Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial Court of Muntinlupa
City, and PACIFIC GENERAL STEEL MANUFACTURING CORPORATION, respondents.

DECISION

VELASCO, JR., J.:

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

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply and installation of
Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent Pacific General Steel
Manufacturing Corp. (PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties
executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 19972 amending the terms of payment.
The contract and its amendment stipulated that KOGIES will ship the machinery and facilities necessary for manufacturing
LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for
which PGSMC bound itself to pay USD 306,000 upon the plant’s production of the 11-kg. LPG cylinder samples. Thus, the
total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth Properties, Inc. (Worth) for use of Worth’s
5,079-square meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant. The
monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the
machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in the
Carmona plant. PGSMC paid KOGIES USD 1,224,000.

However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the installation of the plant, the
initial operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus
forcing the parties to agree that KOGIES would be deemed to have completely complied with the terms and conditions of the
March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC issued two postdated
checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated
March 30, 1998 for PhP 4,500,000.5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED." Thus, on May 8, 1998,
KOGIES sent a demand letter6 to PGSMC threatening criminal action for violation of Batas Pambansa Blg.22 in case of
nonpayment. On the same date, the wife of PGSMC’s President faxed a letter dated May 7, 1998 to KOGIES’ President who
was then staying at a Makati City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic
press from that agreed upon but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the payments were stopped
for reasons previously made known to KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5, 1997 on the ground
that KOGIES had altered the quantity and lowered the quality of the machineries and equipment it delivered to PGSMC, and
that PGSMC would dismantle and transfer the machineries, equipment, and facilities installed in the Carmona plant. Five
days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-
03813 against Mr. Dae Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their contract nor
dismantle and transfer the machineries and equipment on mere imagined violations by KOGIES. It also insisted that their
disputes should be settled by arbitration as agreed upon in Article 15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter threatening that the
machineries, equipment, and facilities installed in the plant would be dismantled and transferred on July 4, 1998. Thus, on
July 1, 1998, KOGIES instituted an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in
Seoul, Korea pursuant to Art. 15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98-1178 against PGSMC
before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO) on July 4,
1998, which was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially
admitted that the checks that were stopped were not funded but later on claimed that it stopped payment of the checks for
the reason that "their value was not received" as the former allegedly breached their contract by "altering the quantity and
lowering the quality of the machinery and equipment" installed in the plant and failed to make the plant operational although
it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES averred that PGSMC
violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES
also asked that PGSMC be restrained from dismantling and transferring the machinery and equipment installed in the plant
which the latter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO since Art. 15, the
arbitration clause, was null and void for being against public policy as it ousts the local courts of jurisdiction over the instant
controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim 9 asserting that it had the full right to dismantle and
transfer the machineries and equipment because it had paid for them in full as stipulated in the contract; that KOGIES was
not entitled to the PhP 9,000,000 covered by the checks for failing to completely install and make the plant operational; and
that KOGIES was liable for damages amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the
machineries and equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to
July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the plant considering that the
LPG cylinder manufacturing plant never became operational.

After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the application for a writ of
preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the machineries and
equipment as shown in the contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC held
that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court jurisdiction over any
dispute that may arise between the parties. KOGIES’ prayer for an injunctive writ was denied. 10 The dispositive portion of the
Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that no cogent reason
exists for this Court to grant the writ of preliminary injunction to restrain and refrain defendant from dismantling the
machineries and facilities at the lot and building of Worth Properties, Incorporated at Carmona, Cavite and transfer
the same to another site: and therefore denies plaintiff’s application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. 11 KOGIES denied it had altered the
quantity and lowered the quality of the machinery, equipment, and facilities it delivered to the plant. It claimed that it had
performed all the undertakings under the contract and had already produced certified samples of LPG cylinders. It averred
that whatever was unfinished was PGSMC’s fault since it failed to procure raw materials due to lack of funds. KOGIES,
relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was without question
valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering PGSMC’s memorandum of July 22,
1998 and seeking dismissal of PGSMC’s counterclaims, KOGIES, on August 4, 1998, filed its Motion for
Reconsideration14 of the July 23, 1998 Order denying its application for an injunctive writ claiming that the contract was not
merely for machinery and facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing plant" consisting of
"supply of all the machinery and facilities" and "transfer of technology" for a total contract price of USD 1,530,000 such that
the dismantling and transfer of the machinery and facilities would result in the dismantling and transfer of the very plant itself
to the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIES points out that the
arbitration clause under Art. 15 of the Contract as amended was a valid arbitration stipulation under Art. 2044 of the Civil
Code and as held by this Court in Chung Fu Industries (Phils.), Inc.15

In the meantime, PGSMC filed a Motion for Inspection of Things 16 to determine whether there was indeed alteration of the
quantity and lowering of quality of the machineries and equipment, and whether these were properly installed. KOGIES
opposed the motion positing that the queries and issues raised in the motion for inspection fell under the coverage of the
arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for inspection; (2) denying KOGIES’
motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES’ motion to dismiss PGSMC’s
compulsory counterclaims as these counterclaims fell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the September 21, 1998 RTC Order granting
inspection of the plant and denying dismissal of PGSMC’s compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for certiorari 18 docketed as CA-G.R. SP No.
49249, seeking annulment of the July 23, 1998 and September 21, 1998 RTC Orders and praying for the issuance of writs
of prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement
on arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for reconsideration and directed the Branch
Sheriff to proceed with the inspection of the machineries and equipment in the plant on October 28, 1998. 19

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the CA about the October 19,
1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition, mandamus and preliminary
injunction which was not acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the technical
expertise to ascertain whether or not the machineries and equipment conformed to the specifications in the contract and
were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report 21 finding that the enumerated machineries and
equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and dismissing the petition for certiorari
filed by KOGIES. The CA found that the RTC did not gravely abuse its discretion in issuing the assailed July 23, 1998 and
September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES’ contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was contrary to the finding of the RTC that PGSMC fully paid
the price of USD 1,224,000, which was for all the machineries and equipment. According to the CA, this determination by
the RTC was a factual finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an arbitration clause which
provided for a final determination of the legal rights of the parties to the contract by arbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping by PGSMC, the CA
held that the counterclaims of PGSMC were compulsory ones and payment of docket fees was not required since the
Answer with counterclaim was not an initiatory pleading. For the same reason, the CA said a certificate of non-forum
shopping was also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did not wait for the
resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order which was the plain, speedy, and
adequate remedy available. According to the CA, the RTC must be given the opportunity to correct any alleged error it has
committed, and that since the assailed orders were interlocutory, these cannot be the subject of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.
 The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND FACILITIES AS "A
QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON THE
SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE CONTRACT
BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC POLICY" AND FOR OUSTING THE COURTS
OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL COMPULSORY NOT

NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR THE RESOLUTION
OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT
GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER
SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING "INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD,
DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT MERIT."23

The Court’s Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims

and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees and filed a certificate of
non-forum shopping, and that its failure to do so was a fatal defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with Compulsory Counterclaim dated
July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was effective at
the time the Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory
counterclaim or a cross-claim that a defending party has at the time he files his answer shall be contained therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES, it was not liable to
pay filing fees for said counterclaims being compulsory in nature. We stress, however, that effective August 16, 2004 under
Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid in compulsory counterclaim
or cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an initiatory pleading which requires a
certification against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible error in denying KOGIES’ motion to dismiss PGSMC’s
compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the remedies to question the
propriety of an interlocutory order of the trial court." 26 The CA erred on its reliance on Gamboa. Gamboa involved the denial
of a motion to acquit in a criminal case which was not assailable in an action for certiorari since the denial of a motion to
quash required the accused to plead and to continue with the trial, and whatever objections the accused had in his motion to
quash can then be used as part of his defense and subsequently can be raised as errors on his appeal if the judgment of the
trial court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an appeal. 27 Thus,
in Yamaoka v. Pescarich Manufacturing Corporation, we held:

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

Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory motions. Thus, where
the interlocutory order was issued without or in excess of jurisdiction or with grave abuse of discretion, the remedy is
certiorari.29

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the issuance of the two
assailed orders coupled with the fact that there is no plain, speedy, and adequate remedy in the ordinary course of law
amply provides the basis for allowing the resort to a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note that KOGIES’ motion
for reconsideration of the July 23, 1998 RTC Order which denied the issuance of the injunctive writ had already been
denied. Thus, KOGIES’ only remedy was to assail the RTC’s interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Order relating to the
inspection of things, and the allowance of the compulsory counterclaims has not yet been resolved, the circumstances in this
case would allow an exception to the rule that before certiorari may be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first resolved by the court a quo. The reason behind the rule is "to enable
the lower court, in the first instance, to pass upon and correct its mistakes without the intervention of the higher court." 30

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and facilities when he is not
competent and knowledgeable on said matters is evidently flawed and devoid of any legal support. Moreover, there is an
urgent necessity to resolve the issue on the dismantling of the facilities and any further delay would prejudice the interests of
KOGIES. Indeed, there is real and imminent threat of irreparable destruction or substantial damage to KOGIES’ equipment
and machineries. We find the resort to certiorari based on the gravely abusive orders of the trial court sans the ruling on the
October 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:

Article 15. Arbitration.—All disputes, controversies, or differences which may arise between the parties, out of or in
relation to or in connection with this Contract or for the breach thereof, shall finally be settled by arbitration in
Seoul, Korea in accordance with the Commercial Arbitration Rules of the Korean Commercial Arbitration
Board. The award rendered by the arbitration(s) shall be final and binding upon both parties concerned.
(Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is made governs. Lex loci contractus.
The contract in this case was perfected here in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044
of the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral
award. Art. 2044 provides, "Any stipulation that the arbitrators’ award or decision shall be final, is valid, without
prejudice to Articles 2038, 2039 and 2040." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral award, as applied to Art.
2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but these would not denigrate the finality of the arbitral
award.

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

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial
Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not contrary to public policy. This Court has
sanctioned the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration clause to resolve differences and breaches of
mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that "[i]n this jurisdiction,
arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this
Court has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was adopted to supplement
the New Civil Code’s provisions on arbitration." 39 And in LM Power Engineering Corporation v. Capitol Industrial Construction
Groups, Inc., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes, 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. 40

Having said that the instant arbitration clause is not against public policy, we come to the question on what governs an
arbitration clause specifying that in case of any dispute arising from the contract, an arbitral panel will be constituted in a
foreign country and the arbitration rules of the foreign country would govern and its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from contractual relations. In
case a foreign arbitral body is chosen by the parties, the arbitration rules of our domestic arbitration bodies would not be
applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration 41 of the
United Nations Commission on International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the
Philippines committed itself to be bound by the Model Law. We have even incorporated the Model Law in Republic Act No.
(RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use of
an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution,
and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the pertinent
provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.––International commercial arbitration
shall be governed by the Model Law on International Commercial Arbitration (the "Model Law") adopted by the
United Nations Commission on International Trade Law on June 21, 1985 (United Nations Document A/40/17) and
recommended for enactment by the General Assembly in Resolution No. 40/72 approved on December 11, 1985,
copy of which is hereto attached as Appendix "A".
 SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard shall be had to its international origin
and to the need for uniformity in its interpretation and resort may be made to the travaux preparatoriesand the
report of the Secretary General of the United Nations Commission on International Trade Law dated March 25,
1985 entitled, "International Commercial Arbitration: Analytical Commentary on Draft Trade identified by reference
number A/CN. 9/264."

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural law which has a
retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCAB on July 1, 1998 and it is still pending
because no arbitral award has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule
that procedural laws are construed to be applicable to actions pending and undetermined at the time of their passage, and
are deemed retroactive in that sense and to that extent. As a general rule, the retroactive application of procedural laws
does not violate any personal rights because no vested right has yet attached nor arisen from them. 42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the following:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an
arbitration clause, and mandates the referral to arbitration in such cases, thus:

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

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and binding are not
immediately enforceable or cannot be implemented immediately. Sec. 35 43 of the UNCITRAL Model Law stipulates the
requirement for the arbitral award to be recognized by a competent court for enforcement, which court under Sec. 36 of the
UNCITRAL Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285 incorporated these
provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:

SEC. 42. Application of the New York Convention.––The New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.

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

The applicant shall establish that the country in which foreign arbitration award was made in party to the New York
Convention.

xxxx

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New York Convention.––
The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be done
in accordance with procedural rules to be promulgated by the Supreme Court. The Court may, on grounds of
comity and reciprocity, recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award when confirmed by a court of a
foreign country, shall be recognized and enforced as a foreign arbitral award and not as a judgment of a foreign
court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the same manner as
final and executory decisions of courts of law of the Philippines
 xxxx

SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement of an arbitration agreement or for
vacations, setting aside, correction or modification of an arbitral award, and any application with a court for
arbitration assistance and supervision shall be deemed as special proceedings and shall be filed with the Regional
Trial Court (i) where arbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, or
the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has his place of business; or
(iv) in the National Judicial Capital Region, at the option of the applicant.

SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for recognition and enforcement of an arbitral
award, the Court shall send notice to the parties at their address of record in the arbitration, or if any part cannot be
served notice at such address, at such party’s last known address. The notice shall be sent al least fifteen (15)
days before the date set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a foreign court but
as a foreign arbitral award, and when confirmed, are enforced as final and executory decisions of our courts of law.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or awards given by
some of our quasi-judicial bodies, like the National Labor Relations Commission and Mines Adjudication Board, whose final
judgments are stipulated to be final and binding, but not immediately executory in the sense that they may still be judicially
reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards are similarly situated in that they need
first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to set aside,
reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and
45 provide:

SEC. 42. Application of the New York Convention.––The New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.

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

The applicant shall establish that the country in which foreign arbitration award was made is party to the New York
Convention.

If the application for rejection or suspension of enforcement of an award has been made, the Regional Trial Court
may, if it considers it proper, vacate its decision and may also, on the application of the party claiming recognition
or enforcement of the award, order the party to provide appropriate security.

xxxx

SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral award in accordance with the procedures and rules to be
promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by the parties,
still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or vacate it. In this sense,
what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of jurisdiction since these arbitral awards are not absolute and without
exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether
domestic or foreign, are subject to judicial review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral tribunal and an award given by a local
arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for setting aside, rejecting
or vacating the award by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA 876 44 and shall be
recognized as final and executory decisions of the RTC, 45 they may only be assailed before the RTC and vacated on the
grounds provided under Sec. 25 of RA 876.46

(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases where the RTC sets
aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.—A decision of the Regional Trial Court confirming,
vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals in
accordance with the rules and procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral award shall be required by the
appellate court to post a counterbond executed in favor of the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for review under Rule
45 of the Rules of Court.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it bound itself through
the subject contract. While it may have misgivings on the foreign arbitration done in Korea by the KCAB, it has available
remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating that the arbitral award
is final and binding, does not oust our courts of jurisdiction as the international arbitral award, the award of which is not
absolute and without exceptions, is still judicially reviewable under certain conditions provided for by the UNCITRAL Model
Law on ICA as applied and incorporated in RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may dispense with the
arbitration clause.

Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not contrary to public
policy; consequently, being bound to the contract of arbitration, a party may not unilaterally rescind or terminate the contract
for whatever cause without first resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles 47 and reiterated in succeeding cases,48 that the act of
treating a contract as rescinded on account of infractions by the other contracting party is valid albeit provisional as it can be
judicially assailed, is not applicable to the instant case on account of a valid stipulation on arbitration. Where an arbitration
clause in a contract is availing, neither of the parties can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from the contract must be brought first and resolved by arbitration,
and not through an extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES on whether the equipment and machineries delivered
and installed were properly installed and operational in the plant in Carmona, Cavite; the ownership of equipment and
payment of the contract price; and whether there was substantial compliance by KOGIES in the production of the samples,
given the alleged fact that PGSMC could not supply the raw materials required to produce the sample LPG cylinders, are
matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an Application for Arbitration before
the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by
its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for Inspection of Things on September
21, 1998, as the subject matter of the motion is under the primary jurisdiction of the mutually agreed arbitral body, the KCAB
in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made on October 28,
1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is not technically competent to
ascertain the actual status of the equipment and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant of the inspection of
the equipment and machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD 1,530,000 was for
the whole plant and its installation is beyond the ambit of a Petition for Certiorari.

Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari. 49 Whether or not there was full payment
for the machineries and equipment and installation is indeed a factual issue prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the issue on the
ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has jurisdiction and authority over the said
issue. The RTC’s determination of such factual issue constitutes grave abuse of discretion and must be reversed and set
aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to dismantle and
transfer the equipment and machineries, we find it to be in order considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be under the primary
jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim
measures to protect vested rights of the parties. Sec. 28 pertinently provides:

SEC. 28. Grant of interim Measure of Protection.—(a) It is not incompatible with an arbitration agreement for a
party to request, before constitution of the tribunal, from a Court to grant such measure. After constitution of
the arbitral tribunal and during arbitral proceedings, a request for an interim measure of protection, or modification
thereof, may be made with the arbitral or to the extent that the arbitral tribunal has no power to act or is
unable to act effectivity, the request may be made with the Court. The arbitral tribunal is deemed constituted
when the sole arbitrator or the third arbitrator, who has been nominated, has accepted the nomination and written
communication of said nomination and acceptance has been received by the party making the request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

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

(iii) to produce or preserve any evidence; or

 (iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of security or any act or omission
specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against whom the relief is sought, describing in appropriate detail
the precise relief, the party against whom the relief is requested, the grounds for the relief, and the evidence
supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or enforcing an interim measure ordered by
an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages resulting from noncompliance,
including all expenses, and reasonable attorney's fees, paid in obtaining the order’s judicial enforcement.
(Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which,
at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a
party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or
prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective
of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall
exercise such power in accordance with its own procedures in consideration of the specific features of international
arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit that even "the pendency
of an arbitral proceeding does not foreclose resort to the courts for provisional reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for provisional
reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute, allows the application of a party to a
judicial authority for interim or conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The
Arbitration Law) recognizes the rights of any party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise known as
the "Alternative Dispute Resolution Act of 2004," allows the filing of provisional or interim measures with the
regular courts whenever the arbitral tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.

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

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worth’s property is not to the
best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is not operational. PGSMC was losing
PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without considering the 10% annual rent increment in
maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or transfer of the
equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries given the non-recognition by the lower courts of the arbitral clause, has accorded
an interim measure of protection to PGSMC which would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the contract.
Moreover, KOGIES is amply protected by the arbitral action it has instituted before the KCAB, the award of which can be
enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries, it
does not have the right to convey or dispose of the same considering the pending arbitral proceedings to settle the
differences of the parties. PGSMC therefore must preserve and maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of the arbitral proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and differences arising from
the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not done so,
and ORDERED to preserve and maintain them until the finality of whatever arbitral award is given in the arbitration
proceedings.

No pronouncement as to costs.

SO ORDERED.

Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga, JJ., concur.

Footnotes

1
Id. at 58-65; signed by KOGIES’ President Dae Hyun Kang and PGSMC President Honorio Santiago.

2
Id. at 94.
3
Id. at 208-218; signed by PGSMC President Honorio Santiago and Worth President Wilson L. Chua.

4
Id. at 95; signed by KOGIES’ President Dae Hyun Kang and PGSMC President Honorio Santiago.

5
Id. at 207.

6
Id. at 221.

7
Id. at 222.

8
Id. at 47-51; dated July 1, 1998.

9
Id. at 66-82.

10
Id. at 97.

11
Id. at 83-89.

12
G.R. No. 96283, February 25, 1992, 206 SCRA 545.

13
Rollo, pp. 108-111.

14
Id. at 98-100.

15
Supra note 12.

16
Rollo, pp. 101-105.

17
Id. at 113-115.

18
Id. at 120-146; dated October 9, 1998.

19
Id. at 119.

20
Id. at 116-118.

21
Id. at 266-268.

Id. at 40. Penned by Associate Justice Elvi John S. Asuncion and concurred in by Associate Justices Ma. Alicia
22

Austria-Martinez and Portia Aliño-Hormachuelos.

23
Id. at 16-17; original in boldface.

24
SEC. 5. Certification against forum shopping.––The plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving
the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other
action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the
present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed
or is pending, he shall report that fact within five (5) days therefrom to the court where his aforesaid complaint or
initiatory pleading has been filed. (Emphasis supplied.)

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect contempt of court, without
 prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal
with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions.

25
G.R. No. L-56291, June 27, 1988, 162 SCRA 642.

26
Rollo, p. 45.

La Tondeña Distillers, Inc. v. Ponferrada, G.R. No. 109656, November 21, 1996, 264 SCRA 540; Mendoza v.
27

Court of Appeals, G.R. No. 81909, September 5, 1991, 201 SCRA 343; MB Finance Corporation v. Abesamis,
G.R. No. 93875, March 22, 1991, 195 SCRA 592; Quisumbing v. Gumban, G.R. No. 85156, February 5, 1991, 193
SCRA 520.

G.R. No. 146079, July 20, 2001, 361 SCRA 672, 680-681, citing Go v. Court of Appeals, G.R. No. 128954,
28

October 8, 1998, 297 SCRA 574.

29
I Regalado, Remedial Law Compendium 502 (2002).

30
Id. at 721 (8th rev. ed.).

31
Art. 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or falsity of
documents is subject to the provisions of Article 1330 [voidable] of this Code.

However, one of the parties cannot set up a mistake of fact as against the other if the latter, by virtue of the
compromise, has withdrawn from a litigation already commenced.

32
Art. 2039. When the parties compromise generally on all differences which they might have with each other, the
discovery of documents referring to one or more but not to all of the questions settled shall not itself be a cause for
annulment or rescission of the compromise, unless said documents have been concealed by one of the parties.

But the compromise may be annulled or rescinded if it refers only to one thing to which one of the parties has no
right, as shown by the newly-discovered documents.

33
Art. 2040. If after a litigation has been decided by a final judgment, a compromise should be agreed upon, either
or both parties being unaware of the existence of the final judgment, the compromise may be rescinded.

Ignorance of a judgment which may be revoked or set aside is not a valid ground for attacking a compromise.

34
Art. 2043. The provisions of the preceding Chapter upon compromises shall also be applicable to arbitrations.

35
G.R. No. 161957 and G.R. No. 167994, January 22, 2007, 512 SCRA 148; citing Manila Electric Co. v. Pasay
Transportation Co., 57 Phil. 600 (1932).

36
Id. at 603.

37
G.R. No. 136154, February 7, 2001, 351 SCRA 373, 381.

38
102 Phil. 1 (1957).

39
G.R. No. 120105, March 27, 1998, 288 SCRA 267, 286.

40
G.R. No. 141833, March 26, 2003, 399 SCRA 562, 569-570; citations omitted.

41
Adopted by the UNCITRAL on June 21, 1985 (United Nations Document A/40/17) and recommended for
enactment by the General Assembly in Resolution No. 40/72, approved on 11 December 1985. Subsequently
amended on July 7, 2006.
42
In the Matter to Declare in Contempt of Court Hon. Simeon A. Datumanong, Secretary of DPWH, G.R. No.
150274, August 4, 2006, 497 SCRA 626, 636-637; citing Calacala v. Republic, G.R. No. 154415, July 28, 2005,
464 SCRA 438, 446.

43
Id. Art. 35(1) provides:

Article 35. Recognition and enforcement

(1) An arbitral award, irrespective of the country in which it was made, shall be recognized as binding
and, upon application in writing to the competent court, shall be enforced subject to the provisions of this
article and of article 36.

44
"An Act to Authorize the Making of Arbitration and Submission Agreements, to Provide for the Appointment of
Arbitrators and the Procedure for Arbitration in Civil Controversies, and for Other Purposes" (1953).

45
RA 9285, Sec. 40.

46
Id., Sec. 41.

47
G.R. No. L-28602, September 29, 1970, 35 SCRA 102.

48
See Lorenzo Shipping Corp. v. BJ Marthel International, Inc., G.R. No. 145483. November 19, 2004, 443 SCRA
163; Subic Bay Metropolitan Authority v. Universal International Group of Taiwan, G.R. No. 131680, September
14, 2000, 340 SCRA 359; Philippine National Construction Corp. v. Mars Construction Enterprises, Inc., G.R. No.
133909, February 15, 2000, 325 SCRA 624; Cheng v. Genato, G.R. No. 129760, December 29, 1998, 300 SCRA
722; Goldenrod, Inc. v. Court of Appeals, G.R. No. 126812, November 24, 1998, 299 SCRA 141; Adelfa
Properties, Inc. v. Court of Appeals, G.R. No. 111238, January 25, 1995; 240 SCRA 565; Bowe v. Court of
Appeals, G.R. No. 95771, March 19, 1993, 220 SCRA 158; Lim v. Court of Appeals, G.R. No. 85733, February 23,
1990, 182 SCRA 564.

49
Suarez v. NLRC, G.R. No. 124723, July 31, 1998, 293 SCRA 496, 502.

50
G.R. No. 146717, May 19, 2006, 490 SCRA 14, 20-21.

51
Cf. Article 1173 of the Civil Code.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 175404 January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1 dated July 31, 2006 and the
Resolution2 dated November 13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 50304.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of Makati City a
Complaint for Rescission of Contract with Damages 3 against petitioner Cargill Philippines, Inc. In its Complaint, respondent
alleged that it was engaged in buying and selling of molasses and petitioner was one of its various sources from whom it
purchased molasses. Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses
at the price of US$192 per metric ton; that the delivery of the molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of Credit payable at sight, to be opened by September 15, 1996;
that sometime prior to September 15, 1996, the parties agreed that instead of January/February 1997, the delivery would be
made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with its obligations under the contract, despite demands from
respondent, thus, the latter prayed for rescission of the contract and payment of damages.

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary
Arbitration,4 wherein it argued that the alleged contract between the parties, dated July 11, 1996, was never consummated
because respondent never returned the proposed agreement bearing its written acceptance or conformity nor did
respondent open the Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the parties was
whether or not the alleged contract between the parties was legally in existence and the RTC was not the proper forum to
ventilate such issue. It claimed that the contract contained an arbitration clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the
City of New York before the American Arbitration Association. The Arbitration Award shall be final and binding on both
parties.5

that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC must either dismiss the
case or suspend the proceedings and direct the parties to proceed with arbitration, pursuant to Sections 6 6 and 77 of
Republic Act (R.A.) No. 876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for rescission of contract and
could not be changed by the subject arbitration clause. It cited cases wherein arbitration clauses, such as the subject clause
in the contract, had been struck down as void for being contrary to public policy since it provided that the arbitration award
shall be final and binding on both parties, thus, ousting the courts of jurisdiction.

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been rendered prior to the
effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and unenforceable,
considering that the requirements imposed by the provisions of the Arbitration Law had not been complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue boiled down to whether the
arbitration clause contained in the contract subject of the complaint is valid and enforceable; that the arbitration clause did
not violate any of the cited provisions of the Arbitration Law.

On September 17, 1998, the RTC rendered an Order, 8 the dispositive portion of which reads:

Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer Controversy To Voluntary
Arbitration" is hereby DENIED. Defendant is directed to file its answer within ten (10) days from receipt of a copy of this
order.9

In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss the case, pursuant to
Section 7 of the Arbitration Law. The RTC said that the provision directed the court concerned only to stay the action or
proceeding brought upon an issue arising out of an agreement providing for the arbitration thereof, but did not impose the
sanction of dismissal. However, the RTC did not find the suspension of the proceedings warranted, since the Arbitration Law
contemplates an arbitration proceeding that must be conducted in the Philippines under the jurisdiction and control of the
RTC; and before an arbitrator who resides in the country; and that the arbitral award is subject to court approval, disapproval
and modification, and that there must be an appeal from the judgment of the RTC. The RTC found that the arbitration clause
in question contravened these procedures, i.e., the arbitration clause contemplated an arbitration proceeding in New York
before a non-resident arbitrator (American Arbitration Association); that the arbitral award shall be final and binding on both
parties. The RTC said that to apply Section 7 of the Arbitration Law to such an agreement would result in disregarding the
other sections of the same law and rendered them useless and mere surplusages.

Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order 10 dated November 25, 1998.

Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess of jurisdiction or with
grave abuse of discretion in refusing to dismiss or at least suspend the proceedings a quo, despite the fact that the party's
agreement to arbitrate had not been complied with.

Respondent filed its Comment and Reply. The parties were then required to file their respective Memoranda.

On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC Orders.

In denying the petition, the CA found that stipulation providing for arbitration in contractual obligation is both valid and
constitutional; that arbitration as an alternative mode of dispute resolution has long been accepted in our jurisdiction and
expressly provided for in the Civil Code; that R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of
domestic disputes. The CA found error in the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration
clause simply because the clause failed to comply with the requirements prescribed by the law. The CA found that there was
nothing in the Civil Code, or R.A. No. 876, that require that arbitration proceedings must be conducted only in the Philippines
and the arbitrators should be Philippine residents. It also found that the RTC ruling effectively invalidated not only the
disputed arbitration clause, but all other agreements which provide for foreign arbitration. The CA did not find illegal or
against public policy the arbitration clause so as to render it null and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration Law for the purpose of
suspending the proceedings before the RTC, since in its Motion to Dismiss/Suspend proceedings, petitioner alleged, as one
of the grounds thereof, that the subject contract between the parties did not exist or it was invalid; that the said contract
bearing the arbitration clause was never consummated by the parties, thus, it was proper that such issue be first resolved by
the court through an appropriate trial; that the issue involved a question of fact that the RTC should first resolve. Arbitration
is not proper when one of the parties repudiated the existence or validity of the contract.

Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.

Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed despite the fact that: (a) it
had ruled, in its assailed decision, that the arbitration clause is valid, enforceable and binding on the parties; (b) the case
of Gonzales v. Climax Mining Ltd.11 is inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt
several defenses, alternatively or hypothetically, even if such
defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial court is premature.

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause between the parties as
valid and enforceable and yet in the same breath decreed that the arbitration cannot proceed because petitioner assailed
the existence of the entire agreement containing the arbitration clause. Petitioner claims the inapplicability of the
cited Gonzales case decided in 2005, because in the present case, it was respondent who had filed the complaint for
rescission and damages with the RTC, which based its cause of action against petitioner on the alleged agreement dated
July 11, 2006 between the parties; and that the same agreement contained the arbitration clause sought to be enforced by
petitioner in this case. Thus, whether petitioner assails the genuineness and due execution of the agreement, the fact
remains that the agreement sued upon provides for an arbitration clause; that respondent cannot use the provisions
favorable to him and completely disregard those that are unfavorable, such as the arbitration clause.

Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the parties had not entered
into any agreement upon which respondent as plaintiff can sue upon; and, assuming that such agreement existed, there was
an arbitration clause that should be enforced, thus, the dispute must first be submitted to arbitration before an action can be
instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground to dismiss
a complaint is when a condition precedent for filing the complaint has not been complied with; and that submission to
arbitration when such has been agreed upon is one such condition precedent. Petitioner submits that the proceedings in the
RTC must be dismissed, or at least suspended, and the parties be ordered to proceed with arbitration.

On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's rationale in declining to order arbitration based on
the 2005 Gonzales ruling had been modified upon a motion for reconsideration decided in 2007; that the CA decision lost its
legal basis, because it had been ruled that the arbitration agreement can be implemented notwithstanding that one of the
parties thereto repudiated the contract which contained such agreement based on the doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an order denying a Motion to
Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration. It claims that the Arbitration Law which
petitioner invoked as basis for its Motion prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review
on certiorari under Rule 45. Respondent contends that the Gonzales case, which was decided in 2007, is inapplicable in this
case, especially as to the doctrine of separability enunciated therein. Respondent argues that even if the existence of the
contract and the arbitration clause is conceded, the decisions of the RTC and the CA declining referral of the dispute
between the parties to arbitration would still be correct. This is so because respondent's complaint filed in Civil Case No. 98-
1376 presents the principal issue of whether under the facts alleged in the complaint, respondent is entitled to rescind its
contract with petitioner and for the latter to pay damages; that such issue constitutes a judicial question or one that requires
the exercise of judicial function and cannot be the subject of arbitration.

Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the same action several
defenses, alternatively or hypothetically, even if such defenses are inconsistent with each other refers to allegations in the
pleadings, such as complaint, counterclaim, cross-claim, third-party complaint, answer, but not to a motion to dismiss.
Finally, respondent claims that petitioner's argument is premised on the existence of a contract with respondent containing a
provision for arbitration. However, its reliance on the contract, which it repudiates, is inappropriate.

In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis of the contract, thus,
respondent admitted the existence of all the provisions contained thereunder, including the arbitration clause; that if
respondent relies on said contract for its cause of action against petitioner, it must also consider itself bound by the rest of
the terms and conditions contained thereunder notwithstanding that respondent may find some provisions to be adverse to
its position; that respondent’s citation of the Gonzales case, decided in 2005, to show that the validity of the contract cannot
be the subject of the arbitration proceeding and that it is the RTC which has the jurisdiction to resolve the situation between
the parties herein, is not correct since in the resolution of the Gonzales' motion for reconsideration in 2007, it had been ruled
that an arbitration agreement is effective notwithstanding the fact that one of the parties thereto repudiated the main contract
which contained it.

We first address the procedural issue raised by respondent that petitioner’s petition for certiorari under Rule 65 filed in the
CA against an RTC Order denying a Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary
Arbitration was a wrong remedy invoking Section 29 of R.A. No. 876, which provides:

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an
award through certiorari proceedings, but such appeals shall be limited to question of law. x x x.
To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.13 (Gonzales case), wherein we ruled
the impropriety of a petition for certiorari under Rule 65 as a mode of appeal from an RTC Order directing the parties to
arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration under R.A. No. 876,
pursuant to the arbitration clause found in the Addendum Contract it entered with Gonzales. Judge Oscar Pimentel of the
RTC of Makati then directed the parties to arbitration proceedings. Gonzales filed a petition for certiorari with Us contending
that Judge Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed with arbitration
despite the proper, valid and timely raised argument in his Answer with counterclaim that the Addendum Contract containing
the arbitration clause was null and void. Climax-Arimco assailed the mode of review availed of by Gonzales, citing Section
29 of R.A. No. 876 contending that certiorariunder Rule 65 can be availed of only if there was no appeal or any adequate
remedy in the ordinary course of law; that R.A. No. 876 provides for an appeal from such order. We then ruled that
Gonzales' petition for certiorari should be dismissed as it was filed in lieu of an appeal by certiorari which was the prescribed
remedy under R.A. No. 876 and the petition was filed far beyond the reglementary period.

We found that Gonzales’ petition for certiorari raises a question of law, but not a question of jurisdiction; that Judge Pimentel
acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration
and appointed a sole arbitrator after making the determination that there was indeed an arbitration agreement. It had been
held that as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal and not
assailable by a special civil action of certiorari.14

In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of jurisdiction or with grave
abuse of discretion in refusing to dismiss, or at least suspend, the proceedings a quo, despite the fact that the party’s
agreement to arbitrate had not been complied with. Notably, the RTC found the existence of the arbitration clause, since it
said in its decision that "hardly disputed is the fact that the arbitration clause in question contravenes several provisions of
the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an agreement would result in the disregard of
the afore-cited sections of the Arbitration Law and render them useless and mere surplusages." However, notwithstanding
the finding that an arbitration agreement existed, the RTC denied petitioner's motion and directed petitioner to file an
answer.

In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly confines the court’s authority only
to the determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute
ordains that the court shall issue an order summarily directing the parties to proceed with the arbitration in accordance with
the terms thereof. If the court, upon the other hand, finds that no such agreement exists, the proceedings shall be dismissed.

In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer Controversy to
Voluntary Arbitration, the RTC went beyond its authority of determining only the issue of whether or not there is an
agreement in writing providing for arbitration by directing petitioner to file an answer, instead of ordering the parties to
proceed to arbitration. In so doing, it acted in excess of its jurisdiction and since there is no plain, speedy, and adequate
remedy in the ordinary course of law, petitioner’s resort to a petition for certiorari is the proper remedy.

We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be brought under the
arbitration law for the purpose of suspending the proceedings in the RTC.

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. 16R.A. No.
87617 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an
international character, is likewise recognized.18 The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the
use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.19

A contract is required for arbitration to take place and to be binding. 20 Submission to arbitration is a contract 21 and a clause
in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract. 22 The
provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of the contract and is
itself a contract.23

In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:
ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the
City of New York before the American Arbitration Association, The Arbitration Award shall be final and binding on both
parties.

The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract between the parties
did not exist or was invalid and arbitration is not proper when one of the parties repudiates the existence or validity of the
contract. Thus, said the CA:

Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause providing for foreign arbitration,
it is our considered opinion that the case at bench still cannot be brought under the Arbitration Law for the purpose of
suspending the proceedings before the trial court. We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner
Cargill alleged, as one of the grounds thereof, that the alleged contract between the parties do not legally exist or is invalid.
As posited by petitioner, it is their contention that the said contract, bearing the arbitration clause, was never consummated
by the parties. That being the case, it is but proper that such issue be first resolved by the court through an appropriate trial.
The issue involves a question of fact that the trial court should first resolve.

Arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Apropos is Gonzales v.
Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where the Supreme Court held that:

The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability
of the arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the
same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions....

Consequently, the petitioner herein cannot claim that the contract was never consummated and, at the same time, invokes
the arbitration clause provided for under the contract which it alleges to be non-existent or invalid. Petitioner claims that
private respondent's complaint lacks a cause of action due to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a fallback position. The petitioner must first adduce evidence in
support of its claim that there is no valid contract between them and should the court a quo find the claim to be meritorious,
the parties may then be spared the rigors and expenses that arbitration in a foreign land would surely entail. 24

However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had been modified upon a motion for
reconsideration in this wise:

x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28 February
2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the agreement to submit to
arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a
party's mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R.
No. 161957 that the case should not be brought for arbitration, it should be clarified that the case referred to is the case
actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the
ground of fraud, as it had already been determined that the case should have been brought before the regular courts
involving as it did judicial issues.26

In so ruling that the validity of the contract containing the arbitration agreement does not affect the applicability of the
arbitration clause itself, we then applied the doctrine of separability, thus:

The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of
the main contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does
not automatically terminate when the contract of which it is a part comes to an end.

The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the
main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also
referred to as the "container" contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration clause/agreement still remains valid and enforceable. 27

Respondent argues that the separability doctrine is not applicable in petitioner's case, since in the Gonzales case, Climax-
Arimco sought to enforce the arbitration clause of its contract with Gonzales and the former's move was premised on the
existence of a valid contract; while Gonzales, who resisted the move of Climax-Arimco for arbitration, did not deny the
existence of the contract but merely assailed the validity thereof on the ground of fraud and oppression. Respondent claims
that in the case before Us, petitioner who is the party insistent on arbitration also claimed in their Motion to Dismiss/Suspend
Proceedings that the contract sought by respondent to be rescinded did not exist or was not consummated; thus, there is no
room for the application of the separability doctrine, since there is no container or main contract or an arbitration clause to
speak of.

We are not persuaded.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall not be regarded as invalid
or non-existent just because the main contract is invalid or did not come into existence, since the arbitration agreement shall
be treated as a separate agreement independent of the main contract. To reiterate. a contrary ruling would suggest that a
party's mere repudiation of the main contract is sufficient to avoid arbitration and that is exactly the situation that the
separability doctrine sought to avoid. Thus, we find that even the party who has repudiated the main contract is not
prevented from enforcing its arbitration clause.

Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and damages with the RTC. In so
doing, respondent alleged that a contract exists between respondent and petitioner. It is that contract which provides for an
arbitration clause which states that "any dispute which the Buyer and Seller may not be able to settle by mutual agreement
shall be settled before the City of New York by the American Arbitration Association. The arbitration agreement clearly
expressed the parties' intention that any dispute between them as buyer and seller should be referred to arbitration. It is for
the arbitrator and not the courts to decide whether a contract between the parties exists or is valid.

Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded, the CA's
decision declining referral of the parties' dispute to arbitration is still correct. It claims that its complaint in the RTC presents
the issue of whether under the facts alleged, it is entitled to rescind the contract with damages; and that issue constitutes a
judicial question or one that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding.
Respondent cites our ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint
for declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression attendant to the
execution of the addendum contract and the other contracts emanating from it, and that the complaint should have been
filed with the regular courts as it involved issues which are judicial in nature.

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument.

In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and Geosciences
Bureau, of the Department of Environment and Natural Resources (DENR) against respondents Climax- Mining Ltd, Climax-
Arimco and Australasian Philippines Mining Inc, seeking the declaration of nullity or termination of the addendum contract
and the other contracts emanating from it on the grounds of fraud and oppression. The Panel dismissed the complaint for
lack of jurisdiction. However, the Panel, upon petitioner's motion for reconsideration, ruled that it had jurisdiction over the
dispute maintaining that it was a mining dispute, since the subject complaint arose from a contract between the parties
which involved the exploration and exploitation of minerals over the disputed area. Respondents assailed the order of the
1âwphi1

Panel of Arbitrators via a petition for certiorari before the CA. The CA granted the petition and declared that the Panel of
Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was limited to the resolution of mining disputes,
such as those which raised a question of fact or matter requiring the technical knowledge and experience of mining
authorities and not when the complaint alleged fraud and oppression which called for the interpretation and application of
laws. The CA further ruled that the petition should have been settled through arbitration under R.A. No. 876 − the Arbitration
Law − as provided under the addendum contract.

On a review on certiorari, we affirmed the CA’s finding that the Panel of Arbitrators who, under R.A. No. 7942 of the
Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and decide mining disputes, such as mining
areas, mineral agreements, FTAAs or permits and surface owners, occupants and claimholders/concessionaires, is bereft of
jurisdiction over the complaint for declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only
to those mining disputes which raised question of facts or matters requiring the technical knowledge and experience of
mining authorities. We then said:

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the adjudication of mining
cases a purely administrative matter. Decisions of the Supreme Court on mining disputes have recognized a distinction
between (1) the primary powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or administrative nature, such as granting of license, permits, lease
and contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting applications, and (2)
controversies or disagreements of civil or contractual nature between litigants which are questions of a judicial nature that
may be adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942.28
We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents with disregarding and
ignoring the addendum contract, and acting in a fraudulent and oppressive manner against petitioner, the complaint filed
before the Panel was not a dispute involving rights to mining areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said that the Panel of Arbitrators did not have jurisdiction over such
issue, since it does not involve the application of technical knowledge and expertise relating to mining. It is in this context
that we said that:

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some
provisions of the contract between them, which needs the interpretation and the application of that particular knowledge and
expertise possessed by members of that Panel. It is not proper when one of the parties repudiates the existence or validity
of such contract or agreement on the ground of fraud or oppression as in this case. The validity of the contract cannot be
subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters within the
jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application and interpretation of
laws and jurisprudence which is necessarily a judicial function.29

In fact, We even clarified in our resolution on Gonzales’ motion for reconsideration that "when we declared that the case
should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales
before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had
already been determined that the case should have been brought before the regular courts involving as it did judicial issues."
We made such clarification in our resolution of the motion for reconsideration after ruling that the parties in that case can
proceed to arbitration under the Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution dated November 13, 2006
of the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are
hereby ORDERED to SUBMIT themselves to the arbitration of their dispute, pursuant to their July 11, 1996 agreement.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ANTONIO EDUARDO B. NACHURA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Second Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice

Footnotes

1
Penned by Associate Justice Edgardo F. Sundiam, with Associate Justices Rodrigo V. Cosico and Japar B.
Dimaampao, concurring; rollo, pp. 32-45.

2
Id. at 47-48.

3
Docketed as Civil Case No. 98-1376; raffled off to Branch 59.

4
Rollo, pp. 61-70.

5
Id. at 60.

6
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. If the finding be that a written provision for
arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily directing
the parties to proceed with the arbitration in accordance with the terms thereof.

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

7
Sec. 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising out of an agreement
providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that
the issue involved in such suit or proceeding is referable to arbitration, shall say the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement; Provided that the applicant for the stay is
not in default in proceeding with such arbitration.

8
Penned by Judge Lucia Violago Isnani; rollo, pp. 71-75.

9
Id. at 75.

10
Records, pp. 113-115.

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

12
Rollo, pp. 311-314.

13
G.R. Nos. 161957 & 167994, January 22, 1997, 512 SCRA 148, 163.

14
Id. at 165.

15
G.R. No. 103200, August 31, 1994, 236 SCRA 78, 91.

16
Gonzales v. Climax Mining Ltd., supra note 13, at 166.
17
An Act to Institutionalize the Use of An Alternative Dispute Resolution System in the Philippines and to Establish
the Office for Alternative Dispute Resolution, and for other purposes.

18
Gonzeles v. Climax Mining Ltd., supra note 13.

19
Id. at 167.

20
Id.

21
Id., citing Manila Electric Co. v. Pasay Transportation Co., 57 Phil 600 (1932).

22
Id. at 167-168.

23
Id., citing Del Monte Corporation -USA v. Court of Appeals, 404 Phil. 192 (2001).

24
Rollo, pp. 44-45. (Emphasis supplied.)

25
Gonzales v. Climax Mining Ltd., supra note 11.

26
Gonzales v. Climax Mining Ltd., supra note 13, at 172-173. (Emphasis supplied.)

27
Id. at 170.

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

29
Id. at 624.
 Republic of the Philippines
SUPREME COURT
Manila

SPECIAL SECOND DIVISION

G.R. No. 161957 January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING
INC.,Respondents.

x--------------------------------------------------------------------------------- x

G.R. No. 167994 January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the REGIONAL TRIAL COURT of
MAKATI CITY, and CLIMAX-ARIMCO MINING CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into by the parties. In G.R.
No. 161957, the Court in its Decision of 28 February 20051 denied the Rule 45 petition of petitioner Jorge Gonzales
(Gonzales). It held that the DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the Constitution and that the action should have been brought
before the regular courts as it involved judicial issues. Both parties filed separate motions for reconsideration. Gonzales
avers in his Motion for Reconsideration2 that the Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute that properly falls within the ambit of the Panel’s
authority. Gonzales adds that the Court failed to rule on other issues he raised relating to the sufficiency of his complaint
before the DENR Panel of Arbitrators and the timeliness of its filing.

Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration and/or
Clarification3 seeking reconsideration of that part of the Decision holding that the case should not be brought for arbitration
under Republic Act (R.A.) No. 876, also known as the Arbitration Law. 4 Respondents, citing American jurisprudence5 and the
UNCITRAL Model Law,6 argue that the arbitration clause in the Addendum Contract should be treated as an agreement
independent of the other terms of the contract, and that a claimed rescission of the main contract does not avoid the duty to
arbitrate. Respondents add that Gonzales’s argument relating to the alleged invalidity of the Addendum Contract still has to
be proven and adjudicated on in a proper proceeding; that is, an action separate from the motion to compel arbitration.
Pending judgment in such separate action, the Addendum Contract remains valid and binding and so does the arbitration
clause therein. Respondents add that the holding in the Decision that "the case should not be brought under the ambit of the
Arbitration Law" appears to be premised on Gonzales’s having "impugn[ed] the existence or validity" of the addendum
contract. If so, it supposedly conveys the idea that Gonzales’s unilateral repudiation of the contract or mere allegation of its
invalidity is all it takes to avoid arbitration. Hence, respondents submit that the court’s holding that "the case should not be
brought under the ambit of the Arbitration Law" be understood or clarified as operative only where the challenge to the
arbitration agreement has been sustained by final judgment.

Both parties were required to file their respective comments to the other party’s motion for
reconsideration/clarification.7 Respondents filed their Comment on 17 August 2005, 8 while Gonzales filed his only on 25 July
2006.9

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions for reconsideration in
G.R. No. 16195710 were pending, wherein Gonzales challenged the orders of the Regional Trial Court (RTC) requiring him to
proceed with the arbitration proceedings as sought by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the recommendation of the
Assistant Division Clerk of Court since the cases are rooted in the same Addendum Contract.

We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to compel arbitration filed by
respondent Climax-Arimco before the RTC of Makati City on 31 March 2000 while the complaint for the nullification of the
Addendum Contract was pending before the DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent
Gonzales a Demand for Arbitration pursuant to Clause 19.111 of the Addendum Contract and also in accordance with Sec. 5
of R.A. No. 876. The petition for arbitration was subsequently filed and Climax-Arimco sought an order to compel the parties
to arbitrate pursuant to the said arbitration clause. The case, docketed as Civil Case No. 00-444, was initially raffled to Br.
132 of the RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April
2000 a motion to set the application to compel arbitration for hearing.

On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On 15 May 2000, he filed
an Answer with Counterclaim,12 questioning the validity of the Addendum Contract containing the arbitration clause.
Gonzales alleged that the Addendum Contract containing the arbitration clause is void in view of Climax-Arimco’s acts of
fraud, oppression and violation of the Constitution. Thus, the arbitration clause, Clause 19.1, contained in the Addendum
Contract is also null and void ab initio and legally inexistent.
1awphi1.net

On 18 May 2000, the RTC issued an order declaring Gonzales’s motion to dismiss moot and academic in view of the filing of
his Answer with Counterclaim.13

On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.14 This the RTC denied on 16 June 2000, holding that
the petition for arbitration is a special proceeding that is summary in nature. 15 However, on 7 July 2000, the RTC granted
Gonzales’s motion for reconsideration of the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it being of
the view that Gonzales had raised in his answer the issue of the making of the arbitration agreement. 16

Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC denied the same in its 24
July 2000 order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not possessing the cold neutrality of
an impartial judge."17 On 5 August 2000, Judge Benito issued an Order granting the Motion to Inhibit and ordered the re-
raffling of the petition for arbitration. 18 The case was raffled to the sala of public respondent Judge Oscar B. Pimentel of
Branch 148.

On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000 Order. 19 Climax-Arimco argued that
R.A. No. 876 does not authorize a pre-trial or trial for a motion to compel arbitration but directs the court to hear the motion
summarily and resolve it within ten days from hearing. Judge Pimentel granted the motion and directed the parties to
arbitration. On 13 February 2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed with
arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole arbitrator. 20

Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7 March 2005.21

Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March 2005 of Judge Pimentel.
Gonzales contends that public respondent Judge Pimentel acted with grave abuse of discretion in immediately ordering the
parties to proceed with arbitration despite the proper, valid, and timely raised argument in his Answer with Counterclaim that
the Addendum Contract, containing the arbitration clause, is null and void. Gonzales has also sought a temporary restraining
order to prevent the enforcement of the assailed orders directing the parties to arbitrate, and to direct Judge Pimentel to hold
a pre-trial conference and the necessary hearings on the determination of the nullity of the Addendum Contract.

In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:

Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either
personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue
the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration
was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a
written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten (10) days after
such motions, petitions, or applications have been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution Act of 2004:"

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

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

Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales. Climax-Arimco cites Sec.
29 of R.A. No. 876:

Sec. 29. Appeals.—An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered
upon an award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon
such an appeal, including the judgment thereon shall be governed by the Rules of Court in so far as they are applicable.

Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is available only where there is no
appeal or any plain, speedy, and adequate remedy in the ordinary course of law against the challenged orders or acts.
Climax-Arimco then points out that R.A. No. 876 provides for an appeal from such orders, which, under the Rules of Court,
must be filed within 15 days from notice of the final order or resolution appealed from or of the denial of the motion for
reconsideration filed in due time. Gonzales has not denied that the relevant 15-day period for an appeal had elapsed long
before he filed this petition for certiorari. He cannot use the special civil action of certiorari as a remedy for a lost appeal.

Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers on the trial court only a
limited and special jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the parties have a written contract to
arbitrate, and (b) if the defendant has failed to comply with that contract. Respondent cites La Naval Drug Corporation v.
Court of Appeals,22 which holds that in a proceeding to compel arbitration, "[t]he arbitration law 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," and
"[i]n the affirmative, the statute ordains that the court shall issue an order ‘summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.’"23Climax-Arimco argues that R.A. No. 876 gives no room for any other
issue to be dealt with in such a proceeding, and that the court presented with an application to compel arbitration may order
arbitration or dismiss the same, depending solely on its finding as to those two limited issues. If either of these matters is
disputed, the court is required to conduct a summary hearing on it. Gonzales’s proposition contradicts both the trial court’s
limited jurisdiction and the summary nature of the proceeding itself.

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

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing, between them at the time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at
law for the revocation of any contract.
 xxxx

The grounds Gonzales invokes for the revocation of the Addendum Contract—fraud and oppression in the execution
thereof—are also not grounds for the revocation of the arbitration clause in the Contract, Climax-Arimco notes. Such
grounds may only be raised by way of defense in the arbitration itself and cannot be used to frustrate or delay the conduct of
arbitration proceedings. Instead, these should be raised in a separate action for rescission, it continues.

Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A. No. 876 should not be
confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel
arbitration where the court’s authority is limited to resolving the issue of whether there is or there is no agreement in writing
providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary action which covers a matter that appears to be
arbitrable or subject to arbitration under the arbitration agreement. In the latter case, the statute is clear that the court,
instead of trying the case, may, on request of either or both parties, refer the parties to arbitration, unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being performed. Arbitration may even be ordered in the
same suit brought upon a matter covered by an arbitration agreement even without waiting for the outcome of the issue of
the validity of the arbitration agreement. Art. 8 of the UNCITRAL Model Law 24 states that where a court before which an
action is brought in a matter which is subject of an arbitration agreement refers the parties to arbitration, the arbitral
proceedings may proceed even while the action is pending.

Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the proceeding to compel
arbitration under R.A. No. 876, to order the parties to arbitrate even though the defendant therein has raised the twin issues
of validity and nullity of the Addendum Contract and, consequently, of the arbitration clause therein as well. The resolution of
both Climax-Arimco’s Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzales’s Petition for
Certiorari in G.R. No. 167994 essentially turns on whether the question of validity of the Addendum Contract bears upon the
applicability or enforceability of the arbitration clause contained therein. The two pending matters shall thus be jointly
resolved.

We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It deserves to be dismissed on
procedural grounds, as it was filed in lieu of appeal which is the prescribed remedy and at that far beyond the reglementary
period. It is elementary in remedial law that the use of an erroneous mode of appeal is cause for dismissal of the petition for
certiorari and it has been repeatedly stressed that a petition for certiorari is not a substitute for a lost appeal. As its nature, a
petition for certiorari lies only where there is "no appeal," and "no plain, speedy and adequate remedy in the ordinary course
of law."25 The Arbitration Law specifically provides for an appeal by certiorari, i.e., a petition for review under certiorari under
Rule 45 of the Rules of Court that raises pure questions of law. 26 There is no merit to Gonzales’s argument that the use of
the permissive term "may" in Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount the filing of a
petition for certiorari under Rule 65.27 Proper interpretation of the aforesaid provision of law shows that the term "may" refers
only to the filing of an appeal, not to the mode of review to be employed. Indeed, the use of "may" merely reiterates the
principle that the right to appeal is not part of due process of law but is a mere statutory privilege to be exercised only in the
manner and in accordance with law.

Neither can BF Corporation v. Court of Appeals 28 cited by Gonzales support his theory. Gonzales argues that said case
recognized and allowed a petition for certiorari under Rule 65 "appealing the order of the Regional Trial Court disregarding
the arbitration agreement as an acceptable remedy."29 The BF Corporation case had its origins in a complaint for collection
of sum of money filed by therein petitioner BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to suspend
the proceedings alleging that the construction agreement or the Articles of Agreement between the parties contained a
clause requiring prior resort to arbitration before judicial intervention. The trial court found that an arbitration clause was
incorporated in the Conditions of Contract appended to and deemed an integral part of the Articles of Agreement. Still, the
trial court denied the motion to suspend proceedings upon a finding that the Conditions of Contract were not duly executed
and signed by the parties. The trial court also found that SPI had failed to file any written notice of demand for arbitration
within the period specified in the arbitration clause. The trial court denied SPI's motion for reconsideration and ordered it to
file its responsive pleading. Instead of filing an answer, SPI filed a petition for certiorari under Rule 65, which the Court of
Appeals, favorably acted upon. In a petition for review before this Court, BF Corporation alleged, among others, that the
Court of Appeals should have dismissed the petition for certiorari since the order of the trial court denying the motion to
suspend proceedings "is a resolution of an incident on the merits" and upon the continuation of the proceedings, the trial
court would eventually render a decision on the merits, which decision could then be elevated to a higher court "in an
ordinary appeal."30

The Court did not uphold BF Corporation’s argument. The issue raised before the Court was whether SPI had taken the
proper mode of appeal before the Court of Appeals. The question before the Court of Appeals was whether the trial court
had prematurely assumed jurisdiction over the controversy. The question of jurisdiction in turn depended on the question of
existence of the arbitration clause which is one of fact. While on its face the question of existence of the arbitration clause is
a question of fact that is not proper in a petition for certiorari, yet since the determination of the question obliged the Court of
Appeals as it did to interpret the contract documents in accordance with R.A. No. 876 and existing jurisprudence, the
question is likewise a question of law which may be properly taken cognizance of in a petition for certiorari under Rule 65, so
the Court held.31

The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F. Corporation led to the
conclusion that in order that the question of jurisdiction may be resolved, the appellate court had to deal first with a question
of law which could be addressed in a certiorari proceeding. In the present case, Gonzales’s petition raises a question of law,
but not a question of jurisdiction. Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when
he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making the determination that there
was indeed an arbitration agreement. It has been held that as long as a court acts within its jurisdiction and does not gravely
abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of
judgment reviewable by a timely appeal and not assailable by a special civil action of certiorari. 32 Even if we overlook the
employment of the wrong remedy in the broader interests of justice, the petition would nevertheless be dismissed for failure
of Gonzalez to show grave abuse of discretion.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. The Civil
Code is explicit on the matter.33 R.A. No. 876 also expressly authorizes arbitration of domestic disputes. Foreign arbitration,
as a system of settling commercial disputes of an international character, was likewise recognized when the Philippines
adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958,"
under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement
of international arbitration agreements between parties of different nationalities within a contracting state. 34 The enactment of
R.A. No. 9285 on 2 April 2004 further institutionalized the use of alternative dispute resolution systems, including arbitration,
in the settlement of disputes.

Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrator’s decision. Necessarily, a
contract is required for arbitration to take place and to be binding. R.A. No. 876 recognizes the contractual nature of the
arbitration agreement, thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing, between them at the time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at
law for the revocation of any contract.

Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue between the parties.

A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person judicially declared to
be incompetent, unless the appropriate court having jurisdiction approve a petition for permission to submit such controversy
to arbitration made by the general guardian or guardian ad litem of the infant or of the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co. 35 that a submission to arbitration is a contract. A clause in a
contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract, 36 and in Del
Monte Corporation-USA v. Court of Appeals37 that "[t]he provision to submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law
between the contracting parties and produce effect as between them, their assigns and heirs." 38

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration clauses or agreements.
It provides:

Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either
personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue
the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration
was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a
written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten days after such
motions, petitions, or applications have been heard by it. [Emphasis added.]

This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate. The jurisdiction of the
courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings therein was expounded upon in La Naval
Drug Corporation v. Court of Appeals.39 There it was held that R.A. No. 876 explicitly confines the court's authority only to
the determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute
ordains that the court shall issue an order "summarily directing the parties to proceed with the arbitration in accordance with
the terms thereof." If the court, upon the other hand, finds that no such agreement exists, "the proceeding shall be
dismissed."40 The cited case also stressed that the proceedings are summary in nature. 41 The same thrust was made in the
earlier case of Mindanao Portland Cement Corp. v. McDonough Construction Co. of Florida 42 which held, thus:

Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the
court a quo rightly ordered the parties to proceed to arbitration in accordance with the terms of their agreement (Sec. 6,
Republic Act 876). Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They
should be addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate.
The duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if they should
proceed to arbitration or not. x x x x43

Implicit in the summary nature of the judicial proceedings is the separable or independent character of the arbitration clause
or agreement. This was highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co. 44 and Del Monte Corporation-
USA v. Court of Appeals.45

The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of
the main contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does
not automatically terminate when the contract of which it is part comes to an end. 46

The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the
main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also
referred to as the "container" contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration clause/agreement still remains valid and enforceable.47

The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art. 21(2) of the
UNCITRAL Arbitration Rules.48

The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood & Conklin Manufacturing
Co.49 In that case, Prima Paint and Flood and Conklin (F & C) entered into a consulting agreement whereby F & C undertook
to act as consultant to Prima Paint for six years, sold to Prima Paint a list of its customers and promised not to sell paint to
these customers during the same period. The consulting agreement contained an arbitration clause. Prima Paint did not
make payments as provided in the consulting agreement, contending that F & C had fraudulently misrepresented that it was
solvent and able for perform its contract when in fact it was not and had even intended to file for bankruptcy after executing
the consultancy agreement. Thus, F & C served Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court
for rescission of the consulting agreement on the ground of fraudulent misrepresentation and asked for the issuance of an
order enjoining F & C from proceeding with arbitration. F & C moved to stay the suit pending arbitration. The trial court
granted F & C’s motion, and the U.S. Supreme Court affirmed.

The U.S. Supreme Court did not address Prima Paint’s argument that it had been fraudulently induced by F & C to sign the
consulting agreement and held that no court should address this argument. Relying on Sec. 4 of the Federal Arbitration
Act—which provides that "if a party [claims to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he
court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply
therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration x x x. If the making of
the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed
summarily to the trial thereof"—the U.S. High Court held that the court should not order the parties to arbitrate if the making
of the arbitration agreement is in issue. The parties should be ordered to arbitration if, and only if, they have contracted to
submit to arbitration. Prima Paint was not entitled to trial on the question of whether an arbitration agreement was made
because its allegations of fraudulent inducement were not directed to the arbitration clause itself, but only to the consulting
agreement which contained the arbitration agreement. 50 Prima Paint held that "arbitration clauses are ‘separable’ from the
contracts in which they are embedded, and that where no claim is made that fraud was directed to the arbitration clause
itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by
fraud."51
There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with grave abuse of
discretion in ordering the parties to proceed with arbitration. Gonzales’s argument that the Addendum Contract is null and
void and, therefore the arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition for
arbitration under R.A. No. 876 is limited only to the resolution of the question of whether the arbitration agreement exists.
Second, the separability of the arbitration clause from the Addendum Contract means that validity or invalidity of the
Addendum Contract will not affect the enforceability of the agreement to arbitrate. Thus, Gonzales’s petition for certiorari
should be dismissed.

This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the
agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would
suggest that a party’s mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that
the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No.
161957 that the case should not be brought for arbitration, it should be clarified that the case referred to is the case actually
filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of
fraud, as it had already been determined that the case should have been brought before the regular courts involving as it did
judicial issues.

The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the motion, Gonzales raises the
same question of jurisdiction, more particularly that the complaint for nullification of the Addendum Contract pertained to the
DENR Panel of Arbitrators, not the regular courts. He insists that the subject of his complaint is a mining dispute since it
involves a dispute concerning rights to mining areas, the Financial and Technical Assistance Agreement (FTAA) between
the parties, and it also involves claimowners. He adds that the Court failed to rule on other issues he raised, such as
whether he had ceded his claims over the mineral deposits located within the Addendum Area of Influence; whether the
complaint filed before the DENR Panel of Arbitrators alleged ultimate facts of fraud; and whether the action to declare the
nullity of the Addendum Contract on the ground of fraud has prescribed. 1av vphi1.net

These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which were resolved against him
in the Decision of 28 February 2005. Gonzales does not raise any new argument that would sway the Court even a bit to
alter its holding that the complaint filed before the DENR Panel of Arbitrators involves judicial issues which should properly
be resolved by the regular courts. He alleged fraud or misrepresentation in the execution of the Addendum Contract which is
a ground for the annulment of a voidable contract. Clearly, such allegations entail legal questions which are within the
jurisdiction of the courts.

The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum Area of Influence is a
factual question which is not proper for determination before this Court. At all events, moreover, the question is irrelevant to
the issue of jurisdiction of the DENR Panel of Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a
factual finding in its Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002, that Gonzales had,
"through the various agreements, assigned his interest over the mineral claims all in favor of [Climax-Arimco]" as well as that
without the complainant [Gonzales] assigning his interest over the mineral claims in favor of [Climax-Arimco], there would be
no FTAA to speak of."52 This finding was affirmed by the Court of Appeals in its Decision dated 30 July 2003 resolving the
petition for certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of the DENR Panel. 53

The Court of Appeals likewise found that Gonzales’s complaint alleged fraud but did not provide any particulars to
substantiate it. The complaint repeatedly mentioned fraud, oppression, violation of the Constitution and similar conclusions
but nowhere did it give any ultimate facts or particulars relative to the allegations. 54

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the circumstances constituting fraud
must be stated with particularity. This is to enable the opposing party to controvert the particular facts allegedly constituting
the same. Perusal of the complaint indeed shows that it failed to state with particularity the ultimate facts and circumstances
constituting the alleged fraud. It does not state what particulars about Climax-Arimco’s financial or technical capability were
misrepresented, or how the misrepresentation was done. Incorporated in the body of the complaint are verbatim
reproductions of the contracts, correspondence and government issuances that reportedly explain the allegations of fraud
and misrepresentation, but these are, at best, evidentiary matters that should not be included in the pleading.

As to the issue of prescription, Gonzales’s claims of fraud and misrepresentation attending the execution of the Addendum
Contract are grounds for the annulment of a voidable contract under the Civil Code.55 Under Art. 1391 of the Code, an action
for annulment shall be brought within four years, in the case of fraud, beginning from the time of the discovery of the same.
However, the time of the discovery of the alleged fraud is not clear from the allegations of Gonzales’s complaint. That being
the situation coupled with the fact that this Court is not a trier of facts, any ruling on the issue of prescription would be
uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal effectively renders superfluous
formal action on the Motion for Partial Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R. No.
161957.

The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH FINALITY.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Resolution were
reached in consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

Footnotes

1
Gonzales v. Climax Mining Ltd., G.R. No. 161957, 28 February 2005.

2
Rollo (G.R. No. 161957), pp. 715-741.

3
Id. at 700-706.

4
The pertinent portion of the assailed decision reads:

Petitioner also disagrees with the Court of Appeals’ ruling that the case should be brought for arbitration
under Rep. Act [No.] 876, pursuant to the arbitration clause in the Addendum Contract which states that
"[a]ll disputes arising out of or in connection with the Contract, which cannot be settled amicably among
the Parties, shall finally be settled under R.A. No. 876." He points out that respondents Climax and APMI
are not parties to the Addendum Contract and are thus not bound by the arbitration clause in said
contract.

We agree that the case should not be brought under the ambit of the Arbitration Law, but for a different
reason. The question of validity of the contract containing the agreement to submit to arbitration will affect
the applicability of the arbitration clause itself. A party cannot rely on the contract and claim rights or
obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined
from taking inconsistent positions. As previously discussed, the complaint should have been filed before
the regular courts as it involved issues which are judicial in nature. Rollo [G.R. No. 161957], p. 695
5
4 Am Jur 2d, at 136, and American Law Reports, Annotated, 3 ALR2d 425 to 426.

6
Art. 16(1) thereof states: "The arbitral tribunal may rule on its own jurisdiction, including any objections with
respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms
part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by
the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause."
The Model Law was adopted in Republic Act No. 9285 or the "Alternative Dispute Resolution Act of 2004" (in Sec.
19 thereof).

7
Resolution of 15 June 2005, rollo (G.R. No. 161957), p. 767.

8
Id. at 780-790.

9
Id. at 832-838.

10
Rollo (G.R. No. 167994), pp. 3-24.

11
Clause 19.1 of the Addendum Contract, rollo (G.R. No. 167994), p. 87. It reads: "All disputes arising out of or in
connection with the Contract, which cannot be settled amicable among the Parties, shall be finally settled under
Republic Act No. 876, otherwise known as ‘The Arbitration Law," as may be amended from time to time. It is
agreed, however, that at all events and notwithstanding any provision of Republic Act No. 876, only one arbitrator
shall be appointed by all the Parties. For purposes of such appointment and at all proceedings hereunder, each of
the CLAIMOWNER and ARIMCO shall have one vote. AUMEX, GEOPHILIPPINES and INMEX shall jointly have
only one vote and, for purposes hereof, GEOPHILIPPINES and INMEX hereby irrevocably constitute AUMEX as
their attorney-in-fact, in their place, name and stead, to exercise the voting right granted hereunder. If the
CLAIMOWNER, ARIMCO and AUMEX fail to agree on an arbitrator within 30 days from the date they first begin
considering persons to act as arbitrator, such arbitrator shall be appointed by the appropriate court in accordance
with Republic Act No. 876. The Parties agree that the venue of the arbitration and all actions under the Contract
shall be Metro Manila, Philippines. The Parties further agree that the decision of the arbitrator shall be binding and
enforceable upon the Parties and that no judicial action may be instituted by any Party against any other Party
under the Contract except as provided in this Clause 19.1."

12
Rollo (G.R. No. 167994), pp. 250-322.

13
Id. at 517.

14
Id. at 518-520.

15
Id. at 525.

16
Id. at 526.

17
Id. at 381.

18
Id.

19
Id. at 527-530.

20
Id. at 30-35.

21
Id. at 39.

22
G.R. No. 103200, 31 August 1994, 236 SCRA 78.

23
Id. at 91.
24
Sec. 19 of R.A. No. 9258 adopts the UNCITRAL Model Law for international commercial arbitration, while Sec.
33 of R.A. No. 9258 makes certain portions of the UNCITRAL Model Law, including Art. 8, applicable to domestic
arbitration.

25
Nippon Paint Employees Union-Olalia v. Court of Appeals, G.R. No. 159010, 19 November 2004, 443 SCRA
286, 291.

26
Justice Romero, in his dissenting opinion in Asset Privatizatoin Trust v. Court of Appeals, 360 Phil. 768, 824-825
(1998), had occasion to discuss the mode of review under Sec. 29 of R.A. No. 876:

The term "certiorari" in [Sec. 29 of R.A. No. 876] refers to an ordinary appeal under Rule 45, not the
special action of certiorari under Rule 65. It is an "appeal," as Section 29 proclaims. The proper forum for
this action is, under the old and the new rules of procedure, the Supreme Court. Thus, Section 2(c) of
Rule 41 of the 1997 Rules of Civil Procedure states that, "In all cases where only questions of law are
raised or involved, the appeal shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45." Moreover, Section 29 limits the appeal to "questions of law," another
indication that it is referring to an appeal by certiorari under Rule 45 which, indeed, is the customary
manner of reviewing such issues. On the other hand, the extraordinary remedy of certiorari under Rule
65 may be availed of by a party where there is "no appeal, nor any plain, speedy, and adequate remedy
in the course of law," and under circumstances where "a tribunal, board or officer exercising judicial
functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion."

27
Rollo (G.R. No. 167994), pp. 364-365.

28
351 Phil. 508 (1998).

29
Rollo (G.R. No. 167994), p. 365.

30
Supra note 28, at 518-519.

31
Supra note 28 at 520-521.

32
Estate of Salud Jimenez v. Philippine Export Processing Zone, 402 Phil. 271, 284 (2001).

33
Civil Code, Book IV, Title XIV, Chapter 2.

34
National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Philippines, Inc., G.R. No. 87958, 26 April
1990, 184 SCRA 682.

35
57 Phil. 600 (1932).

36
Id. at 603.

37
404 Phil. 192 (2001).

38
Id. at 201.

39
Supra note 22.

40
Supra note 22 at 91.

Id.
41

42
126 Phil. 78 (1967).

43
Id. at 84-85.
44
Supra note 35.

45
Supra note 37.

46
P. Capper, International arbitration: A Handbook (3rd ed., 2004), p. 12.

47
Id. Accordingly, the termination or avoidance (for example, following a fraudulent misrepresentation) of a contract
which was initially valid will not affect the validity of the arbitration agreement. The doctrine also recognizes in this
way the wish of the parties to have disputes arising out of their contract settled by arbitration, even if that contract
is no longer in existence. Id. at 81.

In the U.S., a distinction has been drawn between legal doctrines relating to enforceability of contracts
and legal doctrines relating to whether a contract is formed. Making this distinction, some courts have
applied Prima Paint Corp. v. Flood and ConKlin, infra note 49, to voidable-contract arguments, but not to
no-contract agreements involving for example forgery. S.J. Ware, infra note 50 at 49.

48
Supra note 46, at 81.

49
388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).

50
S.J. Ware, Alternative Dispute Resolution (2001 ed.), pp. 45-46, citing Prima Paint,supra.

51
Supra note 49, 380 U.S., at 404.

52
Order of 25 June 2002, rollo (G.R. No. 161957), p. 612.

53
Rollo (G.R. No. 161957), pp. 194-201.

54
Id. at 199.

55
See Civil Code, Art. 1390.
 THIRD DIVISION

G.R. No. 141833 March 26, 2003

LM POWER ENGINEERING CORPORATION, petitioner,

vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.

PANGANIBAN, J.:

Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation and conciliation -- are encouraged
by the Supreme Court. By enabling parties to resolve their disputes amicably, they provide solutions that are less time-
consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationships.1

The Case

Before us is a Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court, seeking to set aside the January 28,
2000 Decision of the Court of Appeals 3 (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision reads as
follows:

"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are ORDERED to
present their dispute to arbitration in accordance with their Sub-contract Agreement. The surety bond posted by
[respondent] is [d]ischarged."4

The Facts

On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction
Groups Inc. entered into a "Subcontract Agreement" involving electrical work at the Third Port of Zamboanga. 5

On April 25, 1985, respondent took over some of the work contracted to petitioner. 6 Allegedly, the latter had failed to finish it
because of its inability to procure materials. 7

Upon completing its task under the Contract, petitioner billed respondent in the amount of P6,711,813.90.8Contesting the
accuracy of the amount of advances and billable accomplishments listed by the former, the latter refused to pay.
Respondent also took refuge in the termination clause of the Agreement. 9 That clause allowed it to set off the cost of the
work that petitioner had failed to undertake -- due to termination or take-over -- against the amount it owed the latter.

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint 10 for the
collection of the amount representing the alleged balance due it under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,11 alleging that the Complaint was premature, because there was no prior recourse to
arbitration.

In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did not involve the
interpretation or the implementation of the Agreement and was, therefore, not covered by the arbitral clause. 13

After trial on the merits, the RTC14 ruled that the take-over of some work items by respondent was not equivalent to a
termination, but a mere modification, of the Subcontract. The latter was ordered to give full payment for the work completed
by petitioner.

Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate court held as
arbitrable the issue of whether respondent’s take-over of some work items had been intended to be a termination of the
original contract under Letter "K" of the Subcontract. It ruled likewise on two other issues: whether petitioner was liable
under the warranty clause of the Agreement, and whether it should reimburse respondent for the work the latter had taken
over.15

Hence, this Petition.16

 The Issues

In its Memorandum, petitioner raises the following issues for the Court’s consideration:

"A

Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding the interpretation and
implementation of the Sub-Contract Agreement dated February 22, 1983 that requires prior recourse to voluntary arbitration;

"B

In the affirmative, whether or not the requirements provided in Article III 1 of CIAC Arbitration Rules regarding request for
arbitration ha[ve] been complied with[.]"17

The Court’s Ruling

The Petition is unmeritorious.

First Issue:
Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the implementation of the Agreement. Thus, without
having to resort to prior arbitration, it is entitled to collect the value of the services it rendered through an ordinary action for
the collection of a sum of money from respondent. On the other hand, the latter contends that there is a need for prior
arbitration as provided in the Agreement. This is because there are some disparities between the parties’ positions regarding
the extent of the work done, the amount of advances and billable accomplishments, and the set off of expenses incurred by
respondent in its take-over of petitioner’s work.

We side with respondent. Essentially, the dispute arose from the parties’ ncongruent positions on whether certain provisions
of their Agreement could be applied to the facts. The instant case involves technical discrepancies that are better left to an
arbitral body that has expertise in those areas. In any event, the inclusion of an arbitration clause in a contract does not ipso
facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.18

In the case before us, the Subcontract has the following arbitral clause:

"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation of this
Agreement which cannot be settled between [respondent] and [petitioner] amicably shall be settled by means of
arbitration x x x."19

Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of their Agreement.
Within the scope of the arbitration clause are discrepancies as to the amount of advances and billable accomplishments, the
application of the provision on termination, and the consequent set-off of expenses.

A review of the factual allegations of the parties reveals that they differ on the following questions: (1) Did a take-
over/termination occur? (2) May the expenses incurred by respondent in the take-over be set off against the amounts it
owed petitioner? (3) How much were the advances and billable accomplishments?

The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement. According to respondent,
the take-over was caused by petitioner’s delay in completing the work. Such delay was in violation of the provision in the
Agreement as to time schedule:

"G. TIME SCHEDULE

"[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the WORK within the period
set forth in Annex C hereof. NO time extension shall be granted by [respondent] to [petitioner] unless a
corresponding time extension is granted by [the Ministry of Public Works and Highways] to the CONSORTIUM." 20
Because of the delay, respondent alleges that it took over some of the work contracted to petitioner, pursuant to the
following provision in the Agreement:

"K. TERMINATION OF AGREEMENT

"[Respondent] has the right to terminate and/or take over this Agreement for any of the following causes:

xxx xxx xxx

‘6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in accordance
with this Agreement, or persistently or flagrantly neglects to carry out [its] obligations under this
Agreement."21

Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the contracted price. It sought to set
off those expenses against the amount claimed by petitioner for the work the latter accomplished, pursuant to the following
provision:

"If the total direct and indirect cost of completing the remaining part of the WORK exceed the sum which would
have been payable to [petitioner] had it completed the WORK, the amount of such excess [may be] claimed by
[respondent] from either of the following:

‘1. Any amount due [petitioner] from [respondent] at the time of the termination of this Agreement."22

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

"C. CONTRACT PRICE AND TERMS OF PAYMENT

xxx xxx xxx

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

xxx xxx xxx

"D. IMPORTED MATERIALS AND EQUIPMENT

"[Respondent shall open the letters of credit for the importation of equipment and materials listed in Annex E
hereof after the drawings, brochures, and other technical data of each items in the list have been formally
approved by [the Ministry of Public Works and Highways]. However, petitioner will still be fully responsible for all
imported materials and equipment.

"All expenses incurred by [respondent], both in foreign and local currencies in connection with the opening of the
letters of credit shall be deducted from the Contract Prices.

xxx xxx xxx

"N. OTHER CONDITIONS

xxx xxx xxx

 "2. All customs duties, import duties, contractor’s taxes, income taxes, and other taxes that may be required by any
government agencies in connection with this Agreement shall be for the sole account of [petitioner]." 23

Being an inexpensive, speedy and amicable method of settling disputes, 24 arbitration -- along with mediation, conciliation
and negotiation -- is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. 25 It is thus regarded as the "wave of the future" in international civil
and commercial disputes.26 Brushing aside a contractual agreement calling for arbitration between the parties would be a
step backward.27

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted dispute, an
order to arbitrate should be granted.28 Any doubt should be resolved in favor of arbitration. 29

Second Issue:
Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a formal request for arbitration
with the Construction Industry Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction over the
question. To bolster its position, petitioner even cites our ruling in Tesco Services Incorporated v. Vera.30 We are not
persuaded.

Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the submission of a
request for arbitration, as follows:

"SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to have recourse to
arbitration by the Construction Industry Arbitration Commission (CIAC) shall submit its Request for Arbitration in
sufficient copies to the Secretariat of the CIAC; PROVIDED, that in the case of government construction contracts,
all administrative remedies available to the parties must have been exhausted within 90 days from the time the
dispute arose."

Tesco was promulgated by this Court, using the foregoing provision as reference.

On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration has dispensed
with this requirement and recourse to the CIAC may now be availed of whenever a contract "contains a clause for the
submission of a future controversy to arbitration," in this wise:

"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction contract or a submission

to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to
CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such contract
or submission. When a contract contains a clause for the submission of a future controversy to arbitration, it is not
necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of
CIAC."

The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-93.31

The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation (Philippines) v. Rosal
Infrastructure Builders et al.32 (an extended unsigned Resolution) and reiterated in National Irrigation Administration v. Court
of Appeals,33 from which we quote thus:

"Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it
is merely required that the parties agree to submit the same to voluntary arbitration Unlike in the original version of
Section 1, as applied in the Tesco case, the law as it now stands does not provide that the parties should agree to
submit disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the
same. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless of
what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the
CIAC because this right has been vested upon each party by law, i.e., E.O. No. 1008." 34

Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a construction
dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the disputes covered
therein. Because that clause is binding, they are expected to abide by it in good faith. 35 And because it covers the dispute
between the parties in the present case, either of them may compel the other to arbitrate. 36

Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the proper procedure to
enable the CIAC to decide on the dispute is to request the stay or suspension of such action, as provided under RA 876 [the
Arbitration Law].37

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Puno, (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

Footnotes

1
See Panganiban, A Centenary of Justice, 2001 ed., p. 83.

2
Rollo, pp. 7-17.

3
Seventh Division. Written by Justice Portia Aliño-Hormachuelos and concurred in by Justices Corona Ibay-
Somera (Division chairman) and Wenceslao I. Agnir Jr. (member).

4
Assailed CA Decision, pp. 21-22; rollo, pp. 40-41.

5
See Pay Item Nos. 7.01 to 7.26 of the Bill of Quantities; Records, pp. 16-25.

6
See Letters dated March 15, 1985 and April 25, 1985, pp. 63-64.

7
See Letter dated March 7, 1985, p. 62.

8
See Letter dated September 30, 1986, p. 65.

9
Records, pp. 68-69.

10
Id., pp. 1-3.

11
Id., pp. 32-34.

12
Presided by Judge Phinney C. Araquil.

13
Records, p. 41.

14
Transferred to Makati, Branch 64. Presided by Judge Delia H. Panganiban.

15
Assailed CA Decision, pp. 20-21; rollo, pp. 39-40.

16
This case was deemed submitted for decision on October 25, 2001, upon this Court’s receipt of respondent’s
Memorandum signed by Atty. Henry S. Rojas. Petitioner’s Memorandum, filed on October 10, 2001, was signed by
Atty. Eleazar G. Ferry.

17
Petitioner’s Memorandum, p. 5; rollo, p. 223. Original in upper case.
18
Bengson v. Chan, 78 SCRA 113, July 29, 1977.

19
Subcontract Agreement, p. 10; rollo, p. 52. Italics supplied.

20
Subcontract Agreement, p. 6; rollo, p. 47.

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

22
Id., pp. 8 & 49.

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

24
Del Monte Corporation-USA v. Court of Appeals, 351 SCRA 373, February 7, 2001; Eastboard Navigation, Ltd.
v. Juan Ysmael and Co., Inc., 102 Phil. 1, September 10, 1957.

25
Home Bankers Savings and Trust Company v. Court of Appeals, 318 SCRA 558, November 19, 1999.

26
Heirs of Augusto L. Salas Jr. v. Laperal Realty Corporation, 320 SCRA 610, December 13, 1999; BF Corporation
v. Court of Appeals, 288 SCRA 267, March 27, 1998.

27
Ibid.

28
Seaboard Coastline Railroad Co. v. National Rail Passenger Corporation, 554 F2d 657 (US Court of Appeals,
5th Circuit), June 22, 1977.

Moses H. Cone Hospital v. Mercury Construction Co., 460 US 1, February 23, 1983; Metro Industrial Painting
29

Corp. v. Terminal Construction Co., 287 F2d 382 (US Court of Appeals, 2nd Circuit), February 16, 1961.

30
209 SCRA 440, May 29, 1992.

31
These were promulgated by the CIAC on June 21, 1991 and August 25, 1993, respectively.

32
GR No. 125706, September 30, 1996.

33
318 SCRA 255, November 17, 1999.

34
Id., p. 268, per Davide Jr., CJ.

35
Toyota Motor Philippines Corporation v. Court of Appeals, 216 SCRA 236, December 7, 1992.

36
See §6 of RA 876.

37
"SEC. 7. Stay of Civil Action. — If any suit or proceeding be brought upon an issue arising out of an agreement
providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that
the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement: Provided, That the applicant for the stay
is not in default in proceeding with such arbitration."
 THIRD DIVISION

G.R. No. 132848-49 June 26, 2001

PHILROCK, INC., petitioner,

vs.
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION and Spouses VICENTE and NELIA CID, respondents.

PANGANIBAN, J.:

Courts encourage the use of alternative methods of dispute resolution. When parties agree to settle their disputes arising
from or connected with construction contracts, the Construction Industry Arbitration Commission (CIAC) acquires primary
jurisdiction. It may resolve not only the merits of such controversies; when appropriate, it may also award damages,
interests, attorney’s fees and expenses of litigation.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court. The Petition seeks the reversal of the July 9, 1997
Decision1 and the February 24, 1998 Resolution of the Court of Appeals (CA) in the consolidated cases docketed as CA-GR
SP Nos. 39781 and 42443. The assailed Decision disposed as follows:

"WHEREFORE, judgment is hereby rendered DENYING the petitions and, accordingly, AFFIRMING in totothe
CIAC’s decision. Costs against petitioner."2

The assailed Resolution ruled in this wise:

"Considering that the matters raised and discussed in the motion for reconsideration filed by appellant’s counsel
are substantially the same arguments which the Court had passed upon and resolved in the decision sought to be
reconsidered, and there being no new issue raised, the subject motion is hereby DENIED."3

The Facts

The undisputed facts of the consolidated cases are summarized by the CA as follows:

"On September 14, 1992, the Cid spouses, herein private respondents, filed a Complaint for damages against
Philrock and seven of its officers and engineers with the Regional Trial Court of Quezon City, Branch 82.

"On December 7, 1993, the initial trial date, the trial court issued an Order dismissing the case and referring the
same to the CIAC because the Cid spouses and Philrock had filed an Agreement to Arbitrate with the CIAC.

"Thereafter, preliminary conferences were held among the parties and their appointed arbitrators. At these
conferences, disagreements arose as to whether moral and exemplary damages and tort should be included as an
issue along with breach of contract, and whether the seven officers and engineers of Philrock who are not parties
to the Agreement to Arbitrate should be included in the arbitration proceedings. No common ground could be
reached by the parties, hence, on April 2, 1994, both the Cid spouses and Philrock requested that the case be
remanded to the trial court. On April 13, 1994, the CIAC issued an Order stating, thus:

'x x x the Arbitral Tribunal hereby formally dismisses the above-captioned case for referral to Branch 82
of the Regional Trial Court, Quezon City where it first originated.

SO ORDERED.'

"The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon City a Motion To Set Case for
Hearing which motion was opposed by Philrock.

"On June 13, 1995, the trial court declared that it no longer had jurisdiction over the case and ordered the records
of the case to be remanded anew to the CIAC for arbitral proceedings.
 "Pursuant to the aforementioned Order of the Regional Trial C[o]urt of Quezon City, the CIAC resumed conducting
preliminary conferences. On August 21, 1995, herein [P]etitioner Philrock requested to suspend the proceedings
until the court clarified its ruling in the Order dated June 13, 1995. Philrock argued that said Order was based on a
mistaken premise that 'the proceedings in the CIAC fell through because of the refusal of [Petitioner] Philrock to
include the issue of damages therein,' whereas the true reason for the withdrawal of the case from the CIAC was
due to Philrock's opposition to the inclusion of its seven officers and engineers, who did not give their consent to
arbitration, as party defendants. On the other hand, private respondent Nelia Cid manifested that she was willing to
exclude the seven officers and engineers of Philrock as parties to the case so as to facilitate or expedite the
proceedings. With such manifestation from the Cid spouses, the Arbitral Tribunal denied Philrock's request for the
suspension of the proceedings. Philrock's counsel agreed to the continuation of the proceedings but reserved the
right to file a pleading elucidating the position he [had] raised regarding the Court's Order dated June 13, 1995.
The parties then proceeded to finalize, approve and sign the Terms of Reference. Philrock's counsel and
representative, Atty. Pericles C. Consunji affixed his signature to said Terms of Reference which stated that 'the
parties agree that their differences be settled by an Arbitral Tribunal x x x x' (p. 9, Terms of Reference, p. 200,
Rollo).

"On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging therein that the CIAC had lost
jurisdiction to hear the arbitration case due to the parties' withdrawal of their consent to arbitrate. The motion was
denied by x x x CIAC per Order dated September 22, 1995. On November 8, public respondent ordered the parties
to appear before it on November 28, 1995 for the continuation of the arbitral proceedings, and on February 7,
1996, public respondent directed [P]etitioner Philrock to set two hearing dates in the month of February to present
its evidence and to pay all fees assessed by it, otherwise x x x Philrock would be deemed to have waived its right
to present evidence.

"Hence, petitioner instituted the petition for certiorari but while said petition was pending, the CIAC rendered its
Decision dated September 24, 1996, the dispositive portion of which reads, as follows:

'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing Respondent to pay Claimant as
follows:

1. P23,276.25 representing the excess cash payment for materials ordered by the Claimants, (No. 7 of
admitted facts) plus interests thereon at the rate of 6% per annum from September 26, 1995 to the date
payment is made.

2. P65,000.00 representing retrofitting costs.

3. P13,404.54 representing refund of the value of delivered but unworkable concrete mix that was laid to
waste.

4. P50,000.00 representing moral damages.

5. P50,000.00 representing nominal damages.

6. P50,000.00 representing attorney's fees and expenses of litigation.

7. P144,756.80 representing arbitration fees, minus such amount that may already have been paid to
CIAC by respondent.

"Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera, presiding judge, Branch 82 of
Regional Trial Court of Quezon City who referred this case to the Construction Industry Arbitration Commission for
arbitration and proper disposition.' (pp. 44-45, Rollo, CA-G.R. SP No. 42443) "4

Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No. 42443, contesting the jurisdiction of the
CIAC and assailing the propriety of the monetary awards in favor of respondent spouses. This Petition was consolidated by
the CA with CA-GR SP No. 39781, a Petition for Certiorari earlier elevated by petitioner questioning the jurisdiction of the
CIAC.

Ruling of the Court of Appeals

The CA upheld the jurisdiction of the CIAC5 over the dispute between petitioner and private respondent. Under Executive
Order No. 1008, the CIAC acquires jurisdiction when the parties agree to submit their dispute to voluntary arbitration. Thus,
in the present case, its jurisdiction continued despite its April 13, 1994 Order referring the case back to the Regional Trial
Court (RTC) of Quezon City, Branch 82, the court of origin. The CIAC’s action was based on the principle that once
acquired, jurisdiction remains "until the full termination of the case unless a law provides the contrary." No such "full
termination" of the case was evident in the said Order; nor did the CIAC or private respondents intend to put an end to the
case.

Besides, according to Section 3 of the Rules of Procedure Governing Construction Arbitration, technical rules of law or
procedure are not applicable in a single arbitration or arbitral tribunal. Thus, the "dismissal" could not have divested the
CIAC of jurisdiction to ascertain the facts of the case, arrive at a judicious resolution of the dispute and enforce its award or
decision.

Since the issues concerning the monetary awards were questions of fact, the CA held that those awards were inappropriate
in a petition for certiorari. Such questions are final and not appealable according to Section 19 of EO 1008, which provides
that "arbitral awards shall be x x x final and [u]nappealable except on questions of law which shall be appealable to the
Supreme Court x x x." Nevertheless, the CA reviewed the records and found that the awards were supported by substantial
evidence. In matters falling under the field of expertise of quasi-judicial bodies, their findings of fact are accorded great
respect when supported by substantial evidence.

Hence, this Petition.6

Issues

The petitioner, in its Memorandum, raises the following issues:

"A.

Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses against Petitioner Philrock after
the case had been dismissed by both the RTC and the CIAC.

"B.

Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.

"C.

Whether or not the awarding of the amount of P23,276.75 for materials ordered by Respondent Spouses Cid plus interest
thereon at the rate of 6% from 26 September 1995 is proper.

"D.

Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is proper.

"E.

Whether or not the awarding of the amount of P1,340,454 for the value of the delivered but the allegedly unworkable
concrete which was wasted is proper.

"F.

Whether or not the awarding o[f] moral and nominal damages and attorney's fees and expenses of litigation in favor of
respondents is proper.

"G.

Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees." 7
In sum, petitioner imputes reversible error to the CA (1) for upholding the jurisdiction of the CIAC after the latter had
dismissed the case and referred it to the regular court, (2) for ruling that respondent spouses had a cause of action against
petitioner, and (3) for sustaining the award of damages.

This Court’s Ruling

The Petition has no merit.

First Issue:

Jurisdiction

Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties had withdrawn their consent to
arbitrate. The June 13, 1995 RTC Order remanding the case to the CIAC for arbitration was allegedly an invalid mode of
referring a case for arbitration.

We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes
arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to
voluntary arbitration.8

It is undisputed that the parties submitted themselves to the jurisdiction of the Commission by virtue of their Agreement to
Arbitrate dated November 24, 1993. Signatories to the Agreement were Atty. Ismael J. Andres and Perry Y. Uy (president of
Philippine Rock Products, Inc.) for petitioner, and Nelia G. Cid and Atty. Esteban A. Bautista for respondent spouses. 9

Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents on April 8, 1994, because of the
exclusion of the seven engineers of petitioners in the arbitration case. This withdrawal became the basis for the April 13,
1994 CIAC Order dismissing the arbitration case and referring the dispute back to the RTC. Consequently, the CIAC was
divested of its jurisdiction to hear and decide the case.

This contention is untenable. First, private respondents removed the obstacle to the continuation of the arbitration, precisely
by withdrawing their objection to the exclusion of the seven engineers. Second, petitioner continued participating in the
arbitration even after the CIAC Order had been issued. It even concluded and signed the Terms of Reference10 on August
21, 1995, in which the parties stipulated the circumstances leading to the dispute; summarized their respective positions,
issues, and claims; and identified the composition of the tribunal of arbitrators. The document clearly confirms both parties’
intention and agreement to submit the dispute to voluntary arbitration. In view of this fact, we fail to see how the CIAC could
have been divested of its jurisdiction.

Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTC’s final resolution of the dispute by
arguing that the regular court also lost jurisdiction after the arbitral tribunal’s April 13, 1994 Order referring the case back to
the RTC. In so doing, petitioner conceded and estopped itself from further questioning the jurisdiction of the CIAC. The
Court will not countenance the effort of any party to subvert or defeat the objective of voluntary arbitration for its own private
motives. After submitting itself to arbitration proceedings and actively participating therein, petitioner is estopped from
assailing the jurisdiction of the CIAC, merely because the latter rendered an adverse decision. 11

Second Issue:

Cause of Action

Petitioner contends that respondent spouses were negligent in not engaging the services of an engineer or architect who
should oversee their construction, in violation of Section 308 of the National Building Code. It adds that even if the concrete
it delivered was defective, respondent spouses should bear the loss arising from their illegal operation. In short, it alleges
that they had no cause of action against it.

We disagree. Cause of action is defined as an act or omission by which a party violates the right of another. 12 A complaint is
deemed to have stated a cause of action provided it has indicated the following: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or the omission of the defendant in violation of the said legal
right.13 The cause of action against petitioner was clearly established. Respondents were purchasers of ready-mix concrete
from petitioner. The concrete delivered by the latter turned out to be of substandard quality. As a result, respondents
sustained damages when the structures they built using such cement developed cracks and honeycombs. Consequently,
the construction of their residence had to be stopped.
Further, the CIAC Decision clearly spelled out respondents’ cause of action against petitioner, as follows:

"Accordingly, this Tribunal finds that the mix was of the right proportions at the time it left the plant. This, however,
does not necessarily mean that all of the concrete mix delivered had remained workable when it reached the
jobsite. It should be noted that there is no evidence to show that all the transit mixers arrived at the site within the
allowable time that would ensure the workability of the concrete mix delivered.

"On the other hand, there is sufficiently strong evidence to show that difficulties were encountered in the pouring of
concrete mix from certain transit mixers necessitating the [addition] of water and physically pushing the mix,
obviously because the same [was] no longer workable. This Tribunal holds that the unworkability of said concrete
mix has been firmly established.

"There is no dispute, however, to the fact that there are defects in some areas of the poured structures. In this
regard, this Tribunal holds that the only logical reason is that the unworkable concrete was the one that was
poured in the defective sections."14

Third Issue:

Monetary Awards

Petitioner assails the monetary awards given by the arbitral tribunal for alleged lack of basis in fact and in law. The solicitor
general counters that the basis for petitioner’s assigned errors with regard to the monetary awards is purely factual and
beyond the review of this Court. Besides, Section 19, EO 1008, expressly provides that monetary awards by the CIAC are
final and unappealable.

We disagree with the solicitor general. As pointed out earlier, factual findings of quasi-judicial bodies that have acquired
expertise are generally accorded great respect and even finality, if they are supported by substantial evidence. 15 The Court,
however, has consistently held that despite statutory provisions making the decisions of certain administrative agencies
"final," it still takes cognizance of petitions showing want of jurisdiction, grave abuse of discretion, violation of due process,
denial of substantial justice or erroneous interpretation of the law. 16 Voluntary arbitrators, by the nature of their functions, act
in a quasi-judicial capacity, such that their decisions are within the scope of judicial review. 17

Petitioner protests the award to respondent spouses of P23,276.25 as excess payment with six percent interest beginning
September 26, 1995. It alleges that this item was neither raised as an issue by the parties during the arbitration case, nor
was its justification discussed in the CIAC Decision. It further contends that it could not be held liable for interest, because it
had earlier tendered a check in the same amount to respondent spouses, who refused to receive it.

Petitioner’s contentions are completely untenable. Respondent Nelia G. Cid had already raised the issue of overpayment
even prior to the formal arbitration. In paragraph 9 of the Terms of Reference, she stated:

"9. Claimants were assured that the problem and her demands had been the subject of several staff meetings and
that Arteche was very much aware of it, a memorandum having been submitted citing all the demands of
[c]laimants. This assurance was made on July 31, 1992 when Respondents Secillano, Martillano and Lomibao
came to see Claimant Nelia Cid and offered to refund P23,276.25, [t]he difference between the billing by Philrock’s
Marketing Department in the amount of P125,586.25 and the amount charged by Philrock's Batching Plant
Department in the amount of only P102,586.25, which [c]laimant refused to accept by saying, ‘Saka na lang’." 18

The same issue was discussed during the hearing before the arbitration tribunal on December 19, 1995.19 It was also
mentioned in that tribunal’s Decision dated September 24, 1996. 20

The payment of interest is based on Article 2209 of the Civil Code, which provides that if the obligation consists of the
payment of a sum of money, and the debtor incurs delay, the indemnity for damages shall be the payment of legal interest
which is six per cent per annum, in the absence of a stipulation of the rate.

Awards for Retrofitting Costs, Wasted Unworkable

But Delivered Concrete, and Arbitration Fees

Petitioner maintains that the defects in the concrete structure were due to respondent spouses’ failure to secure the services
of an engineer or architect to supervise their project. Hence, it claims that the award for retrofitting cost was without legal
basis. It also denies liability for the wasted unworkable but delivered concrete, for which the arbitral court
awarded P13,404.54. Finally, it complains against the award of litigation expenses, inasmuch as the case should not have
been instituted at all had respondents complied with the requirements of the National Building Code.

We are unconvinced. Not only did respondents disprove the contention of petitioner; they also showed that they sustained
damages due to the defective concrete it had delivered. These were items of actual damages they sustained due to its
breach of contract.

Moral and Nominal Damages, Attorney’s Fees and Costs

Petitioner assails the award of moral damages, claiming no malice or bad faith on its part.

We disagree. Respondents were deprived of the comfort and the safety of a house and were exposed to the agony of
witnessing the wastage and the decay of the structure for more than seven years. In her Memorandum, Respondent Nelia
G. Cid describes her family’s sufferings arising from the unreasonable delay in the construction of their residence, as
follows: "The family lives separately for lack of space to stay in. Mrs. Cid is staying in a small dingy bodega, while her son
occupies another makeshift room. Their only daughter stayed with her aunt from 1992 until she got married in 1996. x x
x."21 The Court also notes that during the pendency of the case, Respondent Vicente Cid died without seeing the completion
of their home.22 Under the circumstances, the award of moral damages is proper.

Petitioner also contends that nominal damages should not have been granted, because it did not breach its obligation to
respondent spouses.

Nominal damages are recoverable only if no actual or substantial damages resulted from the breach, or no damage was or
can be shown.23 Since actual damages have been proven by private respondents for which they were amply compensated,
they are no longer entitled to nominal damages.

Petitioner protests the grant of attorney’s fees, arguing that respondent spouses did not engage the services of legal
counsel. Also, it contends that attorney’s fees and litigation expenses are awarded only if the opposing party acted in gross
and evident bad faith in refusing to satisfy plaintiff’s valid, just and demandable claim.

We disagree. The award is not only for attorney’s fees, but also for expenses of litigation. Hence, it does not matter if
respondents represented themselves in court, because it is obvious that they incurred expenses in pursuing their action
before the CIAC, as well as the regular and the appellate courts. We find no reason to disturb this award.1âwphi1.nêt

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED; however, the award of nominal damages
is DELETED for lack of legal basis. Costs against petitioner.

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur.

Footnote

1
Penned by Justice Ramon A. Barcelona with the concurrence of Justices Jesus M. Elbinias, Division chairman;
and Maximiano C. Asuncion, member. By the time the assailed Resolution was promulgated, Justice Asuncion had
died and had thus been replaced by Justice Jorge S. Imperial.[1]

2
CA Decision, p. 10; rollo, p. 55.

3
Rollo, p. 44.

4
CA Decision, pp. 1-5; rollo, pp. 46-50.

5
The Arbitral Tribunal was composed of Joven B. Joaquin, chairman; Atty. Alfredo F. Tadiar and Engr. Loreto C.
Aquino, members.
6
This case was deemed submitted for decision upon this Court’s receipt on October 21, 1999, of the Memorandum
filed and personally signed by Respondent Nelia Cid; Vicente, her husband, had died in the meantime. The
Memorandum for petitioner was signed by Atty. Pericles C. Consunji of Ponce Enrile Reyes & Manalastas, while
the Memorandum for Public Respondent was signed by Assistant Solicitor General Carlos N. Ortega and Solicitor
Geraldine C. Fiel-Macaraig.

7
Rollo, pp. 155-156.

8
"SECTION 4. Jurisdiction – The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute
arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must
agree to submit the same to voluntary arbitration.

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

"Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall
continue to be covered by the Labor Code of the Philippines." (EO 1008)

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

10
Annex "F"; CA rollo for GR SP No. 39781, pp. 188-203.

11
See Spouses Benitez v. Court of Appeals, 266 SCRA 242, January 16, 1997.

12
Camara v. Court of Appeals, 310 SCRA 608, 618, July 20, 1999; Delos Reyes v. Court of Appeals, 285 SCRA
81, 85, January 27, 1998; Leberman Realty Corporation v. Typingco, 293 SCRA 316, 327, July 29, 1998.

Baluyot v. Court of Appeals, 311 SCRA 29, 45, July 22, 1999; Vergara v. Court of Appeals, 319 SCRA 323, 327,
13

November 26, 1999; Leberman v. Typinco, ibid., p. 328.

14
CIAC Decision dated September 24, 1996; CA rollo for GR SP No. 42443, p. 42.

15
Villaflor v. Court of Appeals, 280 SCRA 297, 330, October 9, 1997; Philippine Merchant Marine School, Inc. v.
Court of Appeals, 244 SCRA 770, 785, June 2, 1995; COCOFED v. Trajano, 241 SCRA 262, 268, February 15,
1995.

16
Villaflor v. CA, ibid.; De Ysasi III v. National Labor Relations Commission, 231 SCRA 173, 185, March 11, 1994.

17
Chung Fu Industries (Phils.), Inc. v. Court of Appeals, 206 SCRA 545, 556, February 25, 1992.

18
CA rollo for GR SP No. 39781, p. 195.

19
Ibid., pp. 118-120.

20
CA rollo for GR SP No. 42443, p. 36.

21
Rollo, p. 198.

22
Respondent Nelia Cid’s Explanation; rollo, pp. 184-186.

23
Go v. Intermediate Appellate Court, 197 SCRA 22, 28-29, May 13, 1991; Ventanilla v. Centeno, 1 SCRA 215,
220, January 28, 1961; Robes-Francisco Realty v. Court of First Instance, 86 SCRA 59, 65-66, October 30, 1978.
 SECOND DIVISION

G.R. No. 128066 June 19, 2000

JARDINE DAVIES INC., petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 128069

PURE FOODS CORPORATION, petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however
to resort to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the
process more arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and
curtail further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter
PUREFOODS) decided to install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and
dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that
would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding
conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO),
MONARK and ADVANCE POWER submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as
required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the
award of the contract to FEMSCO —

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of
1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC
28-92 dated November 20, 1992, subject to the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local
portion and the labor for the imported materials, payable by progress billing twice a month, with ten
percent (10%) retention. The retained amount shall be released thirty (30) days after acceptance of the
completed project and upon posting of Guarantee Bond in an amount equivalent to twenty percent (20%)
of the contract price. The Guarantee Bond shall be valid for one (1) year from completion and acceptance
of project. The contract price includes future increase/s in costs of materials and labor;

2. The projects shall be undertaken pursuant to the attached specifications. It is understood that any item
required to complete the project, and those not included in the list of items shall be deemed included and
covered and shall be performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days after
the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for
every day of delay;
 5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and
shall procure All Risk Insurance equivalent to the contract price upon commencement of the project. The
All Risk Insurance Policy shall be endorsed in favor of and shall be delivered to Pure Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk
insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope
acknowledged in a letter dated 18 December 1992. FEMSCO also made arrangements with its principal and started the
PUREFOODS project by purchasing the necessary materials. PUREFOODS on the other hand returned FEMSCO's
Bidder's Bond in the amount of P1,000,000.00, as requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga
unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the)
cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the
award and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved,
PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies,
Inc. (hereafter JARDINE), which incidentally was not one of the bidders. 1âw phi1.nêt

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from
delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both
PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and
inducement. Trial ensued. After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court
concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded
going on, this is all a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not
stand up very well in a court of law." 2 Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of
P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or
its peso equivalent, and P900,000.00 representing contractor's mark-up on installation work, considering that it would be
impossible to compel PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract
with JARDINE and noting that construction had already started thereon; (c) to pay attorney's fees in an amount equivalent to
20% of the total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for
lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of
the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it,
while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed the 27
June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to
violate the latter's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral
damages. In addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and
P1,000,000.00 as exemplary damages as well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by
PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were
subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a
misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid
proposal and award of the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's
express conforme. Since PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to
revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO.
PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary
damages should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with
FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But
granting arguendo that the award of moral damages is proper, P2,000,000.00 is extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between
PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that
JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind
themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4There
can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is
the subject matter of the contract; and, (c) cause of the obligation which is established. 5 A contract binds both contracting
parties and has the force of law between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that
moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law. 6 To produce a contract,
the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. 7 For a contract
to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked
before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The
controversy lies in the consent — whether there was an acceptance of the offer, and if so, if it was communicated, thereby
perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which
provides that "[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and
Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The
bid proposals or quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the
reply of petitioner PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your
firm (FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and
conditions," these conditions were imposed on the performance of the obligation rather than on the perfection of the
contract. Thus, the first "condition" was merely a reiteration of the contract price and billing scheme based on the Terms and
Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The second and third "conditions" were nothing
more than general statements that all items and materials including those excluded in the list but necessary to complete the
project shall be deemed included and should be brand new. The fourth "condition" concerned the completion of the work to
be done, i.e., within twenty (20) days from the delivery of the generator set, the purchase of which was part of the contract.
The fifth "condition" had to do with the putting up of a performance bond and an all-risk insurance, both of which should be
given upon commencement of the project. The sixth "condition" related to the standard warranty of one (1) year. In fine, the
enumerated "basic terms and conditions" were prescriptions on how the obligation was to be performed and implemented.
They were far from being conditions imposed on the perfection of the contract.

In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the
failure of a contract, failure to comply with the second merely gives the other party options and/or remedies to protect his
interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court —

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract
has already been made. The letter only serves as a confirmation of such decision. Hence, to the Court's mind,
there is already an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions
enumerated therein, the offer has been accepted and/or amplified the details of the terms and conditions contained
in the Terms and Conditions of Bidding given out by Purefoods to prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-
offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied
acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the
performance bond and the contractor's all-risk insurance should be given upon the commencement of the contract.
Corollarily, the acknowledgment thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond,
was a concrete manifestation of its knowledge that respondent FEMSCO indeed consented to the "conditional counter-
offer." After all, as earlier adverted to, an acceptance may either be express or implied, 10 and this can be inferred from the
contemporaneous and subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent
FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2) months after the
12 December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on
respondent FEMSCO to lower the price even after the contract had been perfected. Indeed from the facts, it can easily be
surmised that petitioner PUREFOODS was haggling for a lower price even after agreeing to the earlier quotation, and was
threatening to unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS also makes an issue out of
the absence of a purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a contract. Thus,
even the tenor of the subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the
award to your company of the project," presupposes that the contract has been perfected. For, there can be no cancellation
if the contract was not perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good faith that no such
1avvphi1

contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which
were affirmed by the appellate court —

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad
faith and this was further aggravated by the subsequent inking of a contract between defendant Purefoods and
erstwhile co-defendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely
writing a letter would automatically cancel or nullify the existing contract entered into by both parties after a
process of bidding. This, to the Court's mind, is a flagrant violation of the express provisions of the law and is
contrary to fair and just dealings to which every man is due. 11

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12 In the instant
case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment
from its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate
court's award of moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages
are never intended to enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good
is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages
to respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it
may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific
evidence on record to support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced
petitioner PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and
respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient to show that petitioner
JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27
June 1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent
FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE
for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner
PUREFOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum
of P2,300,000.00 representing the value of engineering services it rendered, US$14,000.00 or its peso equivalent,
and P900,000.00 representing the contractor's mark-up on installation work, as well as attorney's fees equivalent
to twenty percent (20%) of the total amount due, is AFFIRMED. In addition, petitioner PURE FOODS
CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY CORPORATION moral
damages in the amount of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00. Costs against
petitioner.
SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

Footnotes

1
Judge Santiago G. Estrella, presiding.

2
Resolution of the trial court dated 27 June 1994; Rollo of G.R. No. 128066, p. 66.

3
Special Fifteenth Division; Decision penned by Associate Justice Maximiano C. Asuncion, concurred in by
Associate Justices Godardo A. Jacinto, Chairman, and Celia Lipana-Reyes.

4
Sanchez Roman 148-149.

5
Art. 1318, Civil Code.

6
See Art. 1315, id.

7
Art. 1320, id.

G.R. No. 124045, 21 May 1998, 290 SCRA 532, citing Romero v. Court of Appeals, G.R. No. 107207, 23
8

November 1995, 250 SCRA 223, and Lim v. Court of Appeals, G.R. No. 118347, 24 October 1996, 263 SCRA 569.

9
Decision of the appellate court, pp. 7-8; Decision of the trial court, p. 5.

10
Art. 1320, Civil Code.

11
Decision of the appellate court, pp. 9-10; Decision of the trial court, pp. 5-6.

Asset Privatization Trust v. Court of Appeals, G.R. No. 121171, 29 December 1998, 300 SCRA 579; See
12

also Mambulao Lumber Co. v. Philippine National Bank, No. L-22973, 30 January 1968, 22 SCRA 359.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 212081 February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner,

vs.
UNITED PLANNERS CONSULTANTS , INC. (UPCI), Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari 1 is the Decision2 dated March 26, 2014 of the Court of Appeals (CA) in CA-
G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the Department of Environment and Natural
Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an Agreement for Consultancy
Services3 (Consultancy Agreement) with respondent United Planners Consultants, Inc. (respondent) in connection with the
LMB' s Land Resource Management Master Plan Project (LRMMP). 4 Under the Consultancy Agreement, petitioner
committed to pay a total contract price of ₱4,337,141.00, based on a predetermined percentage corresponding to the
particular stage of work accomplished.5

In December 1994, respondent completed the work required, which petitioner formally accepted on December 27,
1994.6 However, petitioner was able to pay only 47% of the total contract price in the amount of ₱2,038,456.30. 7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office Report 8 (TSO) finding the
contract price of the Agreement to be 84.14% excessive. 9 This notwithstanding, petitioner, in a letter dated December 10,
1998, acknowledged its liability to respondent in the amount of ₱2,239,479.60 and assured payment at the soonest possible
time.10

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

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

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

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

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

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent, directing petitioner to
pay the latter the amount of (a) ₱2,285,089.89 representing the unpaid progress billings, with interest at the rate of 12% per
annum from the date of finality of the Arbitral Award upon confirmation by the RTC until fully paid; (b) ₱2,033,034.59 as
accrued interest thereon; (c) ₱500,000.00 as exemplary damages; and (d) ₱150,000.00 as attorney’s fees. 25 It also ordered
petitioner to reimburse respondent its proportionate share in the arbitration costs as agreed upon in the amount of
₱182,119.44.26

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

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19, 2010 (May 19, 2010 Motion for
Reconsideration)and a Manifestation and Motion30 dated June 1, 2010 (June 1, 2010 Manifestation and Motion), asserting
that it was denied the opportunity to be heard when the Arbitral Tribunal failed to consider its draft decision and merely noted
its motion for reconsideration.31 It also denied receiving a copy of the Arbitral Award by either electronic or registered
mail.32 For its part, respondent filed an opposition thereto and moved for the confirmation 33 of the Arbitral Award in
accordance with the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules). 34

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding that copies of the Arbitral
Award appear to have been sent to the parties by the Arbitral Tribunal, including the OSG, contrary to petitioner’s claim.
Onthe other hand, the RTC confirmed the Arbitral Award pursuant to Rule 11.2 (A) 36 of the Special ADR Rules and ordered
petitioner to pay respondent the costs of confirming the award, as prayed for, in the total amount of ₱50,000.00. From this
order, petitioner did not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no comment/opposition was
filed by petitioner despite the RTC’s directive therefor. In an Order 37 dated September 12, 2011, the RTC granted
respondent’s motion.38

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

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

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

On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its motion to quash. 47

Dissatisfied, it filed on September 10, 2012a petition for certiorari 48 before the CA, docketed as CA-G.R. SP No. 126458,
averring in the main that the RTC acted with grave abuse of discretion in confirming and ordering the execution of the
Arbitral Award.

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds, namely: (a) the petition
essentially assailed the merits of the Arbitral Award which is prohibited under Rule 19.7 50 of the Special ADR Rules;51 and (b)
the petition was filed out of time, having been filed way beyond 15 days from notice of the RTC’s July 9, 2012 Order, in
violation of Rule 19.2852 in relation to Rule 19.853 of said Rules which provide that a special civil action for certiorari must be
filed before the CA within 15 days from notice of the judgment, order, or resolution sought to be annulled or set aside (or
until July 27, 2012). Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

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

The Court’s Ruling

The petition lacks merit.

I.

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

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

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

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

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

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under Section 17.2, Rule 17 of the
CIAC Rules, no motion for reconsideration or new trial may be sought, but any of the parties may file a motion for
correction64 of the final award, which shall interrupt the running of the period for appeal,65 based on any of the following
grounds, to wit: a. an evident miscalculation of figures, a typographical or arithmetical error;

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

c. where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision
upon the matter submitted;

d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the parties in the Terms of
Reference (TOR) and submitted to them for resolution, and

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

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

Moreover, the parties may appeal the final award to the CA through a petition for review under Rule43 of the Rules of
Court.67
Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it filed the May 19, 2010
Motion for Reconsideration of the Arbitral Award, which was a prohibited pleading under the Section 17.2, 68Rule 17 of the
CIAC Rules, thus rendering the same final and executory.

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

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

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

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

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

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

II.

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

a. Holding that the arbitration agreement is in existent, invalid or unenforceable;

b. Reversing the arbitral tribunal’s preliminary determination upholding its jurisdiction;

c. Denying the request to refer the dispute to arbitration;

d. Granting or refusing an interim relief;

e. Denying a petition for the appointment of an arbitrator;

f. Confirming, vacating or correcting a domestic arbitral award;

g. Suspending the proceedings to set aside an international commercial arbitral award and referring the case back
to the arbitral tribunal;

h. Allowing a party to enforce an international commercial arbitral award pending appeal;

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

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

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

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

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

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

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

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

No statute can be enacted that can provide all the details involved in its application. There is always an omission that may
1âw phi 1

not meet a particular situation. What is thought, at the time of enactment, to be an all embracing legislation may be
inadequate to provide for the unfolding of events of the future. So-called gaps in the law develop as the law is enforced. One
of the rules of statutory construction used to fill in the gap is the doctrine of necessary implication. The doctrine states that
what is implied in a statute is as much a part thereof as that which is expressed. Every statute is understood, by implication,
to contain all such provisions as may be necessary to effectuate its object and purpose, or to make effective rights, powers,
privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and
logically inferred from its terms. Ex necessitate legis. And every statutory grant of power, right or privilege is deemed to
include all incidental power, right or privilege. This is so because the greater includes the lesser, expressed in the maxim, in
eo plus sit, simper inest et minus.75 (Emphases supplied)

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

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

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

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

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

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

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

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

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to procedural infirmities,
there is a need to explicate the matter of execution of the confirmed Arbitral Award against the petitioner, a government
agency, in the light of Presidential Decree No. (PD) 144584 otherwise known as the "Government Auditing Code of the
Philippines." Section 26 of PD 1445 expressly provides that execution of money judgment against the Government or any of
its subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and comprehend all matters
relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the
preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records,
and papers relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or
property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts
and claims of any sort due from or owing to the Government or any of its subdivisions, agencies and instrumentalities. The
said jurisdiction extends to all government-owned or controlled corporations, including their subsidiaries, and other self-
governing boards, commissions, or agencies of the Government, and as herein prescribed, including non-governmental
entities subsidized by the government, those funded by donation through the government, those required to pay levies or
government share, and those for which the government has put up a counterpart fund or those partly funded by the
government. (Emphases supplied)

From the foregoing, the settlement of respondent’s money claim is still subject to the primary jurisdiction of the COA despite
finality of the confirmed arbitral award by the RTC pursuant to the Special ADR Rules. 85 Hence, the respondent has to first
seek the approval of the COA of their monetary claim. This appears to have been complied with by the latter when it filed a
"Petition for Enforcement and Payment of Final and Executory Arbitral Award" 86before the COA. Accordingly, it is now the
COA which has the authority to rule on this latter petition. WHEREFORE, the petition is DENIED. The Decision dated March
26, 2014 of the Court of Appeals in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the
Department of Environment and Natural Resources is hereby AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

1
Rollo, pp. 19-35.

2
Id. at 8-15. Penned by Associate Justice Nina G. Antonio-Valenzuela with Justices Vicente S.E. Veloso and Jane
Aurora C. Lantion concurring.

3
Not attached to rollo.

4
Rollo, pp. 20 and 62.

5
Id. at 62-63.

6
Id. at 63.

7
Id. at 9.

8
See Consultancy Contracts Review Report dated April 28, 1994; id. at 129-131.

9
Id. at 9, 63, and 131.

10
Id. at 9 and 64.

11
Not attached to the rollo.

12
See id. at 21.

13
See id. at 9 and 21.

14
See Order dated January 18, 2010 issued by Judge Edgar Dalmacio Santos; id. at 83.

15
See id. at 55.

As amended by CIAC Resolution Nos. 15-2006, 16-2006, 18-2006, 19-2006, 02-2007, 07-2007, 13-2007, 02-
16

2008, 03-2008, 11-2008, 01-2010, 04-2010, and 07-2010, which took effect on December 15, 2005.

17
Id. at 58 and 99.

18
Id. at 59.

19
Id. at 61.

20
Id.

21
Id. at 104-105.
22
Id. at 105.

23
Id. at 113-127.

24
Id. at 55-80. Signed by Chairman Alfredo F. Tadiar, Armando N. Alli, and Ricardo B. San Juan, as members.

25
Id. at 78.

26
Id. at 79.

27
Dated May 19, 2010. Id. at 139-154.

28
Id. at 108 and 178-179.

The Motion for Reconsideration filed in the RTC is the same Motion for Reconsideration filed in the Arbitral
29

Tribunal.

30
Id. at 107-112.

31
Id. at 108.

32
Id. at 107-108.

By way of an Opposition/Motion for Confirmation dated September 30, 2010 as mentioned in petitioner’s
33

Oppositions dated November 18, 2010 and July 15, 2011; id. at 166 and 180.

34
A.M. No. 07-11-08-SC, entitled "SPECIAL RULES OF COURT ON ALTERNATIVE DISPUTE RESOLUTION"
(October 30, 2009).

35
Rollo, p. 178.

36
Rule 11.2. When to request confirmation, correction/modification or vacation. –

(A) Confirmation. - At any time after the lapse of thirty (30) days from receipt by the petitioner of the
arbitral award, he may petition the court to confirm that award.

37
Rollo, p. 184.

38
Id. at 42.

39
See Motion to Quash the Writ of Execution dated November 22, 2011; id. at 185-193.

40
Id. at 190.

41
Id. at 194-198.

42
SEC. 17.2 Motion for reconsideration or new trial.– A motion for reconsideration or new trial shall be considered a
prohibited pleading.

SEC. 17.1 Motion for correction of final award. – Any of the parties may file a motion for correction of the Final
43

award within fifteen (15) days from receipt thereof upon any of the following grounds:

xxxx

44
Rollo, p. 195.
45
Id. at 196-197.

46
Id. at 196.

47
See id. at 46.

48
Id. at 204-232.

49
Id. at 39-49.

50
Rule 19.7. No appeal or certiorari on the merits of an arbitral award.– An agreement to refer a dispute to
arbitration shall mean that the arbitral award shall be final and binding. Consequently, a party to an arbitration is
precluded from filing an appeal or a petition for certiorari questioning the merits of an arbitral award.

51
Rollo, p. 44.

52
Rule 19.28. When to file petition. – The petition must be filed with the Court of Appeals within fifteen (15) days
from notice of the judgment, order or resolution sought to be annulled or set aside. No extension of time to file the
petition shall be allowed.

53
Rule 19.8. Subject matter and governing rules.– The remedy of an appeal through a petition for review or the
remedy of a special civil action of certiorari from a decision of the Regional Trial Court made under the Special
ADR Rules shall be allowed in the instances, and instituted only in the manner, provided under this Rule.

54
Entitled "AN ACT TO INSTITUTIONALIZE THE USE OF AN ALTERNATIVE DISPUTE RESOLUTION SYSTEM
IN THE PHILIPPINES AND TO ESTABLISH THE OFFICE FOR ALTERNATIVE DISPUTE RESOLUTION,AND
FOR OTHER PURPOSES"; promulgated on April 2, 2004.

55
It is defined as "any process or procedure used to resolve a dispute or controversy, other than by adjudication of
a presiding judge of a court or an officer of a government agency, x x x, in which a neutral third party participates to
assist in the resolution of issues, which includes arbitration, mediation, conciliation, early neutral evaluation, mini-
trial, or any combination thereof." See SEC. 3 (a) of RA 9285.

56
See Section 2 of RA 9285.

57
Benchbook for Trial Courts (Revised and Expanded), Volume I, 2011, p. H-38.

58
See Rule 1.1 of the Special ADR Rules; emphasis supplied.

59
See Rule 2.1 of the Special ADR Rules.

60
See Rule 2.3 of the Special ADR Rules; emphasis and underscoring supplied.

61
See rollo, pp. 9 and 21.

62
Under Rule 4.1 of the Special ADR Rules, "[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."

63
See rollo, p. 83.

64
CIAC Rules, Rule 17, Sec. 17.1.

65
CIAC Rules, Rule 17, Sec. 17.1.1.

66
See Sec. 17.1, Rule 17 of the CIAC Rules; citations omitted.
67
See Sec. 18.2, Rule18 of the CIAC Rules.

68
See Sec. 17.2, Rule 17 of the CIAC Rules.

69
SEC. 23. Confirmation of award. – At any time within one month after the award is made, any party to the
controversy which was arbitrated may apply to the court having jurisdiction, as provided in section twenty-eight, for
an order confirming the award; and thereupon the court must grant such order unless the award is vacated,
modified or corrected, as prescribed herein. Notice of such motion must be served upon the adverse party or his
attorney as prescribed by law for the service of such notice upon an attorney in action in the same court.

Otherwise known as The Arbitration Law, entitled "AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION
70

AND SUBMISSION AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE
PROCEDURE FOR ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES"; approved on
June 19, 1953.

71
Rule 11.2. When to request confirmation, correction/modification or vacation.–

xxxx

(D) A petition to vacate the arbitral award may be filed, in opposition to a petition to confirm the arbitral
award, not later than thirty (30) days from receipt of the award by the petitioner. A petition to vacate the
arbitral award filed beyond the reglementary period shall be dismissed.

72
Rule 19.7. No appeal or certiorari on the merits of an arbitral award. – An agreement to refer a dispute to
arbitration shall mean that the arbitral award shall be final and binding. Consequently, a party to an Arbitration is
precluded from filing an appeal or a petition for certiorari questioning the merits of an arbitral award.

73
Heirs of Mateo Pidacan v. Air Transportation Office, G.R. No. 186192, August 25, 2010, 629 SCRA 451, 461.

74
497 Phil. 689 (2005).

75
Id. at 702-703, citing Chua v. Civil Service Commission, G.R. No. 88979, February 7, 1992, 206 SCRA 65,77.

76
See Roa v. Collector of Customs, 23 Phil. 315, 339 (1912).

77
Id. Also cited in Alonzo v. Intermediate Appellate Court, 234 Phil. 267, 273 (1987).

78
See Rule 2.1 of the Special ADR Rules.

79
See Rule 22.1 of the Special ADR Rules; emphases supplied.

80
See Rule 19.28 of the Special ADR Rules.

81
See rollo, p. 204.

82
Rule 19.30 of the Special ADR Rules provides:

Rule 19.30. Court to dismiss petition. – The court shall dismiss the petition if it fails to comply with Rules
19.27 and 19.28 above, or upon consideration of the ground alleged and the legal briefs submitted by the
parties, the petition does not appear to be prima facie meritorious.

83
Rollo, pp. 41 and 113.

Entitled "ORDAINING AND INSTITUTING A GOVERNMENT AUDITING CODE OF THE PHILIPPINES";

84

approved on June 11, 1978.

85
See University of the Philippines v. Dizon, G.R. No.171182, August 23, 2012, 679 SCRA 54, 79-80.
86
See Rollo, p. 266.