi1 In Nacar v. Gallery Frames,127 we held that:
. . . with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.128
WHEREFORE, the petition for review on certiorari is DENIED. The Court of Appeals' decision dated May
25, 2004 is AFFIRMED.
Petitioner Philippine Electric Corporation is ORDERED to PAY respondent Eleodoro V. Lipio a total of
₱3,549.00 for a four (4)-month training for the position of Foreman I with legal interest of 12% per
annum from August 22, 2000 until the amount's full satisfaction.
For respondent Emerlito C. Ignacio, Sr., Philippine Electric Corporation is ORDERED to PAY a total of
₱3,962.00 for a four (4)-month training for the position of Foreman I with legal interest of 12% per
annum from August 22, 2000 until the amount's full satisfaction.
SO ORDERED.
45
G.R. No. 200746, August 06, 2014
BENSON INDUSTRIES EMPLOYEES UNION-ALU-TUCP AND/OR VILMA GENON, EDISA
HORTELANO, LOURDES ARANAS, TONY FORMENTERA, RENEBOY LEYSON, MA. ALONA
ACALDO, MA. CONCEPCION ABAO, TERESITA CALINAWAN, NICIFORO CABANSAG, STELLA
BARONGO, MARILYN POTOT, WELMER ABANID, LORENZO ALIA, LINO PARADERO, DIOSDADO
ANDALES, LUCENA ABESIA, AND ARMANDO YBA�EZ, Petitioners, v. BENSON INDUSTRIES,
INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated September 27, 2011
and the Resolution3 dated January 31, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. 03842 which
reversed and set aside the Decision4 dated October 24, 2008 of the Voluntary Arbitrator (VA) of the
National Conciliation and Mediation Board (NCMB), and accordingly deleted the award to petitioners
Vilma Genon, Edisa Hortelano, Lourdes Aranas, Tony Formentera, Reneboy Leyson, Ma. Alona Acaldo,
Ma. Concepcion Abao, Teresita Calinawan, Niciforo Cabansag, Stella Barongo, Marilyn Potot, Welmer
Abanid, Lorenzo Alia, Lino Paradero, Diosdado Andales, Lucena Abesia, and Armando Yba�ez
(petitioners) of additional separation pay equivalent to four (4) days of work for every year of service.
The Facts
Respondent Benson Industries, Inc. (Benson) is a domestic corporation engaged in the manufacturing
of green coils with the brand name Lion-Tiger Mosquito Killer. On February 12, 2008, Benson sent its
employees, including herein petitioners, a notice5 informing them of their intended termination from
employment, to be effected on March 15, 2008 on the ground of closure and/or cessation of business
operations. In consequence, the majority of Benson�s employees resigned.6 Meanwhile, petitioners,
through Benson Industries Employees Union-ALU-TUCP (Union), filed a notice of strike, claiming that
the company�s supposed closure was merely a ploy to replace the union members with lower paid
workers, and, as a result, increase its profit at their expense.7 The strike did not, however, push through
due to the parties� amicable settlement during the conciliation proceedings before the NCMB, whereby
petitioners accepted Benson�s payment of separation pay, computed at 15 days for every year of
service, as per the parties� Memorandum of Agreement8 dated April 9, 2008.9cralawred
This notwithstanding, petitioners proffered a claim for the payment of additional separation pay at the
rate of four (4) days for every year of service. As basis, petitioners invoked Section 1, Article VIII of
the existing collective bargaining agreement (CBA) executed by and between the Union and Benson
which states that �[Benson] shall pay to any employee/laborer who is terminated from the service
without any fault attributable to him, a �Separation Pay� equivalent to not less than nineteen (19)
days� pay for every year of service based upon the latest rate of pay of the employee/laborer
concerned.�10 Benson opposed petitioners� claim, averring that the separation pay already paid to
them was already more than what the law requires. Reaching an impasse on the conflict, the parties
referred the issue to voluntary arbitration, wherein the validity of Benson�s closure was brought up as
well.11cralawred
The VA Ruling
In a Decision12 dated October 24, 2008 (October 24, 2008 VA Decision), the VA ruled in favor of
petitioners, and, thus, ordered Benson to pay each of them separation benefits in �an amount
equivalent to four (4) days for every year of service based on the latest rate of pay of the [individual
petitioner] concerned subject to whatever legally valid deductions chargeable against [said individual
petitioner] whenever applicable.�13cralawred
The VA ratiocinated that in computing the amount of separation benefits due to petitioners, the basis
should be the provision of the existing CBA between Benson and the Union which explicitly states that
should the employees be terminated through no fault of their own, they should be awarded separation
benefits at the rate of 19 days for every year of service. In this regard, the VA opined that the provisions
of the CBA should be given effect because it expresses the latest agreement of the union and the
company, not to mention the fact that it gives more benefits to the employees.14cralawred
Separately, the VA found adequate proof to support Benson�s position that it was indeed in a state of
insolvency, which, therefore, justified its closure and/or cessation of business operations on the ground
of serious business losses and/or financial reverses.15cralawred
Dissatisfied, Benson elevated the matter on appeal before the CA.
The CA Ruling
In a Decision16 dated September 27, 2011, the CA reversed and set aside the VA�s ruling, and
accordingly deleted the award of additional separation benefits equivalent to four (4) days of work for
every year of service. It held that despite the express provision in the CBA stating that Benson should
pay its employees who were terminated without their fault separation benefits equivalent to at least 19
days� pay for every year of service, Benson cannot be compelled to do so considering its current
financial status.17cralawred
Aggrieved, petitioners moved for reconsideration, which was, however, denied by the CA in a
Resolution18 dated January 31, 2012, hence, this petition.
The Issue Before the Court
The sole issue for the Court�s resolution is whether or not the CA correctly deleted the award to
petitioners of additional separation benefits equivalent to four (4) days of work for every year of service.
The Court�s Ruling
The petition is impressed with merit.
Closure of business may be considered as a reversal of an employer�s fortune whereby there is a
complete cessation of business operations and/or an actual locking-up of the doors of the establishment,
usually due to financial losses. Under the Labor Code, it is treated as an authorized cause for
termination, aimed at preventing further financial drain upon an employer who cannot anymore pay its
employees since business has already stopped. As a form of recompense, the employer is required to
pay its employees separation benefits, except when the closure is due to serious business
losses.19� Article 297 (formerly Article 283)20 of the Labor Code, as amended, states this
rule:chanRoblesvirtualLawlibrary
Art. 297. Closure of Establishment and Reduction of Personnel.� The employer may also terminate the
employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment
to prevent losses or the closing or cessation of operation of the establishment or undertaking unless
the closing is for the purpose of circumventing the provisions of this Title, x x x. In case of retrenchment
to prevent losses and in cases of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation pay shall
46
be equivalent to one (1) month pay or at least one-half (�) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole
year. (Emphasis and underscoring supplied)
While serious business losses generally exempt the employer from paying separation benefits, it must
be pointed that the exemption only pertains to the obligation of the employer under Article 297 of the
Labor Code. This is because of the law�s express parameter that mandates payment of separation
benefits �in case of closures or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses.� The policy distinction underlying Article 297 � that
is, the distinction between closures due to serious business losses and those which are not � was deftly
discussed by the Court in the case of Cama v. Joni�s Food Services, Inc.,21 as
follows:chanRoblesvirtualLawlibrary
The Constitution, while affording full protection to labor, nonetheless, recognizes �the right of
enterprises to reasonable returns on investments, and to expansion and growth.� In line with this
protection afforded to business by the fundamental law, Article 283 [(now, Article 297)] of the Labor
Code clearly makes a policy distinction.� It is only in instances of �retrenchment to prevent losses
and in cases of closures or cessation of operations of establishment or undertaking not due
to serious business losses or financial reverses� that employees whose employment has been
terminated as a result are entitled to separation pay.� In other words, Article 283 [(now, Article 297)]
of the Labor Code does not obligate an employer to pay separation benefits when the closure is due to
serious losses. To require an employer to be generous when it is no longer in a position to do so, in our
view, would be unduly oppressive, unjust, and unfair to the employer.� Ours is a system of laws, and
the law in protecting the rights of the working man, authorizes neither the oppression nor the self-
destruction of the employer. x x x.22(Emphasis supplied)
When the obligation to pay separation benefits, however, is not sourced from law (particularly, Article
297 of the Labor Code), but from contract,23 such as an existing collective bargaining agreement
between the employer and its employees, an examination of the latter�s provisions becomes necessary
in order to determine the governing parameters for the said obligation. To reiterate, an employer which
closes shop due to serious business losses is exempt from paying separation benefits under Article 297
of the Labor Code for the reason that the said provision explicitly requires the same only when the
closure is not due to serious business losses; conversely, the obligation is maintained when the
employer�s closure is not due to serious business losses. For a similar exemption to obtain against a
contract, such as a CBA, the tenor of the parties� agreement ought to be similar to the law�s tenor.
When the parties, however, agree to deviate therefrom, and unqualifiedly covenant the payment of
separation benefits irrespective of the employer�s financial position, then the obligatory force of that
contract prevails and its terms should be carried out to its full effect. Verily, it is fundamental that
obligations arising from contracts have the force of law between the contracting parties and thus should
be complied with in good faith;24� and parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, the only limitation being that these stipulations, clauses, terms and
conditions are not contrary to law, morals, public order or public policy.25 Hence, if the terms of a CBA
are clear and there is no doubt as to the intention of the contracting parties, the literal meaning of its
stipulations shall prevail.26 As enunciated in Honda Phils., Inc. v. Samahan ng Malayang Manggagawa
sa Honda:27cralawred
A collective bargaining agreement refers to the negotiated contract between a legitimate labor
organization and the employer concerning wages, hours of work and all other terms and conditions of
employment in a bargaining unit.� As in all contracts, the parties in a CBA may establish such
stipulations, clauses, terms and conditions as they may deem convenient provided these are not
contrary to law, morals, good customs, public order or public policy. Thus, where the CBA is clear and
unambiguous, it becomes the law between the parties and compliance therewith is mandated by the
express policy of the law.28
In this case, it is undisputed that a CBA was forged by the employer, Benson, and its employees,
through the Union, to govern their relations effective July 1, 2005 to June 30, 2010.� It is equally
undisputed that Benson agreed to and was thus obligated under the CBA to pay its employees who had
been terminated without any fault attributable to them separation benefits at the rate of 19 days for
every year of service. This is particularly found in Section 1, Article VIII of the same contract, to
wit:chanRoblesvirtualLawlibrary
Section 1. Separation Pay � The Company shall pay to any employee/laborer who is terminated from
the service without any fault attributable to him, a �Separation Pay� equivalent to not less than
nineteen (19) days� pay for every year of service based upon the latest rate of pay of the
employee/laborer concerned.29chanrobleslaw
As may be gleaned from the following whereas clauses in a Memorandum of Agreement30 dated
November 20, 2003 between the parties, Benson had been fully aware of its distressed financial
condition even at the time of the previous CBA (effective from July 1, 2000 to June 30,
2005):chanRoblesvirtualLawlibrary
WHEREAS, on February 01, 2001 the Company and the Union entered into a Collective Bargaining
Agreement (CBA) with effectivity from July 01, 2000 to June 30, 2005;chanroblesvirtuallawlibrary
x x x x
WHEREAS, the Company and the Union recognize that the Philippines is at present in grave
economic crisis;chanroblesvirtuallawlibrary
WHEREAS, the Union recognizes and acknowledges that the Company in particular is in grave
financial difficulties and that the Company is hard up to meet its financial obligations to
creditor banks that said creditor banks have even threatened to foreclose the mortgages on and
to seize the Company�s factory, realties, machineries and assets and in fact, the Bank of the Philippine
Islands, one of the creditor banks scheduled on November 17, 1998 a foreclosure sale of the
Company�s factory, realties, machineries and assets in Extrajudicial Foreclosure Case No. EJF-2773-
CEB;chanroblesvirtuallawlibrary
x x x x (Emphases supplied)
Benson even admits in its Comment that it was already saddled with loan from banks as early as
199731and that it had been unable to service its loan obligations.32 And yet, nothing appears on record
to discount the fact that it still unqualifiedly and freely agreed to the separation pay provision in the
July 1, 2005 to June 30, 2010 CBA, its distressed financial condition notwithstanding.
Thus, in view of the foregoing, the Court disagrees with the CA in negating Benson�s obligation to pay
petitioners their full separation benefits under the said agreement. The postulation that Benson had
closed its establishment and ceased operations due to serious business losses cannot be accepted as
an excuse to clear itself of any liability since the ground of serious business losses is not, unlike Article
297 of the Labor Code, considered as an exculpatory parameter under the aforementioned CBA. Clearly,
Benson, with full knowledge of its financial situation, freely and voluntarily entered into such agreement
with petitioners. Hence, having failed to show that the subject CBA provision on separation benefits is
contrary to law, morals, public order or public policy, or that the same can be interpreted as one with
a condition � for instance, that the parties actually contemplated non-payment of separation benefits
in the event of closure due to serious business losses � the Court is constrained to reinstate the October
24, 2008 VA Decision ordering Benson to pay each of the petitioners separation benefits in �an amount
equivalent to four (4) days for every year of service based on the latest rate of pay of the [individual
47
petitioner] concerned, subject to whatever legally valid deductions chargeable against [said individual
petitioner], whenever applicable.�33cralawred
Analogous to the foregoing is the Court�s disquisition in Lepanto Ceramics, Inc. v. Lepanto Ceramics
Employees Association,34 whereby the employer therein was held liable for the payment of Christmas
bonus benefits, considering that the grant thereof was voluntarily and unqualifiedly agreed upon by the
parties under the CBA despite the employer�s full awareness of its distressed financial position (as
Benson in this case), viz.:chanRoblesvirtualLawlibrary
It is a familiar and fundamental doctrine in labor law that the CBA is the law between the parties and
they are obliged to comply with its provisions.� This principle stands strong and true in the case at bar.
A reading of the provision of the CBA reveals that the same provides for the giving of a �Christmas gift
package/bonus� without qualification.� Terse and clear, the said provision did not state that the
Christmas package shall be made to depend on the petitioner�s financial standing. The records are
also bereft of any showing that the petitioner made it clear during the CBA negotiations that
the bonus was dependent on any condition.� Indeed, if the petitioner and respondent
Association intended that the P3,000.00 bonus would be dependent on the company
earnings, such intention should have been expressed in the CBA.
It is noteworthy that in petitioner�s 1998 and 1999 financial Statements, it took note that �the 1997
financial crisis in the Asian region adversely affected the Philippine economy.�
From the foregoing, petitioner cannot insist on business losses as a basis for disregarding its
undertaking.� It is manifestly clear that petitioner was very much aware of the imminence
and possibility of business losses owing to the 1997 financial crisis.� In 1998, petitioner
suffered a net loss of P14,347,548.00.� Yet it gave a P3,000.00 bonus to the members of the
Association.� In 1999, when petitioner�s very own financial statement reflected that �the positive
developments in the economy have yet to favorably affect the operations of the company,� and
reported a loss of P346,025,733.00, it entered into the CBA with the respondent Association whereby
it contracted to grant a Christmas gift package/bonus to the latter.� Petitioner supposedly
continued to incur losses on the years 2000 and 2001.� Still and all, this did not deter it from
honoring the CBA provision on Christmas bonus as it continued to give P3,000.00 each to the
members of the respondent Association in the years 1999, 2000 and 2001.
All given, business losses are a feeble ground for petitioner to repudiate its obligation under
the CBA.� The rule is settled that any benefit and supplement being enjoyed by the employees cannot
be reduced, diminished, discontinued or eliminated by the employer. The principle of non-diminution of
benefits is founded on the constitutional mandate to protect the rights of workers and to promote their
welfare and to afford labor full protection.
Hence, absent any proof that petitioner�s consent was vitiated by fraud, mistake or duress, it is
presumed that it entered into the CBA voluntarily and had full knowledge of the contents thereof and
was aware of its commitments under the contract.35 (Emphases and underscoring supplied; citations
omitted)
A similar disposition was also made in the case of Eastern Telecommunications Philippines, Inc. v.
Eastern Telecoms Employees Union,36 wherein the Court held as follows:chanRoblesvirtualLawlibrary
The parties to the contract must be presumed to have assumed the risks of unfavorable developments.
It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance
for the debtor. In the case at bench, the Court determines that ETPI�s claimed depressed financial
state will not release it from the binding effect of the 2001-2004 CBA Side Agreement.
ETPI appears to be well aware of its deteriorating financial condition when it entered into the 2001-
2004 CBA Side Agreement with ETEU and obliged itself to pay bonuses to the members of ETEU.
Considering that ETPI had been continuously suffering huge losses from 2000 to 2002, its business
losses in the year 2003 were not exactly unforeseen or unexpected. Consequently, it cannot be said
that the difficulty in complying with its obligation under the Side Agreement was �manifestly beyond
the contemplation of the parties.� Besides, as held in Central Bank of the Philippines v. Court of
Appeals, mere pecuniary inability to fulfill an engagement does not discharge a contractual
obligation. Contracts, once perfected, are binding between the contracting parties. Obligations arising
therefrom have the force of law and should be complied with in good faith. ETPI cannot renege from
the obligation it has freely assumed when it signed the 2001-2004 CBA Side
Agreement.37 (Emphases and underscoring supplied; citations omitted)
To quell any doubts, it bears pointing out that the CA�s reliance on Galaxie Steel Workers Union
(GSWU-NAFLU-KMU) v. NLRC38 and Cama v. Joni�s Food Services, Inc.39 was actually misplaced since
no CBA was involved in those cases. As such, consistent with the parameters of Article 297 of the Labor
Code as above-discussed, the payment of separation benefits in view of the employer�s serious
business losses in those cases was not in order. In the same light, North Davao Mining Corporation v.
NLRC40 was speciously applied by the CA given that the payment of separation benefits in that case was
not sourced from a contractual CBA obligation but merely from a unilateral company practice which was
deemed as an act of generosity on the part of the employer. It was in this context that the Court held
that �to require [the company] to continue being generous when it is no longer in a position to do so
would certainly be unduly oppressive, unfair and most revolting to the conscience.�41� The factual
dissimilarity of these cases to Benson and petitioners� situation therefore precludes the application of
the same ruling.
Accordingly, finding no cogent reason for Benson not to comply with its obligations under the July 1,
2005 to June 30, 2010 CBA, and considering further that the interpretation of any law or provision
affecting labor should be interpreted in favor of labor,42 the Court hereby reverses the CA Decision and
reinstates the October 24, 2008 VA Decision.
WHEREFORE, the petition is GRANTED. The Decision dated September 27, 2011 and the Resolution
dated January 31, 2012 of the Court of Appeals in CA-G.R. SP No. 03842 are
hereby REVERSED and SET ASIDE. The Decision dated October 24, 2008 of the Voluntary Arbitrator
of the National Conciliation and Mediation Board is REINSTATED.
SO ORDERED.
48
G.R. No. 161006
ROGELIO BARONDA, Petitioner
vs.
HON. COURT OF APPEALS, and HIDECO SUGAR MILLING CO., INC., Respondents
DECISION
BERSAMIN, J.:
The reinstatement aspect of the Voluntary Arbitrator's award or decision is immediately executory from
its receipt by the parties.
The Case
The petitioner assails the decision1 promulgated on August 21, 2003 in CA-G.R. SP No. 67059, whereby
the Court of Appeals (CA) annulled and set aside the order issued by the Voluntary Arbitrator2 granting
his motion for the issuance of the writ of execution.3
Antecedents
Respondent Hideco Sugar Milling Co., Inc. (HIDECO) employed the petitioner as a mud press truck
driver with a daily salary of P28 l .OO. On May 1, 1998, he hit HIDECO's transmission lines while
operating a dump truck, causing a total factory blackout from 9:00 pm until 2:00 am of the next day,
Power was eventually restored but the restoration cost HID ECO ·damages· :t9taling P26,48 l. l l.
Following the incident, HID ECO served a notice of offense requiring him to explain the incident within
three days from notice. He complied. Thereafter, the management conducted its investigation, and,
finding him guilty of negligence, recommended his dismissal.4 On June 15, 1998, the resident manager
served a termination letter and informed him of the decision to terminate his employment effective at
the close of office hours of that day. Hence, HID ECO no longer allowed him to report to work on the
next day.5
In August 1998, the petitioner, along with another employee also dismissed by HIDECO, filed in the
Office of the Voluntary Arbitrator of the National Conciliation and Mediation Board in Tacloban City a
complaint for illegal dismissal against HIDECO.
Voluntary Arbitrator Antonio C. Lopez, Jr. handled the case and eventually rendered his decision on
January 13, 1999 by finding the petitioner's dismissal illegal, and ordering his reinstatement. Voluntary
Arbitrator Lopez, Jr. deemed the petitioner's separation from the service from June 16, 1998 to January
15, 1999 as a suspension from work without pay, and commanded him to pay on installment basis the
damages sustained by HIDECO from the May 1, 1998 incident he had caused,6 to wit:7
Wherefore, in so far as the case of ROGELIO BARONDA is concerned, this Office finds his dismissal
illegal and reinstatement is therefore ordered. His separation on June 16, 1998 up to January 15, 1999
is deemed suspension without pay for his negligent acts, and is further ordered to pay respondent
employer the sum of P26,484.41 for actual damages at Pl ,500.00 every month deductible from his
salary until complete payment is made.
HIDECO filed a motion for reconsideration,8 but the Voluntary Arbitrator denied the motion on August
11, 2000.9Accepting the outcome, HIDECO reinstated the petitioner on September 29, 2000.10
Thereafter, on October 9, 2000, the petitioner filed his manifestation with motion for the issuance of
the writ of execution in the Office of the Voluntary Arbitrator,11 praying for the execution of the decision,
and insisting on being entitled to backwages and other benefits corresponding to the period from
January 16, 1999 up to September 28, 2000 totaling Pl 92,268.66 based on Article 279 of the Labor
Code ("An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss
of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his
other benefits or their monetary equivalent computed from the time his compensation was withheld
from him up to the time of his actual reinstatement").
HIDECO opposed the petitioner's motion for execution,12 and simultaneously presented its own motion
for execution to enforce the decision of the Voluntary Arbitrator directing the petitioner to pay the actual
damages totaling P26,484.41 at the rate of Pl,500.00/month deductible from his salary starting in
January 2001 until complete payment was made.13
In his order dated March 20, 2001,14 the Voluntary Arbitrator denied the petitioner's motion for
execution on the ground that the decision did not award any backwages; and granted HIDECO's motion
for execution by directing the petitioner to pay HIDECO P26,484.41 at the rate of Pl ,500.00/month.
On May 17, 2001, the petitioner filed another motion for execution praying that a writ of execution
requiring HIDECO to pay to him unpaid wages, 13th month pay and bonuses from January 16, 2001,
the date when his reinstatement was effected, until his actual reinstatement.15 HIDECO opposed the
petitioner's second motion for execution because "the items prayed for by the complainant in his Motion
for Issuance of Writ of Execution are not included in the dispository portion of the decision of the
voluntary arbitrator, neither are the said items mentioned in any part of the same decision."16
On July 25, 2001, however, the Voluntary Arbitrator granted the petitioner's second motion for
execution,17 to wit:
Wherefore, for failure of complainant to re-admit complainant nor reinstate him in the payroll for the
period from January 21, [1999] up to September 28, 2000, let an order or execution issue for the
satisfaction of his reinstatement wages in the amount of P155,647.00 (554 days at P281.00 per day),
13th month pay in the amount of P7,200.00, bonus in the amount of P8,000.00 for 1999, and P8,000.00
for his signing bonus.
The sheriff of the National Labor Relations Commission, Regional Arbitration Branch No. VIII is directed
to implement the writ.
So ordered.
The Voluntary Arbitrator cited as basis Article 223 of the Labor Code, which pertinently provides:
Art. 223. Appeal -
xxxx
49
In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar WHEREFORE, the instant petition is hereby GRANTED and the questioned Order dated .July 25, 2001 of
as the reinstatement aspect is concerned, shall immediately be executory, even pending appeal. The the public respondent ANNULLED and SET ASIDE.
employee shall either be admitted back to work under the same terms and conditions prevailing prior
to his dismissal or separation or, at the option of the employer, merely reinstated in the payroll. The
SO ORDERED26
posting of a bond by the employer shall not stay the execution for reinstatement provided herein.

Having received a copy of the order of July 25, 2001 on August 7, 2001,18 HID ECO instituted a special
civil action for certiorari in the Court of Appeals (CA) on October 2, 2001.19
Decision of the CA
HIDECO's petition for certiorari averred that the Voluntary Arbitrator had acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in issuing the July 25, 2001 order. It listed the
following issues, namely:
I. The voluntary arbitrator, in rendering the assailed order actually granted an award without giving
due process to the herein petitioner.20
Issues
In this appeal, the petitioner submits the following issues,27 namely:
I.
THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW WHEN IT CONSIDERED THE
PETITION FOR CERTIORARI FILED BY PRIVATE RESPONDENT AS ONE FILED UNDER RULE 43 OF THE
RULES OF COURT WHEN SAID PETITION EXPRESSLY DECLARED THAT IT WAS FILED UNDER RULE 65
OF THE RULES OF COURT. EVEN GRANTING FOR THE SAKE OF ARGUMENT THAT SAID PETITION COULD
BE CONSIDERED AS FILED UNDER RULE 43 OF THE RULES OF COURT, THE HONORABLE COURT OF
APPEALS COMMITTED AN ERROR OF LAW IN NOT CONSIDERING THAT IT WAS FILED OUT OF TIME.

II. The voluntary arbitrator resolved the (second) motion by applying Art. 223 of the Labor Code. Was
II.
this the correct law to apply under the circumstances? Did he have jurisdiction to apply this law?21

Tl-IE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW WHEN IT DID NOT DISMISS
III. The decision dated January 13, 1999 clearly stated the relief that had been granted to the
THE PETITION FILED BY THE PRIVATE RESPONDENT FOR NOT HA VINO PREVIOUSLY FILED A MOTION
complainant Baronda, which was reinstatement.1âwphi1 Baronda was reinstated on September 29,
FOR RECONSIDERATION BEFORE RESORTING TO THE PETITION FOR CERTIORARI.
2000, thus [I-IIDECO] had complied with the decision. The questions therefore: Could a relief that is
not written in the decision be executed? Since the voluntary arbitrator clearly did this in this case, is it
not correct to say that he committed grave abuse of discretion? 22 III.

IV. In the assailed Order dated July 25, 2001 the Voluntary Arbitrator said, among others, that it treated
a second motion for the issuance of a writ of execution, and that a first motion had already been denied
on the ground that no backwages had been awarded to the complainant Baronda. Did he have any legal
basis then to issue two different and contradictory orders for what are essentially similar motions?23
In his comment,24 the petitioner countered that the petition for certiorari should be dismissed
considering that HIDECO should have appealed the decision of the Voluntary Arbitrator under Rule 43
of the Rules of Court because certiorari was not a substitute for a lost appeal; that HIDECO did not file
a motion for reconsideration of the questioned order, which would have been an adequate remedy at
law; that the petition for certiorari did not raise any jurisdictional error on the part of the Voluntary
Arbitrator but only factual and legal issues not proper in certiorari; and that the Voluntary Arbitrator
did not commit any error, much less grave abuse of discretion amounting to lack or excess of jurisdiction
in rendering the questioned order.
In the decision promulgated on August 21, 2003,25 the CA treated HIDECO's petition for certiorari as a
petition for review brought under Rule 43, and brushed aside the matters raised by the petitioner. It
observed that the petition for certiorari included the contents required by Section 6, Rule 43 for the
petition for review; that the writ of execution was proper only when the decision to be executed carried
an award in favor of the movant; that the Voluntary Arbitrator had issued the writ of execution for
backwages despite his decision lacking such award for backwages; and that the reliance by the
Voluntary Arbitrator on Article 223 of the Labor Code was misplaced because said provision referred to
decisions, awards or orders of the Labor Arbiter, not the Voluntary Arbitrator. It disposed as follows:
THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW WHEN IT CONSIDERED TI-IE
WRIT OF EXECUTION AS ISSUED FOR TI-IE SATISFACTION OF BACKWAGES INSTEAD OF FOR
REINSTATEMENT WAGES.
IV.
THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW AND SANCTIONED A VIOLATION
OF THE EQUAL PROTECTION OF THE LAWS WHEN IT RULED THAT THE REINSTATEMENT ASPECT OF
TI-IE DECISION OF THE VOLUNTARY ARBITRATOR IS NOT IMMEDIATELY EXECUTORY.
V.
THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW WHEN IT DECLARED THAT
PRIVATE RESPONDENT WAS DENIED DUE PROCESS OF LAW.
In other words, the decisive issues for consideration and resolution are: (a) whether or not the CA erred
in granting HIDECO's petition for certiorari despite its procedural flaws; and (b) whether or not the
reinstatement aspect of the Voluntary Arbitrator's decision was executory pending appeal.
Ruling

50
The appeal is meritorious.
I
HIDECO's proper recourse was to appeal by petition for review; hence, the CA erred in
granting HIDECO's petition for certiorari
The order issued on July 25, 2001 by the Voluntary Arbitrator, albeit directing the execution of the
award or decision of January 13, 1999, was a final order, as contrasted from a merely interlocutory
order, because its issuance left nothing more to be done or taken by the Voluntary Arbitrator in the
case.28 It thus completely disposed of what the reinstatement of the petitioner as ordered by the
Voluntary Arbitrator in the award or decision of January 13, 1999 signified.
The proper remedy from such order was to appeal to the CA by petition for review under Rule 43 of the
Rules of Court, whose Section 1 specifically provides:
Section 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and fi:om awards, judgments, final orders or resolutions of or authorized by any quasijudicial
agency in the exercise of its quasi-judicial functions. Among these agencies arc the Civil Service
Commission, Central Boards of Assessment Appeals, Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification
Administration, Energy Regulation Board, National Telecommunications Commission, Department of
Agrarian Reform under Republic Act No. 6657, Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions Board, Insurance Comi11ission, Philippine Atomic
Energy Commission, Board of Investments, Construction Industry Arbitration Commission,
and voluntary arbitrators authorized by law.
The period of appeal was 10 days from receipt of the copy of the order of July 25, 2001 by the parties.
It is true that Section 4 of Rule 43 stipulates that the appeal shall be taken within 15 days from notice
of the award, judgment, final order or resolution, or from the date of its last publication, if publication
is required by law for its effectivity, or of the denial of the petitioner's motion for new trial or
reconsideration duly filed in accordance with the governing law of the court or agency a quo. However,
Article 262-A of the Labor Code, the relevant portion of which follows, expressly states that the award
or decision of the Voluntary Arbitrator shall be final and executory after 10 calendar days from receipt
of the copy of the award or decision by the parties, viz.:
Art. 262-A. Procedures. -
xxxx
The award or decision of the Voluntary Arbitrator or panel of Voluntary Arbitrators shall contain the
facts and the law on which it is based. It shall be final and executory after ten (10) calendar days
from receipt of the copy of the award or decision by the parties.
Upon motion of any interested party, the Voluntary Arbitrator or panel of Voluntary Arbitrators or the
Labor Arbiter in the region where the movant resides, in case of the absence or incapacity of the
Voluntary Arbitrator or panel of Voluntary Arbitrators for any reason, may issue a writ of execution
requiring either the sheriff of the Commission or regular courts or any public official whom the parties
may designate in the submission agreement to execute the final decision, order or award. (Emphasis
supplied)
On account of Article 262-A of the Labor Code, the period to appeal was necessarily 10 days from receipt
of the copy of the award or decision of the Voluntary Arbitrator or panel of Voluntary Arbitrators;
otherwise, the order of July 25, 2001 would become final and immutable, because only a timely appeal
or motion for reconsideration could prevent the award or decision from attaining finality and
immutability.
Yet, HIDECO filed the petition for certiorari, not a petition for review under Rule 43, and the CA liberally
treated the petition for certiorari as a petition for review under Rule 43.
We hold that such treatment by the CA was procedurally unwarranted.
To begin with, even if the error sought to be reviewed concerned grave abuse of discretion on the part
of the Voluntary Arbitrator,29 the remedy was an appeal in due course by filing the petition for review
within 10 days from notice of the award or decision. This was because certiorari, as an extraordinary
remedy, was available only when there was no appeal, or any plain, speedy and adequate remedy in
the ordinary course of law.30 In other words, the justification for HIDECO's resort to the extraordinary
equitable remedy of certiorari did not exist due to the availability of appeal, or other ordinary remedies
in law to which HIDECO as the aggrieved party could resort.
Although it is true that certiorari cannot be a substitute for a lost appeal, and that either remedy was
not an alternative of the other, we have at times permitted the resort to certiorari despite the availability
of appeal, or of any plain speedy and adequate remedy in the ordinary course of law in exceptional
situations, such as: (1) when the remedy of certiorari is necessary to prevent irreparable damages and
injury to a party; (2) where the trial judge capriciously and whimsically exercised his judgment; (3)
where there may be danger of a failure of justice; (4) where appeal would be slow, inadequate and
insufficient; (5) where the issue raised is one purely of law; (6) where public interest is involved; and
(7) in case of urgency.31 Verily, as pointed out in Jaca v. Davao Lumber Company,32 the availability of
the ordinary course of appeal does not constitute sufficient ground to prevent a party from making use
of certiorari where the appeal is not an adequate remedy or equally beneficial, speedy and sufficient;
for it is inadequacy, not the mere absence of all other legal remedies and the danger of failure of justice
without the writ that must usually determine the propriety of certiorari. It is nonetheless necessary in
such exceptional situations for the petitioner to make a strong showing in such situations that the
respondent judicial or quasi-judicial official or tribunal lacked or exceeded its jurisdiction, or gravely
abused its discretion amounting to lack or excess of jurisdiction.
HIDECO did not establish that its case came within any of the aforestated exceptional situations.
And, secondly, HIDECO filed the petition for certiorari on October 2, 2001. Even assuming, as the CA
held, that the petition for certiorari contained the matters required by Rule 43, such filing was not timely
because 56 days had already lapsed trom HIDECO's receipt of the denial by
the Voluntary Arbitrator of the motion for reconsideration. In short, HIDECO had thereby forfeited its
right to appeal. We have always emphasized the nature of appeal as a merely statutory right for the
aggrieved litigant, and such nature requires the strict observance of all the rules and regulations as to
the manner of its perfection and as to the time of its taking.
51
Whenever appeal is belatedly resorted to, therefore, the litigant forfeits the right to appeal, and the
higher court ipso facto loses the authority to review, reverse, modify or otherwise alter the judgment.
The loss of such authority is jurisdictional, and renders the adverse judgment both final and immutable.
II
Voluntary Arbitrator's order of reinstatement of the petitioner was immediately executory
The next query is whether the order of reinstatement of the petitioner by the Voluntary Arbitrator was
immediately executory or not.
We answer the query in the affirmative. Although the timely filing of a motion for reconsideration or of
an appeal forestalls the finality of the decision or award of the Voluntary Arbitrator,33 the reinstatement
aspect of the Voluntary Arbitrator's decision or award remains executory regardless of the filing of such
motion for reconsideration or appeal.
The immediate reinstatement of the employee pending the appeal has been introduced by Section 12
of Republic Act No. 6715, which amended Article 223 of the Labor Code, to wit:
SEC. 12. Article 223 of the same code is amended to read as follows:
Art. 223. Appeal. -
xxxx
In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee, in so far
as the reinstatement aspect is concerned, shall immediately be executory, even pending appeal.
The employee shall either be admitted back to work under the same terms and conditions prevailing
prior to his dismissal or separation or, at the option of the employer, merely reinstated in the payroll.
The posting of a bond by the employer shall not stay the execution for reinstatement provided herein.
(bold underscoring supplied for emphasis)
The normal consequences of a finding that an employee was illegally dismissed are, firstly, that the
employee becomes entitled to reinstatement to his former position without loss of seniority rights;
and, secondly, the payment of wages corresponding to the period from his illegal dismissal up to the
time of actual reinstatement. These two consequences give meaning and substance to the constitutional
right of labor to security of tenure.34 Reinstatement pending appeal thus affirms the constitutional
mandate to protect labor and to enhance social justice, for, as the Court has said in Aris (Phil.) Inc. v.
National Labor Relations Commission:35
In authorizing execution pending appeal of the reinstatement aspect of a decision of a Labor Arbiter
reinstating a dismissed or separated employee, the law itself has laid down a compassionate policy
which, once more, vivifies and enhances the provisions of the 1987 Constitution on labor and the
working-man.
xxxx
These duties and responsibilities of the State are imposed not so much to express sympathy for the
workingman as to forcefully and meaningfully underscore labor as a primary social and economic force,
which the Constitution also expressly affirms with equal intensity. Labor is an indispensable partner for
the nation’s progress and stability.
If in ordinary civil actions execution of judgment pending appeal is authorized for reasons the
determination of which is merely left to the discretion of the judge, We find no plausible reason to
withhold it in cases of decisions reinstating dismissed or separated employees. In such cases, the poor
employees had been deprived of their only source of livelihood, their only means of support for their
family their lifeblood. To Us, this special circumstance is far better than any other which a judge, in his
sound discretion, may determine. In short, with respect to decisions reinstating employees, the law
itself has determined sufficiently overwhelming reason for its execution pending appeal.
x x x Then, by and pursuant to the same power (police power), the State may authorize an immediate
implementation, pending appeal, of a decision reinstating a dismissed or separated employee since that
saving act is designed to stop, although temporarily since the appeal may be decided in favor of the
appellant, a continuing threat or danger to the survival or even the life of the dismissed or separated
employee and its family.36
We also see no reason to obstruct the reinstatement decreed by the Voluntary Arbitrator, or to treat it
any less than the reinstatement that is ordered by the Labor Arbiter. Voluntary arbitration really takes
precedence over other dispute settlement devices. Such primacy of voluntary arbitration is mandated
by no less than the Philippine Constitution,37 and is ingrained as a policy objective of our labor relations
law.38 The reinstatement order by the Voluntary Arbitrator should have the same authority, force and
effect as that of the reinstatement order by the Labor Arbiter not only to encourage parties to settle
their disputes through this mode, but also, and more importantly, to enforce the constitutional mandate
to protect labor, to provide security of tenure, and to enhance social justice.
The 2001 Procedural Guidelines in the Execution of Voluntary Arbitration
Awards/Decisions (Guidelines), albeit not explicitly discussing the executory nature of the reinstatement
order, seems to align with the Court's stance by punishing the noncompliance by a party of the decision
or order for reinstatement. Section 2, Rule III of the Guidelines states:
Sec. 2. Issuance, Form and Contents of a Writ of Execution -
xxxx
b) If the execution be for the reinstatement of any person to any position, office or empl6yment, such
writ shall be served by the sheriff upon the losing party or in case of death of the losing party upon his
successor-in-interest, executor or administrator and such party or person may be punished for contempt
if he disobeys such decision or order for reinstatement. (bold)underscoring supplied for emphasis)
The 2005 NCMB Revised 'Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings also
supports this Court's position, for Section 6 of its Rule VIII reads:
Sec. 6. Effect of Filing of Petition for Certiorari on Execution. The filing of a petition for certiorari with
the Court of Appeals or the Supreme Court shall not stay the execution of the assailed decision unless
a temporary restraining order or injunction is issued by the Court of Appeals or the Supreme Court
pending resolution of such petition.(Emphasis Ours)
52
We declare, therefore, that the reinstatement decreed by the Voluntary Arbitrator was immediately
executory upon the receipt of the award or decision by the parties.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REINSTATES the order dated
July 25, 2001 of the Voluntary Arbitrator; and ORDERS respondent Hideco Sugar Milling Co., Inc. to
pay the costs of suit.

SO ORDERED.

53
G.R. No. 211145, October 14, 2015 The Ruling of the DOLE Regional Director

On April 20, 2010, DOLE Regional Director Ernesto Bihis ruled in favor of Hanjin. He found that the
SAMAHAN NG MANGGAGAWA SA HANJIN SHIPYARD REP. BY ITS PRESIDENT, ALFIE
preamble, as stated in the Constitution and By-Laws of Samahan, was an admission on its part that all
ALIPIO, Petitioner, v. BUREAU OF LABOR RELATIONS, HANJIN HEAVY INDUSTRIES AND
of its members were employees of Hanjin, to wit:
CONSTRUCTION CO., LTD. (HHIC-PHIL.), Respondents.
KAMI, ang mga Manggagawa sa HANJIN Shipyard (SAMAHAN) ay naglalayong na isulong ang
pagpapabuti ng kondisyon sa paggawa at katiyakan sa hanapbuhay sa pamamagitan ng patuloy na
DECISION pagpapaunlad ng kasanayan ng para sa mga kasapi nito. Naniniwala na sa pamamagitan ng aming mga
angking lakas, kaalaman at kasanayan ay anting maitataguyod at makapag-aambag sa kaunlaran ng
MENDOZA, J.: isang lipunan. Na mararating at makakamit ang antas ng pagkilala, pagdakila at pagpapahalaga sa mga
tulad naming mga manggagawa.

The right to self-organization is not limited to unionism. Workers may also form or join an association x x x10
for mutual aid and protection and for other legitimate purposes. The same claim was made by Samahan in its motion to dismiss, but it failed to adduce evidence that
the remaining 63 members were also employees of Hanjin. Its admission bolstered Hanjin's claim that
This is a petition for review on certiorari seeking to reverse and set aside the July 4, 2013 Decision1 and Samahan committed misrepresentation in its application for registration as it made an express
the January 28, 2014 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 123397, which representation that all of its members were employees of the former. Having a definite employer, these
reversed the November 28, 2011 Resolution3 of the Bureau of Labor Relations (BLR) and reinstated the 57 members should have formed a labor union for collective bargaining.11 The dispositive portion of the
April 20, 2010 Decision4 of the Department of Labor and Employment (DOLE) Regional Director, decision of the Dole Regional Director, reads:
cancelling the registration of Samahan ng Manggagawa sa Hanjin Shipyard (Samahan) as a worker's WHEREFORE, premises considered, the petition is hereby GRANTED. Consequently, the Certificate of
association under Article 243 (now Article 249) of the Labor Code. Registration as Legitimate Workers Association (LWA) issued to the SAMAHAN NG MGA MANGGAGAWA
SA HANJIN SHIPYARD (SAMAHAN) with Registration Numbers R0300-1002-WA-009 dated February 26,
The Facts 2010 is hereby CANCELLED, and said association is dropped from the roster of labor organizations of
this Office.
On February 16, 2010, Samahan, through its authorized representative, Alfie F. Alipio, filed an
application for registration5 of its name "Samahan ng Mga Manggagawa sa Hanjin Shipyard" with the SO DECIDED.12
DOLE. Attached to the application were the list of names of the association's officers and members, The Ruling of the Bureau of Labor Relations
signatures of the attendees of the February 7, 2010 meeting, copies of their Constitution and By-laws.
The application stated that the association had a total of 120 members. Aggrieved, Samahan filed an appeal13 before the BLR, arguing that Hanjin had no right to petition for
the cancellation of its registration. Samahan pointed out that the words "Hanjin Shipyard," as used in
On February 26, 2010, the DOLE Regional Office No. 3, City of San Fernando, Pampanga (DOLE- its application for registration, referred to a workplace and not as employer or company. It explained
Pampanga), issued the corresponding certificate of registration6 in favor of Samahan. that when a shipyard was put up in Subic, Zambales, it became known as Hanjin Shipyard. Further, the
remaining 63 members signed the Sama-Samang Pagpapatunay which stated that they were either
On March 15, 2010, respondent Hanjin Heavy Industries and Construction Co., Ltd. Philippines (Hanjin), working or had worked at Hanjin. Thus, the alleged misrepresentation committed by Samahan had no
with offices at Greenbeach 1, Renondo Peninsula, Sitio Agustin, Barangay Cawag, Subic Bay Freeport leg to stand on.14
Zone, filed a petition7 with DOLE-Pampanga praying for the cancellation of registration of Samahan's
association on the ground that its members did not fall under any of the types of workers enumerated In its Comment to the Appeal,15 Hanjin averred that it was a party-in-interest. It reiterated that
in the second sentence of Article 243 (now 249). Samahan committed misrepresentation in its application for registration before DOLE Pampanga. While
Samahan insisted that the remaining 63 members were either working, or had at least worked in Hanjin,
Hanjin opined that only ambulant, intermittent, itinerant, rural workers, self-employed, and those only 10 attested to such fact, thus, leaving its 53 members without any workplace to claim.
without definite employers may form a workers' association. It further posited that one third (1/3) of
the members of the association had definite employers and the continued existence and registration of On September 6, 2010, the BLR granted Samahan's appeal and reversed the ruling of the Regional
the association would prejudice the company's goodwill. Director. It stated that the law clearly afforded the right to self-organization to all workers including
those without definite employers.16 As an expression of the right to self-organization, industrial,
On March 18, 2010, Hanjin filed a supplemental petition,8 adding the alternative ground that Samahan commercial and self-employed workers could form a workers' association if they so desired but subject
committed a misrepresentation in connection with the list of members and/or voters who took part in to the limitation that it was only for mutual aid and protection.17 Nowhere could it be found that to form
the ratification of their constitution and by-laws in its application for registration. Hanjin claimed that a workers' association was prohibited or that the exercise of a workers' right to self-organization was
Samahan made it appear that its members were all qualified to become members of the workers' limited to collective bargaining.18
association.
The BLR was of the opinion that there was no misrepresentation on the part of Samahan. The phrase,
On March 26, 2010, DOLE-Pampanga called for a conference, wherein Samahan requested for a 10-day "KAMI, ang mga Manggagawa sa Hanjin Shipyard" if translated, would be: "We, the workers at Hanjin
period to file a responsive pleading. No pleading, however, was submitted. Instead, Samahan filed a Shipyard." The use of the preposition "at" instead of "of " would indicate that "Hanjin Shipyard" was
motion to dismiss on April 14, 2010.9 intended to describe a place.19 Should Hanjin feel that the use of its name had affected the goodwill of
the company, the remedy was not to seek the cancellation of the association's registration. At most,
54
the use by Samahan of the name "Hanjin Shipyard" would only warrant a change in the name of the workers.36
association.20 Thus, the dispositive portion of the BLR decision reads:
WHEREFORE, the appeal is hereby GRANTED. The Order of DOLE Region III Director Ernesto C. Bihis At any rate, the CA was of the view that dropping the words "Hanjin Shipyard" from the association
dated 20 April 2010 is REVERSED and SET ASIDE. name would not prejudice or impair its right to self-organization because it could adopt other
appropriate names. The dispositive portion reads:
Accordingly, Samahan ng mga Manggagawa sa Hanjin Shipyard shall remain in the roster of legitimate WHEREFORE, the petition is DISMISSED and the BLR's directive, ordering that the words "Hanjin
workers' association.21 Shipyard" be removed from petitioner association's name, is AFFIRMED. The Decision dated April 20,
On October 14, 2010, Hanjin filed its motion for reconsideration.22 2010 of the DOLE Regional Director in Case No. R0300-1003-CP-001, which ordered the cancellation of
petitioner association's registration is REINSTATED.
In its Resolution,23 dated November 28, 2011, the BLR affirmed its September 6, 2010 Decision, but
directed Samahan to remove the words "Hanjin Shipyard" from its name. The BLR explained that the SO ORDERED.37
Labor Code had no provision on the use of trade or business name in the naming of a worker's Hence, this petition, raising the following
association, such matters being governed by the Corporation Code. According to the BLR, the most ISSUES
equitable relief that would strike a balance between the contending interests of Samahan and Hanjin
was to direct Samahan to drop the name "Hanjin Shipyard" without delisting it from the roster of I. THE COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT SAMAHAN CANNOT FORM A
legitimate labor organizations. The fallo reads: WORKERS' ASSOCIATION OF EMPLOYEES IN HANJIN AND INSTEAD SHOULD HAVE FORMED
WHEREFORE, premises considered, our Decision dated 6 September 2010 is hereby AFFIRMED with a A UNION, HENCE THEIR REGISTRATION AS A WORKERS' ASSOCIATION SHOULD BE
DIRECTIVE for SAMAHAN to remove "HANJIN SHIPYARD" from its name. CANCELLED.

SO RESOLVED.24 II. THE COURT OF APPEALS SERIOUSLY ERRED IN ORDERING THE REMOVAL/DELETION OF
Unsatisfied, Samahan filed a petition for certiorari25 under Rule 65 before the CA, docketed as CA-G.R. THE WORD "HANJIN" IN THE NAME OF THE UNION BY REASON OF THE COMPANY'S
SP No. 123397. PROPERTY RIGHT OVER THE COMPANY NAME "HANJIN."38
Samahan argues that the right to form a workers' association is not exclusive to intermittent, ambulant
In its March 21, 2012 Resolution,26 the CA dismissed the petition because of Samahan's failure to file a and itinerant workers. While the Labor Code allows the workers "to form, join or assist labor
motion for reconsideration of the assailed November 28, 2011 Resolution. organizations of their own choosing" for the purpose of collective bargaining, it does not prohibit them
from forming a labor organization simply for purposes of mutual aid and protection. All members of
On April 17, 2012, Samahan filed its motion for reconsideration27 and on July 18, 2012, Hanjin filed its Samahan have one common place of work, Hanjin Shipyard. Thus, there is no reason why they cannot
comment28 to oppose the same. On October 22, 2012, the CA issued a resolution granting Samahan's use "Hanjin Shipyard" in their name.39
motion for reconsideration and reinstating the petition. Hanjin was directed to file a comment five (5)
days from receipt of notice.29 Hanjin counters that Samahan failed to adduce sufficient basis that all its members were employees of
Hanjin or its legitimate contractors, and that the use of the name "Hanjin Shipyard" would create an
On December 12, 2012, Hanjin filed its comment on the petition,30 arguing that to require Samahan to impression that all its members were employess of HHIC.40
change its name was not tantamount to interfering with the workers' right to self-organization.31 Thus,
it prayed, among others, for the dismissal of the petition for Samahan's failure to file the required Samahan reiterates its stand that workers with a definite employer can organize any association for
motion for reconsideration.32 purposes of mutual aid and protection. Inherent in the workers' right to self-organization is its right to
name its own organization. Samahan referred "Hanjin Shipyard" as their common place of work.
On January 17, 2013, Samahan filed its reply.33 Therefore, they may adopt the same in their association's name.41

On March 22, 2013, Hanjin filed its memorandum.34 The Court's Ruling

The Ruling of the Court of Appeals The petition is partly meritorious.

On July 4, 2013, the CA rendered its decision, holding that the registration of Samahan as a legitimate Right to self-organization includes right to form a union, workers' association and labor management
workers' association was contrary to the provisions of Article 243 of the Labor Code.35 It stressed that councils
only 57 out of the 120 members were actually working in Hanjin while the phrase in the preamble of
Samahan's Constitution and By-laws, "KAMI, ang mga Manggagawa sa Hanjin Shipyard" created an More often than not, the right to self-organization connotes unionism. Workers, however, can also form
impression that all its members were employees of HHIC. Such unqualified manifestation which was and join a workers' association as well as labor-management councils (LMC). Expressed in the highest
used in its application for registration, was a clear proof of misrepresentation which warranted the law of the land is the right of all workers to self-organization. Section 3, Article XIII of the 1987
cancellation of Samahan's registration. Constitution states:
Section 3. The State shall afford full protection to labor, local and overseas, organized and
It also stated that the members of Samahan could not register it as a legitimate worker's association unorganized, and promote full employment and equality of employment opportunities for all. It shall
because the place where Hanjin's industry was located was not a rural area. Neither was there any guarantee the rights of all workers to self-organization,
evidence to show that the members of the association were ambulant, intermittent or itinerant

55
collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in not always have to be a labor union and why employer-employee collective interactions are not always
accordance with law. xxx collective bargaining.50

[Emphasis Supplied] To further strengthen employee participation, Article 255 (now 261)51 of the Labor Code mandates that
And Section 8, Article III of the 1987 Constitution also states: workers shall have the right to participate in policy and decision-making processes of the establishment
Section 8. The right of the people, including those employed in the public and private sectors, to form where they are employed insofar as said processes will directly affect their rights, benefits and welfare.
unions, associations, or societies for purposes not contrary to law shall not be abridged. For this purpose, workers and employers may form LMCs.
In relation thereto, Article 3 of the Labor Code provides:
Article 3. Declaration of basic policy. The State shall afford protection to labor, promote full A cursory reading of the law demonstrates that a common element between unionism and the formation
employment, ensure equal work opportunities regardless of sex, race or creed and regulate the relations of LMCs is the existence of an employer-employee relationship. Where neither party is an employer nor
between workers and employers. The State shall assure the rights of workers to self- an employee of the other, no duty to bargain collectively would exist.52 In the same manner, expressed
organization, collective bargaining, security of tenure, and just and humane conditions of in Article 255 (now 261) is the requirement that such workers be employed in the establishment before
work. they can participate in policy and decision making processes.

In contrast, the existence of employer-employee relationship is not mandatory in the formation of

[Emphasis Supplied]
workers' association. What the law simply requires is that the members of the workers' association, at
As Article 246 (now 252) of the Labor Code provides, the right to self-organization includes the right to
the very least, share the same interest. The very definition of a workers' association speaks of "mutual
form, join or assist labor organizations for the purpose of collective bargaining through representatives
aid and protection."
of their own choosing and to engage in lawful concerted activities for the same purpose for their mutual
aid and protection. This is in line with the policy of the State to foster the free and voluntary organization
Right to choose whether to form or join a union or workers' association belongs to workers themselves
of a strong and united labor movement as well as to make sure that workers participate in policy and
decision-making processes affecting their rights, duties and welfare.42
In the case at bench, the Court cannot sanction the opinion of the CA that Samahan should have formed
a union for purposes of collective bargaining instead of a workers' association because the choice
The right to form a union or association or to self-organization comprehends two notions, to wit: (a)
belonged to it. The right to form or join a labor organization necessarily includes the right to refuse or
the liberty or freedom, that is, the absence of restraint which guarantees that the employee may act
refrain from exercising the said right. It is self-evident that just as no one should be denied the exercise
for himself without being prevented by law; and (b) the power, by virtue of which an employee may,
of a right granted by law, so also, no one should be compelled to exercise such a conferred right.53 Also
as he pleases, join or refrain from joining an association.43
inherent in the right to self-organization is the right to choose whether to form a union for purposes of
collective bargaining or a workers' association for purposes of providing mutual aid and protection.
In view of the revered right of every worker to self-organization, the law expressly allows and even
encourages the formation of labor organizations. A labor organization is defined as "any union or
The right to self-organization, however, is subject to certain limitations as provided by law. For instance,
association of employees which exists in whole or in part for the purpose of collective bargaining or of
the Labor Code specifically disallows managerial employees from joining, assisting or forming any labor
dealing with employers concerning terms and conditions of employment."44 A labor organization has
union. Meanwhile, supervisory employees, while eligible for membership in labor organizations, are
two broad rights: (1) to bargain collectively and (2) to deal with the employer concerning terms and
proscribed from joining the collective bargaining unit of the rank and file employees.54 Even government
conditions of employment. To bargain collectively is a right given to a union once it registers itself with
employees have the right to self-organization. It is not, however, regarded as existing or available for
the DOLE. Dealing with the employer, on the other hand, is a generic description of interaction between
purposes of collective bargaining, but simply for the furtherance and protection of their interests.55
employer and employees concerning grievances, wages, work hours and other terms and conditions of
employment, even if the employees' group is not registered with the DOLE.45
Hanjin posits that the members of Samahan have definite employers, hence, they should have formed
a union instead of a workers' association. The Court disagrees. There is no provision in the Labor Code
A union refers to any labor organization in the private sector organized for collective bargaining and for
that states that employees with definite employers may form, join or assist unions only.
other legitimate purpose,46 while a workers' association is an organization of workers formed for the
mutual aid and protection of its members or for any legitimate purpose other than collective
The Court cannot subscribe either to Hanjin's position that Samahan's members cannot form the
bargaining.47
association because they are not covered by the second sentence of Article 243 (now 249), to wit:
Article 243. Coverage and employees' right to self-organization. All persons employed in commercial,
Many associations or groups of employees, or even combinations of only several persons, may qualify
industrial and agricultural enterprises and in religious, charitable, medical, or educational institutions,
as a labor organization yet fall short of constituting a labor union. While every labor union is a labor
whether operating for profit or not, shall have the right to self-organization and to form, join, or assist
organization, not every labor organization is a labor union. The difference is one of organization,
labor organizations of their own choosing for purposes of collective bargaining. Ambulant,
composition and operation.48
intermittent and itinerant workers, self-employed people, rural workers and those without
any definite employers may form labor organizations for their mutual aid and protection. (As
Collective bargaining is just one of the forms of employee participation. Despite so much interest in and
amended by Batas Pambansa Bilang 70, May 1, 1980)
the promotion of collective bargaining, it is incorrect to say that it is the device and no other, which
secures industrial democracy. It is equally misleading to say that collective bargaining is the end-goal
of employee representation. Rather, the real aim is employee participation in whatever form it may [Emphasis Supplied]
appear, bargaining or no bargaining, union or no union.49 Any labor organization which may or may not Further, Article 243 should be read together with Rule 2 of Department Order (D.O.) No. 40-03, Series
be a union may deal with the employer. This explains why a workers' association or organization does of 2003, which provides:

56
RULE II cancellation of certificate of registration of Samahang Lakas Manggagawa sa Takata (Salamat) after
finding that the employees who attended the organizational meeting fell short of the 20% union
COVERAGE OF THE RIGHT TO SELF-ORGANIZATION registration requirement. The BLR, however, reversed the ruling of the DOLE Regional Director, stating
that petitioner Takata Corporation (Takata) failed to prove deliberate and malicious misrepresentation
Section 1. Policy. - It is the policy of the State to promote the free and responsible exercise of the on the part of respondent Salamat. Although Takata claimed that in the list of members, there was an
right to self-organization through the establishment of a simplified mechanism for the speedy employee whose name appeared twice and another was merely a project employee, such facts were
registration of labor unions and workers associations, determination of representation status and not considered misrepresentations in the absence of showing that the respondent deliberately did so
resolution of inter/intra-union and other related labor relations disputes. Only legitimate or registered for the purpose of increasing their union membership. The Court ruled in favor of Salamat.
labor unions shall have the right to represent their members for collective bargaining and other
purposes. Workers' associations shall have the right to represent their members for purposes other In S.S. Ventures International v. S.S. Ventures Labor Union,58 the petition for cancellation of certificate
than collective bargaining. of registration was denied. The Court wrote:
If the union's application is infected by falsification and like serious irregularities, especially
Section 2. Who may join labor unions and workers' associations. - All persons employed in commercial, those appearing on the face of the application and its attachments, a union should be denied
industrial and agricultural enterprises, including employees of government owned or controlled recognition as a legitimate labor organization. Prescinding from these considerations, the issuance
corporations without original charters established under the Corporation Code, as well as employees of to the Union of Certificate of Registration No. RO300-00-02-UR-0003 necessarily implies that its
religious, charitable, medical or educational institutions whether operating for profit or not, shall have application for registration and the supporting documents thereof are prima facie free from any vitiating
the right to self-organization and to form, join or assist labor unions for purposes of collective irregularities. Another factor which militates against the veracity of the allegations in the Sinumpaang
bargaining: provided, however, that supervisory employees shall not be eligible for membership in a Petisyon is the lack of particularities on how, when and where respondent union perpetrated
labor union of the rank-and-file employees but may form, join or assist separate labor unions of their the alleged fraud on each member. Such details are crucial for in the proceedings for
own. Managerial employees shall not be eligible to form, join or assist any labor unions for purposes of cancellation of union registration on the ground of fraud or misrepresentation, what needs to
collective bargaining. Alien employees with valid working permits issued by the Department may be established is that the specific act or omission of the union deprived the complaining employees-
exercise the right to self-organization and join or assist labor unions for purposes of collective bargaining members of their right to choose.
if they are nationals of a country which grants the same or similar rights to Filipino workers, as certified
by the Department of Foreign Affairs. [Emphases Supplied]
Based on the foregoing, the Court concludes that misrepresentation, to be a ground for the cancellation
For purposes of this section, any employee, whether employed for a definite period or not, shall of the certificate of registration, must be done maliciously and deliberately. Further, the mistakes
beginning on the first day of his/her service, be eligible for membership in any labor organization. appearing in the application or attachments must be grave or refer to significant matters. The details
as to how the alleged fraud was committed must also be indubitably shown.
All other workers, including ambulant, intermittent and other workers, the self-employed, rural
workers and those without any definite employers may form labor organizations for their mutual aid The records of this case reveal no deliberate or malicious intent to commit misrepresentation on the
and protection and other legitimate purposes except collective bargaining. part of Samahan. The use of such words "KAMI, ang mga Manggagawa sa HANJIN Shipyard" in the
preamble of the constitution and by-laws did not constitute misrepresentation so as to warrant the
[Emphases Supplied] cancellation of Samahan's certificate of registration. Hanjin failed to indicate how this phrase constitutes
Clearly, there is nothing in the foregoing implementing rules which provides that workers, with definite a malicious and deliberate misrepresentation. Neither was there any showing that the alleged
employers, cannot form or join a workers' association for mutual aid and protection. Section 2 thereof misrepresentation was serious in character. Misrepresentation is a devious charge that cannot simply
even broadens the coverage of workers who can form or join a workers' association. Thus, the Court be entertained by mere surmises and conjectures.
agrees with Samahan's argument that the right to form a workers' association is not exclusive to
ambulant, intermittent and itinerant workers. The option to form or join a union or a workers' association Even granting arguendo that Samahan's members misrepresented themselves as employees or workers
lies with the workers themselves, and whether they have definite employers or not. of Hanjin, said misrepresentation does not relate to the adoption or ratification of its constitution and
by-laws or to the election of its officers.
No misrepresentation on the part of Samahan to warrant cancellation of registration
Removal of the word "Hanjin Shipyard" from the association's name, however, does not infringe on
In this case, Samahan's registration was cancelled not because its members were prohibited from Samahan's right to self-organization
forming a workers' association but because they allegedly committed misrepresentation for using the
phrase, "KAMI, ang mga Manggagawa sa HAN JIN Shipyard." Nevertheless, the Court agrees with the BLR that "Hanjin Shipyard" must be removed in the name of
the association. A legitimate workers' association refers to an association of workers organized for
Misrepresentation, as a ground for the cancellation of registration of a labor organization, is committed mutual aid and protection of its members or for any legitimate purpose other than collective bargaining
"in connection with the adoption, or ratification of the constitution and by-laws or amendments thereto, registered with the DOLE.59 Having been granted a certificate of registration, Samahan's association is
the minutes of ratification, the list of members who took part in the ratification of the constitution and now recognized by law as a legitimate workers' association.
by-laws or amendments thereto, and those in connection with the election of officers, minutes of the
election of officers, and the list of voters, xxx." 56 According to Samahan, inherent in the workers' right to self-organization is its right to name its own
organization. It seems to equate the dropping of words "Hanjin Shipyard" from its name as a restraint
In Takata Corporation v. Bureau of Relations,57 the DOLE Regional Director granted the petition for the in its exercise of the right to self-organization. Hanjin, on the other hand, invokes that "Hanjin Shipyard"

57
is a registered trade name and, thus, it is within their right to prohibit its use.

As there is no provision under our labor laws which speak of the use of name by a workers' association,
the Court refers to the Corporation Code, which governs the names of juridical persons. Section 18
thereof provides:
No corporate name may be allowed by the Securities and Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a
change in the corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name.

[Emphases Supplied]
The policy underlying the prohibition in Section 18 against the registration of a corporate name which
is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the
public which would have occasion to deal with the entity concerned, the evasion of legal obligations and
duties, and the reduction of difficulties of administration and supervision over corporations.60

For the same reason, it would be misleading for the members of Samahan to use "Hanjin Shipyard" in
its name as it could give the wrong impression that all of its members are employed by Hanjin.

Further, Section 9, Rule IV of D.O. No. 40-03, Series of 2003 explicitly states:
The change of name of a labor organization shall not affect its legal personality. All the rights and
obligations of a labor organization under its old name shall continue to be exercised by the labor
organization under its new name.
Thus, in the directive of the BLR removing the words "Hanjin Shipyard," no abridgement of Samahan's
right to self-organization was committed.

WHEREFORE, the petition is PARTIALLY GRANTED. The July 4, 2013 Decision and the January 28,
2014 Resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. The September 6,
2010 Resolution of the Bureau of Labor Relations, as modified by its November 28, 2011 Resolution,
is REINSTATED.

SO ORDERED.chanroblesvirtuallawlibrary

58
G.R. No. 192943, August 12, 2015
UNITED DUMANGAS PORT DEVELOPMENT CORPORATION, Petitioner, v. PHILIPPINE PORTS
AUTHORITY, ATTY. OSMAR M. SEVILLA, GENERAL MANAGER, ATTY. FERNANDO B.
CLAVERINA, PORT MANAGER, PORT MANAGEMENT OFFICER-ILOILO; AND RAUL T. SANTOS,
PORT DISTRICT MANAGER, PORT DISTRICT OFFICE-VISAYAS, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
reverse and set aside the Decision1 and Resolution,2 dated December 4, 2009 and July 1, 2010,
respectively, of the Court Appeals (CA) in CA-G.R. SP No. 03293.
The antecedent facts are as follows:ChanRoblesvirtualLawlibrary
On December 1, 2000, respondent Philippine Ports Authority (PPA) granted petitioner United Dumangas
Port Development Corporation (UDPDC) a permit to operate the cargo handling services at the Port of
valid for one (1) year.3 Thereafter, PPA issued UDPDC several holders authorities to continue its services
thereon. On May 28, 2003, PPA granted UDPDC a three (3)-month extension from June 1, 2003 to
August 31, 2003. UDPDC, however, continued its operations even after the extension.4 Meanwhile, on
July 14, 2005, PPA conducted a public bidding for the cargo handling services at the port wherein UDPDC
did not participate despite notice.5 When the winning bidder was selected, the losing bidder filed an
action, docketed as CA-G.R. SP No. 92950, to set aside the result of the public bidding.
On October 27, 2005, PPA served a notice upon UDPDC through PPA Memorandum Order No. 43-2005
stating that it will be taking over the cargo handling services at the port beginning on November 15,
2005. A day before the take-over, however, UDPDC sent PPA a letter-protest assailing the termination
of their services.6cralawrednad
On November 18, 2005, UDPDC filed before the Regional Trial Court (RTC) of Dumangas, Iloilo, Branch
68, an Amended Petition7 for Certiorari and Prohibition with Prayer for the Issuance of Temporary
Restraining Order and Writ of Preliminary Injunction challenging the PPA Memorandum Order No. 43-
2005 and seeking an injunction against its implementation, docketed as Special Civil Action Case No.
05-024.
After granting the prayer for the issuance of a temporary restraining order, the RTC, in its Order 8 dated
December 5, 2005, issued a writ of preliminary injunction restraining the PPA from taking over the
cargo handling operations until further orders. In a Resolution9 dated March 17, 2005, however, the
trial court lifted the writ of preliminary injunction and dismissed the petition filed by UDPDC, agreeing
with PPA's stance that as far as it was concerned, UDPDC's continued operation of the port was merely
by its tolerance, having no valid and existing permit, and that UDPDC's status was merely on the basis
of a holdover authority, temporary in nature, which may he recalled by PPA at any time.10cralawrednad
On March 27, 2006, UDPDC moved for the reconsideration of the dismissal of its petition. 11 Thereafter,
on March 29, 2006, the Municipality of Dumangas (MOD) filed a Petition-in-Intervention12 pursuant to
a Memorandum of Agreement13 (MOA) entered into by respondent PPA, Project Management Office-
Ports (PMO), Department of Transportation and Communications (DOTC), and Department of Interior
and Local Government (DILG) on June 30, 1999 wherein the parties signified their commitment to
strengthen the capability of Local Government Units (LGUs) to a planned and desirable sustainable
feeder ports operation as well as PPA Administrative Order No, 02-9814 dated August 31, 1998 which
provided for the devolution of port management functions from the PPA to the LGUs
concerned.15 According to MOD, they already underwent training courses on feeder port operation and
management at the PPA Training Center in preparation for the eventual transfer of the operation and
management of the Dumangas Port thereto and as mandated by the Social Reform Related Feeders
Port Development Project under the MOA. However, PPA, in taking over the Dumangas Port and
conducting a public bidding for the management of the same, abandoned its duties arising from the
MOA to support the port development project and to tum-over the operation of feeder or municipal
ports to their respective LGUs.16 Respondent PPA countered that pursuant to Executive Order (EO) No.
171,17 promulgated on October 25, 1999, it rightfully had administrative jurisdiction over the expanded
Dumangas Port Zone for the proper zoning, planning, development and utilization of the
port.18cralawrednad
On March 16, 2007, the RTC issued an Order19 agreeing with UDPDC's assertion that instead of
dismissing its petition, the trial court should have conducted a hearing to determine the issue of whether
UDPDC could effectively be deprived of the equipment, facilities, properties and improvements it
introduced on the Dumangas Port as a result of PPA's take� over without due process of law and
payment of just compensation. As to MOD's intervention, the RTC found that since the MOD had a valid
legal interest in the matter in litigation which may be adversely affected, its intervention is proper.
Thus, the trial court ordered the parties to file their respective memoranda.
On May 18, 2007, the RTC rendered a Decision20 finding that UDPDC has no more right to continue its
operations at the port after the expiration of the series of extensions granted to it for it was allowed to
do so by mere tolerance of PPA. However, it recognized that in the process of its operations, UDPDC
had purchased heavy equipment and facilities and had introduced considerable improvements necessary
for the efficient and effective operations therein. Thus, as law and equity demands, UDPDC should be
reimbursed therefor because to allow the take-over of operations in the port without reimbursement
would result in unjust enrichment at the expense of UDPDC.21 The trial court also noted the need for a
hearing to determine the amount of equipment and improvements to be reimbursed and to give the
parties a chance to present evidence in support of their respective claims.22cralawrednad
As to the claims of intervenor MOD, the RTC ruled that while President Joseph Ejercito Estrada had
issued EO No. 171 on October 25, 1999 declaring the Dumangas Port Zone to be under the
administration of the PPA, this was effectively rescinded by DOTC Department Order No. 2002-18 issued
on April 15, 2002 entitled "Effecting the Direct Tum-Over of Completed Port Projects Implemented
Under the Foreign-Assisted Nationwide Feeder Ports Development Program (NFPDP) to the Local
Government Units" under the new administration of President Gloria Macapagal Arroyo. This is because
according to the RTC, the official act of the DOTC Secretary in issuing said Department Order was
deemed as an act of the President pursuant to the principle of qualified political agency.23 It is presumed
that the action of the Secretary bears the implied sanction of the President absent any act subsequently
made setting aside, disapproving or reprobating such department order of then DOTC Secretary.24 Thus,
the mandate of DOTC Department Order No. 2002-18 to tum-over the Dumangas Port to MOD is
controlling, having effectively rescinded EO No. 171. The RTC added that under the law, MOD enjoys a
privileged position in terms of enhancing the principles of decentralization which provides adequate
resources to LGUs to effectively carry out their functions and discharge their power to create and
broaden their own sources of revenue and right to a just share in the proceeds of the national wealth
within their respective areas. Moreover, under the Rules of Interpretation under Republic Act (RA) No.
7160 of the Local Government Code (LGC) of 1991, any provision on a power of an LGU shall be liberally
interpreted in its favor.25cralawredcralawrednad
There is therefore no basis for the PPA to take over the operation of the cargo handling services at the
Dumangas Port.
In view of the foregoing, the trial court ruled as follows:ChanRoblesvirtualLawlibrary
59
WHEREFORE, finding the Amended Petition dated November 17, 2005 of the United Dumangas Port 4. The parties hereby waive their respective claims/ counterclaims against each other and
Development Corporation (UDPDC) without merit, the same is hereby dismissed. On the other hand, shall jointly undertake the approval of this Compromise Agreement by the proper court;
finding the Complaint-in-Intervention and Supplemental Complaint-in� Intervention of the Intervenor
Municipality with merit, the same is granted. Thus, UDPDC is hereby ordered to deliver to the 5. This Compromise Agreement fully settles the claims of the parties against each other to their mutual
Intervenor Municipality of Dumangas, Iloilo the operation of the cargo handling services of satisfaction. Said agreement may be pleaded as an absolute and final bar to suit or suits or legal
the Port of Dumangas, after the Intervenor has reimbursed the UDPDC of the value of its proceedings that may hereafter be initiated by either party, their assigns or subrogees, or anyone
development and improvements introduced in the Port and the value of its infrastructures claiming by, through, or under them, against each other arising or relating to the transaction subject
and equipment used in the operation of the Port. matter of the abovementioned case; x x x28

SO ORDERED. UDPDC objected to the admission of the Compromise Agreement for its failure to provide for the
reimbursement of its improvements as ordered by the trial court in its May 18, 2007 Decision.29 It also
PPA appealed from the aforequoted Decision via Notice of Appeal26 dated June 15, 2007. Consequently, alleged that the same was ultra vires for it was not approved by the Provincial Government of Iloilo and
PPA, UDPDC and MOD were required to submit their respective memoranda in support of their positions. the Provincial Legal Office. The Provincial Legal Officer of Iloilo as MOD's counsel of record similarly
objected to the Compromise Agreement on the ground that he was not informed nor was his permission
On March 4, 2009, PPA and MOD submitted a Compromise Agreement27 they executed on December 3, sought before the execution of the same.30 He alleged that Provincial Prosecutor Bernabe D. Dusaban
2008, which pertinently provides:ChanRoblesvirtualLawlibrary was unauthorized to act as counsel and represent MOD in the Urgent Joint Motion for Approval of the
Compromise Agreement. He further alleged that the purported Sangguniang Bayan Resolution No.
WHEREAS, all costs of development and improvements introduced in the port of Dumangas 2008-14 of the MOD did not comply with the requirements of the LGC, particularly, Sections 55 31 and
were made by the national government and PPA; 5632thereof.

WHEREAS, the LGU, in a letter to the PPA's General Manager dated 09 August 2007, inquired on the In its Decision dated December 4, 2009, the CA upheld the validity of the Compromise Agreement in
estimated value of the development and improvements introduced in the port of Dumangas and its the following wise:ChanRoblesvirtualLawlibrary
estimated value of the infrastructure introduced and equipment used in its operation as outlined in the
foregoing Decision; The issues before this Court anPPA's arguments on appeal as contained in its memorandum. This must
be so because neither MOD not UDPDC appealed the court a quo's Decision. Hence, as to them, they
WHEREAS, the PPA gave the total amount for the development and improvement introduced in the port can no longer assail the Decision.
of Dumangas as well as the infrastructures and equipment used in its operation at more or less PHP
111,930,282.28. (Annexes "B" & "C"); PPA's memorandum argued: (a) MOD's intervention was filed late; (b) PPA was denied due process
when it was not afforded an opportunity to file an answer to the MOD's petition-in-intervention; and (c)
WHEREAS, in Sangguniang Bayan Resolution No. 2008-14, the LGU: (a) acknowledged that it has no the MOD had no right to take over and manage the Port of Dumangas. PPA asked that it be declared
financial capacity to reimburse the PPA the amount aforestated; (b) recognized that the PPA has the the "appropriate agency to take over the operation of the cargo handling services of the Port
expertise and capacity to operate on its own, by contract or otherwise administer the port of Dumangas of Dumangas" and the dismissal of UDPDC's petition be reinstated in toto. However, these
in line with the latter's specific mandate; and (c) authorized the Hon. Mayor Ronaldo B. Golez to enter arguments against MOD became moot when the latter and PPA executed a "Compromise
into a compromise agreement with the PPA for the purpose of furthering the interests of the LGU and Agreement" between them.
its constituents;
This Court sees nothing essentially wrong with the "Compromise Agreement" because it
NOW, THEREFORE, in consideration of all the foregoing premises and of the stipulations, covenants and settles only the claims as between PPA and MOD. The matter of reimbursement remains
agreements, hereinafter set forth, the parties hereby mutually agree, as outstanding in UDPDC's favor. But as agreed between PPA and MOD, the same must be
follows:ChanRoblesvirtualLawlibrary settled by PPA - this must be so because MOD's principal motivation in seeking the
"Compromise Agreement" was that it could not afford to pay for the facilities introduced in
1. The PPA shall continue to administer the port of Dumangas in Iloilo under Presidential the Port of Dumangas, as unambiguously stated in the "Whereas" clause thereof. Clearly, the
Decree No. 857, as amended, Executive Order No. 171, Series of 1999, its policies, rules and issue of reimbursement, as it is still alive, was shifted to PPA to resolve. While on this issue,
regulations; there being allegations that the facilities at the Port of Dumangas were spent for by the
national government and PPA itself, and there being a prayer by PPA that this Court dismiss
2. The LGU shall respect and honor any existing award, permit, contract or authority issued outright UDPDC's petition, it behooves this Court to remand the instant case to the court a
or to be issued by the PPA involving the operation and management of any services in the quo for a categorical declaration on two (2) essential points: (a) as to whose provenance the
port of Dumangas; improvements at the Port of Dumangas should be rightfully credited: and (b) as to how much
these facilities are worth for purposes of reimbursement, if at all.
3. The LGU, under such terms and conditions as may be mutually agreed upon by the parties,
may manage and operate the port of Dumangas or jointly undertake projects and/or The idea of settling cases on appeal is not at all unheard of, much less, irregular. After all,
activities for the mutual benefit of both parties, the port users and the general public, subject the stress on mediation and judicial dispute resolution on appeal has been one of the
to PPA's existing and applicable policies, rules and regulations; Supreme Court's programs on judicial reform. With a "Compromise Agreement" on the line
that settles this case with two (2) of the principal protagonists emerging winners, and the

60
third one not prejudiced as regards its rights and should also be therefore happy, this Court
can do no less but approve it and cut-short the instant litigation.33
As to the objections of the Provincial Legal Officer of Iloilo, the appellate court found the same to be
without merit for the provisions of the LGC, specifically, Sections 31,34 5535 56,36 and 481,37 cited by
said officer fails to support his claim. We quote the CA's ratiocination:ChanRoblesvirtualLawlibrary
The representation by the Provincial Legal Office is couched in the permissive "may" as
stated in Sec. 31 quoted above. The review of ordinances or resolutions is limited to those
"approving the local development plans and public investment programs formulated by the
local development councils." The "Compromise Agreement" is neither of these because it is
obviously not a "local development plan" or a "public investment program." What do these
two concepts mean? As explained by the Asian Development Bank, they are a "wish list" of
projects for funding that are integrated into macro-economic plans, not the individual project
concepts themselves:
x x x x
This Court cannot give credence to the Provincial Legal Office's arguments for to do so would
run contrary to the autonomy of MOD as a local government unit. Its leaders who were
represented in the "Compromise Agreement" were elected by the people of MOD, hence, their
voice as to the direction of where the Port of Dumangas should be, is entitled to great weight
and should not be lightly set aside - especially so if the opinion that is supposed to replace it
is one coming from a non-tenured public officer and unelected at that. The distinction
between MOD's duly elected leaders and the Provincial Legal Office should be clear enough
to those who rightfully discern.
Indeed, the test as to when the Provincial Legal Office should continue representing the
municipality concerned ought to be circumscribed by the tenets of a lawyer-client
relationship, that is, the client's advantage. The Provincial Legal Office's assistance must be
summoned, and summoned quickly, only when the client runs the risk of suffering from a
case without due representation. Verily, it is a test of actual advantages or lack of them. Here, this
Court sees nothing apparently prejudicial to MOD that would arise from the "Compromise
Agreement." It actually relieves MOD of the burden of paying for the facilities at the Port of
Dumangas by way of reimbursement because PPA would have to take care of it, if at all, but
at the same time allows MOD the opportunity to manage and operate the port. Hence, there
is no need for the Provincial Legal Office to insist on its representation of MOD. All in all, the
"Compromise Agreement" should be a welcome development for the parties concerned.
WHEREFORE:ChanRoblesvirtualLawlibrary
(a) The "Motion to Recuse" is DENIED for lack of merit.
(b) The "Compromise Agreement" is APPROVED by this Court as it is not contrary to law, public policy
and morals. It is the final and executory judgment in this civil case as between the Philippine Ports
Authority and the Municipality of Dumangas.
(c) The matter of reimbursement of the value of the facilities at the Port of Dumangas is
REMANDED to the court a quo for determination (a) as to whose provenance the
improvements at the Port of Dumangas should be rightfully credited; and (b) as to how much
these facilities are worth for purposes of reimbursement if at all.38
UDPDC filed a Motion for Reconsideration39 dated December 29, 2009 invoking that the appellate court
erred in: (1) approving the Compromise Agreement between PPA and MOD which does not define which
of the parties shall be liable to UDPDC for the values of the equipment and improvements it introduced
in the Dumangas Port; (2) ruling that MOD need not be represented by the Provincial Legal Officer and
need not observe the procedure prescribed by the LGC in executing the Compromise Agreement; and
(3) remanding the case to the trial court to determine as to whose provenance the improvements should
rightfully be credited when it had already ruled in favor of its right to be reimbursed.
MOD, represented by the Provincial Legal Officer, likewise filed a Motion for Reconsideration40 invoking
the following grounds: (1) the appellate court does not have authority to recognize, worse, approve the
spurious and illegal Compromise Agreement. From the standpoint of the law, there is no Compromise
Agreement, hence, the appeal should have been decided on the issues raised therein; (2) MOD has no
obligation to pay PPA the sum of P111,930,282.28 to effect the turnover of the Dumangas Port to MOD;
and (3) there is no legal basis to remand the case to the trial court for re-trial.
However, in a Resolution41 dated July 1, 2010, the CA denied the Motions for Reconsideration filed by
UDPDC and MOD finding no compelling reason to disturb its Decision as it had already categorically
declared that UDPDC is entitled to reimbursement of the value of improvements which must be settled
by PPA.
On September 7, 2010, UDPDC filed the instant Petition for Review on Certiorari invoking the following
grounds:ChanRoblesvirtualLawlibrary
I.
THE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN APPROVING THE COMPROMISE
AGREEMENT BETWEEN PPA AND PURPORTEDLY MOD DESPITE THE CLEAR FACT THAT IT: (1) IS
CONTRARY TO LAW; (2) IS CONTRARY TO PUBLIC POLICY; (3) IS WITHOUT THE PROVENANCE AND
APPROVAL OF THE PROPER AND LEGITIMATE AUTHORITY; (4) IS BASED ON A FINDING NOT
SUPPORTED BY ANY EVIDENCE; AND (5) REVERSED, IF NOT MODIFIED, THE RTC DECISION JUDGMENT
IN FAVOR OF PETITIONER UDPDC, A PARTY TO THE CASE BUT NOT TO THE COMPROMISE AGREEMENT.
II.
THE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN TOTALLY IGNORING AND NOT RULING
UPON THE ISSUE RAISED BY UDPDC, I.E. WHETHER OR NOT PPA HAS THE RIGHT TO ARBITRARILY
AND WHIMSICALLY REVOKE AND CANCEL THE UDPDC'S HOLD-OVER PERMIT WITHOUT ANY CAUSE OR
REASON, BUT UPON DICTATES OF A POWERFUL POLITICIAN IN THE FOURTH CONGRESSIONAL
DISTRICT OF ILOILO.
UDPDC assails the validity of the Compromise Agreement executed between PPA and purportedly the
MOD. First, it maintains that the Compromise Agreement is contrary to law and public policy, particularly
DOTC Department Order No. 2002-18 and the MOA executed by the PPA, PMO and the DILG, both of
which direct the transfer of the operation, management and maintenance of feeder ports to their
respective LGUs in furtherance of the commitment to insure their economic autonomy and strengthen
their institutional capability under the Social Reform Related Feeders Ports Development Project.42 In
furtherance thereof, UDPDC stated that PPA itself even issued PPA Administrative Order No. 02-98
setting the guidelines on the transfer of the administration of ports to the LGUs.43cralawrednad
Second, UDPDC avers that the Compromise Agreement is without the provenance and approval of the
legitimate and proper authorities. Particularly, it questions the Resolution No. 2008-33 and Resolution
No. 2008-14 issued by the Sangguniang Bayan purportedly authorizing the execution of the
Compromise Agreement for they were not submitted to the Sangguniang Panlalawigan and the
Provincial Legal Officer for review as required by Section 5644 of the LGC. According to UDPDC, the
61
subject resolutions waiving the rights of MOD over the Port of Dumangas is definitely one involving a Agreement, was elected by the people of MOD, and his decisions must be accorded great weight
"local development plan," and hence, subject to review by the Sangguniang especially when the opinion he is replacing is one from a non� tenured, unelected officer, such as the
Panlalawigan.45cralawrednad Provincial Legal Officer. Such officer's assistance must only be summoned when the client, the MOD in
this case, runs the risk of suffering from a case without due representation. Here, however, there is
Moreover, under Sections 3146 and 48147 of the LGC, only the municipal legal officer, or if there is none, nothing in the Compromise Agreement that is prejudicial to MOD. In fact, the same actually relieves it
as in this case, the provincial legal officer, has sole authority to represent MOD. This is from the burden of reimbursing UDPDC for the obligation is transferred to PPA.53cralawrednad
mandatory.48cralawrednad
On UDPDC's alleged right to continue its operations in the port, PPA asserts UDPDC's failure to appeal
Thus, neither the provincial prosecutor nor the incumbent Mayor Ronaldo Golez who signed and filed the May 18, 2007 Decision of the trial court wherein it states that UDPDC does not have any more right
the Motion to Approve Compromise Agreement and the Compromise Agreement itself has legal authority to the port since its continued operation was by mere tolerance of the PPA.54 Consequently, such issue
to represent and act as counsel for the municipality. The authority of the provincial prosecutor is is no longer open for review.
restricted only to giving legal opinions, and only if there is no municipal or provincial legal
officer.49 UDPDC notes that Provincial Prosecutor Dusaban was aware of this, which is why he later on As to the validity of the Compromise Agreement, PPA counters that the same cannot be invalidated for
withdrew his appearance as counsel for MOD. UDPDC suffered no prejudice therefrom. In fact, it noted that compromise agreements, such as the one
it executed with MOD, are not only allowed, but are also encouraged in civil cases. 55� Moreover,
Third, PPA's claim in the Compromise Agreement that it had spent P111,930,282.28 has no mooring in contrary to UDPDC's contention, the agreement did not reverse nor modify the trial court's decision
evidence. According to UDPDC, the feeder ports project all over the country is under the Social Reform with respect to its right to reimbursement. The appellate court, in approving of the same, merely
Related Feeder Ports Development Projects funded from the financial assistance extended by Japan recognized the improvements introduced by the national government and PPA on the port. PPA
Bank for International Cooperation (JBIC) under soft loan agreements Nos. PH-P80 and PH-P173. substantiated this by attaching to its Comment documents56 entitled "Project Brief' purportedly
Moreover, there is nothing in the loan agreements, DOTC Order No. 2002-18, PPA Administrative Order evidencing the expenses it incurred in the construction of improvements on the port.57cralawrednad
No. 02-98, and the MOA which states that MOD shall reimburse the national government or PPA the
costs of the Dumangas Port before it would devolve upon the former. Furthermore, the finding that The petition is partly meritorious. A perusal of the provisions of the Compromise Agreement, as well as
MOD has no expertise to manage the port runs contrary to the fact that the PPA had conducted months- the circumstances surrounding its execution, negates its validity.
long seminars for local government officials, including then Mayor Distura, of MOD, specifically to enable
them to run the local ports.50cralawrednad Section 56 of the Local Government Code provides:ChanRoblesvirtualLawlibrary

Fourth, the Compromise Agreement reversed, if not modified, the RTC judgment in favour of UDPDC, a Section 56. Review of Component City and Municipal Ordinances or Resolutions by the Sangguniang
party to the case but not to the same. Panlalawigan.

Nowhere in the Compromise Agreement does it identify which between the PPA and the MOD shall (a) Within three (3) days after approval, the secretary to the sanggunian panlungsod or
assume the reimbursement to UDPDC. The RTC had already ruled in favour of UDPDC's right to sangguniang bayan shall forward to the sangguniang panlalawigan for review, copies of
reimbursement, which was not objected to by PPA nor the MOD. However, the appellate court merely approved ordinances and the resolutions approving the local development plans and public
approved the Compromise Agreement, disposed that PPA, not MOD, is the party who should reimburse investment programs formulated by the local development councils.
UDPDC, and even remanded the case to the trial court for a re-determination as to whose provenance
the improvements of the Port of Dumangas should be rightfully credited. (b) Within thirty (30) days after the receipt of copies of such ordinances and resolutions, the
sangguniang panlalawigan shall examine the documents or transmit them to the provincial
Aside from assailing the validity of the Compromise Agreement, UDPDC further maintains that PPA has attorney, or if there be none, to the provincial prosecutor for prompt examination. The
no legal right or authority to revoke its hold-over permit without just and valid cause and only upon the provincial attorney or provincial prosecutor shall, within a period of ten (10) days from
dictates of a powerful politician in the 4th Congressional District of Iloilo. According to UDPDC, PPA's receipt of the documents, inform the sangguniang panlalawigan in writing of his comments
take-over is violative of the requirement in PPA Administrative Order No. 02-98 that it shall be for cause or recommendations, which may be considered by the sangguniang panlalawigan in making
in order to protect and promote public interest. In addition, UDPDC claims that its continued operation its decision.
of the port despite the expiration of its permit constitutes an implied renewal of the same. As such, it
asks the Court to fix a period within which it shall operate the port. (c) If the sangguniang panlalawigan finds that such an ordinance or resolution is beyond the power
conferred upon the sangguniang panlungsod or sangguniang bayan concerned, it shall declare such
In its Comment, PPA counters that UDPDC's non-inclusion in the Compromise Agreement does not ordinance or resolution invalid in whole or in part. The sangguniang panlalawigan shall enter its action
render it illegal nor contrary to law. Citing the ruling in Valdez v. Financiera Manila, Inc.,51 PPA states in the minutes and shall advise the corresponding city or municipal authorities of the action it has taken.
that the only legal effect of the non-inclusion of a party in a compromise agreement is that said party
cannot be bound by the terms of the same. It shall, however, be binding on the parties who signed (d) If no action has been taken by the sangguniang panlalawigan within thirty (30) days after
thereon.52 PPA also maintains that the assistance of the Provincial Prosecutor instead of the Provincial submission of such an ordinance or resolution, the same shall be presumed consistent with law and
Legal Officer in the execution of the Compromise Agreement is not an impediment for the approval of therefore valid.
the same. This is because the Provincial Prosecutor was duly authorized to represent MOD by virtue of
Resolution No. 2008-33 issued by the Sangguniang Bayan on March 19, 2009. While at the onset, In upholding the validity of the Compromise Agreement, the appellate court held that "the review of
counsel for MOD was the Provincial Legal Officer, MOD has a right to discharge its attorney. On this ordinances or resolutions is limited to those approving the local development plans and public
score, PPA cites the ruling of the appellate court stating that the Mayor, who signed the Compromise
62
investment programs formulated by the local development councils." It stated that the subject
Compromise Agreement is neither a "local development plan" nor a "public investment program,"
pursuant to the explanation provided by the Asian Development Bank (ADB), to
wit:ChanRoblesvirtualLawlibrary
Consequently, in the 1980s many developing countries moved to rolling public investment plans,
generally with the encouragement and along the recommendations of the World Bank. These rolling
investment plans are usually named Public Investment Programs (PIP). They are widely used in aid-
dependent countries, since one of their aims is to improve aid coordination, and are less common in
middle-income countries. Recently, with the assistance of the World Bank and the European Union, PIPs
have been newly introduced in a number of transition countries.
In some developing countries, a PIP became a simple wish list, used to attract aid from donors and
international financial institutions, or even just to fulfill a formalistic requirement of Consultative Groups
and other donor meetings.. Often such wish list is prepared hastily for the meetings with the assistance
of external consultants and little genuine involvement of local officials. The role of these wish lists of
project in the formulation of the budget is generally weal or nil. Worse, because these PIPs are shopping
lists rather than programming tools, they invariably include a variety of weak, unsound, or
undocumented project proposals. Even the marginal usefulness of these PIPs as documentation for a
donor meeting is swamped by the risk of financing bad projects; by the implicit transfer of control over
the development agenda from the government to the external donors; and by the generalized loss of
credibility of the programming process. It would be better if they were not prepared at all (or externally
requested).
One does not, however, dismiss an economic programming tool because it is often misused or abused
in practice. The following discussion examines the utility of PIPs when they are genuine medium-term
programs for public investment. If it is concluded that this tool is appropriate to a particular country,
then it becomes necessary to assure that it is designed and used properly. In any case, the relatively
large donor funding will either be appropriately programmed, in relation to the policy priorities of the
recipient country, or still be distributed, but without any central scrutiny of project quality, consistency
with policy, or coordination with the budgeting of domestic resources. A good PIP is aimed at ensuring
five different (although interrelated) functions:
 improving economic management, to ensure that macroeconomic sector strategies
are translated into programs and projects;
 improving aid coordination and channeling external resources to priority areas;
 strengthening the hand of the government in negotiating with external donors;
 assisting public financial management, by balancing (partial) commitments and
resources over a multi-year framework; and
 strengthening the project cycle by providing a framework within which project
preparation, implementation, and monitoring can occur.
Perhaps the most significant benefit that aid-dependent developing countries receive from good PIPs is
that the process of PIP preparation itself gives an opportunity to review, and then integrate into the
budget, aid-financed expenditures that were previously nonbudgeted. (As chapter 2 stressed, the
budget should be comprehensive and should include all government expenditures, however financed.)
PIP exercises contribute also to extending the horizon of financial programming and planning beyond
the annual budget, and the perspective of policymakers in a more realistic way than previous five-year
plans.
Finally, if conducted rigorously and with full local participation, the process can be an invaluable
capacity-building tool, and a way to introduce financial discipline and the awareness of opportunity cost
into the informal rules of the local bureaucracy. Finally, a good PIP process can set the stage for the
eventual medium-term programming of all expenditure which is the optional way of incorporating the
needed multi-year perspective in to the budget process.58
On the basis of the aforequoted text, the appellate court simply concluded that local development plans
and public investment programs are a "wish list of projects for funding that are integrated into macro-
economic plans, and not the individual project concepts themselves."59 Without expounding on said
conclusion, however, nor citing any provision of law or jurisprudence that would justify the same, the
CA immediately dispensed with the requirement of forwarding to the sangguniang panlalawigan for
review, copies of approved ordinances and the resolutions approving the local development plans and
public investment programs. No other basis, legal or otherwise, was offered to explain how the operation
of a commercial port for the generation of income cannot fall within the definition of "local development
plan" nor a public investment program. In fact, as observed by MOD, through the Provincial Legal
Officer, nowhere in the ADB write-up does it state that feeder ports, like the Port of Dumangas, are not
"local development plans'' or "public investment projects" for purposes of the LGC.
Even granting that the subject resolutions need not be submitted to the Sangguniang Panlalawigan for
review, these resolutions purportedly authorizing Municipal Mayor Golez to enter into the Compromise
Agreement still cannot be given credence. Under Section 444(b)(l)(vi)60 of the LGC, the municipal mayor
may represent the municipality in all its business transactions and sign, on its behalf, contracts and
obligations made pursuant to law or ordinance. However, a mere resolution, such as those issued by
the Sangguniang Bayan herein, does not suffice to approve PPA's claim of Php 111,930,282.28 against
MOD for no rights can be conferred by and be inferred from a resolution, which is nothing but an
embodiment of what the law-making body has to say in the light of attendant circumstances.61 Contrary
to the appellate court's stance, that Mayor Golez was elected by the people of MOD does not excuse
him from acting within the parameters set by law. Thus, while it is true that compromise agreements
between the parties in civil cases are not only allowed but even encouraged, in order for them to be
binding on the parties, however, they must be executed in accordance with applicable law and
jurisprudence.
On this score, alone, the Compromise Agreement must be nullified for being entered into without
complying with the provisions of law. Yet, a substantial reading of the same further demands its
nullification as its terms are highly irregular and manifestly disadvantageous to the MOD. It bears
stressing that under the Compromise Agreement, MOD suddenly became indebted to PPA for the costs
of improvements it allegedly introduced on the port in the amount of Php 111,930,282.28. This
obligation to reimburse PPA, however, was never asserted throughout the proceedings, not even on
PPA's appeal to the CA. Neither was there any evidence submitted to substantiate the claim. Note that
only in its Comment filed before this Court did the PPA attempt to provide some sort of basis in support
of its alleged expenses. But two pages containing a mere enumeration of certain works purportedly
constructed on the port with the total amount at the bottom of each page can hardly be considered
sufficient to entitle PPA reimbursement of Php 111,930,282.28.62 As noted by UDPDC, not only are the
documents unsigned, of an unknown source and authorship, but their authenticity and due execution
were not even shown.63cralawrednad
The foregoing, notwithstanding, it was on this unsubstantiated claim that MOD's right to operate the
Port of Dumangas was waived in favor of PPA, contrary to the letter and spirit of prevailing law and
contractual agreements. Under the DOTC Department Order No. 2002-18,64 the PPA was expressly
directed to revert the Port of Dumangas, among other ports enumerated therein, to the DOTC which
shall, in tum, cause the turnover of the same to their respective LGUs pursuant to the loan agreements
between the Government and the JBIC under the Social Reform Related Feeders Ports Development
Project. It is for the same project that the PPA entered into the MOA with the PMO and DILG to provide
its assistance in the implementation of the training program to strengthen the capability ofLGUs on
63
feeder ports operation and management through the facilities of PPA Training Center.65 In line with this,
PPA itself issued Administrative Order No. 02-9866 which similarly provided for the devolution of port
management functions from the PPA to the LGUs concerned setting the guidelines thereon. According
to MOD, moreover, its local government officials, including then Mayor Distura, even underwent training
courses on feeder port operation and management at the PPA Training Center specifically to enable
them to run the local ports.
It bears stressing that apart from the unsustainable Compromise Agreement, PPA failed to provide the
Court with sufficient basis, legal or otherwise, in support of its alleged authority to take-over the
operation of the Dumangas Port. While the PPA was indeed, authorized by EO No. 171 to exercise its
administrative jurisdiction over the Dumangas Port, DOTC Department Order No. 2002-18, issued after
EO No. 171, effectively rescinded the latter for as correctly ruled by the trial court, acts of the secretaries
of such departments, performed and promulgated in the regular course of business are, unless
disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive.67Consequently, PPA's authority to administer the Port of Dumangas was effectively
superseded by the directive mandated by the DOTC Department Order to transfer the operation of the
same to the MOD.
Thus, in view of the Compromise Agreement's procedural and substantive infirmities, the Court cannot
allow the same to govern the rights of the parties herein. The appellate court's central consideration in
approving of the same on the ground that it effectively disposes of the case with the parties "emerging
as winners" cannot be sustained. On the one hand, its contention that there is nothing in the
Compromise Agreement that is prejudicial to MOD for it actually relieves it from the burden of
reimbursing UDPDC is misleading. Not� only is there nothing in the agreement which states that PPA
undertakes to assume MOD's obligation to reimburse UDPDC, MOD suddenly became indebted to PPA
in the amount of Php111,930,282.28. Yet, as previously discussed, PPA's claim to said amount was
unsubstantiated by convincing evidence. Moreover, as UDPDC noted, nowhere in the DOTC Order No.
2002-18, PPA Administrative Order No. 02-98, nor the MOA is it stated, expressly or impliedly, that
MOD is obliged to reimburse PPA costs of the Dumangas Port before it would devolve upon the former.
Clearly, PPA's claim to reimbursement has neither legal nor evidentiary basis. Yet, in spite of this, the
MOD, pursuant to the Compromise Agreement, waived its right to operate the Dumangas Port granted
to it by prevailing law and binding agreements.
On the other hand, the Court also cannot sustain the appellate court's ruling that UDPDC must "be
happy" that its rights are not prejudiced for the matter of reimbursement remains outstanding in its
favor, only that the same must be settled by the PPA. While it is conceded that the non-inclusion of
UDPDC in the Compromise Agreement does not perforce nullify it, the wording of the same taken in
conjunction with the ruling of the appellate court renders UDPDC's right to reimbursement uncertain.
Again, there is nothing in the agreement which states that PPA undertakes to assume MOD's obligation
to reimburse UDPDC. Moreover, while the CA claims to recognize UDPDC's right to reimbursement, it
remands such matter to the court a quo for determination (a) as to whose provenance the
improvements at the Port of Dumangas should be rightfully credited; and (b) as to how much these
facilities are worth for purposes of reimbursement if at all. Thus, the CA's contention that it had already
categorically declared that UDPDC is entitled to reimbursement of the value of improvements is belied
by the fact that it remanded the case to the trial court to determine as to whose provenance the
improvements at the Port of Dumangas should be rightfully credited. Its approval of the Compromise
Agreement cannot, therefore, be justified on the simple reasoning that all parties in the instant case
are not prejudiced thereby for as previously discussed, the provisions of the agreement are actually
disadvantageous to the rights ofUDPDC and MOD.
Anent UDPDC's contention, however, that the PPA did not have authority to revoke its hold-over permit,
the following ruling in Philippine Ports Authority v. Cipres Stevedoring & Arrastre, Inc.,68 is
instructive:ChanRoblesvirtualLawlibrary
In connection with the foregoing, we likewise find no arbitrariness nor irregularity on the part of
petitioner as far as PPA AO No. 03-2000 is concerned. It is worthwhile to remind respondent that
petitioner was created for the purpose of, among other things, promoting the growth of
regional port bodies. In furtherance of this objective, petitioner is empowered, after
consultation with relevant government agencies, to make port regulations particularly to
make rules or regulation for the planning, development, construction, maintenance, control,
supervision and management of any port or port district in the country. With this mandate, the
decision to bid out the cargo holding services in the ports around the country is properly within the
province and discretion of petitioner which we cannot simply set aside absent grave abuse of discretion
on its part. The discretion to carry out this policy necessarily required prior study and evaluation and
this task is best left to the judgment of petitioner. While there have been occasions when we have
brushed aside actions on the part of administrative agencies for being beyond the scope of their
authority, the situation at the case at bar does not fall within this exception.
x x x x
In the case at bar, respondent sought the issuance of a writ for preliminary injunction in order to prevent
the "cessation of cargo handling services in the port of Dumaguete City to the detriment and prejudice
of the public, shipper, consignees and port workers." However, the factual backdrop of this case
establishes that respondent's eight-year contract for cargo handling was already terminated
and its continued operation in the port of Dumaguete City was merely by virtue of a second
hold-over permit granted by petitioner through a letter dated 27 December 1999, the
pertinent portion of which reads:
This HOP extension shall be valid from January 18, 2000 up to April 18, 2000, unless sooner withdrawn
or cancelled or upon the award of the cargo handling contract thru public bidding.
By its nature, the hold-over permit was merely temporary in nature and may be revoked by
petitioner at anytime. As we declared in the case of Anglo-Fil Trading Corporation, hold-over
permits are merely temporary and subject to the policy and guidelines as may be
implemented by petitioner. The temporary nature of the hold-over permit should have served
as adequate notice to respondent that, at any time, its authority to remain within the
premises of the port of Dumaguete City may be terminated. Unlike the contract for cargo
handling services previously entered into by petitioner and respondent, whose terms and
conditions were agreed upon by the parties herein and which clearly provided for a specific
period of effectivity as well as a stipulation regarding the notice of violation, the hold-over
permit was unilaterally granted by petitioner pursuant to its authority under the law.
Based on the foregoing, it is clear that at the time of the institution of this suit, respondent
no longer possessed any contract for its continued operation in Dumaguete City and its stay
in the port of said city was by virtue of a mere permit extended by petitioner revocable at
anytime by the latter. Obviously, the writ of preliminary injunction issued by the Court of Appeals
granted respondent the authority to maintain its cargo handling services despite the absence of a valid
cargo handling agreement between respondent and petitioner. For this reason, we hold that the Court
of Appeals erred in ordering the court a quo to issue the writ of preliminary injunction in favor of
respondent.69
Similarly in this case, the series of hold-over authorities as well as the final holdover permit granting
UDPDC a three (3)-month extension was clearly temporary in nature. As aptly found by the trial court,
UDPDC's continued operation of the port was merely by PPA's tolerance, having no valid and existing
permit, and that UDPDC's status was merely on the basis of a holdover authority, temporary in nature,
which may be recalled by PPA at any time. As such, the holdover permits should have served as
adequate notice to UDPDC that, at any time, its authority to remain within the premises of the port of
Dumangas may be terminated. That PPA arbitrarily revoked UDPDC's permit upon the dictates of a
powerful politician in the fourth congressional district of Iloilo is a mere speculation, unsupported in
evidence. Thus, in view ofthe expiration ofUDPDC's permit to operate the port, and in the absence of
64
any contract renewing the same, UDPDC cannot claim to have any right to the administration thereof.

WHEREFORE, premises considered, the instant petition is PARTLY GRANTED. The Decision and
Resolution, dated December 4, 2009 and July 1, 2010, respectively, of the Court Appeals in CA-G.R. SP
No. 03293 are SET ASIDE insofar as it: (1) approved the Compromise Agreement; and (2) remanded
to the trial court the determination as to whose provenance the improvements at the Port of Dumangas
should be rightfully credited and as to how much these facilities are worth for purposes of
reimbursement, if at all. The Compromise Agreement executed by respondent Philippine Ports Authority
and Municipality of Dumangas on December 3, 2008 is hereby declared INVALID and WITH NO
EFFECT. The Decision dated May 18, 2007 ordering the delivery to the Municipality of Dumangas the
operation of the cargo handling services of the Port of Dumangas, after the Municipality has reimbursed
petitioner United Dumangas Port Development Corporation of the value of its development and
improvements introduced on the Port and the value of its infrastructures and equipment used in the
operation thereof, is REINSTATED. For this purpose, the records of this case are
hereby REMANDED to the Regional Trial Court of P.D. Monfort North, Dumangas, Iloilo, Branch 68, for
the proper determination of the value of equipment and improvements introduced by petitioner on the
Port of Dumangas.

SO ORDERED.chanrobles virtuallawlibrary

65
G.R. No. 170679, March 09, 2016 a. Upon approval by the Securities and Exchange Commission (SEC) of the application for increase of
the number of shares of stocks of the Corporation; or
TUNG HUI CHUNG AND TONG HONG CHUNG, Petitioners, v. SHIH CHIU HUANG A.K.A. JAMES
b. Four (4) months after the signing of this Contract.
SHIH, Respondent.
x x x x
DECISION
3. VENDOR and VENDEE hereby agree that the subject shares shall be priced at the average value
BERSAMIN, J.: thereof five (5) days prior to end of the fourth month as specified in Section 1 (b). In the event that
VENDOR is able to deliver the subject shares to VENDEE prior to any of the periods given in Section 1,
the subject shares shall be valued at the price mutually agreed upon in writing by both VENDOR and
A compromise agreement has the effect and authority of res judicata between the parties, and is VENDEE at the time of actual delivery;
immediately final and executory, unless rescinded upon grounds that vitiate consent. Once stamped
with judicial imprimatur, it is more than a mere contract between the parties. Any effort to annul the 4. It is hereby understood that the exact number of shares to be delivered by VENDOR to VENDEE shall
judgment based on compromise on the ground of extrinsic fraud must proceed in accordance with Rule be that equivalent to Ten Million Six Hundred Six Thousand Two Hundred Sixty Six Philippine Currency
47 of the Rules of Court. (Php10,606,266,00), consideration of this Contract, at the value or price thereof provided in Section 3;

The Case 5. VENDEE hereby acknowledges that VENDOR has advanced to him certain certificates of stocks of the
Corporation equivalent to Thirty Four Million Two Hundred Thousand (34,200,000) shares, which are
This appeal by petition for review on certiorari seeks the review and reversal of the decision not yet transferred to his name, which number of shares shall be deducted from the subject shares to
promulgated on September 30, 2005,1 whereby the Court of Appeals (CA) annulled and set aside the be delivered by VENDOR to VENDEE at the value provided in Section 3;8 (emphasis supplied)
judicially-approved compromise agreement of August 19, 2003,2 and the resolution dated December 1,
2005,3whereby the CA denied the motion for reconsideration, as well as the orders of January 13, xxxx
20054 and February 28, 20055 of the trial court denying the motion to quash the writ of execution to The petitioners alleged that under the provisions of the contract to sell, the equivalent shares of stock
enforce the compromise judgment. in the corporation should be their value as of February 22, 2001, the date corresponding to the five-
day period prior to the end of the fourth month after October 30, 2000, the date of the signing of the
Antecedents contract to sell; that according to the Philippine Stock Exchange, Inc. (PSEI), the shares of the
corporation, which stood at P0.05 for the open, high, low and closing prices on February 22, 2001, had
On September 6, 2001, the petitioners, both Australian citizens, filed in the Regional Trial Court (RTC), the equivalent of 177,925,320 shares of stock; and that the respondent failed to deliver the shares of
Branch 49, in Manila an amended complaint6 to recover from the respondent a sum of money and stock corresponding to the agreed amount on the date fixed by the contract.
damages (with prayer for a writ of attachment). The suit, docketed as Civil Case No. 01-101260,
involved the contract to sell dated October 30, 2000,7 whereby the respondent, as the vendor, On October 10, 2001, the RTC issued an amended order granting the petitioners' application for the
undertook to deliver to the petitioners, as the vendees, shares of stock worth P10,606,266.00 in Island writ of preliminary attachment.9 On December 27, 2001, the respondent submitted his answer with
Information and Technology, Inc. (the corporation), a publicly listed corporation. The contract to sell counterclaim.10
pertinently stipulated:
chanRoblesvirtualLawlibrary Later on, the parties filed their Joint Motion for Approval of a Compromise Agreement dated August 19,
x x x x 2003.11 The compromise agreement, which was signed by the respondent and by Eduard Alcordo, as
the attorney-in-fact of the petitioners, with the assistance of their respective counsels, stipulated that
WHEREAS, sometime in the month of March, 2000 VENDEE remitted to VENDOR the total amount of the parties agreed to settle their respective claims and counterclaims, and the respondent acknowledged
Ten Million Six Hundred Six Thousand Two Hundred Sixty Six Philippine currency (Php10,606,266.00) therein his obligation to the petitioners in the amount of $250,000.00, which he promised to pay in US$
which VENDOR hereby acknowledges receipt of the same; currency, as follows:
chanRoblesvirtualLawlibrary
WHEREAS, the above amount was given by VENDEE to VENDOR in consideration for equivalent number
of shares ("subject shares") of stock in the corporation, at the price specified below, which shares 1. The amount of Twenty Thousand Dollars (US$20,000.00) on or before November 15,
VENDOR will deliver to VENDEE at the time agreed upon in this Contract; 2003;

NOW, THEREFORE, for and in consideration of the foregoing premises, VENDOR and VENDEE hereby
2. The amount of Sixty Five Thousand Dollars (US$65,000.00) on or before November
agree as follows:
15, 2004;
1. VENDOR shall deliver to VENDEE the subject shares on cither of the following dates, whichever comes
sooner: 3. The amount of Sixty Five Thousand Dollars (US$65,000.00) on or before November
15, 2005;

66
 4. The amount of Fifty Thousand Dollars (US$50,000.00) on or before November 15,
2006; and SO ORDERED.27ChanRoblesVirtualawlibrary
The CA opined that based on the huge difference between the obligation of $250,000.00 as stated in
5. The amount of Fifty Thousand Dollars (US$50,000.00) on or before November 15, the compromise agreement and the relief prayed for in the amended complaint worth P10,606,266.00,
2007.12 there could be no other conclusion than that the respondent had been deceived into entering into the
compromise agreement; and that, in addition, the writ of execution was void for varying the terms of
the judgment by directing the payment of the entire $230,000.00 obligation, thereby including sums
The parties further agreed that upon payment of the first installment of US$20,000.00, both of them that were not yet due and demandable.
would jointly move for the partial lifting of the writ of attachment issued by the RTC against the
properties of the respondent. The petitioners moved for reconsideration,28 but the CA denied their motion.29

The RTC approved the compromise agreement on October 20, 2003.13 Hence, this appeal.

Upon the respondent's payment of the initial amount of US$20,000.00, the parties filed their Joint
Issues
Motion to Partially Lift the Preliminary Attachment dated December 16, 2003 in accordance with the
compromise agreement.14 The RTC granted the joint motion.
On the procedural aspect, the petitioners contend that the judicial compromise agreement could no
longer be assailed through certiorari; that the lapse of time between the approval of the compromise
But the respondent did not pay the November 15, 2004 second installment despite demand. Instead,
agreement on October 20, 2003 and the filing of the petition for certiorari in C.A.-G.R. SP No. 88804
he filed in the CA a petition for annulment of judgment dated November 25, 2004 (C.A.-G.R. SP No.
on March 7, 2005 had rendered the compromise agreement conclusive and immutable.
87768),15 thereby seeking to nullify the amended order dated October 10, 2001 granting the application
for the writ of attachment, and the order dated October 20, 2003 approving the compromise agreement.
On the substantive aspect, the petitioners insist that there was no fraud in the execution of the
compromise agreement; that contrary to the findings of the CA, there was nothing appalling in the
Meanwhile, the petitioners sought the execution of the judgment upon the compromise agreement
amount agreed upon in the compromise agreement that amounted to fraud considering that their
through their motion for execution dated December 2, 2004 on the ground of the respondent's failure
amended complaint had prayed for P10,606,266.00, an amount that could be equal to $212,125.00,
to pay the second installment.16 The RTC granted their motion for execution on December 14,
exclusive of amount of damages, interest and cost of suit, due to the exchange rate at the time of the
2004,17 and issued the writ of execution,18 commanding the sheriff to demand from the respondent the
discussion of the terms and conditions of the compromise agreement being P50.00 to $1.00; and that
immediate payment of the full amount of $230,000.00 as indicated in the compromise agreement.
the amount of $250,000.00 stated in the compromise agreement was fair and reasonable under the
circumstances.
Through its resolution promulgated on December 29, 2004,19 the CA dismissed C.A.-G.R. SP No. 87768
for having no substantial merit. Although the respondent filed a Motion for Reconsideration with Leave
In addition, the petitioners assert that based on the resolution promulgated in C.A.-G.R. SP No. 87768,
of Court,20 he later withdrew the motion. The CA granted his motion to withdraw on March 7, 2005.21
the controlling legal rule between the parties was that there had been no extrinsic fraud as the ground
to annul the order dated October 20, 2003 approving the compromise agreement; that the respondent's
During the pendency of C.A.-G.R. SP No. 87768, the respondent filed a Motion to Quash Writ of
payment of the initial US$20,000.00 in accordance with the compromise agreement had rendered him
Executiondated December 20, 2004,22 which the RTC denied on January 13, 2005.23 The RTC later
in estoppel; and that the fact that both parties had been assisted by their respective counsels during
denied the motion for reconsideration with finality.24
the execution and submission of the compromise agreement for judicial approval negated the existence
of fraud.
The RTC's denial of the motion for reconsideration with finality impelled the respondent to go to the CA
on certiorari (C.A.-G.R. SP No. 88804) on March 7, 2005,25 alleging that the RTC committed grave
In his comment dated April 12, 2006,30 the respondent counters that the petitioners had taken
abuse of discretion amounting to lack of jurisdiction in issuing: (1) the writ of execution in Civil Case
advantage of his unfamiliarity with the English language and the trust and confidence he had reposed
No. 01-101260; (2) the order dated January 13, 2005 denying the Motion to Quash Writ of Execution;
in them as his friends when they made him sign a document containing stipulations contrary to what
and (3) the order dated February 28, 2005 denying the motion for reconsideration. He claimed that the
they had agreed upon; that the document turned out to be the contract to sell; that the petitioners then
compromise agreement was patently unjust, one-sided, unfair, fraudulent and unconscionable; hence,
used such fraudulent contract in having his properties attached; that as a businessman, he was forced
the RTC should not have issued the writ of execution.
to enter into the compromise agreement to recover his properties; and that the RTC erred in approving
the compromise agreement despite its being one-sided, unfair, fraudulent and unconscionable.
On September 30, 2005, the CA promulgated the assailed decision,26 whereby it disposed as follows:
chanRoblesvirtualLawlibrary
The respondent contends that the payment of $20,000.00 did not constitute his ratification of the
WHEREFORE, the petition, having merit in fact and in law is hereby GIVEN DUE COURSE. Resultantly,
compromise agreement as to estop him because the void contracts could not be ratified; and that it
the assailed February 28, 2005 and January 18, 2005 orders of the trial court are hereby ANNULLED
would be unjust to have the errors of his previous counsel bind him, most especially if the errors were
and SET ASIDE for having been issued without jurisdiction. The judicially approved compromise
blatant and gross, causing grave and irreparable injury to him.
agreement of August 19, 2003 is likewise annulled and set aside due to fraud and lack of valid consent
on the part of petitioner. The trial court is directed to bring the parties together, if so desired by them,
In other words, the Court shall determine and resolve whether or not the CA was correct in nullifying
for a possible valid compromise agreement reflective of the true and real intent of the parties and in
and setting aside the judgment based on the compromise agreement dated August 19, 2003.
the alternative to proceed with the hearing and trial of Civil Case No. 01-101260 with dispatch. No
costs.

67
Ruling of the Court
The impropriety of the petition for certiorari in CA-G.R. SP No. 87768 to demand the annulment of the
The appeal is meritorious. compromise agreement was blatant and unquestionable. The RTC, after finding the August 19, 2003
compromise agreement to be in order and not contrary to law, morals, good customs and public policy,
The CA annulled the August 19, 2003 final and executory compromise agreement on the ground of issued the October 20, 2003 order approving the compromise agreement. With this stamp of judicial
fraud and vitiated consent, observing: approval, the compromise agreement became more than a mere contract of the parties. The judicially
chanRoblesvirtualLawlibrary approved agreement was thereby turned into a final judgment, immutable and unalterable, regardless
Indeed we are persuaded by the arguments of petitioner that the compromise agreement was tainted of whether or not it rested on erroneous conclusions of fact and law, and regardless of whether the
with fraud and that the consent of petitioner therein was not freely given. We carefully compared the change would be by the court that rendered it or the highest court of the land.37 This doctrine of
amended complaint filed by plaintiff-private respondent and the answer with counterclaim filed by immutability is grounded on fundamental considerations of public policy and sound practice, for, at the
petitioner defendant with the approved compromise agreement and we are all the more convinced of risk of occasional errors, judgments of the courts must become final at some definite date set by
the presence of fraud, deceit or lack of consideration therein. law.38 The doctrine exists for the reason that every litigation must come to an end at some time, for it
is necessary for the proper enforcement of the rule of law and the administration of justice that once a
It is simply incredible and beyond any reason how all of a sudden, in the compromise agreement, judgment attains finality, the winning party should not be denied the favorable result. Clearly, the
petitioner becomes liable in the amount of Two Hundred Fifty Thousand ($250,000.00) Dollars while in element of public policy and public interest has diluted the purely private interest of the parties before
the prayer contained in the amended complaint, plaintiff-private respondent only prayed for Ten Million the compromise agreement was approved by the trial court.
Six Hundred Six Thousand and Two Hundred Sixty Six (P10,606,266.00) Pesos plus damages of Eight
Hundred Thousand (P800,000.00) Pesos plus costs of the suit. How did petitioner become liable for And, secondly, if the ground of the respondent to assail the judgment based on the compromise
such an amount without any other transaction having been entered into. The only explanation for such agreement was extrinsic fraud, his action should be brought under Rule 47 of the Rules of Court. Under
mind-boggling discrepancy is that petitioner was defrauded into agreeing to the proposed compromise Section 2 of Rule 47, the original action for annulment may be based only on extrinsic fraud or lack of
agreement. jurisdiction, but extrinsic fraud, to be valid ground, should not have been availed of, or could not have
been availed of in a motion for new trial or petition for relief. If the ground relied up is extrinsic fraud,
A judicial compromise may be annulled or modified on the ground of vitiated consent or forgery. We the action must be filed within four years from the discovery of the extrinsic fraud; if the ground is lack
find petitioners' argument on the matter very compelling, hence we adopt it as our own.31 (citations of jurisdiction, the action must be brought before it is barred by laches or estoppels.39 Regardless of
and underscoring omitted) the ground for the action, the remedy under Rule 47 is to be availed of only if the ordinary remedies of
The annulment by the CA was legally and factually unwarranted. new trial, appeal, petition for relief or other appropriate remedies are no longer available through no
fault of the petitioner.40 Ostensibly, the respondent could have availed himself of the petition for relief
To start with, a compromise agreement is a contract whereby the parties make reciprocal concessions from judgment under Rule 38 of the Rules of Court. Hence, his failure to resort to such remedy
to avoid litigation or to put an end to one already commenced.32 It is an accepted, nay, even highly precluded him from availing himself of the remedy to annul the judgment based on the compromise
encouraged practice in the courts of law of this jurisdiction.33 It attains the authority and effect of res agreement.
judicata upon the parties upon its execution,34 and becomes immediately final and executory, unless
rescinded by grounds which vitiate consent.35 Once stamped with judicial imprimatur, it ceases to be a In Dare Adventure Farm Corporation v. Court of Appeals,41 the Court has discoursed on the nature of
mere contract between the parties, and becomes a judgment of the court, to be enforced through writ the remedy of annulment of judgment under Rule 47 in the following manner:
of execution.36 chanRoblesvirtualLawlibrary
A petition for annulment of judgment is a remedy in equity so exceptional in nature that it may be
The CA did not recognize that what it was asked to annul and set aside in C.A.-G.R. SP No. 88804 was availed of only when other remedies are wanting, and only if the judgment, final order or final resolution
no longer the compromise agreement of the parties but already the judgment based on the compromise sought to be annulled was rendered by a court lacking jurisdiction or through extrinsic fraud. Yet, the
agreement. The failure to recognize led the CA into granting the unprecedented relief of annulling the remedy, being exceptional in character, is not allowed to be so easily and readily abused by parties
compromise agreement on the ground of fraud and lack of consent. In so doing, the CA acted without aggrieved by the final judgments, orders or resolutions. The Court has thus instituted safeguards by
jurisdiction. First of all, the action before the CA was a special civil action for certiorari that had been limiting the grounds for the annulment to lack of jurisdiction and extrinsic fraud, and by prescribing in
brought on March 7, 2005, which was way beyond the period of 60 days from the rendition of the Section 1 of Rule 47 of the Rules of Court that the petitioner should show that the ordinary remedies of
judgment based on the compromise agreement on October 20, 2003. The long delay grossly violated new trial, appeal, petition for relief or other appropriate remedies are no longer available through no
Section 4, Rule 65 of the Rules of Court, which allowed the petition for certiorari to be filed not later fault of the petitioner. A petition for annulment that ignores or disregards any of the safeguards cannot
than 60 days from notice of the judgment being assailed. Moreover, the grounds relied upon by the prosper.
respondent in his petition for certiorari in C.A.-G.R. SP No. 88804 - that the RTC had committed grave
abuse of discretion tantamount to excess or lack of jurisdiction for issuing the writ of execution that The attitude of judicial reluctance towards the annulment of a judgment, final order or final resolution
was patently unjust, one-side, unfair, fraudulent and unconscionable compromise agreement; and for is understandable, for the remedy disregards the time-honored doctrine of immutability and
issuing the writ of execution of the compromise agreement that lacked consideration - were not proper unalterability of final judgments, a solid corner stone in the dispensation of justice by the courts. The
grounds for assailing the judgment based on the compromise agreement. Even assuming that such doctrine of immutability and unalterability serves a two-fold purpose, namely: (a) to avoid delay in the
grounds for the petition for certiorari were true, which they were not, the judgment based on the administration of justice and thus, procedurally, to make orderly the discharge of judicial business; and
compromise agreement could not be assailed on that basis. As the foregoing excerpt of the assailed (b) to put an end to judicial controversies, at the risk of occasional errors, which is precisely why the
decision bears out, the annulment of the judgment based on the compromise agreement was premised courts exist. As to the first, a judgment that has acquired finality becomes immutable and unalterable
on fraud and lack of consent on the part of the respondent as a contracting party, which were far from and is no longer to be modified in any respect even if the modification is meant to correct an erroneous
the jurisdictional error on which the petition for certiorari should have rested. conclusion of fact or of law, and whether the modification is made by the court that rendered the
68
decision or by the highest court of the land. As to the latter, controversies cannot drag on indefinitely
because fundamental considerations of public policy and sound practice demand that the rights and
obligations of every litigant must not hang in suspense for an indefinite period of time.
WHEREFORE, the Court GRANTS the petition for review on certiorari ANNULS and SETS aside the
assailed decision promulgated on September 30, 2005; REINSTATES the judgment issued by the
Regional Trial Court, Branch 49, of Manila based on the compromise agreement of August 19, 2003 in
Civil Case No. 01-101260; and ORDERS the respondent to pay the costs of suit.

SO ORDERED.cralawlawlibrary

Sereno, C.J., Leonardo-De Castro, Perlas-Bernabe, and Caguioa, JJ., concur.chanroblesvirtuallawlibrary

69
G.R. No. 179597 February 3, 2014
IGLESIA FILIPINA INDEPENDIENTE, Petitioner,
vs.
HEIRS of BERNARDINO TAEZA, Respondents.
DECISION
PERALTA, J.:
This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that
the Decision1of the Court of Appeals (CA), promulgated on June 30, 2006, and the Resolution2 dated
August 23, 2007, denying petitioner's motion for reconsideration thereof, be reversed and set aside.
The CA's narration of facts is accurate, to wit:
The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious
corporation, was the owner of a parcel of land described as Lot 3653, containing an area of 31,038
square meters, situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original
Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B, 3653-C,
and 3653-D.
Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga, sold
Lot 3653-D, with an area of 15,000 square meters, to one Bienvenido de Guzman.
On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were
likewise sold by Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to the
defendant Bernardino Taeza, for the amount of ₱100,000.00, through installment, with mortgage to
secure the payment of the balance. Subsequently, the defendant allegedly completed the payments.
In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was filed
by the Parish Council of Tuguegarao, Cagayan, represented by Froilan Calagui and Dante Santos, the
President and the Secretary, respectively, of the Laymen's Committee, with the then Court of First
Instance of Tuguegarao, Cagayan, against their Supreme Bishop Macario Ga and the defendant
Bernardino Taeza.
The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein
lacked the personality to file the case.
After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8, 1981,
Bishop Abdias dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the declaration
of nullity of the elections was filed by Rev. Ga, with the Securities and Exchange Commission (SEC).
In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented by
Supreme Bishop Rev. Soliman F. Ganno, filed a complaint for annulment of the sale of the subject
parcels of land against Rev. Ga and the defendant Bernardino Taeza, which was docketed as Civil Case
No. 3747. The case was filed with the Regional Trial Court of Tuguegarao, Cagayan, Branch III, which
in its order dated December 10, 1987, dismissed the said case without prejudice, for the reason that
the issue as to whom of the Supreme Bishops could sue for the church had not yet been resolved by
the SEC.
On February 11, 1988, the Securities and Exchange Commission issued an order resolving the
leadership issue of the IFI against Rev. Macario Ga.
Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently,
Transfer Certificate of Title Nos. T-77995 and T-77994 were issued in his name.
The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded the
defendant to vacate the said land which he failed to do.
In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, this
time through Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant, with the Regional
Trial Court of Tuguegarao City, Branch 3.
On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-appellee.1âwphi1 It
held that the deed of sale executed by and between Rev. Ga and the defendant-appellant is null and
void.3
The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads as follows:
WHEREFORE, judgment is hereby rendered:
1) declaring plaintiff to be entitled to the claim in the Complaint;
2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;
3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and void
ab initio;
4) declaring the possession of defendant on that portion of land under question and ownership
thereof as unlawful;
5) ordering the defendant and his heirs and successors-in-interest to vacate the premises in
question and surrender the same to plaintiff; [and]
6) condemning defendant and his heirs pay (sic) plaintiff the amount of ₱100,000.00 as
actual/consequential damages and ₱20,000.00 as lawful attorney's fees and costs of the
amount (sic).4
Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its Decision
reversing and setting aside the RTC Decision, thereby dismissing the complaint.5 The CA ruled that
petitioner, being a corporation sole, validly transferred ownership over the land in question through its
Supreme Bishop, who was at the time the administrator of all properties and the official representative
of the church. It further held that "[t]he authority of the then Supreme Bishop Rev. Ga to enter into a
70
contract and represent the plaintiff-appellee cannot be assailed, as there are no provisions in its
constitution and canons giving the said authority to any other person or entity." 6
Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the
following issues are presented for resolution:
A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5,
1976 DEED OF SALE WITH MORTGAGE AS NULL AND VOID;
B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID, WHETHER OR NOT THE
COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALE WITH
MORTGAGE AS UNENFORCEABLE, [and]
C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT TAEZA
HEREIN AS BUYER IN BAD FAITH.7
The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is authorized
to enter into a contract of sale in behalf of petitioner.
Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga had
no authority to give such consent. It emphasized that Article IV (a) of their Canons provides that "All
real properties of the Church located or situated in such parish can be disposed of only with the approval
and conformity of the laymen's committee, the parish priest, the Diocesan Bishop, with sanction of the
Supreme Council, and finally with the approval of the Supreme Bishop, as administrator of all the
temporalities of the Church." It is alleged that the sale of the property in question was done without
the required approval and conformity of the entities mentioned in the Canons; hence, petitioner argues
that the sale was null and void.
In the alternative, petitioner contends that if the contract is not declared null and void, it should
nevertheless be found unenforceable, as the approval and conformity of the other entities in their church
was not obtained, as required by their Canons.
Section 113 of the Corporation Code of the Philippines provides that:
Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold real
estate and personal property for its church, charitable, benevolent or educational purposes, and may
receive bequests or gifts for such purposes. Such corporation may mortgage or sell real property held
by it upon obtaining an order for that purpose from the Court of First Instance of the province where
the property is situated; x x x Provided, That in cases where the rules, regulations and discipline of the
religious denomination, sect or church, religious society or order concerned represented by such
corporation sole regulate the method of acquiring, holding, selling and mortgaging real estate and
personal property, such rules, regulations and discipline shall control, and the intervention of the courts
shall not be necessary.8
Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of the
Philippine Independent Church,9 that "[a]ll real properties of the Church located or situated in such
parish can be disposed of only with the approval and conformity of the laymen's
committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally
with the approval of the Supreme Bishop, as administrator of all the temporalities of the Church."
Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the
Supreme Bishop but also the concurrence of the laymen's committee, the parish priest, and the
Diocesan Bishop, as sanctioned by the Supreme Council. However, petitioner's Canons do not specify
in what form the conformity of the other church entities should be made known. Thus, as petitioner's
witness stated, in practice, such consent or approval may be assumed as a matter of fact, unless some
opposition is expressed.10
Here, the trial court found that the laymen's committee indeed made its objection to the sale known to
the Supreme Bishop.11 The CA, on the other hand, glossed over the fact of such opposition from the
laymen's committee, opining that the consent of the Supreme Bishop to the sale was sufficient,
especially since the parish priest and the Diocesan Bishop voiced no objection to the sale.12
The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to the
sale of the lot in question. The Canons require that ALL the church entities listed in Article IV (a) thereof
should give its approval to the transaction. Thus, when the Supreme Bishop executed the contract of
sale of petitioner's lot despite the opposition made by the laymen's committee, he acted beyond his
powers.
This case clearly falls under the category of unenforceable contracts mentioned in Article 1403,
paragraph (1) of the Civil Code, which provides, thus:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
In Mercado v. Allied Banking Corporation,13 the Court explained that:
x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless
they are ratified, because either they are entered into without or in excess of authority or they do not
comply with the statute of frauds or both of the contracting parties do not possess the required legal
capacity. x x x.14
Closely analogous cases of unenforceable contracts are those where a person signs a deed of
extrajudicial partition in behalf of co-heirs without the latter's authority;15 where a mother as judicial
guardian of her minor children, executes a deed of extrajudicial partition wherein she favors one child
by giving him more than his share of the estate to the prejudice of her other children;16 and where a
person, holding a special power of attorney, sells a property of his principal that is not included in said
special power of attorney.17
In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already
obtained a transfer certificate of title in his name over the property in question. Since the person
supposedly transferring ownership was not authorized to do so, the property had evidently been
acquired by mistake. In Vda. de Esconde v. Court of Appeals,18 the Court affirmed the trial court's ruling
that the applicable provision of law in such cases is Article 1456 of the Civil Code which states that "[i]f
property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
71
trustee of an implied trust for the benefit of the person from whom the property comes." Thus, in Aznar (1) Upon a written contract;
Brothers Realty Company v. Aying,19 citing Vda. de Esconde,20 the Court clarified the concept of trust
involved in said provision, to wit:
(2) Upon an obligation created by law;

Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court
(3) Upon a judgment.
stated:

xxx xxx xxx

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust,
confidence is reposed in one person who is named a trustee for the benefit of another who is called the
cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust.
A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation.
While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in
a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called
trustee neither accepts any trust nor intends holding the property for the beneficiary.
An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten
years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that,
illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an
implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the
property.

The concept of constructive trusts was further elucidated in the same case, as follows:
. . . implied trusts are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent or which are superinduced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. In turn, implied trusts are
either resulting or constructive trusts. These two are differentiated from each other as follows:
It has also been ruled that the ten-year prescriptive period begins to run from the date of registration
of the deed or the date of the issuance of the certificate of title over the property, x x x.23
Here, the present action was filed on January 19, 1990,24 while the transfer certificates of title over the
subject lots were issued to respondents' predecessor-in-interest, Bernardino Taeza, only on February
7, 1990.25

Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title
determines the equitable title or interest and are presumed always to have been contemplated by the
parties. They arise from the nature of circumstances of the consideration involved in a transaction
whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal
title for the benefit of another. On the other hand, constructive trusts are created by the construction
of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary
to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right
to property which he ought not, in equity and good conscience, to hold. (Italics supplied)
A constructive trust having been constituted by law between respondents as trustees and petitioner as
beneficiary of the subject property, may respondents acquire ownership over the said property? The
Court held in the same case of Aznar,21 that unlike in express trusts and resulting implied trusts where
a trustee cannot acquire by prescription any property entrusted to him unless he repudiates the trust,
in constructive implied trusts, the trustee may acquire the property through prescription even if he does
not repudiate the relationship. It is then incumbent upon the beneficiary to bring an action for
reconveyance before prescription bars the same.
Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above, and
it is only just that the subject property be returned to its rightful owner.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30, 2006, and
its Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new judgment is hereby
entered:
(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the lots
covered by Transfer Certificates of Title Nos. T-77994 and T-77995;
(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to
petitioner;
(3) ORDERING respondents and successors-in-interest to vacate the subject premises and
surrender the same to petitioner; and

In Aznar,22 the Court explained the basis for the prescriptive period, to wit: (4) Respondents to PAY costs of suit.

x x x under the present Civil Code, we find that just as an implied or constructive trust is an offspring SO ORDERED.
of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the
title thereto in favor of the true owner. In this context, and vis-á-vis prescription, Article 1144 of the
Civil Code is applicable. G.R. No. 179597, December 03, 2014

Article 1144. The following actions must be brought within ten years from the time the right of action IGLESIA FILIPINA INDEPENDIENTE, Petitioner, v. HEIRS OF BERNARDINO
accrues: TAEZA, Respondents.

RESOLUTION
72
PERALTA, J.:

The Court promulgated a Decision1 in the above-captioned case on February 3, 2014. The dispositive
portion thereof reads as follows:
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30, 2006,
and its Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new judgment is hereby
entered:
(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the lots
covered by Transfer Certificate of Title Nos. T-77994 and T-77995;

(2) ORDERING respondents to execute a deed conveying the aforementioned lots to petitioner;

(3) ORDERING respondents and successors-in-interest to vacate the subject premises and surrender
the same to petitioner; and

(4) Respondents to PAY costs of suit.

SO ORDERED.2
Respondents' Motion for Reconsideration of the aforementioned Decision was denied with finality in a
Resolution3 dated July 9, 2014. Nevertheless, herein parties filed a Joint Manifestation4 dated July 14,
2014, wherein they prayed that the attached Compromise Agreement dated June 27, 2014 be approved
by the Court for the speedy resolution of the dispute between the parties.

Note, however, that the only signatory to the Compromise Agreement is Right Rev. Ernesto M. Tamayo,
Bishop of the Diocesan Church of Tuguegarao, purportedly authorized by the Supreme Bishop, Most
Reverend Ephraim S. Fajutagana, via a Special Power of Attorney dated as far back as September 27,
2011. This would give rise to the same question of whether the Supreme Bishop is indeed authorized
to enter into a contract of sale in behalf of petitioner. The Court stated in its Decision dated February
3, 2014, that �any sale of real property requires not just the consent of the Supreme Bishop but also
the concurrence of the laymen's committee, the parish priest, and the Diocesan Bishop, as sanctioned
by the Supreme Council.� The Compromise Agreement, which stipulates that the subject property
would be sold to a third party and the proceeds therefrom divided between herein parties, again raises
the issue of the authority of the person acting in behalf of petitioner.

WHEREFORE, the Joint Manifestation dated July 14, 2014 is DENIED, and the Compromise Agreement
dated June 27, 2014 is hereby DISAPPROVED.

SO ORDERED.cralawlawlibrary

73
G.R. No. 172652 November 26, 2014 Gonzalo B. Nuguid. The two Asian Bank manager’s checks, with a total value of ₱18,455,350.00 were
issued pursuant toChiok’s instruction and was debited from his account. Likewise upon Chiok’s
application, Metrobank issued Cashier’s Check (CC) No. 003380 in the amount of ₱7,613,000.00 in the
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
name of Gonzalo Bernardo. The same was debited from Chiok’s Savings Account No. 154-42504955.
vs.
The checks bought by Chiok for payee Gonzalo Bernardo are therefore summarized as follows:
WILFRED N. CHIOK, Respondent.

x-----------------------x Drawee Bank/Check

Amount (P) Source of fund
No.
G.R. No. 175302
Asian Bank MC No. 7,550,000.00
025935 Chiok’s Asian Bank Savings
BANK OF THE PHILIPPINE ISLANDS, Petitioner, Account No. 2-007-03-00201-3,
vs. Asian Bank MC No. 10,905,350.00 which had been credited with the
WILFRED N. CHIOK, Respondent. 025939 value of SBTC MC No. 037364
(aggregate value of (₱25,500,000.00) when the latter was purchased by Asian
x-----------------------x Asian Bank MCs: Bank from Chiok pursuant to their BPLA.
18,455,350.00)
G.R. No. 175394
Metrobank CC No. 7,613,000.00 Chiok’s Metrobank Savings
003380 Account No. 154-425049553
GLOBAL BUSINESS BANK, INC., Petitioner,
vs. TOTAL 26,068,350.00
WILFRED N. CHIOK, Respondent.

DECISION
LEONARDO-DE CASTRO, J.:
The three consolidated petitions herein all assail the Decision1 of the Court of Appeals in CA-G.R. CV
No. 77508 dated May 5, 2006, and the Resolution2 in the same case dated November 6, 2006.
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He usually
buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the date of the sale.
Chiok pays Nuguid either in cash or manager’s check, to be picked up by the latter or deposited in the
latter’s bank account. Nuguid delivers the dollars either on the same day or on a later date as may be
agreed upon between them, up to a week later. Chiok and Nuguid had been dealing in this manner for
about six to eight years, with their transactions running into millions of pesos. For this purpose, Chiok
maintained accounts with petitioners Metropolitan Bank and Trust Company (Metrobank) and Global
Business Bank, Inc. (Global Bank), the latter being then referred to as the Asian Banking Corporation
(Asian Bank). Chiok likewise entered into a Bills Purchase Line Agreement (BPLA) with Asian Bank.
Under the BPLA, checks drawn in favor of, or negotiated to, Chiok may be purchased by Asian Bank.
Upon such purchase, Chiok receives a discounted cash equivalent of the amount of the check earlier
than the normal clearing period.
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased" Security Bank & Trust Company
(SBTC) Manager’s Check (MC) No. 037364 in the amount of ₱25,500,000.00 issued in the name of
Chiok, and credited the same amount to the latter’s Savings Account No. 2-007-03-00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of ₱7,550,000.00 and
MC No. 025939 in the amount of ₱10,905,350.00 to Gonzalo Bernardo, who is the same person as
Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and Metrobank CC
No. 003380), with an aggregate value of ₱26,068,350.00 in Nuguid’s account with Far East Bank &
Trust Company (FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI).
Nuguid was supposed to deliver US$1,022,288.50,4 the dollar equivalent of the three checks as agreed
upon, in the afternoon of the same day. Nuguid, however, failed to do so, prompting Chiok to request
that payment on the three checks be stopped. Chiok was allegedly advised to secure a court order
within the 24-hour clearing period. On the following day, July 6, 1995, Chiok filed a Complaint for
damages with application for ex parte restraining order and/or preliminary injunction with the Regional
Trial Court (RTC) of Quezon City against the spouses Gonzalo and Marinella Nuguid, and the depositary
banks, Asian Bank and Metrobank, represented by their respective managers, Julius de la Fuente and
Alice Rivera. The complaint was docketed as Civil Case No. Q-95-24299 and was raffled to Branch 96.
The complaint was later amended5 to include the prayer of Chiok to be declared the legal owner of the
proceeds of the subject checks and to be allowed to withdraw the entire proceeds thereof.
On the same day, July 6, 1995, the RTC issued a temporary restraining order (TRO) directing the
spouses Nuguid to refrain from presenting the said checks for payment and the depositary banks from
honoring the sameuntil further orders from the court.6
Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO. Metrobank claimed
that when it received the TRO on July 6, 1995, it refused to honor CC No. 003380 and stopped payment
thereon. However, in a letter also dated July 6, 1995, Ms. Jocelyn T. Paz of FEBTC, Cubao-Araneta
Branch informed Metrobank that the TRO was issued a day after the check was presented for payment.
Thus, according to Paz, the transaction was already consummated and FEBTC had already validly
accepted the same. In another letter, FEBTC informed Metrobank that "the restraining order indicates
the name of the payee of the check as GONZALO NUGUID, but the check isin fact payable to GONZALO
BERNARDO. We believe there is a defect in the restraining order and as such should not bind your
bank."7 Alice Rivera of Metrobank replied to said letters, reiterating Metrobank’s position tocomply with
the TRO lest it be cited for contempt by the trial court. However, as would later be alleged in Metrobank’s
74
Answer before the trial court, Metrobank eventually acknowledged the check when it became clear that
nothing more can be done to retrieve the proceeds of the check. Metrobank furthermore claimed that
since it is the issuer of CC No. 003380, the check is its primary obligation and should not be affected
by any prior transaction between the purchaser (Chiok) and the payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed a complaint against Asian Bank before the
Philippine Clearing House Corporation (PCHC) Arbitration Committee for the collection of the value of
Asian Bank MC No. 025935 and 025939, which FEBTC had allegedly allowed Nuguid to withdraw on July
5, 1995, the same day the checks were deposited. The case was docketed as Arbicom Case No. 95-
082. The PCHC Arbitration Committee later relayed, in a letter dated August 4, 1995, its refusal to
assume jurisdiction over the case on the ground that any step it may take might be misinterpreted as
undermining the jurisdiction of the RTC over the case or a violation of the July 6, 1995 TRO.
On July 25, 1995, the RTC issued an Order directing the issuance of a writ of preliminary prohibitory
injunction:
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount of ₱26,068,350.00, to be
executed in favor of the defendants under the condition that the same shall answer for whatever
damages they may sustain by reason of this injunction should the Court ultimately determine that he
was not entitled thereto, let a writ of preliminary prohibitory injunction issue restraining and preventing
during the pendency of the case:
a) Defendant Asian Bank frompaying Manager’s Checks No. 025935 in the amount of
₱7,550,000.00 and No. 025939 in the amount of ₱10,905,350.00; and
b) Defendant Metro Bank frompaying Cashier’s Check No. 003380 in the amount of
₱7,613,000.00.
The application for preliminary mandatory injunctionis hereby denied and the order issued on July 7,
1995 directing defendant Metro Bank (Annapolis, Greenhills Branch) to allow the plaintiff to withdraw
the proceeds of Cashier’s Check No. 003380 in the amount of ₱7,613,000.00 is hereby set aside.
The plaintiff’s urgent motion todeclare defendants Asian Bank and Metro Bank in contempt of court filed
last July 13, 1995 is hereby denied for lack of legal basis.
The writ of preliminary prohibitory injunction and a copy of this order shall be served on the defendants
by Deputy Sheriff Jose Martinez of this Branch.8
Upon the filing by Chiok of the requisite bond, the Writ was subsequently issued on July 26, 1995.
Before the RTC, Asian Bank pointed out that SBTC returned and issued a Stop Payment Order on SBTC
MC No. 037364 (payable to Chiok in the amount of ₱25,500,000.00) on the basis of an Affidavit of Loss
& Undertaking executed by a certain Helen Tan. Under said Affidavit of Loss & Undertaking, Tan claims
that she purchased SBTC MC No. 037364 from SBTC, but the manager’s check got lost on that day.
Asian Bank argued that Chiok would therefore be liable for the dishonor of the manager’s check under
the terms of the BPLA, which provides for recourse against the seller (Chiok) of the check when it is
dishonored by the drawee (SBTC) for any reason, whether valid or not.
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case No. Q-95-24299. On
February6, 1996, the RTC initially denied FEBTC’s intervention in the case. On Motion for
Reconsideration, however, the RTC, on April 15, 1996, reversed itself and allowed the same.
In the Complaint-in-Intervention, FEBTC claimed that it allowed the immediate withdrawal of the
proceeds of Asian Bank MC Nos. 025935 and 025939 on the ground that, as manager’schecks, they
were the direct obligations of Asian Bank and were accepted in advance by Asian Bank by the mere
issuance thereof. FEBTC presented the checks for payment on July 5, 1995 through the PCHC. Asian
Bank, as admitted in its Answer before the RTC, received the same on that day. Consequently, Asian
Bank was deemed to have confirmed and booked payment of the subject checks in favor of FEBTC or,
at the latest, during the first banking hour of July 6, 1995, when payment should have been made.
FEBTC claimed that Asian Bank exhibited bad faith when, in anticipation of the TRO, it opted to float
the checks until it received the TRO at 12:00 noon of July 6, 1995 to justify the nonpayment thereof.
In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had delivered much more dollars
than what was required for the three checks at the time of payment. By way of special affirmative
defense, the spouses Nuguid also claims that since the subject checks had already been paid to him,
Chiok is no longer entitled to an injunction (to hold the payment of the subject checks), and Civil Case
No. Q-95-24299 has already become moot.
On August 29, 2002, the RTC rendered its Decision, the dispositive portion of which states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary injunction issued under the Order of July 25,
1995;
2. Ordering Global Business Bank, Inc.to pay the plaintiff [Chiok]:
a.) The amount of ₱34,691,876.71 (less the attorney’s fees of ₱255,000.00 which
shall remain with Global Business Bank, Inc.), plus interest at the legal rate of
12%/p.a. from September 30, 1999 until fully paid;
b.) The amount of ₱215,000.00, representing the excess amount debited from the
plaintiff’s deposit in his account with Global Business Bank, Inc. on July 7, 1995, plus
interest of 12%/p.a. from July 7, 1995, until fully paid;
c.) Attorney’s fees equivalentof 5% of the total amount due; and
3. Ordering Metropolitan Bank & Trust Companyto pay the plaintiff:
a. The amount of his deposit of ₱7,613,000.00, plus interest of 12%/p.a. from July 5,
1995 until said amount is fully paid; and
b. Attorney’s fees of 5%of the total amount due;
75
 4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid liable jointly and severally
with Global Business Bank, Inc. and Metropolitan Bank & Trust Company, Inc. for the
respective attorney’s fees;
5. Dismissing the complaint-in-interventionof BPI for lack of merit;
6. Ordering the defendantsand the intervenorto pay, jointly and severally, the costs of suit.9
(Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery of dollars to Chiok. According to the RTC, Nuguid’s
claim that Chiok was still liable for seven dishonored China Banking Corporation (CBC) checks with a
total worth of ₱72,984,020.00 is highly doubtful since such claim was not presented as a counterclaim
in the case. Furthermore, the court ruled that the certification of CBC stating the reasons10 for the stop
payment order "are indicative of Chiok’s non-liability to Nuguid." The RTC further noted that there was
a criminal case filed by Chiok against Nuguid on March 29, 1996 for estafa and other deceit on account
of Nuguid’s alleged failure to return the originals of the seven CBC checks.11
The RTC went on to rule that manager’s checks and cashier’s checks may be the subject of a Stop
Payment Order from the purchaser on the basis of the payee’s contractual breach. As explanation for
this ruling, the RTC adopted its pronouncements when it issued the July 25, 1995 Order:
Defendant Nuguid’s argument that the injunction could render manager’s and cashier’schecks unworthy
of the faith they should have and could impair their nature as independent undertakings of the issuing
banks is probably an undistinguished simplification. While the argument may be applicable to such
checks in general, it does not adequately address the situation, as here, when specific manager’s and
cashier’s checks are already covered by reciprocal undertakings between their purchaser and their
payee, in which the latter allegedly failed to perform. The agreement herein was supposedly one in
which Nuguid would deliver the equivalent amount in US dollars ($1,022,288.23) "on the same date"
that the plaintiff purchased and delivered the manager’s and cashier’s checks (₱26,068,350.00).
Assuming that such a reciprocity was true, the purchaser should have the legal protection of the
injunctive writ (which, after all, the legal departments of the issuing banks themselves allegedly advised
the plaintiff to obtain), since the usual order or instruction to stop payment available in case of ordinary
checks did not avail. This was probably the reason that Asian Bank has expressly announced in its own
comment/opposition of July 14, 1995 that it was not opposing the application for the prohibitory
injunction.
The dedication of such checks pursuantto specific reciprocal undertakings between their purchasers and
payees authorizes rescission by the former to prevent substantial and material damage to themselves,
which authority includes stopping the payment of the checks.12 According to the RTC, both manager’s
and cashier’s checks are still subject to regular clearing under the regulations of the Bangko Sentral ng
Pilipinas. Since manager’s and cashier’s checks are the subject of regular clearing, they may
consequently be refused for cause by the drawee, which refusal is in fact provided for in the PCHC Rule
Book.
The RTC found the argument by BPI that the manager’s and cashier’s checks are pre-cleared untenable
under Section 60 of the New Central Bank Act and Article 1249 of the Civil Code, which respectively
provides:
Section 60. Legal Character. – Checks representing demand deposits do not have legal tender power
and their acceptance in the payment of debts, both public and private, is at the option of the creditor;
Provided, however, that a check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to
his account.
Art. 1249. The payment of debts inmoney shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines. The
delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the abeyance. The RTC
went on to rule that due to the timely service of the TRO and the injunction, the value of the three
checks remained with Global Bank and Metrobank.13 The RTC concluded that since Nuguid did not have
a valid title to the proceeds of the manager’s and cashier’s checks, Chiok is entitled to be paid back
everything he had paid to the drawees for the checks.14
With respect to Global Bank, the RTC ruled that the entire amount of ₱34,691,876.71 it recovered from
SBTC from the September 15, 1997 PCHC Decision, as reflected in the September 29, 1999 Charge Slip
No. 114977, less the sum of ₱225,000.00 awarded by the arbitration committee’s decision as attorney’s
fees, should be paidto Chiok, with interest at 12% per annum from September 30, 1999 until full
payment. The RTC likewise ordered Global Bank to pay Chiok the amount of ₱215,390.00, an amount
debited from Chiok’s account as payment for outstanding bills purchase.15
With respect to Metrobank, the RTC ruled that it should pay Chiok ₱7,613,000.00, the amount paid by
Chiok to purchase the CC, plus interest of 12 percent per annum from July 5,1995 until full payment.
The RTC explained this finding as follows:
The same conclusion is true with respect to Metro Bank, with whom the funds amounting to
₱7,613,000.00 for the purchase of CC No. 003380 has remained. According to Chiok, Metro Bank used
such funds in its operations.
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness for Metro Bank, but in lieu
ofher testimony, the parties agreed to stipulate on the following as her testimony, to wit:
1. That Metro Bank paid the amount of CC No. 003280;
2. That the payment on July 12, 1995 was made while the TRO of July 5, 1995 was in force;
3. [That] the payment on July 12, 1995 was on the third clearing of CC No. 003380; and
4. That the PCHC Rule book was the authority on the rules and regulations on the clearing
operations of banks.
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995 was an open defiance of the
TRO of July 6, 1995. Metro Bank’s Branch Manager Alice Rivera, through her letter of July 10, 1995 to
FEBTC as the collecting bank, returned the CC to FEBTC in compliance with the TRO which was received
about 12:10 noon of July 6, 1999. Hence, Metro Bank should not have paid because the TRO was served
76
within the 24-hour period to clear checks. Moreover, the payment, being made on third clearing, was
unjustified for violating existing regulations, particularly paragraph 1 of the Clearing House Operating
Memo (CHOM), effective September 1, 1984, which prohibited the reclearing of a check after its first
presentation if it was returned for the reason of "stop payment" or "closed account."
It also seems that Metro Bank paid the CC without first checking whether, in fact, any actual payment
of the 3 checks had been made on July 5, 1995 to the payee when the checks were deposited in payee’s
account with FEBTC on July 5, 1995. The records show no such payment was ever made to render the
TRO of July 6, 1995 or the writ of preliminary injunction applied for moot and academic.
Jessy A. Degaños – adopted by Metro Bank as its own witness in injunction hearing of July 24, 1995 –
stated that the payment of the 3 checks consisted of the accounting entry made at the PCHC during the
presenting process by debiting the respective accounts of the drawees and crediting the account of
collecting bank FEBTC. Yet, as already found hereinabove, such process was reversed due to the return
by the drawees of the checks which they dishonored on account of the TRO.
Also, Degaños, testifying on January 17, 2002 for intervenor BPI, was asked in what form was the
withdrawal of the amounts of the checks made by Nuguid on July 5, 1995, that is, whether:- 1) cash
withdrawal; or 2) credit to Nuguid’s account; or 3) draft issued to Nuguid. His reply was that only the
bank’s branch which serviced the payee’s account could provide the answer. Yet, BPI did not present
any competent personnel from the branch concerned to enlighten the Court on this material point.
This amount of ₱7,613,000.00, having remained with Metro Bank since the service of the TRO of July
6, 1995 and the writ of preliminary injunction issued under the Order of July 25, 1998, should be
returned to Chiok with interest of 12%/p.a. from July 7, 1995 until full payment.16
(Citations omitted.)
The RTC likewise denied BPI’s complaint-in-intervention to recover the value of the three checks from
drawees Global Bank and Metrobank for lack of merit. The RTC, after reprimanding Global Bank and
Metrobank for siding with BPI on this issue, held that BPI, as a mere collecting bank of the payee with
a void title to the checks, had no valid claim as to the amounts of such checks. The RTC explained:
Firstly: BPI, being a collecting bankin relation to the 3 checks, was merely performing collection services
as an agent of Nuguid, the payee. If, as found hereinbefore, Nuguid could not have legal title to the 3
checks, it follows that BPI could not stake any claim for title better than Nuguid’s own void title.
Consequently, BPI has no right to claim the amounts of the 3 checks from the drawee-banks.
Secondly: The purpose of the delivery of the 3 checks to BPI – which was not even accompanied by
Nuguid’s endorsement – was solely for deposit in the account of payee Nuguid. Assuming, for the sake
of argument, that BPI as the collecting bank paid the value of the checks – of which fact there has been
no proof whatsoever – BPI was nonetheless, at best, a mere transferee whose title was no better than
the void title of the transferor, payee Nuguid. Under such circumstance, BPI has no legal basis to
demand payment of the amounts of the 3 checks from the draweebanks.
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee without indorsement, was not
considered a holder of the instrument since it was neither a payee nor an indorsee. It would become so
only when and if the indorsement is actually made, and only as of then, but not before, is the issue
whether BPI was a holder in due course or not is determined.
Consequently, any alleged payment by BPI as the collecting bank, through the supposed though
unproved withdrawal of the amounts of the 3 checks by Nuguid upon the deposit of the checks on July
5, 1995, is not the payment which discharges liability under the 3 checks because BPI is neither the
party primarily liable northe drawee.
Such a payment, if true, is akin to, if it is not, drawing against uncollected deposits (DAUD). In such a
case, BPI was in duty bound to send the 3 checks to the PCHC for clearing pursuant to Section 1603.c.1
of the BSP Manual of Regulations and Sec. 60, R.A. No. 7653. It serves well to note herein that Global
Bank and Metro Bank returned the checks through the PCHC on July 6, 1995, well within the 24-hour
clearing period, in compliance with the TRO of July 6, 1995. Finally: As earlier noted and discussed,
there is no evidence of any prior valid payment by the collecting bank to support its claim of the amounts
of the 3 checks against the defendant banks.17 (Citation omitted.)
The RTC held Global Bank and Metrobank liable for attorney’s fees equivalent to 5% of the total
amountdue them, while the spouses Nuguid were held solidarily liable for said fees.
Defendants Global Bank, Metrobank, and the spouses Nuguid, and intervenor BPI filed separate notices
of appeal, which were approved in the Order18 dated April 3, 2003. Chiok filed a Motion to Dismiss
against the appeal of Global Bank, on the ground that the latter had ceased to operate as a banking
institution.
On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses Nuguid pursuant to Section
1(e), Rule 50 of the Rules of Court, on account of their failure to file their appellant’s brief. In the same
Resolution, the Court of Appeals denied Chiok’s Motion to Dismiss.
On May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the RTC Decision with
modifications. The fallo of the Decision reads:
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch 96, Quezon
City is AFFIRMED with the following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-
appellee Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily,
Manager’s Check Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered
cancelled.
2.) Global Business Holdings, Inc. is ordered to credit Savings Account No. 2-007-03-00201-3
with:
a) The amount of ₱25,500,000.00, plus interest at 4% from September 29, 1999 until
withdrawn by plaintiff-appellee;
b) The amount of ₱215,390.00, plus interest at 4% from July 7, 1995 until withdrawn
by plaintiff-appellee.
3.) Metropolitan Bank & Trust Company is ordered to credit Savings Account No. 154-
42504955 the amount of ₱7,613,000.00, with interest at 6% [per annum] from July 12, 1995
until the same is withdrawn;
77
 4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are ordered to pay attorney’s fees
equivalent to 5% of the total amount due to plaintiff-appellee from both depository banks, as
well as the costs of suit.19
According to the Court of Appeals, Article 1191 of the Civil Code provides a legal basis of the right of
purchasers of MCs and CCs to make a stop payment order on the ground of the failure of the payee to
perform his obligation to the purchaser. The appellate court ruled that such claim was impliedly
incorporated in Chiok’s complaint. The Court of Appeals held:
By depositing the subject checks to the account of Nuguid, Chiok had already performed his obligation
under the contract, and the subsequent failure of Nuguid to comply with what was incumbent upon him
gave rise to an action for rescission pursuant to Article 1191 of the Civil Code, which states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
xxxx
Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE RESTRAINING
ORDER/INJUNCTION" when the action was really one for rescission and damages, it is an elementary
rule of procedure that what controls or determines the nature of the action is not the caption of the
complaint but the allegations contained therein. And even without the prayer for a specific remedy,
proper relief may nevertheless be granted by the court if the facts alleged in the complaint and the
evidence introduced so warrant.
That Chiok had intended rescission isevident from his prayer to be declared the legal owner of the
proceeds of the subject checks and to be allowed to withdraw the same. Therefore, the argument of
BPI that the obligation on the part of Nuguid to deliver the dollars still subsists is untenable. Article
1385 of the same Code provides that rescission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its interest. The object of the
contract herein to buy foreign currency is the peso-value of the dollars bought but in the form of
negotiable instruments – Manager’s Check/Cashier’s Check. Hence, respecting the negotiation thereof,
and in order to afford complete relief to Chiok, there arose the necessity for the issuance of the
injunction restraining the payment of the subject checks with the end in view of the eventual return of
the proceeds to give effect to Article 1385. In other words, the injunctive relief was necessary in order
not to render ineffectual the judgment in the instant case. We quote with approval the following
disquisition of the trial court, to wit:
xxxx
There is no question about the nature of manager’s and cashier’s checks being as good as cash, being
primary obligations of the issuing bank and accepted in advanceby their mere issuance. But even as
such nature of unconditional commitment to pay on the part of the issuing bank may be conceded, the
Court opines that the injunctive relief cannot be denied to a party who purchased the manager’s or
cashier’s check to stop its payment to the payee in a suit against the payee and the issuing banks upon
a claim that the payee himself had not performed his reciprocal obligation for which the issuance and
delivery of the self-same manager’sor cashier’s check were, in the first place, made x x x.
It bears stressing that the subject checks would not have been issued were it not for the contract
between Chiok and Nuguid. Therefore, they cannot be disassociated from the contract and given a
distinct and exclusive signification, as the purchase thereof is part and parcel of the series of
transactions necessary to consummate the contract. Taken in this light, it cannot be argued that the
issuing banks are bound to honor only their unconditional undertakings on the subject checks vis-à-vis
the payee thereof regardless of the failed transaction between the purchaser of the checks and the
payee on the ground that the banks were not privy to the said transaction.
Lest it be forgotten, the purchase of the checks was funded by the account of Chiok with the banks. As
such, the banks were equally obligated to treat the account of their depositor with meticulous care
bearing in mind the fiduciary nature of their relationship with the depositor. Surely, the banks would
not allow their depositor to sit idly by and watch the dissipation of his livelihood considering that the
business of foreign currency exchange is a highly volatile undertaking where the probability of losing or
gaining is counted by the ticking of the clock. With the millions of money involved in this transaction,
Chiok could not afford to be complacent and his vigilance for his rights could not have been more
opportune under the circumstances.20 (Citations omitted.)
The Court of Appeals proceeded to sustain the dismissal of BPI’s complaint-in-intervention, which sought
to recover from Global Bank the amounts allegedly paid to Nuguid. The Court of Appeals pointed out
that BPI failed to prove the alleged withdrawal by Nuguid of the proceeds of the two manager’s checks,
as BPI’s representative, Jessy A. Degaños, failed to answer the question on the form of the alleged
withdrawal. Furthermore, BPI failed to prove that it was a holder in due course of the subject manager’s
checks, for two reasons: (1) the checks were not indorsed to it by Nuguid; and (2) BPI never presented
its alleged bills purchase agreement with Nuguid.21
The Court of Appeals likewise modified the order by the RTC for Global Bank and Metrobank to pay
Chiok. The Court of Appeals held that Chiok’s cause of action against Global Bank is limited to the
proceeds of the two manager’s checks. Hence, Global Bank was ordered to credit Chiok’s Savings
Account No. 2-007-03-00201-3 with the amount of ₱25,500,000.00, the aggregate value of the two
managers’ checks, instead of the entire ₱34,691,876.71 recovered from SBTC from the September 15,
1997 PCHC Decision. The interest was also reduced from 12% per annum to that imposed upon savings
deposits, which was established during the trial as 4% per annum.22
As regards Metrobank, the appellate court noted that there was no evidence as to the interest rate
imposed upon savings deposits at Metrobank. Metrobank was ordered to credit the amount of
₱7,613,000.00 to Chiok’s Savings Account No. 154-42504955, with interest at 6% per annum.23
Global Bank and BPI filed separate Motions for Reconsideration of the May 5, 2006 Court of Appeals’
Decision. On November 6, 2006, the Court of Appeals denied the Motions for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R. No. 175394) filed with
this Court separate Petitions for Review on Certiorari. In Resolutions dated February 21, 2007 24 and
March 12, 2007,25 this Court resolved to consolidate the three petitions. Metrobank submitted the
following issues for the consideration of this Court:
78
 (A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT "IT IS
LEGALLY POSSIBLE FOR A PURCHASER OF A MANAGER’S CHECK OR CASHIER’S CHECK TO
STOP PAYMENT THEREON THROUGH A COURT ORDER ON THE GROUND OF THE PAYEE’S
ALLEGED BREACH OF CONTRACTUAL OBLIGATION AMOUNTING TO AN ABSENCE OF
CONSIDERATION THEREFOR."
(B) GRANTING ARGUENDO THAT A MANAGER’S CHECK OR CASHIER’S CHECK, "IN VIEW OF
THE PECULIAR CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A STOP PAYMENT
ORDER BY THE PURCHASER THEREOF THROUGH A COURT ORDER, WHETHER OR NOT THE
HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HEREIN "HAD
KNOWLEDGE OF CIRCUMSTANCES THAT WOULD DEFEAT THE TITLE OF THE PAYEE TO THE
CHECKS" WITHOUT, HOWEVER, CITING ANY SPECIFIC EVIDENCE WHICH WOULD PROVE THE
EXISTENCE OF SUCH KNOWLEDGE. (C) WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN SUSTAINING THE TRIAL COURT’S ORDER FOR PETITIONER HEREIN "TO
PAY (TO CHIOK) THE VALUE OF CASHIER’S CHECK NO. 003380 IN THE AMOUNT OF
₱7,613,000.00, WHICH WAS DEBITED AGAINST CHIOK’S SAVINGS ACCOUNT # 154-
42504955 ON THE OBSERVATION THAT THE PAYMENT TO FEBTC BY METROBANK OF CC NO.
003380ON JULY 12, 1995 WAS AN OPEN DEFIANCE OF THE TRO OF JULY 6, 1995."26
BPI, on the other hand, presented the following issues:
I.
Whether or not the Court of Appeals detracted from well-settled concepts and principles in commercial
law regarding the nature, causes, and effects of a manager’s check and cashier’s checkin ruling that
[the] power of the court can be invoked by the purchaser [Chiok] in a proper action, which the Court
su[b]stantially construed as a rescissory action or the power to rescind obligations under Article 1191
of the Civil Code.
II.
Whether or not the Honorable Court of Appeals erred in ruling that where a purchaser invokes rescission
due to an alleged breach of the payee’s contractual obligation, it is deemed as "peculiar circumstance"
which justifies a stop payment order issued by the purchaser or a temporary restraining order/injunction
from a Court to prevent payment of a Manager’s Check or a Cashier’s Check.
III.
Whether or not the Honorable Court of Appeals erred in ruling that judicial admissions in the pleadings
of Nuguid, BPI, Asian Bank, Metrobank and even Chiok himself that Nuguid had withdrawn the proceeds
of the checks will not defeat Chiok’s "substantial right" to restrain the drawee bank from paying BPI,
the collecting bank or presenting bank in this case who paid the value of the Cashier’s/Manager’s Checks
to the payee.27
Finally, Global Bank rely upon the following grounds in its petition with this Court:
A.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER GLOBAL BANK HAD NO
JUSTIFICATION FOR ITS RIGHT OF RECOURSE AGAINST RESPONDENT CHIOK NOTWITHSTANDING THE
CLEAR AND UNMISTAKABLE PROVISIONS OF THE BILLS PURCHASE AGREEMENT.
B.
THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER GLOBAL BANK LIABLE FOR
INTEREST OF 4% PER ANNUM DESPITE THE FACT THAT:
1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS COMPLAINT;
2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST; AND
3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY INTEREST.28
Before delving into the merits of these cases, we shall first dispose of a procedural development during
their pendency with the Court.
Joint Manifestation and Motion allegedly
filed by Metrobank, Global Bank and
respondent Chiok
On May 28, 2013, this Court received a Joint Manifestation and Motion allegedly filed by petitioners
Metrobank, Global Bank, and respondent Chiok, which reads:
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL BUSINESS BANK, INC., and
RESPONDENT WILFRED N. CHIOK, by their respective counsels, unto this Honorable Court, respectfully
state that after a thorough consideration, the parties herein have decided to forego their respective
claims against each other, including, past, present and/or contingent, in relation to the above referenced
cases.
PRAYER
WHEREFORE, it is respectfully prayed that no further action be taken by this Honorable Court on the
foregoing petitions, that the instant proceedings be declared CLOSED and TERMINATED, and that an
Order be rendered dismissing the above-referenced cases with prejudice.
In the above Joint Manifestation and Motion, respondent Chiok was not represented by his counsel of
record, Cruz Durian Alday and Cruz-Matters, but was assisted by Espiritu Vitales Espiritu Law Office,
with Atty. Cesar D. Vitales as signatory, by way of special appearance and assistance.
On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to comment on the Joint
Manifestation and Motion filed by its copetitioners Metrobank, Global Bank, and respondent Chiok. The
Resolution reads:
Considering the joint manifestation and motion of petitioners Metropolitan Bank and Trust Company
and Global Business Bank, Inc., and respondent, that after a thorough consideration, they have decided
79
to forego their respective claims against each other, including past, present and/or contingent, in these
cases and praying that the instant proceedings in G.R. Nos. 172652 and 175394 be declared closed and
terminated, the Court resolves to require petitioner Bank of the Philippine Islands to COMMENT thereon
within ten (10) days from notice thereof x x x.
On September 12, 2013, respondent Chiok, this time assisted by his counsel of record, Cruz Durian
Alday & Cruz-Matters, filed a Motion for Reconsideration of our Resolution dated June 19, 2013. The
signatory to the Motion for Reconsideration, Atty. Angel Cruz, grossly misread our Resolution requiring
BPI to comment on the Joint Manifestation and Motion, and apparently contemplated that we are already
granting said Motion. Atty. Cruz objected to the Joint Manifestation and Motion, labeling the same as
tainted with fraud. According to Atty. Cruz, Espiritu Vitales and Espiritu’s failure to give prior notice to
him is in violation of Canon 8 of the Code of Professional Responsibility. Atty. Cruz prays that Metrobank
and Global Bank be ordered to submit a document of their settlement showing the amounts paid to
Chiok, and for the June19, 2013 Resolution of this Court be reconsidered and set aside.
On October 9, 2013, BPI filed its comment to the Joint Manifestation and Motion, opposing the samefor
being an implied procedural shortcut to a Compromise Agreement. It averred that while the courts
encourage parties to amicably settle cases, such settlements are strictly scrutinized by the courts for
approval. BPI also pointed out that the Joint Manifestation and Motion was not supported by any
required appropriate Board Resolution of Metrobank and Global Bank granting the supposed signatories
the authority to enter into a compromise. BPI prayed that the Joint Manifestation and Motion of
Metrobank, Global Bank, and Chiok be denied, and to render a full Decision on the merits reversing the
Decision of the Court of Appeals.
We should also give weight to the opposition of BPI to the supposed compromise agreement. As stated
above, the consolidated petitions filed by Metrobank, BPI, and Global Bank all assail the Decision of the
Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on the same case
dated November 6, 2006. BPI itself has a claim against Global Bank, which appear to be intimately
related to issues brought forth in the other consolidated petitions.
Furthermore, the failure of the parties to the Joint Manifestation and Motion to declare with particularity
the terms of their agreement prevents us from approving the same so as to allow it to attain the effect
of res judicata. A judicial compromise is not a mere contract between the parties. Thus, we have held
that:
A compromise agreement intended to resolve a matter already under litigation is a judicial compromise.
Having judicial mandate and entered as its determination of the controversy, such judicial compromise
has the force and effect of a judgment. It transcends its identity as a mere contract between the parties,
as it becomes a judgment that is subject to execution in accordance with the Rules of Court. Thus, a
compromise agreement that has been made and duly approved by the court attains the effect and
authority of res judicata, although no execution may be issued unless the agreement receives the
approval of the court where the litigation is pending and compliance with the terms of the agreement
is decreed.31 (Citation omitted.)
We are therefore constrained to deny the Joint Manifestation and Motion filed with this Court on May
28, 2013 and to hereby decide the consolidated petitions on their merits.

The Court’s ruling on the merits of these

On January 20, 2014, Global Bank filed a Comment to Atty. Cruz’s Motion for Reconsideration on behalf
consolidated petitions
of Chiok, praying that said Motion be expunged from the records for failure of Atty. Cruz to indicate the
number and date of issue of his MCLE Certificate of Compliance or Certificate of Exemption for the
immediately preceding compliance period. Whether or not payment of manager’s
and cashier’s checks are subject to the
condition that the payee thereof should
As far as this Court is concerned, the counsel of record of respondent Chiok is still Cruz Durian Alday &
comply with his obligations to the
Cruz-Matters. The requisites of a proper substitution of counsel of record are stated and settled in
purchaser of the checks
jurisprudence:

The legal effects of a manager’s check and a cashier’s check are the same. A manager’s check, like a
No substitution of counsel of record is allowed unless the following essential requisites of a valid
cashier’s check, is an order of the bank to pay, drawn upon itself, committing in effect its total resources,
substitution of counsel concur: (1) there must be a written request for substitution; (2) it must be filed
integrity, and honor behind its issuance. By its peculiar character and general use in commerce, a
with the written consent of the client; (3) it must be with the written consent of the attorney to be
manager’s check or a cashier’s check is regarded substantially to be as good as the money it
substituted; and (4) in case the consent of the attorney to be substituted cannot be obtained, there
represents.32 Thus, the succeeding discussions and jurisprudence on manager’s checks, unless stated
must be at least a proof of notice that the motion for substitution was served on him in the manner
otherwise, are applicable to cashier’s checks, and vice versa. The RTC effectively ruled that payment of
prescribed by the Rules of Court.29 (Citation omitted.)
manager’s and cashier’s checks are subject to the condition that the payee thereof complies with his
obligations to the purchaser of the checks:
Therefore, while we should indeed require Atty. Cruz to indicate the number and date of issue of his
MCLE Certificate of Compliance or Certificate of Exemption for the immediately preceding compliance
The dedication of such checks pursuant to specific reciprocal undertakings between their purchasers
period, he is justified in pointing out the violation of Canon 830 of the Code of Professional Responsibility,
and payees authorizes rescission by the former to prevent substantial and material damage to
Rule 8.02 of which provides:
themselves, which authority includes stopping the payment of the checks.

Rule 8.02. – A lawyer shall not, directly or indirectly, encroach upon the professional employment of
Moreover, it seems to be fallacious to hold that the unconditional payment of manager’s and cashier’s
another lawyer; however, it is the right of any lawyer, without fear or favor, to give proper advice and
checks is the rule. To begin with, both manager’sand cashier’s checks are still subject to regular clearing
assistance to those seeking relief against unfaithful or neglectful counsel.
under the regulations of the Bangko Sentral ng Pilipinas, a fact borne out by the BSP manual for banks
and intermediaries, which provides, among others, in its Section 1603.1, c, as follows:

80
xxxx
c. Items for clearing. All checks and documents payable on demand and drawn against a bank/branch,
institution or entity allowed to clear may be exchanged through the Clearing Office inManila and the
Regional Clearing Units in regional clearing centers designated by the Central Bank x x x.33
The RTC added that since manager’s and cashier’s checks are the subject of regular clearing, they may
consequently be refused for cause by the drawee, which refusal is in fact provided for in Section 20 of
the Rule Book of the PCHC:
Sec. 20 – REGULAR RETURN ITEM PROCEDURE
20.1 Any check/item sent for clearing through the PCHC on which payment should be refused by the
Drawee Bank in accordance with long standing and accepted banking practices, such as but not limited
to the fact that:
(a) it bears the forged or unauthorized signature of the drawer(s); or
(b) it is drawn against a closed account; or
(c) it is drawn against insufficient funds; or
(d) payment thereof has been stopped; or
(e) it is post-dated or stale-dated; and
(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which has been materially
altered;
shall be returned through the PCHC not later than the next regular clearing for local exchanges and the
acceptance of said return by the Sending Bank shall be mandatory.
It goes without saying that under the aforecited clearing rule[,] the enumeration of causes to return
checks is not exclusive but may include other causes which are consistent with long standing and
accepted banking practices. The reason of plaintiffs can well constitute such a justifiable cause to enjoin
payment.34
The RTC made an error at this point. While indeed, it cannot be said that manager’s and cashier’s checks
are pre-cleared, clearing should not be confused with acceptance. Manager’s and cashier’s checks are
still the subject of clearing to ensure that the same have not been materially altered or otherwise
completely counterfeited. However, manager’s and cashier’s checks are pre-accepted by the mere
issuance thereof by the bank, which is both its drawer and drawee. Thus, while manager’s and cashier’s
checks are still subject to clearing, they cannot be countermanded for being drawn against a closed
account, for being drawn against insufficient funds, or for similar reasons such as a condition not
appearing on the face of the check. Long standing and accepted banking practicesdo not countenance
the countermanding of manager’s and cashier’s checks on the basis of a mere allegation of failure of
the payee to comply with its obligations towards the purchaser. On the contrary, the accepted banking
practice is that such checks are as good as cash. Thus, in New Pacific Timber & Supply Company, Inc.
v. Hon. Seneris,35 we held:
It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as
cash. Moreover, since the said check had been certified by the drawee bank, by the certification, the
funds represented by the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with
rights and duties of one in such situation. Where a check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that
they shall be so applied whenever the check is presented for payment. It is an understanding that the
check is good then, and shall continue good, and this agreement is as binding on the bank as its notes
in circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it
can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it
as money." When the holder procures the check to be certified, "the check operates as an assignment
of a part of the funds to the creditors." Hence, the exception to the rule enunciated under Section 63
of the Central Bank Act to the effect "that a check which has been cleared and credited to the account
of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount
credited to his account" shall apply in this case. x x x. (Emphases supplied, citations omitted.)
Even more telling is the Court’s pronouncement in Tan v. Court of Appeals,36 which unequivocally settled
the unconditional nature of the credit created by the issuance of manager’s or cashier’s checks:
A cashier’s check is a primary obligation of the issuing bank and accepted in advanceby its mere
issuance. By its very nature, a cashier’s check is the bank’s order to pay drawn upon itself, committing
in effect its total resources, integrity and honor behind the check. A cashier’s check by its peculiar
character and general use in the commercial world is regarded substantially to be as good asthe money
which it represents. In this case, therefore, PCIB by issuing the check created an unconditional creditin
favor of any collecting bank. (Emphases supplied, citations omitted.)
Furthermore, under the principle of ejusdem generis, where a statute describes things of a particular
class or kind accompanied by words of a generic character, the generic word willusually be limited to
things of a similar nature with those particularly enumerated, unless there be something in the context
of the statute which would repel such inference.37 Thus, any long standing and accepted banking
practice which can be considered as a valid cause to return manager’s or cashier’s checks should be of
a similar nature to the enumerated cause applicable to manager’s or cashier’s checks: material
alteration. As stated above, an example ofa similar cause is the presentation of a counterfeit check.
Whether or not the purchaser of
manager’s and cashier’s checks has the
right to have the checks cancelled by
filing an action for rescission of its
contract with the payee
The Court of Appeals affirmed the order of the RTC for Global Bank and Metrobank to pay Chiok for the
amounts of the subject manager’s and cashier’s checks. However, since it isclear to the appellate court
that the payment of manager’s and cashier’s checks cannot be considered to be subject to the condition
the payee thereof complies with his obligations to the purchaser of the checks, the Court of Appeals
provided another legal basis for such liability – rescission under Article 1191 of the Civil Code:
81
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch 96, Quezon
City is AFFIRMED with the following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-appellee
Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily, Manager’s Check
Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered cancelled.38
According to the Court of Appeals, while such rescission was not mentioned in Chiok’s Amended
Complaint, the same was evident from his prayer to be declared the legal owner of the proceeds of the
subject checks and to be allowed to withdraw the same. Since rescission creates the obligation to return
the things which are the object of the contract, together with the fruits, the price and the
interest,39 injunctive relief was necessary to restrain the payment of the subject checks with the end in
view of the return of the proceeds to Chiok.40
Thus, as it was construed by the Court of Appeals, the Amended Complaint of Chiok was in reality an
action for rescission of the contract to buy foreign currency between Chiok and Nuguid. The Court of
Appeals then proceeded to cancel the manager’s and cashier’s checks as a consequence of the granting
of the action for rescission, explaining that "the subject checks would not have been issued were it not
for the contract between Chiok and Nuguid. Therefore, they cannot be disassociated from the contract
and given a distinct and exclusive signification, as the purchase thereof is part and parcel of the series
of transactions necessary to consummate the contract."41
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is provided by Article 1191 of the Civil Code, which
reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the Mortgage Law.
The cause of action supplied by the above article, however, is clearly predicated upon the reciprocity of
the obligations of the injured party and the guilty party. Reciprocal obligations are those which arise
from the same cause, and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously
such that the performance of one is conditioned upon the simultaneous fulfillment of the other.42 When
Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause of action against Nuguid to
ask for the rescission of their contract. On the other hand, Chiok did not have a cause of action against
Metrobank and Global Bank that would allow him to rescind the contracts of sale of the manager’s or
cashier’s checks, which would have resulted in the crediting of the amounts thereof back to his accounts.
Otherwise stated, the right of rescission43 under Article 1191 of the Civil Code can only be exercised in
accordance with the principle of relativity of contracts under Article 1131 of the same code, which
provides:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. x x x.
In several cases, this Court has ruled that under the civil law principle of relativity of contracts under
Article 1131, contracts can only bind the parties who entered into it, and it cannot favor or prejudice a
third person, even if he is aware of such contract and has acted with knowledge thereof.44 Metrobank
and Global Bank are not parties to the contract to buy foreign currency between Chiok and Nuguid.
Therefore, they are not bound by such contract and cannot be prejudiced by the failure of Nuguid to
comply with the terms thereof.
Neither could Chiok be validly granted a writ of injunction against Metrobank and Global Bank to enjoin
said banks from honoring the subject manager’s and cashier’s checks. It is elementary that "(a)n
injunction should never issue when an action for damages would adequately compensate the injuries
caused. The very foundation of the jurisdiction to issue the writ of injunction rests in the fact that the
damages caused are irreparable and that damages would not adequately compensate."45 Chiok could
have and should have proceeded directly against Nuguid to claim damages for breach of contract and
to have the very account where he deposited the subject checks garnished under Section 7(d)46 and
Section 8,47 Rule 57 of the Rules of Court. Instead, Chiok filed an action to enjoin Metrobank and Global
Bank from complying with their primary obligation under checks in which they are liable as both drawer
and drawee.
It is undisputed that Chiok personally deposited the subject manager’s and cashier’s checks to Nuguid’s
account.1âwphi1 If the intention of Chiok was for Nuguid to be allowed to withdraw the proceeds of the
checks after clearing, he could have easily deposited personal checks, instead of going through the
trouble of purchasing manager’s and cashier’s checks. Chiok therefore knew, and actually intended,
that Nuguid will be allowed to immediately withdraw the proceeds of the subject checks. The deposit of
the checks which were practically as good as cash was willingly and voluntarily made by Chiok, without
any assurance that Nuguid will comply with his end of the bargain on the same day. The explanation
for such apparently reckless action was admitted by Chiok in the Amended Complaint itself:
That plaintiff [Chiok] due to the numberof years (five to seven years) of business transactions with
defendant [Nuguid] has reposed utmost trust and confidence on the latterthat their transactions as of
June 1995 reaches millions of pesos. x x x.48 (Emphases supplied.)
As between two innocent persons, one of whom must suffer the consequences of a breach of trust, the
one who made it possible by his act of confidence must bear the loss.49 Evidently, it was the utmost
trust and confidence reposed by Chiok to Nuguid that caused this entire debacle, dragging three banks
into the controversy, and having their resources threatened because of an alleged default in a contract
they were not privy to.
Whether or not the peculiar
circumstances of this case justify the
deviation from the general principles on
causes and effects of manager’s and
cashier’s checks
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The Court of Appeals, while admitting that the general principles on the causes and effects of manager’s
and cashier’s checks do not allow the countermanding of such checks on the basis of an alleged failure
of consideration of the payee to the purchaser, nevertheless held that the peculiar circumstances of this
case justify a deviation from said general principles, applying the aforementioned case of Mesina. The
Court of Appeals held:
At the core of the appeal interposed by the intervenor BPI, as well as the depository banks, Global Bank
and Metrobank, is the issue of whether or not it is legally possible for a purchaser of a Manager’s Check
or Cashier’s Check to stop payment thereon through a court order on the ground of the payee’s alleged
breach of contractual obligation amounting to an absence of consideration therefor.
In view of the peculiar circumstances of this case, and in the interest of substantial justice, We are
constrained to rule in the affirmative.
xxxx
In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its appeal brief, the Supreme
Court had the occasion to rule that general principles on causes and effects of a cashier’s check, i.e.,
that it cannot be countermanded in the hands of a holder in due course and that it is a bill of exchange
drawn by the bank against itself, cannot be applied without considering that the bank was aware of
facts (in this case, the cashier’s check was stolen) that would not entitle the payee thereof to collect on
the check and, consequently, the bank has the right to refuse payment when the check is presented by
the payee.
While the factual milieu of the Mesinacase is different from the case at bench, the inference drawn
therein by the High Court is nevertheless applicable. The refusal of Nuguid to deliver the dollar
equivalent of the three checks in the amount of $1,022,288.50 in the afternoon of July 5, 1995
amounted to a failure of consideration that would not entitle Nuguid to collect on the subject checks.
xxxx
Let it be emphasized that in resolving the matter before Us, We do not detract from well-settled concepts
and principles in commercial law regarding the nature, causes and effects of a manager’s check and
cashier’s check. Such checks are primary obligations of the issuing bank and accepted in advance by
the mere issuance thereof. They are a bank’s order to pay drawn upon itself, committing in effect its
total resources, integrity, and honor. By their peculiar character and general use in the commercial
world, they are regarded substantially as good as the money they represent. However, in view of the
peculiar circumstances of the case at bench, We are constrained to set aside the foregoing concepts
and principles in favor of the exercise of the right to rescind a contract upon the failure of consideration
thereof.50 (Emphases ours, citations omitted.)
In deviating from general banking principles and disposing the case on the basis of equity, the courts a
quo should have at least ensured that their dispositions were indeed equitable. This Court observes that
equity was not served in the dispositions below wherein Nuguid, the very person found to have violated
his contract by not delivering his dollar obligation, was absolved from his liability, leaving the banks
who are not parties to the contract to suffer the losses of millions of pesos.
The Court of Appeals’ reliance in the 1986 case of Mesina was likewise inappropriate. In Mesina,
respondent Jose Go purchased from Associated Bank a cashier’s check for ₱800,000.00, payable to
bearer.51 Jose Go inadvertently left the check on the top desk of the bank manager
when he left the bank. The bank manager entrusted the check for safekeeping to a certain bank official
named Albert Uy, who then had a certain Alexander Lim as visitor. Uy left his deskto answer a phone
call and to go to the men’s room. When Uy returned to his desk, Lim was gone. Jose Go inquired for his
check from Uy, but the check was nowhereto be found. At the advice of Uy, Jose Go accomplished a
Stop Payment Order and executed an affidavit of loss. Uy reported the loss to the police. Petitioner
Marcelo Mesina tried to encash the check with Prudential Bank, but the check was dishonored by
Associated Bank by sending it back to Prudential Bank with the words "Payment Stopped" stamped on
it. When the police asked Mesina how he came to possess the check, he said it was paid to him by
Alexander Lim in a "certain transaction"but refused to elucidate further. Associated Bank filed an action
for Interpleader against Jose Go and Mesina to determine which of them is entitled to the proceeds of
the check. It was in the appeal on said interpleader case that this Court allowed the deviation from the
general principles on cashier’s checks on account of the bank’s awareness of certain facts that would
prevent the payee to collect on the check.
There is no arguing that the peculiar circumstances in Mesina indeed called for such deviation on account
of the drawee bank’s awareness of certain relevant facts. There is, however, no comparable peculiar
circumstance in the case at bar that would justify applying the Mesina disposition. In Mesina, the
cashier’s check was stolen while it was in the possession of the drawee bank. In the case at bar, the
manager’s and cashier’s checks were personally deposited by Chiok in the account of Nuguid. The only
knowledge that can be attributed to the drawee banks is whatever was relayed by Chiok himself when
he asked for a Stop Payment Order. Chiok testified on this matter, to wit:
Q: Now, Mr. witness, since according to you the defendant failed to deliver [this] amount of
₱1,023,288.23 what action have you undertaken to protect yourinterest Mr. witness?
A: I immediately call my lawyer, Atty. Espiritu to seek his legal advise in this matter.
Q: Prior to that matter that you soughtthe advise of your lawyer, Atty. Espiritu insofar as the
issuing bank is concerned, namely, Asian Bank, what did you do in order to protect your
interest? A: I immediately call the bank asking them if what is the procedure for stop payment
and the bank told me that you have to secure a court order as soon as possible before the
clearing of these checks.52 (Emphasis supplied.)
Asian Bank, which is now Global Bank, obeyed the TRO and denied the clearing of the manager’s checks.
As such, Global Bank may not be held liable on account of the knowledge of whatever else Chiok told
them when he asked for the procedure to secure a Stop Payment Order. On the other hand, there was
no mention that Metrobank was ever notified of the alleged failure of consideration. Only Asian Bank
was notified of such fact. Furthermore, the mere allegation of breach on the part of the payee of his
personal contract with the purchaser should not be considered a sufficient cause to immediately nullify
such checks, thereby eroding their integrity and honor as being as good as cash.
In view of all the foregoing, we resolve that Chiok’s complaint should be denied insofar as it prayed for
the withdrawal of the proceeds of the subject manager’s and cashier’s checks. Accordingly, the writ of
preliminary prohibitory injunction enjoining Metrobank and Global Bank from honoring the subject
manager’s and cashier’s checks should be lifted.
Since we have ruled that Chiok cannot claim the amounts of the checks from Metrobank and Global
Bank, the issue concerning the setting off of Global Bank’s judgment debt to Chiok with the outstanding
obligations of Chiok is hereby mooted. We furthermore note that Global Bank had not presented53 such
issue as a counterclaim in the case at bar, preventing us from ruling on the same.
83
BPI’s right to the proceeds of the
manager’s checks from Global Bank
While our ruling in Mesinais inapplicable to the case at bar, a much more relevant case as regards the
effect of a Stop Payment Order upon a manager’s check would be Security Bank and Trust Company v.
Rizal Commercial Banking Corporation,54 which was decided by this Court in 2009. In said case, SBTC
issued a manager’s check for ₱8 million, payable to "CASH," as proceeds of the loan granted to Guidon
Construction and Development Corporation (GCDC). On the same day, the manager’s check was
deposited by Continental Manufacturing Corporation (CMC) in its current account with Rizal Commercial
Banking Corporation (RCBC). RCBC immediately honored the manager’s check and allowed CMC to
withdraw the same. GCDC issued a Stop Payment Order to SBTC on the next day, claiming that the
check was released to a third party by mistake. SBTC dishonored and returned the manager’s check to
RCBC. The check was returned back and forth between the two banks, resulting in automatic debits and
credits in each bank’s clearing balance. RCBC filed a complaint for damages against SBTC. When the
case reached this Court, we held:
At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check
but a manager’s check. A manager’s check is one drawn by a bank’s manager upon the bank itself. It
stands on the same footing as a certified check, which is deemed to have been accepted by the bank
that certified it. As the bank’s own check, a manager’s check becomes the primary obligation of the
bank and is accepted in advance by the act of its issuance.
In this case, RCBC, in immediately crediting the amount of ₱8 million to CMC’s account, relied on the
integrity and honor of the check as it is regarded in commercial transactions. Where the questioned
check, which was payable to"Cash," appeared regular on its face, and the bank found nothing unusual
in the transaction, as the drawer usually issued checks in big amounts made payable to cash, RCBC
cannot be faulted in paying the value of the questioned check.
In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202
dated December 21, 1979, prohibiting drawings against uncollected deposits. For we must point out
that the Central Bank at that timeissued a Memorandum dated July 9, 1980, which interpreted said
Monetary Board Resolution No. 2202. In its pertinent portion, saidMemorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31, 1979
prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1, 1980, uncollected
deposits representing manager’s/cashier’s/treasurer’schecks, treasury warrants, postal money orders
and duly funded "on us" checks which may be permitted at the discretion of each bank, covers drawings
against demand deposits as well as withdrawals from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow
immediate drawings on uncollected deposits of manager’s checks, among others. Consequently, RCBC,
in allowing the immediate withdrawal against the subject manager’s check, only exercised a prerogative
expressly granted to it bythe Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the
extraordinary nature of the manager’s check and the relativerights of the parties thereto. SBTC’s liability
as drawer remains the same— by drawing the instrument, it admits the existence of the payee and his
then capacity to indorse; and engages that on due presentment, the instrument will be accepted, or
paid, or both, according to its tenor.55(Emphases supplied, citations omitted.)
As in SBTC, BPI in the case at bar relied on the integrity and honor of the manager’s and cashier’s
checks asthey are regarded in commercial transactions when it immediately credited their amounts to
Nuguid’s account.
The Court of Appeals, however, sustained the dismissal of BPI’s complaint-in-intervention to recover
the amounts of the manager’s checks from Global Bank on account of BPI’s failure to prove the supposed
withdrawal by Nuguid of the value of the checks:
BPI’s cause of action against Asian Bank (now Global Bank) is derived from the supposed withdrawal
by Nuguid of the proceeds of the two Manager’s Checks it issued and the refusal of Asian Bank to make
good the same. That the admissions in the pleadings to the effect that Nuguid had withdrawn the said
proceeds failed to satisfy the trial court is understandable. Such withdrawal is anessential fact that, if
properly substantiated, would have defeated Chiok’s right toan injunction. BPI could so easily have
presented withdrawal slips or, with Nuguid’s consent, statements of account orthe passbook itself, which
would indubitably show that money actually changed hands at the crucial period before the issuance of
the TRO. But it did not.56
We disagree with this ruling. As provided for in Section 4, Rule 129 of the Rules of Court, admissions in
pleadings are judicial admissions and do not require proof:
Section 4. Judicial admissions. – An admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The admission may be contradicted only by
showing that it was made through palpable mistake or that no such admission was made.
Nuguid has admitted that FEBTC (now BPI) has paid him the value of the subject checks.57 This
statement by Nuguid is certainly against his own interest as he can be held liable for said amounts.
Unfortunately, Nuguid allowed his appeal with the Court of Appeals to lapse, without taking steps to
have it reinstated. This course of action, which is highly unlikely if Nuguid had not withdrawn the value
of the manager’s and cashier’s checks deposited into his account, likewise prevents us from ordering
Nuguid to deliver the amounts of the checks to Chiok. Parties who did not appeal will not be affected
by the decision of an appellate court rendered to appealing parties.58
Another reason given by the Court of Appeals for sustaining the dismissal of BPI’s complaint-in-
intervention was that BPI failed to prove that it was a holder in due course with respect to the manager’s
checks.59
We agree with the finding of the Court of Appeals that BPI is not a holder in due course with respect to
manager’s checks. Said checks were never indorsed by Nuguid to FEBTC, the predecessor-in-interest
of BPI, for the reason that they were deposited by Chiok directly to Nuguid’s account with FEBTC.
However, inview of our ruling that Nuguid has withdrawn the value of the checks from his account, BPI
has the rights of an equitable assignee for value under Section 49 of the Negotiable Instruments Law,
which provides:
Section 49. Transfer without indorsement; effect of. – Where the holder of an instrument payable to
his order transfers it for value without indorsing it, the transfer vests in the transferee suchtitle as the
transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the
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transferor. But for the purpose of determining whether the transferee is a holder in due course, the depositors from July 7, 1995 until the finality of this Decision, in accordance with the same compounding
negotiation takes effect as of the time when the indorsement is actually made. rules it applies to its depositors.

As an equitable assignee, BPI acquires the instrument subject to defenses and equities available among The petition in G.R. No. 175394 is hereby rendered MOOT.
prior parties60 and, in addition, the right to have the indorsement of Nuguid. Since the checks in question
are manager’s checks, the drawer and the drawee thereof are both Global Bank. Respondent Chiok
The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under the Decision and Resolution
cannot be considered a prior party as he is not the check’s drawer, drawee, indorser, payee or indorsee.
of the Court of Appeals in CAG.R. CV No. 77508 remain VALID and SUBSISTING, computed from the
Global Bank is consequently primarily liable upon the instrument, and cannot hide behind respondent
amounts adjudged by the Court of Appeals, without prejudice to any further action that may be filed by
Chiok’s defenses. As discussed above, manager’s checks are pre-accepted. By issuing the manager’s
Wilfred N. Chiok.
check, therefore, Global Bank committed in effect its total resources, integrity and honor towards its
payment.61
SO ORDERED.
Resultantly, Global Bank should pay BPI the amount of ₱18,455,350.00, representing the aggregate
face value ofMC No. 025935 and MC No. 025939. Since Global Bank was merely following the TRO and
preliminary injunction issued by the RTC, it cannot be held liable for legal interest during the time said
amounts are in its possession. Instead, we are adopting the formulation of the Court of Appeals that
the amounts be treated as savings deposits in Global Bank. The interest rate, however, should not be
fixed at 4% as determined by the Court of Appeals, since said rates have fluctuated since July 7, 1995,
the date Global Bank refused to honor the subject manager’s checks. Thus, Global Bank should pay BPI
interest based on the rates it actually paid its depositors from July 7, 1995 until the finality of this
Decision, in accordance with the same compounding rules it applies to its depositors. The legal rate
of6% per annum shall apply after the finality of this Decision.62

We have to stress that respondent Chiok is not left without recourse. Respondent Chiok’s cause of action
to recover the value of the checks is against Nuguid. Unfortunately, Nuguid allowed his appeal with the
Court of Appeals to lapse, without taking steps tohave it reinstated. As stated above, parties who did
not appeal will not be affected by the decision of the appellate court rendered to appealing
parties.63 Moreover, since Nuguid was not impleaded as a party to the present consolidated cases, he
cannot be bound by our judgment herein. Respondent Chiok should therefore pursue his remedy against
Nuguid in a separate action to recover the amounts of the checks.

Despite the reversal of the Court of Appeals Decision, the liability of Nuguid therein to respondent Chiok
for attorney’s fees equivalent to 5% of the total amount due remains valid, computed from the amounts
stated in said Decision. This is a consequence of the finality of the Decision of the Court of Appeals with
respect to him.

WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion filed with this Court on
May 28, 2013.

The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on the same case dated
November 6, 2006 are hereby REVERSED AND SET ASIDE, and a new one is issued ordering the DENIAL
of the Amended Complaint in Civil Case No. Q-95-24299 in Branch 96 of the Regional Trial Court of
Quezon City for lack of merit. The Writ of Preliminary Prohibitory Injunction enjoining Asian Banking
Corporation (now Global Business Bank, Inc.) from honoring MC No. 025935 and MC No. 025939, and
Metropolitan Bank & Trust Company from honoring CC No. 003380, is hereby LIFTED and SET ASIDE.

Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine Islands, as successor-in-
interest of Far East Bank & Trust Company, the amount of ₱18,455,350.00, representing the aggregate
face value of MC No. 025935 and MC No. 025939, with interest based on the rates it actually paid its

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