[G.R. No. 127004.

March 11, 1999]

NATIONAL
STEEL
CORPORATION, petitioner,
vs.
THE
REGIONAL TRIAL COURT OF LANAO DEL NORTE,
BRANCH
2,
ILIGAN
CITY
and
E.
WILLKOM
ENTERPRISES, INC., respondents.
DECISION

termination of the project, initially agreed to be finished on July 17,

1983, were granted by NSC.
Differences later arose, Plaintiff-defendant EWEI filed Civil Case No.
1615 before the Regional Trial Court of Lanao del Norte, Branch 06,
(Exhs. "A" and "1") praying essentially for the payments
ofP458,381.001 with interest from the time of delay; the price
adjustment as provided by PD 1594; and exemplary damages in the
amount of P50,000.00 and attorney's fees.

PURISIMA, J.:
Before the Court is a Petition for Certiorari with Prayer for
Preliminary Injunction & Temporary Restraining Order under Rule 65
of the Revised Rules of Court assailing the decision of the Regional
Trial Court of Lanao del Norte, Branch 2, Iligan City, on the following
consolidated cases :
(a) Special Proceeding Case No. 2206 entitled National
Steel Corporation vs E. Willkom Enterprise Inc to Vacate Arbitrators
Award; and;
(b) Civil Case No. 2198 entitled to E. Willkom Enterprises
Inc. vs National Steel Corporation for Sum of Money with
application for Confirmation of Arbitrators Award.
The facts as found below are, as follows:
"xxx On Nov. 18, 1992, petitioner-defendant Edward Wilkom
Enterprises Inc. (EWEI for brevity) together with one Ramiro
Construction and respondent-petitioner National Steel Corporation
(NSC for short) executed a contract whereby the former jointly
undertook the Contract for Site Development (Exhs. "3" & "D") for
the latter's Integrated Iron and Steel Mills Complex to be
established at Iligan City.
Sometime in the year 1983, the services of Ramiro Construction
was terminated and on March 7, 1983, petitioner-defendant EWEI
took over Ramiro's contractual obligation. Due to this and to other
causes deemed sufficient by EWEI, extensions of time for the

Defendant-petitioner NSC filed an answer with counterclaim to

plaintiff's complaints on May 18, 1990.
On August 21, 1990, the Honorable Court through Presiding Judge
Valario M. Salazar upon joint motion of both parties had issued an
order (Exhs. "C" and "3") dismissing the said complaint and
counterclaim x x x in view of the desire of both parties to
implement Sec. 19 of the contract, providing for a resolution of any
conflict by arbitration x x x . ( underscoring supplied).
In accordance with the aforesaid order, and pursuant to Sec. 19 of
the Contract for Site Development (id) the herein parties
constituted an Arbitration Board composed of the following:
(a)
Engr. Pafnucio M. Mejia as Chairman, who was
nominated by the two arbitrators earlier nominated by
EWEI and NSC with an Oath of Office (Exh. "E");
(b)
Engr. Eutaquio 0. Lagapa, Jr., member, who was
nominated by EWEI with an oath office (Exh. "F")
(c)
Engr. Gil A. Aberilia, a member who was nominated
by NSC, with an Oath of Office (Exh. "G").
After series of hearings, the Arbitrators rendered the decision (Exh.
"H" & "4") which is the subject matter of these present causes of
action, both initiated separately by the herein contending parties,
substantial portion of which directs NSC to pay EWEI, as follows:

(a)
P458,381.00 representing EWEI's last billing No. 16
with interest thereon at the rate of 1-1/4% per month from
January 1, 1985 to actual date of payment;

The pivot of inquiry here is whether or not the lower

court acted with grave abuse of discretion in not vacating
the arbitrator's award.

(b)
P1,335,514.20
representing
price
escalation
adjustment under PD No. 1594, with interest thereon at
the rate of 1-1/4 % per month from January 1, 1985 to
actual date of payment;

A stipulation to refer all future disputes or to submit an ongoing

dispute to an arbitrator is valid. Republic Act 876, otherwise known
as the Arbitration Law, was enacted by Congress since there was a
growing need for a law regulating arbitration in general.

(c)

P50,000 as and for exemplary damages;

(d)

P350,000 as and for attorney's fees.; and

The parties in the present case, upon entering into a Contract

for Site Development, mutually agreed that any dispute arising
from the said contract shall be submitted for arbitration. Explicit is
Paragraph 19 of subject contract, which reads:

(e)

P35,000.00 as and for cost of arbitration."[1]

The Regional Trial Court of Lanao del Norte Branch 2, Iligan City
through Judge Maximo B. Ratunil, rendered judgment as follows:
(1) In Civil Case No. 11-2198, declaring the award of the
Board of Arbitrators, dated April 21, 1992 to be duly
AFFIRMED and CONFIRMED "en toto" ; that an entry of
judgment be entered therewith pursuant to Republic Act
No. 876 (the Arbitration Law); and costs against
respondent National Steel Corporation.
(2) In Special Proceeding No. 11-2206, ordering the petition
to vacate the aforesaid award be DISMISSED.
SO ORDERED.[2] "
With the denial on October 18, 1996 of its Motion for
Reconsideration, the National Steel Corporation (NSC) has come to
this court via the present petition.
After deliberating on the petition as well as the comment and
reply thereon, the court gave due course to the petition and
considered the case ripe for decision.

"Paragraph 19. ARBITRATION. All disputes questions or

differences which may at any time arise between the parties hereto
in connection with or relating to this Agreement or the subject
matter hereof, including questions of interpretation or construction,
shall be referred to an Arbitration Board composed of three (3)
arbitrators, one to be appointed by each party, and the third, to be
appointed by the two (2) arbitrators. The appointment of
arbitrators and procedure for arbitration shall be governed by the
provisions of the Arbitration Law (Republic Act No. 876). The Board
shall apply Philippine Law in adjudicating the dispute. The decision
of a majority of the members of the Arbitration Board shall be valid,
binding, final and conclusive upon the parties, and from which
there will be no appeal, subject to the provisions on vacating,
modifying, or correcting an award under the said Republic Act No.
876.[3]
Thereunder, if a dispute should arise from the contract, the
Arbitration Board shall assume jurisdiction and conduct
hearings. After the Board comes up with a decision, the parties
may immediately implement the same by treating it as an amicable
settlement. However, if one of the parties refuses to comply or is
dissatisfied with the decision, he may file a Petition to Vacate the
Arbitrator's decision before the trial court. On the other hand, the
winning party may ask the trial court's confirmation to have such
decision enforced.

It should be stressed that voluntary arbitrators, by the nature

of their functions, act in a quasi-judicial capacity. [4] As a rule,
findings of facts by quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific matters,
are accorded not only respect but even finality if they are
supported by substantial evidence,[5] even if not overwhelming or
preponderant.[6] As the petitioner has availed of Rule 65, the Court
will not review the facts found nor even of the law as interpreted or
applied by the arbitrator unless the supposed errors of facts or of
law are so patent and gross and prejudicial as to amount to a grave
abuse of discretion or an excess de pouvoir on the part of the
arbitrators.[7]

(d)
That the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the
subject matter submitted to them was not made. xxx"

Thus, in a Petition to Vacate Arbitrator's Decision before the

trial court, regularity in the performance of official functions is
presumed and the complaining party has the burden of proving the
existence of any of the grounds for vacating the award, as provided
for by Sections 24 of the Arbitration Law, to wit:

Petitioner's allegation that there was evident partiality is

untenable. It is anemic of evidentiary support.

"Sec. 24 GROUNDS FOR VACATING THE AWARD - In any one of

the following cases, the court must make an order vacating the
award upon the petition of any party to the controversy when such
party proves affirmatively that in the arbitration proceedings:
(a)
The award was procured by corruption, fraud or other undue
means;
(b)
That there was evident partiality or corruption in the
arbitrators of any of them; or
(c)
That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the controversy; that one
or more of the arbitrators was disqualified to act as such under
section nine hereof, and wilfully refrained from disclosing such
disqualification or of any other misbehavior by which the rights of
any party have been materially prejudiced; or

The grounds relied upon by the petitioner were the following

(a) That there was evident partiality in the assailed decision of the
Arbitrators in favor of the respondent; and (b) That there was
mistaken appreciation of the facts and application of the law by the
Arbitrators. These were the very same grounds alleged by NSC
before the trial court in their Petition to Vacate the Arbitration
Award and which petitioner is reiterating in this petition under
scrutiny.

In the case of Adamson vs. Court of Appeals, 232 SCRA 602, in

upholding the decision of the Board of Arbitrators, this Court ruled
that the fact that a party was disadvantaged by the decision of the
Arbitration Committee does not prove evident partiality. Proofs
other than mere inference are needed to establish evident
partiality. Here, petitioner merely averred evident partiality without
any proof to back it up. Petitioner was never deprived of the right
to present evidence nor was there any showing that the Board
showed signs of any bias in favor of EWEI. As correctly found by
the trial court:
"Thirdly, this Court cannot find its way to support NSC's contention
that there was evident partiality in the assailed Award of the
Arbitrator in favor of the respondent because the conclusion of the
Board, which the Court found to be well-founded, is fully supported
by substantial evidence, as follows:
"xxx The testimonies of witnesses from both parties were
heard to clarify facts and to threash (sic) out the dispute in
the hearings. Upon motion by NSC counsel, the hearing of
testimony from witnesses was terminated on 22 January
1992. To end the testimonies in the hearing both litigant
parties upon query by Arbitrator-Chairman freely declared
that there has been no partiality in the manner the

Arbitrators conducted the hearing, that there has been no

instance, where Arbitrators refused to postpone requested
or to hear/accept evidence pertinent and material to the
dispute. xxx (underscoring supplied)

The query here therefore is whether there was failure on the

part of EWEI to complete the work agreed upon. This will
determine whether Final Billing No. 16 can be made chargeable to
the cost differential paid by NSC to another contractor.

Parentethically, and in the light of the record above-mentioned, this

Court hereby holds that the Board of Arbitrators did not commit any
'evident partiality' imputed by petitioner NSC. Above all, this Court
must sustain the said decision for it is a well settled rule that the
actual findings of an administrative body should be affirmed if there
is substantial evidence to support them and the conclusions stated
in the decision are not clearly against the law and jurisprudence
similar to the instant case. Henceforth, every reasonable
intendment will be indulged to give effect such proceedings and in
favor of the regulatory and integrity of the arbitrators act. (Corpus
Juris, Vol. 5, p. 20)"[8]

After a series of hearings, the Board of Arbitrators concluded

that the work was completed by EWEI. As correctly stated:

Indeed, the allegation of evident partiality is not well-taken

because the petitioner failed to substantiate the same.
Anent the issue of mistaken appreciation of facts and law of the
case, the petitioner theorizes that the awards made by the Board
were unsubstantiated and the same were a plain misapplication of
the law and even contrary to jurisprudence. To have a clearer
understanding of the petition, this Court will try to discuss
individually the awards made by the Board, and determine if there
was grave abuse of discretion on the part of the trial court when it
adopted such awards in toto.
I.

P458,381.00 representing EWEI's last billing No. 16 with interest thereon at the rate of 1 1/4%

per month from January 1, 1985 to actual date of payment;

Petitioner seeks to bar payment of the said amount to

EWEI. Since the latter failed to complete the works as agreed
upon, NSC had the right to withhold such amount. The same will
be used to cover the cost differential paid to another contractor
who finished the work allegedly left uncompleted by EWEI. Said
work cost NSC P1,225,000, and should be made chargeable to
EWEI's receivables on Final Billing No. 16 issued to NSC.

"To authenticate the extent of unfinished work, quantity, unit cost

differential and amount, NSC was required to submit copies of
payment vouchers and/or job awards extended to the other
contractor engaged to complete the works. The best efforts by
NSC despite the multiplicity of accounting/auditing/engineering
records required in a corporate complex failed to produce
documentary proofs from their Iligan or Makati office despite
repeated requests. NSC failed to substantiate such allusion of
completion by another contractor three unfinished items of works,
actual quantities accomplished and unit cost differential paid
chargeable against EWEI.
xxx

xxx

xxx

The latest evaluation on record of the items of work completed by

EWEI under the contract is drawn from the NSC report (Exhibit "11d") dated 12 November 1985 submitted with the EWEI Billing No.
16-Final in the course of processing claim on items of work
accomplished. There is no such report or mention of unfinished
work of 90,000 MT of dumped riprap, 100,000 cu. m. of site grading
and 300,000 cu. m. of spreading common excavated materials in
the EWEI contract alluded to by the NSC as unfinished work
otherwise EWEI Billing No. 16-Final would not have passed
processing for payment unless there is really no such unfinished
work NSC evaluation report with no adverse findings of unfinished
work consider the contract as completed.
To affirm the work items, quantity, unit cost differential and amount
of unfinished work left behind by EWEI, NSC in serving notice of
contract termination to EWEI should have instead specifically cited
these obligations in detail for EWEI to perform/comply within 30
days, such failure to perform/comply should have constituted as an

event in default that would have justified termination of contract of

NSC with EWEI. If at all, this unfinished work may be
additional/extra work awarded in 1984 to another contractor at
prices higher than the unit price tendered by EWEI in 1982 and/or
the discrepancy between actual quantities of work accomplished
per plans versus estimated quantities of work covered by separate
contract as expansion of the original project."
xxx

xxx

xxx

IN VIEW OF THE FOREGOING, THE SO-CALLED UNFINISHED WORKS

IN THE CONTRACT BY EWEI ALLUDED TO BY NSC IS NOT
CONSIDERED AN OBLIGATION TO PERFORM/COMPLY THUS
ABSOLVING EWEI OF ANY FAILURE TO PERFORM/COMPLY AND
THEREFORE CANNOT BE AVAILED OF AS A RIGHT OR REMEDY BY
NSC TO RECOVER UNIT DIFFERENTIAL COST FROM EWEI FOR THE
SAME
UNSUBSTANTIATED
WORK
DONE
BY
ANOTHER
CONTRACTOR." (ANNEX "C" ARBITRATION, page 86-88 of Rollo.)
Furthermore, under the contract sued upon, it is clear that
should the Owner feel that the work agreed upon was not
completed by the contractor, it is incumbent upon the OWNER to
send to CONTRACTOR a letter within seven (7) days after
completion of the inspection to specify the objections thereto [9] NSC
failed to comply with such requirement, and therefore it would be
unfair to refuse payment to EWEI, considering that the latter had
faithfully submitted Final Billing No.16 believing that its work had
been completed because NSC did not call its attention to any
objectionable aspect of their project.
But, what cannot be upheld is the Board's imposition of a 11/4% interest per month from January 1, 1985 to actual date of
payment. There is nothing in the said contract to justify or
authorize such an award. The trial court should have therefore
disregarded the same and instead, applied the legal rate of 6% per
annum, from Jan. 1, 1985 until this decision becomes final and
executory. This is so because the legal rate of interest on monetary
obligations not arising from loans or forebearance of credits or
goods is 6%[10] per annum in the absence of any stipulation to the
contrary.

(II)

Price escalation with the interest rate of 1-1/4% per month from 1 January 1985 to actual date

of payment.

Petitioner contends that EWEI is not entitled to price escalation

absent any stipulation to that effect in the contract under which,
the contract price is fixed, citing Paragraph 2 thereof, which
stipulates:
2. CONTRACT PRICE xxx xxx
The applicable unit prices above fixed are based on the assumption
that the disposal areas for cleared, grubbed materials, debris,
excess filling materials and other matters that are to be disposed of
or are within the boundary limits of the site, as designated in Annex
A hereof. In the event that disposal areas fixed and designated in
Annex A are diverted and transferred to such other areas as would
be outside the limits of the site as would require additional costs to
the contractor, then Owner shall be liable for such additional
hauling costs of P1.45/km/m3." (Annex "A", Contract for Site
Development, page 55 of Rollo)
The phrase "prices above fixed" means that the contract price
of the work shall be that agreed upon by the parties at the time of
the execution of the contract, which is the law between them
provided it is not contrary to law, morals, good customs, public
order, or public policy. (Article 1306, New Civil Code). It cannot be
inferred therefrom, however, that the parties are prohibited from
imposing future increases or price escalation. It is a cardinal rule in
the interpretation of contracts that "if the terms of a contract are
clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control." [11]
But price escalation is expressly allowed under Presidential
Decree 1594, which law allows price escalation in all contracts
involving government projects including contracts entered into by
government entities and instrumentalities and Government Owned
or Controlled Corporations (GOCCs). It is a basic rule in contracts
that the law is deemed written into the contract between the

parties. And when there is no prohibitory clause on price

escalation, the Court will allow payment therefor. Thus, petitioner
cannot rely on the case of Llama Development Corporation vs.
Court of Appeals and National Steel Corporation, GR 88093,
Resolution, Third Division, 20 Sept 1989. It is not applicable here
since in that case, the contract explicitly provided that the contract
price stipulated was fixed, inclusive of all costs and not subject to
escalation, (emphasis supplied). This, in effect, waived the
provisions of PD 1594. The case under scrutiny is different as the
disputed contract does not contain a similar provision.
In a vain attempt to evade said law's application, they would
like the Court to believe that it is an acquired asset corporation and
not a government owned or controlled corporation so that they are
not within the coverage of PD 1594. Whether NSC is an assetacquired corporation or a government owned or controlled
corporation is of no moment. It is not determinative of the pivot of
inquiry. It bears emphasizing that during the hearings conducted
by the Board of Arbitrators, there was presented documentary
evidence to show that NSC, despite its being allegedly an asset
acquired corporation, allowed price escalation to another
contractor, Geo Transport and Construction, Inc. (GTCI). As said in
the decision of the Board of Arbitrators:
"On the other hand, there was documentary evidence presented
that NSC granted Geo Transport and Construction, Inc. (GTCI), the
other favored contractor working side by side with EWEI on the site
development project during the same period the GTCE was granted
upon request and paid by NSC an actual sum of P6.9 million as
price adjustment compensation even without the benefit of
escalation provision in the contract but allowed in accordance with
PD NO. 1594 enforceable among government controlled or owned
corporation. The statement is embodied in an affidavit (Exhibit
"111-h") submitted by affiant Jose M. Mesina, Asst. to the President
and Legal Counsel of GTCI, submitted to the Arbitrators upon
solicitation of EWEI, copy to NSC, on 3 October 1991. NSC did not
assail the affidavit upon receipt of such document as evidence until
the hearing of 19 December 1991 when the affidavit was branded
by NSC counsel as incorrect and hearsay. Within 7 days
reglamentary period after receipt of affidavit in 3 October 1991, the

NSC had the recourse to contest the affidavit even preferably

charge the affiant for slander if NSC could disprove the statements
as untrue."[12]
If Petitioner seeks to refute such evidence, it should have done
so before the Board of Arbitrators, during the hearings. To raise the
issue now is futile.
However, the same line of reasoning with respect to the first
award should be used in disregarding the interest rate of 11/4%. The legal rate of 6% per annum should be similarly applied
to the price escalation to be computed from Jan. 1, 1985 until this
decision becomes final and executory.
(III)

The award of P50,000 as exemplary damages and P350,000 as attorney's fees;

The exemplary damages and attorneys fees awarded by the

Board of Arbitrators should be deleted in light of the circumstances
surrounding the case.
The requirements for an award of exemplary damages, are: (1)
they may be imposed by way of example in addition to
compensatory damages, and only after the claimants right to them
has been established; (2) that they cannot be recovered as a
matter of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant; (3)
the act must be accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner.[13]
EWEI cannot claim that NSC acted in bad faith or in a wanton
manner when it refused payment of the Final Billing No. 16. The
belief that the work was never completed by EWEI and that it (NSC)
had the right to make it chargeable to the cost differential paid by
the latter to another contractor was neither wanton nor done in
evident bad faith. The payment of legal rate of interest will suffice
to compensate EWEI of whatever prejudice it suffered by reason of
the delay caused by NSC.
As regards the award of attorney's fees, award for attorney's
fees without justification is a "conclusion without a premise, its

basis being improperly left to speculation and conjencture. [14] The

"fixed counsel's fee" of P350,000 should be disallowed. The trial
court acted with grave abuse of discretion when it adopted the
same in toto.
WHEREFORE, the awards made by the Board of Arbitrators
which the trial court adopted in its decision of July 31,1996, are
modified, thus:
(1) The award of P474,780.23 for Billing No. 16-Final
and P1,335,514.20 for price adjustment shall be paid
with legal interest of six (6 %) percent per annum, from
January 1, 1985 until this decision shall have become
final and executory;
(2) The award of P50,000 for exemplary damages and
attorney's fees of P350,000 are deleted; and
(3) The cost of arbitration of P35,000 to supplement
arbitration agreement has to be paid.
No pronouncement as to costs.
SO ORDERED.

[G.R. No. 121171. December 29, 1998]

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS,

JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T.
CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S.
PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M.
ANTONIO, as Minority Stock Holders of Marinduque Mining and
Industrial Corporation, respondents.
DECISION
KAPUNAN, J.:

The petition for review on certiorari before us seeks us to reverse and set aside
the decision of the Court of Appeals which denied due course to the petition
for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the
Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order
upheld and confirmed the award made by the Arbitration Committee in favor of
Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount
of P2.5 BILLION (or approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed on the Government
for exercising its legitimate right of foreclosure as creditor against the debtor MMIC
as a consequence of the latters failure to pay its overdue and unpaid obligation
of P22 billion to the Philippine National Bank (PNB) and the Development Bank of
the Philippines (DBP).

The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the

Surigao Mineral Reservation have been authorized by Republic Act No. 1828, as
amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the
Philippines thru the Surigao Mineral Reservation Board, granted MMIC the
exclusive right to explore, develop and exploit nickel, cobalt and other minerals in
the Surigao mineral reservation.[1] MMIC is a domestic corporation engaged in
mining with respondents Jesus S. Cabarrus, Sr. as President and among its original
stockholders.
The Philippine Government undertook to support the financing of MMIC by
purchase of MMIC debenture and extension of guarantees. Further, the Philippine
Government obtained a firm, commitment from the DBP and/or other government
financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans
or deferred payment arrangements secured from the US Eximbank, Asian
Development Bank, Kobe Steel, of amount not exceeding US$100 Million.[2]
DBP approved guarantees in favor of MMIC and subsequent requests for
guarantees were based on the unutilized portion of the Government
commitment. Thereafter, the Government extended accommodations to MMIC in
various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust
Agreement[3] whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor
of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and
chattel mortgage executed by the mortgagor, and additional assets described and
identified, including assets of whatever kind, nature or description, which the
mortgagor may acquire whether in substitution of, in replenishment, or in addition
thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default,

which expressly includes the event that the MORTGAGOR shall fail to pay any
amount secured by this Mortgage Trust Agreement when due.[4]
Article V of the Mortgage Trust Agreement prescribes in detail, and in addition
to the enumerated events of defaults, circumstances by which the mortgagor may be
declared in default, the procedure therefor, waiver of period to foreclose, authority of
Trustee before, during and after foreclosure, including taking possession of the
mortgaged properties.[5]
In various request for advances/remittances of loans of huge amounts, Deeds of
Undertakings, Promissory Notes, Loans Documents, Deeds of Real Estate
Mortgages, MMIC invariably committed to pay either on demand or under certain
terms the loans and accommodations secured from or guaranteed by both DBP and
PNB.
By 1984, DBP and PNBs financial exposure both in loans and in equity in
MMIC had reached tremendous proportions, and MMIC was having a difficult time
meeting its financial obligations. MMIC had an outstanding loan with DBP in the
amount of P13,792,607,565.92 as of August 31, 1984 and in the amount
of P8,789,028,249.38 as of July 15, 1984 or a total Government exposure of Twenty
Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Thousand
Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine Currency.
[6]
Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest
expense through debt conversion to equity was drafted by the Sycip Gorres Velayo
accounting firm.[7] On April 30, 1984, the FRP was approved by the Board of
Directors of the MMIC.[8] However, the proposed FRP had never been formally
adopted, approved or ratified by either PNB or DBP.[9]
In August and September 1984, as the various loans and advances made by
DBP and PNB to MMIC had become overdue and since any restructuring program
relative to the loans was no longer feasible, and in compliance with the directive of
Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided
to exercise their right to extrajudicially foreclose the mortgages in accordance with
the Mortgage Trust Agreement.[10]
The foreclosed assets were sold to PNB as the lone bidder and were assigned to
three newly formed corporations, namely, Nonoc Mining Corporation, Maricalum
Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these
assets were transferred to the Asset Privatization Trust (APT).[11]
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other
stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC
of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and
Damages.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1)
annul the foreclosure, restore the foreclosed assets to MMIC, and require the banks
to account for their use and operation in the interim; (2) direct the banks to honor and
perform their commitments under the alleged FRP; and (3) pay moral and exemplary
damages, attorneys fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor
of the DBP and PNBs interest in MMIC, mutually agreed to submit the case to
arbitration by entering into a Compromise and Arbitration Agreement,
stipulating, inter alia:
NOW, THEREFORE, for and in consideration of the foregoing premises and the
mutual covenants contain herein, the parties agreed as follows:
1. Withdrawal and Compromise. The parties have agreed to withdraw their
respective claims from the Trial Court and to resolve their dispute through arbitration
by praying to the Trial Court to issue a Compromise Judgment based on this
Compromise and Arbitration Agreement.
In withdrawing their dispute form the court and in choosing to resolve it through
arbitration, the parties have agreed that:
(a) their respective money claims shall be reduced to purely money claims; and
(b) as successor and assignee of the PNB and DBP interest in MMIC and the
MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB
and DBP in respect of the controversy subject of Civil Case No. 9900 to be
transferred to arbitration and any arbitral award/order against either PNB and/or DBP
shall be the responsibility of, be discharged by and be enforceable against APT, the
partied having agreed to drop PNB and DBP from the arbitration.
2. Submission. The parties hereby agree that (a) the controversy in Civil Case No.
9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs
prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of this
Compromise and Arbitration Agreement, be transferred and reduced to pure
pecuniary/money claims with the parties waiving and foregoing all other forms of
reliefs which they prayed for or should have payed for in Civil Case No. 9900.[13]
The Compromise and Arbitration Agreement limited the issues to the
following:
5. Issues. The issues to be submitted for the Committees resolution shall be: (a)
Whether PLAINTIFFS have the capacity or the personality to institute this derivative
suit in behalf of the MMIC or its directors; (b) Whether or not the actions leading to,
and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and
in good faith.[14]
This agreement was presented for approval to the trial court. On October 14,
1992, the Makati RTC, Branch 62, issued an order, to wit:

WHEREFORE, this Court orders:

1.

Substituting PNB and DBP with the Asset Privatization Trust as

party defendant.

2.

Approving the Compromise and Arbitration Agreement dated

October 6, 1992, attached as Annex C of the Omnibus Motion.

3.

Approving the Transformation of the reliefs prayed for [by] the

plaintiffs in this case into pure money claims; and

4.

The Complaint is hereby DISMISSED.

[15]

The Arbitration Committee was composed of retired Supreme Court Justice

Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals
Justice Magdangal Elma as Members. On November 24, 1993, after conducting
several hearings, the Arbitration Committee rendered a majority decision in favor of
MMIC, the pertinent portions of which read as follows:
Since, as this Committee finds, there is no foreclosure at all was not legally and
validly done, the Committee holds and so declares that the loans of PNB and DBP to
MMIC, for the payment and recovery of which the void foreclosure sales were
undertaken, continue to remain outstanding and unpaid. Defendant APT as the
successor-in-interest of PNB and DBP to the said loans is therefore entitled and
retains the right, to collect the same from MMIC pursuant to and based on the loan
documents signed by MMIC, subject to the legal and valid defenses that the latter
may duly and seasonably interpose. Such loans shall, however, be reduced by the
amount which APT may have realized from the sale of the seized assets of MMIC
which by agreement should no longer be returned even if the foreclosure were found
to be null and void.
The documentary evidence submitted and adopted by both parties (Exhibits 3, 3B; Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that the
total outstanding obligation due to DBP and PNB as of the date of foreclosure
is P22,668,537,770.05, more or less.
Therefore, defendant APT can, and is still entitled to, collect the outstanding
obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more or
less, with interest thereon as stipulated in the loan documents from the date of
foreclosure up to the time they are fully paid less the proportionate liability of DBP
as owner of 87% of the total capitalization of MMIC under the FRP. Simply put,
DBP shall share in the award of damages to, and in obligations of MMIC in
proportion to its 87% equity in the total capital stock of MMIC.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to
87%. So pursuant to the above provision of the Compromise and Arbitration
Agreement, the 87% equity of DBP is hereby deducted from the actual damages
of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus
interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at
the legal rate of six per cent (6%) per annumreckoned from August 3, 9, and 24,
1984, pari passu, as and for actual damages. Payment of these actual damages shall
be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and
PNB, which have not been converted into equity. Should there be any balance due to
the MMIC after the offsetting, the same shall be satisfied from the funds representing
the purchase price of the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement that would supercede
[sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P13,000,000.00 as and for moral and
exemplary damages. Payment of these moral and exemplary damages shall be offset
by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which
have not been converted into equity. Should there be any balance due to MMIC after
the offsetting, the same shall be satisfied from the funds representing the purchase
price of the sale of the shares of Island Cement Corporation in the
of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it
pursuant to paragraph (9) of the Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow
pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supercede it, pursuant to paragraph (9) of the
Compromise and Arbitration Agreement, as and for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED.[16]

x x x.

Motions for reconsiderations were filed by both parties, but the same were
denied.
On October 17, 1994, private respondents filed in the same Civil Case No.
9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner
countered with an Opposition and Motion to Vacate Judgment raising the
following grounds:
1. The plaintiffs Application/Motion is improperly filed with this branch of the
Court, considering that the said motion is neither a part nor the continuation of the
proceedings in Civil Case No. 9900 which was dismissed upon motion of the
parties. In fact, the defendants in the said Civil Case No. 9900 were the
Development Bank of the Philippines and the Philippine National Bank (PNB);
2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission
shall be deemed a special proceedings and a party to the controversy which was
arbitrated may apply to the court having jurisdiction, (not necessarily with this
Honorable Court) for an order confirming the award;
3. The issues submitted for arbitration have been limited to two: (1) propriety of the
plaintiffs filing the derivative suit and (2) the regularity of the foreclosure
proceedings. The arbitration award sought to be confirmed herein far exceeded the
issues submitted and even granted moral damages to one of the herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the
award where the arbitrators exceeded their powers, or so imperfectly executed them,
that a mutual final and definite award upon the subject matter submitted to them was
not made.[17]
Private respondents filed a REPLY AND OPPOSITION dated November 10,
1984, arguing that a dismissal of Civil case No. 9900 was merely a qualified
dismissal to pave the way for the submission of the controversy to arbitration, and
operated simply as a mere suspension of the proceedings. They denied that the
Arbitration Committee had exceeded its powers.
In an Order dated November 28, 1994, the trial court confirmed the award of
the Arbitration Committee. The dispositive portion of said order reads:
WHEREFORE, premises considered, and in the light of the parties [sic] Compromise
and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration
Committee promulgated on November 24, 1993, as affirmed in a Resolution dated
July 26, 1994, and finally settled and clarified in the Separate Opinion dated
September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA
876,also known as the Arbitration Law, this Court GRANTS PLAINTIFFS
APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND
JUDGMENT IS HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial
Corporation (MMIC, except the DBP, the sum of P3,811,757,425.00, as and for
actual damages, which shall be partially satisfied from the funds held under escrow
in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22,
1988. The Balance of the award, after the escrow funds are fully applied, shall be
executed against the APT;
(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum
of P13,000,000.00 as and moral and exemplary damages;
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum
of P10,000,000.00 as and for moral damages; and
(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum
of P1,705,410.22 as arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph
2 of the Compromise and Arbitration Agreement, and the final edict of the
Arbitration Committees decision, and with this Courts Confirmation, the issuance
of the Arbitration Committees Award shall henceforth be final and executory.
SO ORDERED.[18]
On December 27, 1994, petitioner filed its motion for reconsideration of the
Order dated November 28, 1994. Private respondents, in turn, submitted their reply
and opposition thereto.
On January 18, 1995, the trial court handed down its order denying APTs
motion for reconsideration for lack of merit and for having been filed out of
time. The trial court declared that considering that the defendant APT through
counsel, officially and actually received a copy of the Order of this Court dated
November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof
filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was
clearly filed beyond the 15-day reglementary period prescribed or provided for by
law for the filing of an appeal from final orders, resolutions, awards, judgments or
decisions of any court in all cases, and by necessary implication for the filling of a
motion for reconsideration thereof.
On February 7, 1995, petitioner received private respondents motion for
Execution and Appointment of Custodian of Proceeds of Execution dated February
6, 1995.
Petitioner thereafter filed with the Court of Appeals a special civil action
for certiorari with temporary restraining order and/or preliminary injunction dated
February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated
November 28, 1994 and January 18, 1995 for having been issued without or in

excess of jurisdiction and/or with grave abuse of discretion. [19] As ground therefor,
petitioner alleged that:
I
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION
MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL
AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900,
HAD PREVIOUSLY BEEN DISMISSED.
II
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION
AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE
QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND
DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.

II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT
PETITIONER WAS ESTOPPED FROM QUESTIONING THE
ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE
JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME
TIME MOVED TO VACATE THE ARBITRAL AWARD.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION
FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD
HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE
ARBITRAL AWARD.

III

IV

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND

ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN
RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR
RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURTS
COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX
COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSELS COPY
THEREOF.[20]

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER

APTS PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE
ORDER CONFIRMING THE AWARD

On July 12, 1995, the Court of Appeals, through its fifth Division denied due
course and dismissed the petition for certiorari.
Hence, the instant petition for review on certiorari imputing to the Court of
Appeals the following errors.

V
THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL
ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO
FILE A MOTION FOR RECONSIDERATION.[21]
The petition is impressed with merit.
I

ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS
PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD LOST
JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE
SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION
FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE
TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE
RTC.

The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

The use of the term dismissed is not a mere semantic imperfection. The
dispositive portion of the Order of the trial court dated October 14, 1992 stated in no
uncertain terms:
4. The Complaint is hereby DISMISSED.[22]

The term dismiss has a precise definition in law. To dispose of an action suit, or
motion without trial on the issues involved. Conclude, discontinue, terminate,
quash.[23]
Admittedly the correct procedure was for the parties to go back to the court
where the case was pending to have the award confirmed by said court. However,
Branch 62 made the fatal mistake of issuing a final order dismissing the case. While
Branch 62 should have merely suspended the case and not dismissed it, [24] neither of
the parties questioned said dismissal. Thus, both parties as well as said court are
bound by such error.
It is erroneous then to argue, as private respondents do, that petitioner APT was
charged with the knowledge that the case was merely stayed until arbitration
finished, as again, the order of Branch 62 in very clear terms stated that the
complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over
the vase. It could not have validly reacquired jurisdiction over the said case on mere
motion of one of the parties. The Rules of Court is specific on how a new case may
be initiated and such is not done by mere motion in a particular branch of the
RTC. Consequently, as there was no pending action to speak of, the petition to
confirm the arbitral award should have been filed as a new case and raffled
accordingly to one of the branches of the Regional Trial Court.
II

Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the
jurisdiction of the RTC to confirm the arbitral award because it sought affirmative
relief in said court by asking that the arbitral award be vacated.
The rule is that Where the court itself clearly has no jurisdiction over the
subject matter or the nature of the action, the invocation of this defense may de done
at any time. It is neither for the courts nor for the parties to violate or disregard that
rule, let alone to confer that jurisdiction, this matter being legislative in
character.[25] As a rule the, neither waiver nor estoppel shall apply to confer
jurisdiction upon a court barring highly meritorious and exceptional circumstances.
[26]
One such exception was enunciated in Tijam vs. Sibonghanoy,[27] where it was
held that after voluntarily submitting a cause and encountering an adverse decision
on the merits, it is too late for the loser to question the jurisdiction or power of the
court."
Petitioners situation is different because from the outset, it has consistently
held the position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral
award; consequently, it cannot be said that it was estopped from questioning the
RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was
not inconsistent with its disavowal of the courts jurisdiction.

III

Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the
trial courts denial of APTs motion for reconsideration of the trial courts order
confirming the arbitral award, on the ground that said motion was filed beyond the
15-day reglementary period; consequently, the petition for certiorari could not be
resorted to as substitute to the lost right of appeal.
We do not agree.
Section 29 of Republic Act No. 876,[28] provides that:
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.
The aforequoted provision, however, does not preclude a party aggrieved by the
arbitral award from resorting to the extraordinary remedy of certiorari under Rule 65
of the Rules of Court where, as in this case, the Regional Trial Court to which the
award was submitted for confirmation has acted without jurisdiction, or with grave
abuse of discretion and there is no appeal, nor any plain, speedy remedy in the course
of law.
Thus, Section 1 of Rule 65 provides:
SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising
judicial functions, has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion and there is no appeal, nor any plain, speedy, and adequate
remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings, as the law requires, of
such tribunal, board or officer.
In the instant case, the respondent court erred in dismissing the special civil
action for certiorari, it being from the pleadings and the evidence that the trial court
lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance
of private respondent motion to confirm the arbitral award and, worse, in confirming
said award which is grossly and patently not in accord with the arbitration
agreement, as will be hereinafter demonstrated.
IV

The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of
judgment either as to the law or as to the facts. [29] Courts are without power to amend
or overrule merely because of disagreement with matters of law or facts determined
by the arbitrators.[30] They will not review the findings of law and fact contained in
an award, and will not undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the commencement, not the
end, of litigation.[31] Errors of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an award
fairly and honestly made.[32] Judicial review of an arbitration is, thus, more limited
than judicial review of a trial.[33]
Nonetheless, the arbitrators awards is not absolute and without
exceptions. The arbitrators cannot resolve issues beyond the scope of the submission
agreement.[34] The parties to such an agreement are bound by the arbitrators award
only to the extent and in the manner prescribed by the contract and only if the award
is rendered in conformity thereto.[35] Thus, Sections 24 and 25 of the Arbitration Law
provide grounds for vacating, rescinding or modifying an arbitration award. Where
the conditions described in Articles 2038, [36] 2039[37] and 2040[38] of the Civil Code
applicable to compromises and arbitration are attendant, the arbitration award may
also be annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:
x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the
arbitrators awards is not absolute and without exceptions. Where the conditions
described in Articles 2038, 2039, and 2040 applicable to both compromises and
arbitration are obtaining, the arbitrators' award may be annulled or
rescinded. Additionally, under Sections 24 and 25, of the Arbitration Law, there are
grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and
when the factual circumstances referred to in the above-cited provisions are present,
judicial review of the award is properly warranted.
Accordingly, Section 20 of R.A. 876 provides:
SEC. 20. Form and contents of award. The award must be made in writing and
signed and acknowledged by a majority of the arbitrators, if more than one; and by
the sole arbitrator, if there is only one. Each party shall be furnished with a copy of
the award. The arbitrators in their award may grant any remedy or relief which they
deem just and equitable and within the scope of the agreement of the parties, which
shall include, but not be limited to, the specific performance of a contract.
xxx

The arbitrators shall have the power to decide only those matters which have been
submitted to them. The terms of the award shall be confined to such
disputes. (Underscoring ours).
xxx.
Section 24 of the same law enumerating the grounds for vacating an award
states:
SEC. 24. Grounds for vacating award. In any one of the following cases, the court
must make an order vacating the award upon the petition of any party to the
controversy when such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent and material to
the controversy; that one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing such
disqualifications or any other misbehavior by which the rights of any party have been
materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that
a mutual, final and definite award upon the subject matter submitted to them was not
made. (Underscoring ours).
xxx.
Section 25 which enumerates the grounds for modifying the award provides:
SEC. 25. Grounds for modifying or correcting award In anyone of the following
cases, the court must make an order modifying or correcting the award, upon the
application of any party to the controversy which was arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident mistake in
the description of any person, thing or property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not submitted to them, not
affecting the merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits of the
controversy, and if it had been a commissioners report, the defect could have been
amended or disregarded by the court.

x x x.
Finally, it should be stressed that while a court is precluded from overturning an
award for errors in determination of factual issues, nevertheless, if an examination of
the record reveals no support whatever for the arbitrators determinations, their
award must be vacated.[40] In the same manner, an award must be vacated if it was
made in manifest disregard of the law.[41]

Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we
adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa
what you meant by that the decision to foreclose was neither precipitate
nor arbitrary?
A

: Well, it is not a whimsical decision but rather decision arrived at after

weighty considerations of the information that we have received, and
listening to the prospects which reported to us that we had assumed would
be the premises of the financial rehabilitation plan was not materialized nor
expected to materialized.

: And this statement that it was premised upon the known fact that
means, it was referring to the decision to foreclose, was premised upon the
known fact that the rehabilitation plan earlier approved by the stockholders
was no longer feasible, just what is meant by no longer feasible?

The point need not be belabored that PNB and DBP had the legitimate right to
foreclose of the mortgages of MMIC whose obligations were past due. The
foreclosure was not a wrongful act of the banks and, therefore, could not be the basis
of any award of damages. There was no financial restructuring agreement to speak
of that could have constituted an impediment to the exercise of the banks right to
foreclose.

: Because the revenue that they were counting on to make the rehabilitation
plan possible, was not anymore expected to be forthcoming because it will
result in a short fall compared to the prices that were actually taking place
in the market.

: And I supposed that was you were referring to when you stated that the
production targets and assumed prices of MMICs products, among other
projections, used in the financial reorganization program that will make it
viable were not met nor expected to be met?

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration

Committee who wrote a separate opinion:

: Yes.

Against the backdrop of the foregoing provisions and principles, we find that
the arbitrators came out with an award in excess of their powers and palpably devoid
of factual and legal basis.
V

There was no financial structuring program; foreclosure of mortgage was fully justified.

1. The various loans and advances made by DBP and PNB to MMIC have become
overdue and remain unpaid. The fact that a FRP was drawn up is enough to establish
that MMIC has not been complying with the terms of the loan
agreement. Restructuring simply connotes that the obligations are past due that is
why it is restructurable;
2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it
only means that MMIC had been informed or notified that its obligations were past
due and that foreclosure is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of either approving
the FRP or proceeding with the foreclosure. Cabarrus, who filed this case
supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus
himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith
but with honest and sincere belief that foreclosure was the only alternative; a
decision further explained by Dr. Placido Mapa who testified that foreclosure was, in
the judgment of PNB, the best move to save MMIC itself.

xxx
Which brings me to my last point in this separate opinion. Was PNB and DBP
absolutely unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that MMIC
accounts in PNB-DBP were past due. The drawing up of the FRP is the best proof of
this. When MMIC adopted a restructuring program for its loan, it only meant that
these loans were already due and unpaid. If these loans were restructurable because
they were already due and unpaid, they are likewise forecloseable. The option is
with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the
option to foreclose. Neither does it mean that the FRP is legally binding and
implementable. It must be pointed that said FRP will, in effect, supersede the
existing and past due loans of MMIC with PNB-DBP. It will become the new loan
agreement between the lenders and the borrowers. As in all other contracts, there
must therefore be a meeting of minds of the parties; the PNB and DBP must have to
validly adopt and ratify such FRP before they can be bound by it; before it can be
implemented. In this case, not an iota of proof has been presented by

the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP.
PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its
allegation in this regard.[42]
Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated
by P.D. No. 385, which took effect on January 31, 1974. The decree requires
government financial institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding obligations. The pertinent
provisions of said decree read as follows:
SEC. 1. It shall be mandatory for government financial institutions, after the lapse of
sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or
securities for any loan, credit, accommodations, and/or guarantees granted by them
whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty percent (20%) of the total outstanding obligations,
including interest and other charges, as appearing in the books of account and/or
related records of the financial institutions concerned. This shall be without
prejudice to the exercise by the government financial institutions of such rights
and/or remedies available to them under their respective contracts with their debtor,
including the right to foreclosure on loans, credits, accommodations and/or
guarantees on which the arrearages are less than twenty percent (20%).
SEC. 2. No restraining order, temporary or permanent injunction shall be issued by
the court against any government financial institution in any action taken by such
institution in compliance with themandatory foreclosure provided in Section
1 hereof, whether such restraining order, temporary or permanent injunction is
sought by the borrower(s) or any third party or parties, except after due hearing in
which it is established by the borrower and admitted by the government financial
institution concerned that twenty percent (20%) of the outstanding arrearages has
been paid after the filing of foreclosure proceedings. (Underscoring supplied.)

1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets
of MMIC null and void and directing said defendants to restore the foreclosed assets
to the possession of MMIC, to render an accounting of their use and/or operation of
said assets and to indemnify MMIC for the loss occasioned by its dispossession or
the deterioration thereof;
2. Directing the defendants DBP and PNB to honor and perform their commitments
under the financial reorganization plan which was approved at the annual
stockholders meeting of MMIC on 30 April 1984;
3. Condemning the defendants DBP and PNB, jointly and severally to pay the
plaintiffs actual damages consisting of the loss of value of their investment
amounting to not less than P80,000,000.00, the damnum emerges and lucrum cessans
in such amount as may be establish during the trial, moral damages in such amount
as this Honorable Court may deem just and equitable in the premises, exemplary
damages in such amount as this Honorable Court may consider appropriate for the
purpose of setting an example for the public good, attorneys fees and litigation
expenses in such amounts as may be proven during the trial, and the costs legally
taxable in this litigation.
Further, Plaintiffs pray for such other reliefs as may be just and equitable in the
premises.[44]
Upon submission for arbitration, the Compromise and Arbitration Agreement of
the parties clearly and explicitly defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality to institute
this derivative suit in behalf of the MMIC or its directors;
(b) whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith.[45]

Private respondents thesis that the foreclosure proceedings were null and void
because of lack of publication in the newspaper is nothing more than a mere
unsubstantiated allegation not borne out by the evidence. In any case, a disputable
presumption exists in favor of petitioner that official duty has been regularly
performed and ordinary course of business has been followed.[43]

Item No. 8 of the Agreement provides for the period by which the Committee
was to render its decision, as well as the nature thereof:

VI

In the event the committee finds that PLAINTIFFS have the personality to file this
suit and extra-judicial foreclosure of the MMIC assets wrongful, it shall make an
award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be
established or warranted by the evidence which shall be payable in Philippine Pesos
at the time of the award. Such award shall be paid by the APT or its successor-ininterest within sixty (60) days from the date of the award in accordance with the
provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under this
Section shall be in addition to other remedies that may be available to the
PLAINTIFFS, all such remedies being cumulative and not exclusive of each other.

Not only was the foreclosure rightfully exercised by the PNB and DBP, but
also, from the facts of the case, the arbitrators in making the award went beyond the
arbitration agreement.
In their complaint filed before the trial court, private respondent Cabarrus, et
al. prayed for judgment in their favor:

8. Decision. The committee shall issue a decision on the controversy not

later than six (6) months from the date of its constitution.

On the other hand, in case the arbitration committee finds that PLAINTIFFS have no
capacity to sue and/or that the extra-judicial foreclosure is valid and legal, it shall
also make an award in favor of APT based on the counterclaims of DBP and PNB in
an amount as may be established or warranted by the evidence. This decision of the
arbitration committee in favor of APT shall likewise finally settle all issues regarding
the foreclosure of the MMIC assets so that the funds held in escrow mentioned in
par. 9 hereunder will thus be released in full in favor of APT.[46]
The clear and explicit terms of the submission notwithstanding, the Arbitration
Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling
on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a
party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus,
Sr.

Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs
equity (at that time) and as MMICs creditor-the DBP can not validly renege on its
commitments simply because at the same time, it held interest against the MMIC.
The fact, of course, is that as APT itself asserted, the FRP was being carried out
although apparently, it would supposedly fall short of its targets. Assuming that the
FRP would fail to meet its targets, the DBP-and so this Committee holds-can not, in
any event, brook any denial that it was bound to begin with, and the fact is that
adequate or not (the FRP), the government is still bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding success, although it raised
DBPs equity in MMIC to 87%. It is not excuse, however, for the government to
deny its commitments.[52]
Atty. Sison, however, did not agree and correctly observed that:

The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess
of its powers when it ruled on the validity of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit the
issue to the validity of the foreclosure and to transform the reliefs prayed for
therein into pure money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or
impliedly, to the proposed FRP. It cannot be overemphasized that a FRP, as a
contract, requires the consent of the parties thereto. [47] The contract must bind both
contracting parties.[48] Private respondents even by their own admission recognized
that the FRP had yet not been carried out and that the loans of MMIC had not yet
been converted into equity.[49]
However, the arbitration Committee not only declared the FRP valid and
effective, but also converted the loans of MMIC into equity raising the equity of
DBP to 87%.[50]
The Arbitration Committee ruled that there was a commitment to carry out the
FRP[51] on the ground of promissory estoppel.
Similarly, the principle of promissory estoppel applies in the present case
considering as we observed, the fact that the government (that is Alfredo Velayo) was
the FRPs proponent. Although the plaintiffs are agreed that the government
executed no formal agreement, the fact remains that the DBP itself which made
representations that the FRP constituted a way out for MMIC. The Committee
believes that although the DBP did not formally agree (assuming that the board and
stockholders approvals were not formal enough), it is bound nonetheless if only for
its conspicuous representations.

But the doctrine of promissory estoppel can hardly find application here. The
nearest that there can be said of any estoppel being present in this case is the fact that
the board of MMIC was, at the time the FRP was adopted, mostly composed of PNB
and DBP representatives. But those representatives, singly or collectively, are not
themselves PNB or DBP. They are individuals with personalities separate and
distinct from the banks they represent. PNB and DBP have different boards with
different members who may have different decisions. It is unfair to impose upon
them the decision of the board of another company and thus pin them down on the
equitable principle of estoppel. Estoppel is a principle based on equity and it is
certainly not equitable to apply it in this particular situation. Otherwise the rights of
entirely separate, distinct and autonomous legal entities like PNB and DBP with
thousands of stockholders will be suppressed and rendered nugatory.[53]
As a rule, a corporation exercises its powers, including the power to enter into
contracts, through its board of directors. While a corporation may appoint agents to
enter into a contract in its behalf, the agent, should not exceed his authority.[54] In the
case at bar, there was no showing that the representatives of PNB and DBP in MMIC
even had the requisite authority to enter into a debt-for-equity swap. And if they had
such authority, there was no showing that the banks, through their board of directors,
had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of moral damages
when its credit reputation was not exactly something to be considered sound and
wholesome. Under Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly suffer. A corporation
whose overdue and unpaid debts to the Government alone reached a tremendous
amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively put it:

Besides, it is not yet a well settled jurisprudence that corporations are entitled to
moral damages. While the Supreme Court may have awarded moral damages to a
corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such
ruling cannot find application in this case. It must be pointed out that when the
supposed wrongful act of foreclosure was done, MMICs credit reputation was no
longer a desirable one. The company then was already suffering from serious
financial crisis which definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a reputation
besmirches by the act of foreclosure.[55]

corporation itself for the benefit of the stockholders. In other words, to allow
shareholders to sue separately would conflict with the separate corporate entity
principle;
(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme
Court held in the case of Evangelista v. Santos, that the stockholders may not
directly claim those damages for themselves for that would result in the
appropriation by, and the distribution among them of part of the corporate assets
before the dissolution of the corporation and the liquidation of its debts and
liabilities, something which cannot be legally done in view of section 16 of the
Corporation Law xxx;

The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC
should have been impleaded as a party. It was not joined as a party plaintiff or party
defendant at any stage of the proceedings. As it is, the award of damages to MMIC,
which was not a party before the Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party
in interest while the stockholder filing suit for the corporations behalf is only
nominal party. The corporation should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or
hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. x x x.
[56]

It is a condition sine qua non that the corporation be impleaded as a party

becausex x x. Not only is the corporation an indispensible party, but it is also the present
rule that it must be served with process. The reason given is that the judgment must
be made binding upon the corporation and in order that the corporation may get the
benefit of the suit and may not bring a subsequent suit against the same defendants
for the same cause of action. In other words the corporations must be joined as party
because it is its cause of action that is being litigated and because judgment must be
a res ajudicata against it.[57]
The reasons given for not allowing direct individual suit are:
(1) x x x the universally recognized doctrine that a stockholder in a corporation has
no title legal or equitable to the corporate property; that both of these are in the

(3) the filing of such suits would conflict with the duty of the management to sue for
the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of partial recovery by an
individual on the damages recoverable by the corporation for the same act. [58]
If at all an award was due MMIC, which it was not, the same should have been
given sans deduction, regardless of whether or not the party liable had equity in the
corporation, in view of the doctrine that a corporation has a personality separate and
distinct from its individual stockholders or members. DBPs alleged equity, even if it
were indeed 87%, did not give it ownership over any corporate property, including
the monetary award, its right over said corporate property being a mere expectancy
or inchoate right.[59]Notably, the stipulation even had the effect of prejudicing the
other creditors of MMIC.

The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the
case before it is a derivative suit, in which the aggrieved party or the real party in
interest is supposedly the MMIC, and at the same time award moral damages to an
individual stockholder, to wit:
WHEREFORE, premises considered, judgment is hereby rendered:
xxx.
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow

pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to paragraph (9), Compromise
and Arbitration Agreement, as and for moral damages; x x x[60]
The majority decision of the Arbitration Committee sought to justify its award
of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the
assets seized by the government were assets belonging to Industrial Enterprise Inc.
(IEI), of which Cabarrus is the majority stockholder. It then acknowledge that
Cabarrus had already recovered said assets in the RTC, but that he won no more
than actual damages. While the Committee cannot possibly speak for the RTC, there
is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that
specific foreclosure, damages the Committee believes and so holds, he Jesus S.
Cabarrus, Sr., may be awarded in this proceeding.[61]
Cabarrus cause of action for the seizure of the assets belonging to IEI, of
which he is the majority stockholder, having been ventilated in a complaint he
previously filed with the RTC, from which he obtained actual damages, he was
barred res judicata from filing a similar case in another court, this time asking for
moral damages which he failed to get from the earlier case. [62] Worse, private
respondents violated the rule against non-forum shopping.
It is a basic postulate that s corporation has a personality separate and distinct
from its stockholders.[63] The properties foreclosed belonged to MMIC, not to its
stockholders. Hence, if wrong was committed in the foreclosure, it was done against
the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim
those damages for himself that would result in the appropriation by, and the
distribution to, him part of the corporations assets before the dissolution of the
corporation and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters not submitted to it. Moreover, said cause
of action had already been decided in a separate case. It is thus quite patent that the
arbitration committee exceeded the authority granted to it by the parties
Compromise and Arbitration Agreement by awarding moral damages to Jesus S.
Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the
award of moral damages to Jesus S. Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on these stipulated issues,
the parties themselves have agreed that the basic ingredient of the causes of action in
this case is the wrong committed on the corporation (MMIC) for the alleged illegal
foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFS themselves
(Cabarrus, et al.) admit that the cause of action pertains only to the
corporation(MMIC) and that they are filing this for and in behalf of MMIC.
Perforce this has to be so because it is the basic rule in Corporation Law that the
shareholders have no title, legal or equitable to the property which is owned by the
corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons

vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is
not the co-owner of corporate property. Since the property or assets foreclosed
belongs [sic] to MMIC, the wrong committed, if any, is done against the
corporation. There is therefore no direct injury or direct violation of the rights of
Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could
recover damages in their personal capacities even assuming or just because the
foreclosure is improper or invalid. The Compromise and Arbitration Agreement
itself and the elementary principles of Corporation Law say so. Therefore, I am
constrained to dissent from the award of moral damages to Cabarrus.[64]
From the foregoing discussions, it is evident that, not only did the arbitration
committee exceed its powers or so imperfectly execute them, but also, its findings
and conclusions are palpably devoid of any factual basis and in manifest disregard of
the law.
We do not find it necessary to remand this case to the RTC for appropriate
action. The pleadings and memoranda filed with this Court, as well as in the Court
of Appeals, raised and extensively discussed the issues on the merits. Such being the
case, there is sufficient basis for us to resolve the controversy between the parties
anchored on the records and the pleadings before us.[65]
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as
well as the Orders of the Regional Trial Court of Makati, Branch 62, dated
November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE,
and the decision of the Arbitration Committee is hereby VACATED.
SO ORDERED
[G.R. No. 129169. November 17, 1999]
NATIONAL
IRRIGATION
ADMINISTRATION
(NIA), petitioner,
vs. HONORABLE
COURT OF APPEALS
(4th
Division),
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, and
HYDRO
RESOURCES
CONTRACTORS
CORPORATION, respondents.
DECISION
DAVIDE, JR., C.J.:
In this special civil action for certiorari under Rule 65 of the Rules of Court,
the National Irrigation Administration (hereafter NIA), seeks to annul and set aside
the Resolutions[1]of the Court of Appeals in CA-GR. SP No. 37180 dated 28 June
1996 and 24 February 1997, which dismissed respectively NIAs petition

for certiorari and prohibition against the Construction Industry Arbitration

Commission (hereafter CIAC), and the motion for reconsideration thereafter filed.
Records show that in a competitive bidding held by NIA in August 1978, Hydro
Resources Contractors Corporation (hereafter HYDRO) was awarded Contract MPIC-2 for the construction of the main civil works of the Magat River Multi-Purpose
Project. The contract provided that HYDRO would be paid partly in Philippine
pesos and partly in U.S. dollars. HYDRO substantially completed the works under
the contract in 1982 and final acceptance by NIA was made in 1984. HYDRO
thereafter determined that it still had an account receivable from NIA representing
the dollar rate differential of the price escalation for the contract.[2]
After unsuccessfully pursuing its case with NIA, HYDRO, on 7 December
1994, filed with the CIAC a Request for Adjudication of the aforesaid
claim. HYDRO nominated six arbitrators for the arbitration panel, from among
whom CIAC appointed Engr. Lauro M. Cruz. On 6 January 1995, NIA filed its
Answer wherein it questioned the jurisdiction of the CIAC alleging lack of cause of
action, laches and estoppel in view of HYDROs alleged failure to avail of its right to
submit the dispute to arbitration within the prescribed period as provided in the
contract. On the same date, NIA filed a Compliance wherein it nominated six
arbitrators, from among whom CIAC appointed Atty. Custodio O. Parlade, and made
a counterclaim for P1,000,000 as moral damages; at least P100,000 as exemplary
damages; P100,000 as attorneys fees; and the costs of the arbitration.[3]
The two designated arbitrators appointed Certified Public Accountant Joven B.
Joaquin as Chairman of the Arbitration Panel. The parties were required to submit
copies of the evidence they intended to present during the proceedings and were
provided the draft Terms of Reference.[4]
At the preliminary conference, NIA through its counsel Atty. Joy C. Legaspi of
the Office of the Government Corporate Counsel, manifested that it could not admit
the genuineness of HYDROs evidence since NIAs records had already been
destroyed. NIA requested an opportunity to examine the originals of the documents
which HYDRO agreed to provide.[5]
After reaching an accord on the issues to be considered by the arbitration panel,
the parties scheduled the dates of hearings and of submission of simultaneous
memoranda.[6]

On 13 March 1995, NIA filed a Motion to Dismiss[7]alleging lack of jurisdiction

over the disputes. NIA contended that there was no agreement with HYDRO to
submit the dispute to CIAC for arbitration considering that the construction contract
was executed in 1978 and the project completed in 1982, whereas the Construction
Industry Arbitration Law creating CIAC was signed only in 1985; and that while
they have agreed to arbitration as a mode of settlement of disputes, they could not
have contemplated submission of their disputes to CIAC. NIA further argued that
records show that it had not voluntarily submitted itself to arbitration by CIAC citing
TESCO Services, Inc. v. Hon. Abraham Vera, et al.,[8] wherein it was ruled:
CIAC did not acquire jurisdiction over the dispute arising from the sub-contract
agreement between petitioner TESCO and private respondent LAROSA. The
records do not show that the parties agreed to submit the disputes to arbitration by
the CIAC xxxx. While both parties in the sub-contract had agreed to submit the
matter to arbitration, this was only between themselves, no request having been
made by both with the CIAC. Hence, as already stated, the CIAC, has no
jurisdiction over the dispute. xxxx. Nowhere in the said article (sub-contract) does
it mention the CIAC, much less, vest jurisdiction with the CIAC.
On 11 April 1995, the arbitral body issued an order [9] which deferred the
determination of the motion to dismiss and resolved to proceed with the hearing of
the case on the merits as the grounds cited by NIA did not seem to be indubitable.
NIA filed a motion for reconsideration of the aforesaid Order. CIAC in denying the
motion for reconsideration ruled that it has jurisdiction over the HYDROs claim
over NIA pursuant to E.O 1008 and that the hearing should proceed as scheduled.[10]
On 26 May 1996, NIA filed with the Court of Appeals an original action
of certiorari and prohibition with prayer for restraining order and/or injunction,
seeking to annul the Orders of the CIAC for having been issued without or in excess
of jurisdiction. In support of its petition NIA alleged that:
A
RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO HEAR AND
TRY THIS DISPUTE BETWEEN THE HEREIN PARTIES AS E.O. NO. 1008 HAD
NO RETROACTIVE EFFECT.
B

THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN

ACCORDANCE WITH GC NO. 25, ART. 2046 OF THE CIVIL CODE AND R.A.
NO. 876 THE GOVERNING LAWS AT THE TIME CONTRACT WAS
EXECUTED AND TERMINATED.

We take judicial notice that on 10 June 1997, CIAC rendered a decision in the
main case in favor of HYDRO.[13] NIA assailed the said decision with the Court of
Appeals. In view of the pendency of the present petitions before us the appellate
court issued a resolution dated 26 March 1998 holding in abeyance the resolution of
the same until after the instant petitions have been finally decided.[14]

At the outset, we note that the petition suffers from a procedural defect that
warrants its outright dismissal. The questioned resolutions of the Court of Appeals
have already become final and executory by reason of the failure of NIA to appeal
therefrom. Instead of filing this petition for certiorari under Rule 65 of the Rules of
Court, NIA should have filed a timely petition for review under Rule 45.

AN INDORSEMENT OF THE AUDITOR GENERAL DECIDING A

CONTROVERSY IS A DECISION BECAUSE ALL THE ELEMENTS FOR
JUDGMENT ARE THERE; THE CONTROVERSY, THE AUTHORITY TO
DECIDE AND THE DECISION. IF IT IS NOT APPEALED SEASONABLY, THE
SAME BECOMES FINAL.

There is no doubt that the Court of Appeals has jurisdiction over the special
civil action for certiorari under Rule 65 filed before it by NIA. The original
jurisdiction of the Court of Appeals over special civil actions for certiorari is vested
upon it under Section 9(1) of B.P. 129. This jurisdiction is concurrent with the
Supreme Court[15] and with the Regional Trial Court.[16]

Thus, since the Court of Appeals had jurisdiction over the petition under Rule
65, any alleged errors committed by it in the exercise of its jurisdiction would be
errors of judgment which are reviewable by timely appeal and not by a special civil
action of certiorari.[17] If the aggrieved party fails to do so within the reglementary
period, and the decision accordingly becomes final and executory, he cannot avail
himself of the writ of certiorari, his predicament being the effect of his deliberate
inaction.[18]

E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT MERELY PROCEDURAL AS

RULED BY THE CIAC.

NIA HAS TIMELY RAISED THE ISSUE OF JURISDICTION. IT DID NOT

WAIVE NOR IS IT ESTOPPED FROM ASSAILING THE SAME.
F
THE LEGAL DOCTRINE THAT JURISDICTION IS DETERMINED BY THE
STATUTE IN FORCE AT THE TIME OF THE COMMENCEMENT OF THE
ACTION DOES NOT ONLY APPLY TO THE INSTANT CASE.[11]
The Court of Appeals, after finding that there was no grave abuse of discretion
on the part of the CIAC in issuing the aforesaid Orders, dismissed the petition in its
Resolution dated 28 June 1996. NIAs motion for reconsideration of the said
decision was likewise denied by the Court of Appeals on 26 February 1997.
On 2 June 1997, NIA filed before us an original action for certiorari and
prohibition with urgent prayer for temporary restraining order and writ of
preliminary injunction, praying for the annulment of the Resolutions of the Court of
Appeals dated 28 June 1996 and 24 February 1997. In the said special civil action,
NIA merely reiterates the issues it raised before the Court of Appeals. [12]

The appeal from a final disposition of the Court of Appeals is a petition for
review under Rule 45 and not a special civil action under Rule 65 of the Rules of
Court, now Rule 45 and Rule 65, respectively, of the 1997 Rules of Civil Procedure.
[19]
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals
in any case, i.e., regardless of the nature of the action or proceedings involved, may
be appealed to this Court by filing a petition for review, which would be but a
continuation of the appellate process over the original case. [20] Under Rule 45 the
reglementary period to appeal is fifteen (15) days from notice of judgment or denial
of motion for reconsideration.[21]
In the instant case the Resolution of the Court of Appeals dated 24 February
1997 denying the motion for reconsideration of its Resolution dated 28 June 1997
was received by NIA on 4 March1997. Thus, it had until 19 March 1997 within
which to perfect its appeal. NIA did not appeal. What it did was to file an original

action for certiorari before this Court, reiterating the issues and arguments it raised
before the Court of Appeals.
For the writ of certiorari under Rule 65 of the Rules of Court to issue, a
petitioner must show that he has no plain, speedy and adequate remedy in the
ordinary course of law against its perceived grievance. [22] A remedy is considered
plain, speedy and adequate if it will promptly relieve the petitioner from the
injurious effects of the judgment and the acts of the lower court or agency. [23] In this
case, appeal was not only available but also a speedy and adequate remedy.
Obviously, NIA interposed the present special civil action of certiorari not
because it is the speedy and adequate remedy but to make up for the loss, through
omission or oversight, of the right of ordinary appeal. It is elementary that the
special civil action of certiorari is not and cannot be a substitute for an appeal, where
the latter remedy is available, as it was in this case. A special civil action under Rule
65 of the Rules of Court will not be a cure for failure to timely file a petition for
review on certiorari under Rule 45 of the Rules of Court. [24] Rule 65 is an
independent action that cannot be availed of as a substitute for the lost remedy of an
ordinary appeal, including that under Rule 45,[25] especially if such loss or lapse was
occasioned by ones own neglect or error in the choice of remedies.[26]
For obvious reasons the rules forbid recourse to a special civil action
for certiorari if appeal is available, as the remedies of appeal and certiorari are
mutually exclusive and not alternative or successive. [27] Although there are
exceptions to the rules, none is present in the case at bar. NIA failed to show
circumstances that will justify a deviation from the general rule as to make available
a petition forcertiorari in lieu of taking an appropriate appeal.

whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. The 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.[28]
The complaint of HYDRO against NIA on the basis of the contract executed
between them was filed on 7 December 1994, during the effectivity of E.O. No.
1008. Hence, it is well within the jurisdiction of CIAC. The jurisdiction of a court is
determined by the law in force at the time of the commencement of the action.[29]
NIAs argument that CIAC had no jurisdiction to arbitrate on contract which
preceded its existence is untenable. E.O. 1008 is clear that the CIAC has jurisdiction
over all disputes arising from or connected with construction contract whether the
dispute arises before or after the completion of the contract. Thus, the date the
parties entered into a contract and the date of completion of the same, even if these
occurred before the constitution of the CIAC, did not automatically divest the CIAC
of jurisdiction as long as the dispute submitted for arbitration arose after the
constitution of the CIAC. Stated differently, the jurisdiction of CIAC is over the
dispute, not the contract; and the instant dispute having arisen when CIAC was
already constituted, the arbitral board was actually exercising current, not retroactive,
jurisdiction. As such, there is no need to pass upon the issue of whether E.O. No.
1008 is a substantive or procedural statute.
NIA also contended that the CIAC did not acquire jurisdiction over the dispute
since it was only HYDRO that requested for arbitration. It asserts that to acquire
jurisdiction over a case, as provided under E.O. 1008, the request for arbitration filed
with CIAC should be made by both parties, and hence the request by one party is not
enough.

Based on the foregoing, the instant petition should be dismissed.

In any case, even if the issue of technicality is disregarded and recourse under
Rule 65 is allowed, the same result would be reached since a review of the
questioned resolutions of the CIAC shows that it committed no grave abuse of
discretion.
Contrary to the claim of NIA, the CIAC has jurisdiction over the
controversy. Executive Order No.1008, otherwise known as the Construction
Industry Arbitration Law which was promulgated on 4 February 1985, vests upon
CIAC original and exclusive jurisdiction over disputes arising from, or connected
with contracts entered into by parties involved in construction in the Philippines,

It is undisputed that the contracts between HYDRO and NIA contained an

arbitration clause wherein they agreed to submit to arbitration any dispute between
them that may arise before or after the termination of the agreement. Consequently,
the claim of HYDRO having arisen from the contract is arbitrable. NIAs reliance
with the ruling on the case of Tesco Services Incorporated v. Vera,[30] is misplaced.
The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco
case had been duly amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of
Article III of which read as follows:

Submission to CIAC Jurisdiction - An arbitration clause in a construction contract or

a submission to arbitration of 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.

permitted. The court may either grant the motion to dismiss, deny it, or order the
amendment of the pleading.
WHEREFORE, the instant petition is DISMISSED for lack of merit. The
Court of Appeals is hereby DIRECTED to proceed with reasonable dispatch in the
disposition of C.A. G.R. No. 44527 and include in the resolution thereof the issue of
laches and prescription.
SO ORDERED.

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.[31]
Moreover, it is undeniable that NIA agreed to submit the dispute for arbitration
to the CIAC. NIA through its counsel actively participated in the arbitration
proceedings by filing an answer with counterclaim, as well as its compliance wherein
it nominated arbitrators to the proposed panel, participating in the deliberations on,
and the formulation of, the Terms of Reference of the arbitration proceeding, and
examining the documents submitted by HYDRO after NIA asked for the originals of
the said documents.[32]
As to the defenses of laches and prescription, they are evidentiary in nature
which could not be established by mere allegations in the pleadings and must not be
resolved in a motion to dismiss. Those issues must be resolved at the trial of the case
on the merits wherein both parties will be given ample opportunity to prove their
respective claims and defenses.[33] Under the rule[34] the deferment of the resolution of
the said issues was, thus, in order. An allegation of prescription can effectively be
used in a motion to dismiss only when the complaint on its face shows that indeed
the action has already prescribed.[35] In the instant case, the issue of prescription and
laches cannot be resolved on the basis solely of the complaint. It must, however, be
pointed that under the new rules, [36] deferment of the resolution is no longer

[G.R. No. 155001. January 21, 2004]

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B.
REUNILLA, MANUEL ANTONIO B. BOE, MAMERTO S. CLARA,
REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G.
DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO,
BIENVENIDO C. HILARIO, MIASCOR WORKERS UNIONNATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE
AIRLINES EMPLOYEES ASSOCIATION (PALEA), petitioners,
vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT
OF
TRANSPORTATION
AND
COMMUNICATIONS
and
SECRETARY LEANDRO M. MENDOZA, in his capacity as Head
of
the
Department
of
Transportation
and
Communications, respondents,
MIASCOR
GROUNDHANDLING
CORPORATION,
DNATA-WINGS
AVIATION SYSTEMS CORPORATION, MACROASIA-EUREST
SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES
CORPORATION,
MIASCOR
CATERING
SERVICES
CORPORATION,
MIASCOR
AIRCRAFT
MAINTENANCE
CORPORATION,
and
MIASCOR
LOGISTICS
CORPORATION, Petitioners-in-Intervention,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE
ANG, EUGENE ARADA, NENETTE BARREIRO, NOEL
BARTOLOME,
ALDRIN
BASTADOR,
ROLETTE
DIVINE
BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA
CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO, JANETTE
CORDERO, ARNOLD FELICITAS, MARISSA GAYAGOY, ALEX

GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE

IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA
LINCHOCO, ROLLY LORICO, FRANCIS AUGUSTO MACATOL,
MICHAEL MALIGAT, DENNIS MANALO, RAUL MANGALIMAN,
JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,
NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL
ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO
REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN,
ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI
YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE
MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN
AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG
MARALITA
NG
TAONG
INC., Respondents-in-Intervention,

ASSOCIATION,

IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA

LINCHOCO, ROLLY LORICO, FRANCIS AUGUSTO MACATOL,
MICHAEL MALIGAT, DENNIS MANALO, RAUL MANGALIMAN,
JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,
NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL
ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO
REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN,
ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI
YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE
MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN
AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG
MARALITA
NG
TAONG
INC., Respondents-in-Intervention,

ASSOCIATION,

[G.R. No. 155661. January 21, 2003]

[G.R. No. 155547. January 21, 2003]
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G.
JARAULA, petitioners, vs. PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his
capacity as Head of the Department of Transportation and
Communications, and SECRETARY SIMEON A. DATUMANONG,
in his capacity as Head of the Department of Public Works and
Highways, respondents, JACINTO V. PARAS, RAFAEL P.
NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,
PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR.,
HARLIN
CAST
ABAYON,
and
BENASING
O.
MACARANBON, Respondents-Intervenors,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE
ANG, EUGENE ARADA, NENETTE BARREIRO, NOEL
BARTOLOME,
ALDRIN
BASTADOR,
ROLETTE
DIVINE
BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA
CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO, JANETTE
CORDERO, ARNOLD FELICITAS, MARISSA GAYAGOY, ALEX
GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA.

TERESA V. GAERLAN, LEONARDO DE LA ROSA, DINA C. DE
LEON, VIRGIE CATAMIN, RONALD SCHLOBOM, ANGELITO
SANTOS,
MA.
LUISA M.
PALCON and
SAMAHANG
MANGGAGAWA
SA
PALIPARAN
NG
PILIPINAS
(SMPP), petitioners, vs. PHILIPPINE INTERNATIONAL AIR
TERMINALS
CO.,
INC.,
MANILA
INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION
AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA,
in his capacity as Head of the Department of Transportation and
Communications, respondents,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE
ANG, EUGENE ARADA, NENETTE BARREIRO, NOEL
BARTOLOME,
ALDRIN
BASTADOR,
ROLETTE
DIVINE
BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA
CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO, JANETTE
CORDERO, ARNOLD FELICITAS, MARISSA GAYAGOY, ALEX
GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE
IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA
LINCHOCO, ROLLY LORICO, FRANCIS AUGUSTO MACATOL,
MICHAEL MALIGAT, DENNIS MANALO, RAUL MANGALIMAN,
JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,

NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL

ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO
REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN,
ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI
YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE
MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN
AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG
MARALITA
NG
TAONG
INC., Respondents-in-Intervention.

ASSOCIATION,

RESOLUTION
Puno, J.:
Before this Court are the separate Motions for Reconsideration filed by
respondent Philippine International Air Terminals Co., Inc. (PIATCO),
respondents-intervenors Jacinto V. Paras, Rafael P. Nantes, Eduardo C.
Zialcita, Willie Buyson Villarama, Prospero C. Nograles, Prospero A. Pichay,
Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all members of the
House of Representatives (Respondent Congressmen), [1] respondentsintervenors who are employees of PIATCO and other workers of the Ninoy
Aquino International Airport International Passenger Terminal III (NAIA IPT III)
(PIATCO Employees)[2] and respondents-intervenors Nagkaisang Maralita ng
Taong Association, Inc., (NMTAI)[3] of the Decision of this Court dated May
5, 2003 declaring the contracts for the NAIA IPT III project null and void.
Briefly, the proceedings. On October 5, 1994, Asias Emerging Dragon
Corp. (AEDC) submitted an unsolicited proposal to the Philippine
Government through the Department of Transportation and Communication
(DOTC) and Manila International Airport Authority (MIAA) for the construction
and development of the NAIA IPT III under a build-operate-and-transfer
arrangement pursuant to R.A. No. 6957, as amended by R.A. No. 7718 (BOT
Law).[4] In accordance with the BOT Law and its Implementing Rules and
Regulations (Implementing Rules), the DOTC/MIAA invited the public for
submission of competitive and comparative proposals to the unsolicited
proposal of AEDC. On September 20, 1996 a consortium composed of the
Peoples Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and
Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)

(collectively, Paircargo Consortium), submitted their competitive proposal to

the Prequalification Bids and Awards Committee (PBAC).
After finding that the Paircargo Consortium submitted a bid superior to
the unsolicited proposal of AEDC and after failure by AEDC to match the said
bid, the DOTC issued the notice of award for the NAIA IPT III project to the
Paircargo Consortium, which later organized into herein respondent
PIATCO. Hence, on July 12, 1997, the Government, through then DOTC
Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go,
signed the Concession Agreement for the Build-Operate-and-Transfer
Arrangement of the Ninoy Aquino International Airport Passenger Terminal
III (1997 Concession Agreement). On November 26, 1998, the 1997
Concession Agreement was superseded by the Amended and Restated
Concession Agreement (ARCA) containing certain revisions and
modifications from the original contract. A series of supplemental
agreements was also entered into by the Government and PIATCO. The
First Supplement was signed on August 27, 1999, the Second Supplement
on September 4, 2000, and the Third Supplement on June 22, 2001
(collectively, Supplements) (the 1997 Concession Agreement, ARCA and the
Supplements collectively referred to as the PIATCO Contracts).
On September 17, 2002, various petitions were filed before this Court to
annul the 1997 Concession Agreement, the ARCA and the
Supplements and to prohibit the public respondents DOTC and MIAA from
implementing them.
In a decision dated May 5, 2003, this Court granted the said petitions
and declared the 1997 Concession Agreement, the ARCA and the
Supplements null and void.
Respondent PIATCO, respondent-Congressmen and respondentsintervenors now seek the reversal of the May 5, 2003 decision and pray that
the petitions be dismissed. In the alternative, PIATCO prays that the Court
should not strike down the entire 1997 Concession Agreement, the ARCA
and its supplements in light of their separability clause. RespondentCongressmen and NMTAI also pray that in the alternative, the cases at bar
should be referred to arbitration pursuant to the provisions of the
ARCA. PIATCO-Employees pray that the petitions be dismissed and
remanded to the trial courts for trial on the merits or in the alternative that the

1997 Concession Agreement, the ARCA and the Supplements be declared

valid and binding.
I
Procedural Matters
a. Lack of Jurisdiction
Private respondents and respondents-intervenors reiterate a number of
procedural issues which they insist deprived this Court of jurisdiction to hear
and decide the instant cases on its merits. They continue to claim that the
cases at bar raise factual questions which this Court is ill-equipped to
resolve, hence, they must be remanded to the trial court for reception of
evidence. Further, they allege that although designated as petitions for
certiorari and prohibition, the cases at bar are actually actions for nullity of
contracts over which the trial courts have exclusive jurisdiction. Even
assuming that the cases at bar are special civil actions for certiorari and
prohibition, they contend that the principle of hierarchy of courts precludes
this Court from taking primary jurisdiction over them.
We are not persuaded.
There is a question of fact when doubt or difference arises as to the
truth or falsity of the facts alleged. [5] Even a cursory reading of the cases at
bar will show that the Court decided them by interpreting and applying the
Constitution, the BOT Law, its Implementing Rules and other relevant legal
principles on the basis of clearly undisputed facts. All the operative
facts were settled, hence, there is no need for a trial type determination of
their truth or falsity by a trial court.
We reject the unyielding insistence of PIATCO Employees that the
following factual issues are critical and beyond the capability of this Court to
resolve, viz: (a) whether the National Economic Development AuthorityInvestment
Coordinating
Committee
(NEDA-ICC)
approved
the
Supplements; (b) whether the First Supplement created ten (10) new
financial obligations on the part of the government; and (c) whether the 1997
Concession Agreement departed from the draft Concession Agreement
contained in the Bid Documents.[6]

The factual issue of whether the NEDA-ICC approved the Supplements

is hardly relevant. It is clear in our Decision that the PIATCO contracts were
invalidated on other and more substantial grounds. It did not rely on the
presence or absence of NEDA-ICC approval of the Supplements. On the
other hand, the last two issues do not involve disputed facts. Rather, they
involve contractual provisions which are clear and categorical and need
only to be interpreted. The interpretation of contracts and the
determination of whether their provisions violate our laws or contravene any
public policy is a legal issue which this Court may properly pass upon.
Respondents corollary contention that this Court violated the hierarchy
of courts when it entertained the cases at bar must also fail. The rule on
hierarchy of courts in cases falling within the concurrent jurisdiction of the
trial courts and appellate courts generally applies to cases involving warring
factual allegations. For this reason, litigants are required to repair to the trial
courts at the first instance to determine the truth or falsity of these contending
allegations on the basis of the evidence of the parties. Cases which depend
on disputed facts for decision cannot be brought immediately before
appellate courts as they are not triers of facts.
It goes without saying that when cases brought before the appellate
courts do not involve factual but legal questions, a strict application of the
rule of hierarchy of courts is not necessary. As the cases at bar merely
concern the construction of the Constitution, the interpretation of the BOT
Law and its Implementing Rules and Regulations on undisputed
contractual provisions and government actions, and as the cases concern
public interest, this Court resolved to take primary jurisdiction over
them. This choice of action follows the consistent stance of this Court to
settle any controversy with a high public interest component in a single
proceeding and to leave no root or branch that could bear the seeds of future
litigation. The suggested remand of the cases at bar to the trial court will
stray away from this policy.[7]
b. Legal Standing
Respondent PIATCO stands pat with its argument that petitioners lack
legal personality to file the cases at bar as they are not real parties in interest
who are bound principally or subsidiarily to the PIATCO Contracts. Further,
respondent PIATCO contends that petitioners failed to show any legally

demandable or enforceable right to justify their standing to file the cases at

bar.
These arguments are not difficult to deflect. The determination of
whether a person may institute an action or become a party to a suit brings to
fore the concepts of real party in interest, capacity to sue and standing to
sue. To the legally discerning, these three concepts are different although
commonly directed towards ensuring that only certain parties can maintain
an action.[8] As defined in the Rules of Court, a real party in interest is the
party who stands to be benefited or injured by the judgment in the suit or the
party entitled to the avails of the suit. [9] Capacity to sue deals with a situation
where a person who may have a cause of action is disqualified from bringing
a suit under applicable law or is incompetent to bring a suit or is under some
legal disability that would prevent him from maintaining an action unless
represented by a guardian ad litem. Legal standing is relevant in the realm
of public law. In certain instances, courts have allowed private parties to
institute actions challenging the validity of governmental action for violation of
private rights or constitutional principles.[10] In these cases, courts apply the
doctrine of legal standing by determining whether the party has a direct and
personal interest in the controversy and whether such party has
sustained or is in imminent danger of sustaining an injury as a result of
the act complained of, a standard which is distinct from the concept of real
party in interest.[11] Measured by this yardstick, the application of the doctrine
on legal standing necessarily involves a preliminary consideration of the
merits of the case and is not purely a procedural issue. [12]
Considering the nature of the controversy and the issues raised in the
cases at bar, this Court affirms its ruling that the petitioners have the requisite
legal standing. The petitioners in G.R. Nos. 155001 and 155661 are
employees of service providers operating at the existing international airports
and employees of MIAA while petitioners-intervenors are service providers
with existing contracts with MIAA and they will all sustain direct injury upon
the implementation of the PIATCO Contracts. The 1997 Concession
Agreement and the ARCA both provide that upon the commencement of
operations at the NAIA IPT III, NAIA Passenger Terminals I and II will cease
to be used as international passenger terminals. [13] Further, the ARCA
provides:
(d) For the purpose of an orderly transition, MIAA shall not renew any expired
concession agreement relative to any service or operation currently being undertaken

at the Ninoy Aquino International Airport Passenger Terminal I, or extend any

concession agreement which may expire subsequent hereto, except to the extent that
the continuation of the existing services and operations shall lapse on or before the
In-Service Date.[14]
Beyond iota of doubt, the implementation of the PIATCO Contracts,
which the petitioners and petitioners-intervenors denounce as
unconstitutional and illegal, would deprive them of their sources of
livelihood. Under settled jurisprudence, one's employment, profession, trade,
or calling is a property right and is protected from wrongful interference. [15] It
is also self evident that the petitioning service providers stand in imminent
danger of losing legitimate business investments in the event the PIATCO
Contracts are upheld.
Over and above all these, constitutional and other legal issues with farreaching economic and social implications are embedded in the cases at bar,
hence, this Court liberally granted legal standing to the petitioning members
of the House of Representatives. First, at stake is the build-operate-and
transfer contract of the countrys premier international airport with a projected
capacity of 10 million passengers a year. Second, the huge amount of
investment
to
complete
the
project
is
estimated
to
be P13,000,000,000.00. Third, the primary issues posed in the cases at bar
demand a discussion and interpretation of the Constitution, the BOT Law and
its implementing rules which have not been passed upon by this Court in
previous cases. They can chart the future inflow of investment under the
BOT Law.
Before writing finis to the issue of legal standing, the Court notes the bid
of new parties to participate in the cases at bar as respondents-intervenors,
namely, (1) the PIATCO Employees and (2) NMTAI (collectively, the New
Respondents-Intervenors). After
the
Courts
Decision,
the
New
Respondents-Intervenors filed separate Motions for Reconsideration-InIntervention alleging prejudice and direct injury. PIATCO employees claim
that they have a direct and personal interest [in the controversy]... since they
stand to lose their jobs should the governments contract with PIATCO be
declared null and void.[16] NMTAI, on the other hand, represents itself as a
corporation composed of responsible tax-paying Filipino citizens with the
objective of protecting and sustaining the rights of its members to civil
liberties, decent livelihood, opportunities for social advancement, and to a
good, conscientious and honest government.[17]

The Rules of Court govern the time of filing a Motion to

Intervene. Section 2, Rule 19 provides that a Motion to Intervene should be
filed before rendition of judgment.... The New Respondents-Intervenors
filed their separate motions after a decision has been promulgated in the
present cases. They have not offered any worthy explanation to justify their
late intervention. Consequently, their Motions for Reconsideration-InIntervention are denied for the rules cannot be relaxed to await litigants who
sleep on their rights. In any event, a sideglance at these late motions will
show that they hoist no novel arguments.
c. Failure to Implead an Indispensable Party
PIATCO next contends that petitioners should have impleaded the
Republic of the Philippines as an indispensable party. It alleges that
petitioners sued the DOTC, MIAA and the DPWH in their own capacities or
as implementors of the PIATCO Contracts and not as a contract party or as
representatives of the Government of the Republic of the Philippines. It then
leapfrogs to the conclusion that the absence of an indispensable party
renders ineffectual all the proceedings subsequent to the filing of the
complaint including the judgment.[18]
PIATCOs allegations are inaccurate. The petitions clearly bear out that
public respondents DOTC and MIAA were impleaded as parties to the
PIATCO Contracts and not merely as their implementors. The separate
petitions filed by the MIAA employees [19] and members of the House of
Representatives[20] alleged that public respondents are impleaded herein
because they either executed the PIATCO Contracts or are undertaking
acts which are related to the PIATCO Contracts. They are interested and
indispensable parties to this Petition. [21] Thus, public respondents DOTC
and MIAA were impleaded as parties to the case for having executed the
contracts.
More importantly, it is also too late in the day for PIATCO to raise this
issue. If PIATCO seriously views the non-inclusion of the Republic of the
Philippines as an indispensable party as fatal to the petitions at bar, it should
have raised the issue at the onset of the proceedings as a ground to
dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise,
litigations shall be like a shore that knows no end. In any event, the Solicitor
General, the legal counsel of the Republic, appeared in the cases at bar in
representation of the interest of the government.

II
Pre-qualification of PIATCO
The Implementing Rules provide for the unyielding standards the PBAC
should apply to determine the financial capability of a bidder for prequalification purposes: (i) proof of the ability of the project proponent and/or
the consortium to provide a minimum amount of equity to the project and
(ii) a letter testimonial from reputable banks attesting that the project
proponent and/or members of the consortium are banking with them,
that they are in good financial standing, and that they have adequate
resources.[22] The evident intent of these standards is to protect the integrity
and insure the viability of the project by seeing to it that the proponent has
the financial capability to carry it out. As a further measure to achieve this
intent, it maintains a certain debt-to-equity ratio for the project.
At the pre-qualification stage, it is most important for a bidder to show
that it has the financial capacity to undertake the project by proving that it can
fulfill the requirement on minimum amount of equity. For this purpose, the
Bid Documents require in no uncertain terms:
The minimum amount of equity to which the proponents financial capability will be
based shall be thirty percent (30%) of the project cost instead of the twenty
percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate
with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft
concession agreement. The debt portion of the project financing should not exceed
70% of the actual project cost.[23]
In relation thereto, section 2.01 (a) of the ARCA provides:
Section 2.01 Project Scope.
The scope of the project shall include:
(a) Financing the project at an actual Project cost of not less than Three
Hundred Fifty Million United States Dollars (US$350,000,000.00) while
maintaining a debt-to-equity ratio of 70:30, provided that if the actual
Project costs should exceed the aforesaid amount, Concessionaire shall
ensure that the debt-to-equity ratio is maintained;[24]

Under the debt-to-equity restriction, a bidder may only seek financing of

the NAIA IPT III Project up to 70% of the project cost. Thirty percent (30%) of
the cost must come in the form of equity or investment by the bidder itself. It
cannot be overly emphasized that the rules require a minimum amount of
equity to ensure that a bidder is not merely an operator or implementor of the
project but an investor with a substantial interest in its success. The
minimum equity requirement also guarantees the Philippine government and
the general public, who are the ultimate beneficiaries of the project, that a
bidder will not be indifferent to the completion of the project. The
discontinuance of the project will irreparably damage public interest more
than private interest.
In the cases at bar, after applying the investment ceilings provided
under the General Banking Act and considering the maximum amounts that
each member of the consortium may validly invest in the project, it is daylight
clear that the Paircargo Consortium, at the time of pre-qualification, had a net
worth equivalent to only 6.08% of the total estimated project cost.[25] By
any reckoning, a showing by a bidder that at the time of pre-qualification its
maximum funds available for investment amount to only 6.08% of the project
cost is insufficient to satisfy the requirement prescribed by the Implementing
Rules that the project proponent must have the ability to provide at least 30%
of the total estimated project cost. In peso and centavo terms, at the time of
pre-qualification, the Paircargo Consortium had maximum funds available for
investment to the NAIA IPT III Project only in the amount
of P558,384,871.55, when it had to show that it had the ability to provide at
least P2,755,095,000.00. The huge disparity cannot be dismissed as of de
minimis importance considering the high public interest at stake in the
project.
PIATCO nimbly tries to sidestep its failure by alleging that it submitted
not only audited financial statements but also testimonial letters from
reputable banks attesting to the good financial standing of the Paircargo
Consortium. It contends that in adjudging whether the Paircargo Consortium
is a pre-qualified bidder, the PBAC should have considered not only its
financial statements but other factors showing its financial capability.
Anent this argument, the guidelines provided in the Bid Documents are
instructive:
3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS

Minimum Amount of Equity

Each member of the proponent entity is to provide evidence of networth in cash and
assets representing the proportionate share in the proponent entity. Audited financial
statements for the past five (5) years as a company for each member are to be
provided.

Project Loan Financing

Testimonial letters from reputable banks attesting that each of the members of the
ownership entity are banking with them, in good financial standing and having
adequate resources are to be provided.[26]
It is beyond refutation that Paircargo Consortium failed to prove
its ability to provide the amount of at least P2,755,095,000.00, or 30% of
the estimated project cost. Its submission of testimonial letters attesting to
its good financial standing will not cure this failure. At best, the said letters
merely establish its credit worthiness or its ability to obtain loans to finance
the project. They do not, however, prove compliance with the aforesaid
requirement of minimum amount of equity in relation to the prescribed debtto-equity ratio. This equity cannot be satisfied through possible loans.
In sum, we again hold that given the glaring gap between the net worth
of Paircargo and PAGS combined with the amount of maximum funds that
Security Bank may invest by equity in a non-allied undertaking, Paircargo
Consortium, at the time of pre-qualification, failed to show that it had the
ability to provide 30% of the project cost and necessarily, its financial
capability for the project cannot pass muster.
III
1997 Concession Agreement
Again, we brightline the principle that in public bidding, bids are
submitted in accord with the prescribed terms, conditions and parameters
laid down by government and pursuant to the requirements of the project
bidded upon. In light of these parameters, bidders formulate competing
proposals which are evaluated to determine the bid most favorable to the
government. Once the contract based on the bid most favorable to the
government is awarded, all that is left to be done by the parties is to execute

the necessary agreements and implement them. There can be no substantial

or material change to the parameters of the project, including the essential
terms and conditions of the contract bidded upon, after the contract award. If
there were changes and the contracts end up unfavorable to government, the
public bidding becomes a mockery and the modified contracts must be struck
down.

specifies these fees as part of Public Utility Revenues and can be adjusted
only once every two years and in accordance with the Parametric
Formula and the adjustments shall be made effective only after the
written express approval of the MIAA.[29] The Bid Documents themselves
clearly provide:
4.2.3 Mechanism for Adjustment of Fees and Charges

Respondents insist that there were no substantial or material

amendments in the 1997 Concession Agreement as to the technical aspects
of the project, i.e., engineering design, technical soundness, operational and
maintenance methods and procedures of the project or the technical
proposal of PIATCO. Further, they maintain that there was no modification
of the financial features of the project, i.e., minimum project cost, debt-toequity ratio, the operations and maintenance budget, the schedule and
amount of annual guaranteed payments, or the financial proposal of
PIATCO. A discussion of some of these changes to determine whether they
altered the terms and conditions upon which the bids were made is again in
order.
a.

4.2.3.1

Periodic Adjustment in Fees and Charges

Adjustments in the fees and charges enumerated hereunder, whether
or not falling within the purview of public utility revenues, shall
be allowed only once every two years in accordance with the
parametric formula attached hereto as Annex 4.2f. Provided that the
adjustments shall be made effective only after the written express
approval of MIAA. Provided, further, that MIAAs approval, shall be
contingent only on conformity of the adjustments to the said
parametric formula.

Modification on Fees and

The fees and charges to be regulated in the above manner shall

consist of the following:

Charges to be collected by PIATCO

....
PIATCO clings to the contention that the removal of the groundhandling
fees, airline office rentals and porterage fees from the category of fees
subject to MIAA regulation in the 1997 Concession Agreement does not
constitute a substantial amendment as these fees are not really public utility
fees. In other words, PIATCO justifies the re-classification under the 1997
Concession Agreement on the ground that these fees are non-public
utility revenues.
We disagree. The removal of groundhandling fees, airline office rentals
and porterage fees from the category of Public Utility Revenues under the
draft Concession Agreement and its re-classification to Non-Public Utility
Revenues under the 1997 Concession Agreement is significant and has far
reaching consequence. The 1997 Concession Agreement provides that with
respect to Non-Public Utility Revenues, which include groundhandling fees,
airline office rentals and porterage fees, [27] [PIATCO] may make any
adjustments it deems appropriatewithout need for the consent of GRP or
any government agency.[28] In contrast, the draft Concession Agreement

c) groundhandling fees;
d) rentals on airline offices;
....
(f) porterage fees;
. . . .[30]
The plain purpose in re-classifying groundhandling fees, airline office
rentals and porterage fees as non-public utility fees is to remove them from
regulation by the MIAA. In excluding these fees from government
regulation, the danger to public interest cannot be downplayed.

We are not impressed by the effort of PIATCO to depress this prejudice

to public interest by its contention that in the 1997 Concession Agreement
governing Non-Public Utility Revenues, it is provided that [PIATCO] shall at
all times be judicious in fixing fees and charges constituting Non-Public
Utility Revenues in order to ensure that End Users are not unreasonably
deprived of services.[31] PIATCO then peddles the proposition that the said
provision confers upon MIAA full regulatory powers to ensure that PIATCO
is charging non-public utility revenues at judicious rates.[32] To the trained
eye, the argument will not fly for it is obviously non sequitur. Fairly read, it is
PIATCO that wields the power to determine the judiciousness of the said fees
and charges. In the draft Concession Agreement the power was expressly
lodged with the MIAA and any adjustment can only be done once every two
years. The changes are not insignificant specks as interpreted by PIATCO.
PIATCO further argues that there is no substantial change in the 1997
Concession Agreement with respect to fees and charges PIATCO is allowed
to impose which are not covered by Administrative Order No. 1, Series of
1993[33] as the relevant provision of the 1997 Concession Agreement is
practically identical with the draft Concession Agreement.[34]
We are not persuaded. Under the draft Concession Agreement, PIATCO
may impose fees and charges other than those fees and charges previously
imposed or collected at the Ninoy Aquino International Airport Passenger
Terminal I, subject to the written approval of MIAA. [35] Further, the draft
Concession Agreement provides that MIAA reserves the right to
regulatethese new fees and charges if in its judgment the users of the airport
shall be deprived of a free option for the services they cover. [36] In contrast,
under the 1997 Concession Agreement,the MIAA merely retained the right
to approve any imposition of new fees and charges which were not
previously collected at the Ninoy Aquino International Airport Passenger
Terminal I. The agreement did not contain an equivalent provision
allowing MIAA to reserve the right to regulate the adjustments of these
new fees and charges.[37] PIATCO justifies the amendment by arguing that
MIAA can establish terms before approval of new fees and charges, inclusive
of the mode for their adjustment.
PIATCOs stance is again a strained one. There would have been no
need for an amendment if there were no change in the power to regulate on
the part of MIAA. The deletion of MIAAs reservation of its right to regulate
the price adjustments of new fees and charges can have no other purpose

but to dilute the extent of MIAAs regulation in the collection of these fees.
Again, the amendment diminished the authority of MIAA to protect the public
interest in case of abuse by PIATCO.
b.

Assumption by the

Government of the liabilities

of PIATCO in the event of the latters
default
PIATCO posits the thesis that the new provisions in the 1997
Concession Agreement in case of default by PIATCO on its loans were
merely meant to prescribe and limit the rights of PIATCOs creditors with
regard to the NAIA Terminal III. PIATCO alleges that Section 4.04 of the
1997 Concession Agreement simply provides that PIATCOs creditors have
no right to foreclose the NAIA Terminal III.
We cannot concur. The pertinent provisions of the 1997 Concession
Agreement state:
Section 4.04

Assignment.

....
(b)
In the event Concessionaire should default in the payment of an
Attendant Liability, and the default has resulted in the acceleration of the payment
due date of the Attendant Liability prior to its stated date of maturity, the Unpaid
Creditors and Concessionaire shall immediately inform GRP in writing of such
default. GRP shall, within one hundred eighty (180) Days from receipt of the joint
written notice of the Unpaid Creditors and Concessionaire, either (i) take over the
Development Facility and assume the Attendant Liabilities, or (ii) allow the
Unpaid Creditors, if qualified, to be substituted as concessionaire and operator of the
Development Facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the Development
Facility, likewise under the terms and conditions of this Agreement; Provided that if
at the end of the 180-day period GRP shall not have served the Unpaid Creditors and
Concessionaire written notice of its choice, GRP shall be deemed to have elected to

take over the Development Facility with the concomitant assumption of Attendant
Liabilities.

IV.
Direct Government Guarantee

(c)
If GRP should, by written notice, allow the Unpaid Creditors to be
substituted as concessionaire, the latter shall form and organize a concession
company qualified to take over the operation of the Development Facility. If the
concession company should elect to designate an operator for the Development
Facility, the concession company shall in good faith identify and designate a
qualified operator acceptable to GRP within one hundred eighty (180) days from
receipt of GRPs written notice. If the concession company, acting in good faith and
with due diligence, is unable to designate a qualified operator within the aforesaid
period, then GRP shall at the end of the 180-day period take over the Development
Facility and assume Attendant Liabilities.
A plain reading of the above provision shows that it spells out in limpid
language the obligation of government in case of default by PIATCO on its
loans. There can be no blinking from the fact that in case of PIATCOs
default, the government will assume PIATCOs Attendant Liabilities as
defined in the 1997 Concession Agreement. [38] This obligation is not found in
the draft Concession Agreement and the change runs roughshod to the spirit
and policy of the BOT Law which was crafted precisely to prevent
government from incurring financial risk.
In any event, PIATCO pleads that the entire agreement should not be
struck down as the 1997 Concession Agreement contains a separability
clause.
The plea is bereft of merit. The contracts at bar which made a mockery
of the bidding process cannot be upheld and must be annulled in their
entirety for violating law and public policy. As demonstrated, the contracts
were substantially amended after their award to the successful bidder on
terms more beneficial to PIATCO and prejudicial to public interest. If this
flawed process would be allowed, public bidding will cease to be competitive
and worse, government would not be favored with the best bid. Bidders will
no longer bid on the basis of the prescribed terms and conditions in the bid
documents but will formulate their bid in anticipation of the execution of a
future contract containing new and better terms and conditions that were not
previously available at the time of the bidding. Such a public bidding will not
inure to the public good. The resulting contracts cannot be given half a life
but must be struck down as totally lawless.

The respondents further contend that the PIATCO Contracts do not

contain direct government guarantee provisions. They assert that section
4.04 of the ARCA, which superseded sections 4.04(b) and (c), Article IV of
the 1997 Concession Agreement, is but a clarification and explanation [39] of
the securities allowed in the bid documents. They allege that these
provisions merely provide for compensation to PIATCO [40] in case of a
government buy-out or takeover of NAIA IPT III. The respondents,
particularly respondent PIATCO, also maintain that the guarantee contained
in the contracts, if any, is an indirect guarantee allowed under the BOT Law,
as amended.[41]
We do not agree. Section 4.04(c), Article IV[42] of the ARCA should be
read in conjunction with section 1.06, Article I, [43] in the same manner that
sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement should
be related to Article 1.06 of the same contract. Section 1.06, Article I of the
ARCA and its counterpart provision in the 1997 Concession Agreement
define in no uncertain terms the meaning of attendant liabilities. They tell us
of the amounts that the Government has to pay in the event respondent
PIATCO defaults in its loan payments to its Senior Lenders and no qualified
transferee or nominee is chosen by the Senior Lenders or is willing to take
over from respondent PIATCO.
A reasonable reading of all these relevant provisions would reveal that
the ARCA made the Government liable to pay all amounts ... from time to
time owed or which may become owing by Concessionaire [PIATCO] to
Senior Lenders or any other persons or entities who have provided,
loaned, or advanced funds or provided financial facilities to
Concessionaire [PIATCO] for the Project [NAIA Terminal 3]. [44] These
amounts include without limitation, all principal, interest, associated
fees, charges, reimbursements, and other related expenses... whether
payable at maturity, by acceleration or otherwise. [45] They further include
amounts owed by respondent PIATCO to its professional consultants and
advisers, suppliers, contractors and sub-contractors as well as fees,
charges and expenses of any agents or trustees of the Senior Lenders or
any other persons or entities who have provided loans or financial facilities to
respondent PIATCO in relation to NAIA IPT III. [46] The counterpart provision in

the 1997 Concession Agreement specifying the attendant liabilities that the
Government would be obligated to pay should PIATCO default in its loan
obligations is equally onerous to the Government as those contained in the
ARCA. According to the 1997 Concession Agreement, in the event the
Government is forced to prematurely take over NAIA IPT III as a result of
respondent PIATCOs default in the payment of its loan obligations to its
Senior Lenders, it would be liable to pay the following amounts as attendant
liabilities:
Section 1.06.

Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time
outstanding in the books of the Concessionaire as owing to Unpaid
Creditors who have provided, loaned or advanced funds actually used for the
Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including
amounts owed by Concessionaire to its suppliers, contractors and sub-contractors. [47]
These provisions reject respondents contention that what the
Government is obligated to pay, in the event that respondent PIATCO
defaults in the payment of its loans, is merely termination payment or just
compensation for its takeover of NAIA IPT III. It is clear from said section
1.06 that what the Government would pay is the sum total of all the
debts, including all interest, fees and charges, that respondent PIATCO
incurred in pursuance of the NAIA IPT III Project. This reading is consistent
with section 4.04 of the ARCA itself which states that the Government shall
make a termination payment to Concessionaire [PIATCO] equal to the
Appraised Value (as hereinafter defined) of the Development Facility [NAIA
Terminal III] or the sum of the Attendant Liabilities, if greater. For sure,
respondent PIATCO will not receive any amount less than sufficient to
cover its debts, regardless of whether or not the value of NAIA IPT III, at
the time of its turn over to the Government, may actually be less than
the amount of PIATCOs debts. The scheme is a form of direct government
guarantee for it is undeniable that it leaves the government no option but to
pay the attendant liabilities in the event that the Senior Lenders are unable
or unwilling to appoint a qualified nominee or transferee as a result of
PIATCOs default in the payment of its Senior Loans. As we stressed in our
Decision, this Court cannot depart from the legal maxim that those that
cannot be done directly cannot be done indirectly.

This is not to hold, however, that indirect government guarantee is not

allowed under the BOT Law, as amended. The intention to permit indirect
government guarantee is evident from the Senate deliberations on the
amendments to the BOT Law. The idea is to allow for reasonable
government undertakings, such as to authorize the project proponent to
undertake related ventures within the project area, in order to encourage
private sector participation in development projects. [48] An example cited by
then Senator Gloria Macapagal-Arroyo, one of the sponsors of R.A. No.
7718, is the Mandaluyong public market which was built under the Build-andTransfer (BT) scheme wherein instead of the government paying for the
transfer, the project proponent was allowed to operate the upper floors of the
structure as a commercial mall in order to recoup their investments. [49] It was
repeatedly stressed in the deliberations that in allowing indirect government
guarantee, the law seeks to encourage both the government and the private
sector to formulate reasonable and innovative government undertakings in
pursuance of BOT projects. In no way, however, can the government be
made liable for the debts of the project proponent as this would be
tantamount to a direct government guarantee which is prohibited by the
law. Such liability would defeat the very purpose of the BOT Law which is to
encourage the use of private sector resources in the construction,
maintenance and/or operation of development projects with no, or at least
minimal, capital outlay on the part of the government.
The respondents again urge that should this Court affirm its ruling that
the PIATCO Contracts contain direct government guarantee provisions, the
whole contract should not be nullified. They rely on the separability clause in
the PIATCO Contracts.
We are not persuaded.
The BOT Law and its implementing rules provide that there are three (3)
essential requisites for an unsolicited proposal to be accepted: (1) the
project involves a new concept in technology and/or is not part of the list of
priority projects, (2) no direct government guarantee, subsidy or equity is
required, and (3) the government agency or local government unit has
invited by publication other interested parties to a public bidding and
conducted the same.[50] The failure to fulfill any of the requisites will result in
the denial of the proposal. Indeed, it is further provided that a direct
government guarantee, subsidy or equity provision will necessarily disqualify
a proposal from being treated and accepted as an unsolicited proposal. [51] In

fine, the mere inclusion of a direct government guarantee in an unsolicited

proposal is fatal to the proposal. There is more reason to invalidate a
contract if a direct government guarantee provision is inserted later in the
contract via a backdoor amendment. Such an amendment constitutes a
crass circumvention of the BOT Law and renders the entire contract void.
Respondent PIATCO likewise claims that in view of the fact that other
BOT contracts such as the JANCOM contract, the Manila Water contract and
the MRT contract had been considered valid, the PIATCO contracts should
be held valid as well.[52] There is no parity in the cited cases. For instance, a
reading of Metropolitan Manila Development Authority v. JANCOM
Environmental Corporation[53] will show that its issue is different from the
issues in the cases at bar. In the JANCOM case, the main issue is whether
there is a perfected contract between JANCOM and the Government. The
resolution of the issue hinged on the following: (1) whether the conditions
precedent to the perfection of the contract were complied with; (2) whether
there is a valid notice of award; and (3) whether the signature of the
Secretary of the Department of Environment and Natural Resources is
sufficient to bind the Government. These issue and sub-issues are clearly
distinguishable and different. For one, the issue of direct government
guarantee was not considered by this Court when it held the JANCOM
contract valid, yet, it is a key reason for invalidating the PIATCO Contracts. It
is a basic principle in law that cases with dissimilar facts cannot have similar
disposition.
This Court, however, is not unmindful of the reality that the structures
comprising the NAIA IPT III facility are almost complete and that funds have
been spent by PIATCO in their construction. For the government to take
over the said facility, it has to compensate respondent PIATCO as builder of
the said structures. The compensation must be just and in accordance with
law and equity for the government can not unjustly enrich itself at the
expense of PIATCO and its investors.
II.

Section 17, Article XII of the 1987 Constitution grants the State in times
of national emergency the right to temporarily take over the operation of any
business affected with public interest. This right is an exercise of police
power which is one of the inherent powers of the State.
Police power has been defined as the "state authority to enact
legislation that may interfere with personal liberty or property in order to
promote the general welfare."[54] It consists of two essential elements. First, it
is an imposition of restraint upon liberty or property. Second, the power is
exercised for the benefit of the common good. Its definition in elastic terms
underscores its all-encompassing and comprehensive embrace. [55] It is and
still is the most essential, insistent, and illimitable [56] of the States
powers. It is familiar knowledge that unlike the power of eminent domain,
police power is exercised without provision for just compensation for its
paramount consideration is public welfare.[57]
It is also settled that public interest on the occasion of a national
emergency is the primary consideration when the government decides to
temporarily take over or direct the operation of a public utility or a business
affected with public interest. The nature and extent of the emergency is the
measure of the duration of the takeover as well as the terms thereof. It is the
State that prescribes such reasonable terms which will guide the
implementation of the temporary takeover as dictated by the exigencies of
the time. As we ruled in our Decision, this power of the State can not be
negated by any party nor should its exercise be a source of obligation for the
State.
Section 5.10(c), Article V of the ARCA provides that respondent PIATCO
shall be entitled to reasonable compensation for the duration of the
temporary takeover by GRP, which compensation shall take into account the
reasonable cost for the use of the Terminal and/or Terminal Complex. [58] It
clearly obligates the government in the exercise of its police power to
compensate respondent PIATCO and this obligation is offensive to the
Constitution. Police power can not be diminished, let alone defeated by any
contract for its paramount consideration is public welfare and interest. [59]

Temporary takeover of business affected with

public interest in times of national emergency

Again, respondent PIATCOs reliance on the case of Heirs of Suguitan

v. City of Mandaluyong[60] to justify its claim for reasonable compensation
for the Governments temporary takeover of NAIA IPT III in times of national
emergency is erroneous. What was involved in Heirs of Suguitan is the

exercise of the states power of eminent domain and not of police

power, hence, just compensation was awarded. The cases at bar will not
involve the exercise of the power of eminent domain.
III.
Monopoly
Section 19, Article XII of the 1987 Constitution mandates that the State
prohibit
or
regulate
monopolies
when
public
interest
so
requires. Monopolies are not per se prohibited. Given its susceptibility to
abuse, however, the State has the bounden duty to regulate monopolies to
protect public interest. Such regulation may be called for, especially in
sensitive areas such as the operation of the countrys premier international
airport, considering the public interest at stake.
By virtue of the PIATCO contracts, NAIA IPT III would be the only
international passenger airport operating in the Island of Luzon, with the
exception of those already operating in Subic Bay Freeport Special
Economic Zone (SBFSEZ), Clark Special Economic Zone (CSEZ) and in
Laoag City. Undeniably, the contracts would create a monopoly in the
operation of an international commercial passenger airport at the NAIA in
favor of PIATCO.
The grant to respondent PIATCO of the exclusive right to operate NAIA
IPT III should not exempt it from regulation by the government. The
government has the right, indeed the duty, to protect the interest of the
public. Part of this duty is to assure that respondent PIATCOs exercise of its
right does not violate the legal rights of third parties. We reiterate our ruling
that while the service providers presently operating at NAIA Terminals I and II
do not have the right to demand for the renewal or extension of their
contracts to continue their services in NAIA IPT III, those who have
subsisting contracts beyond the In-Service Date of NAIA IPT III can not be
arbitrarily or unreasonably treated.
Finally, the Respondent Congressmen assert that at least two (2)
committee reports by the House of Representatives found the PIATCO
contracts valid and contend that this Court, by taking cognizance of the
cases at bar, reviewed an action of a co-equal body.[61] They insist that the
Court must respect the findings of the said committees of the House of

Representatives.[62] With due respect, we cannot subscribe to their

submission. There is a fundamental difference between a case in court and
an investigation of a congressional committee. The purpose of a judicial
proceeding is to settle the dispute in controversy by adjudicating the legal
rights and obligations of the parties to the case. On the other hand, a
congressional investigation is conducted in aid of legislation. [63] Its aim is to
assist and recommend to the legislature a possible action that the body may
take with regard to a particular issue, specifically as to whether or not to
enact a new law or amend an existing one. Consequently, this Court cannot
treat the findings in a congressional committee report as binding because the
facts elicited in congressional hearings are not subject to the rigors of the
Rules of Court on admissibility of evidence. The Court in assuming
jurisdiction over the petitions at bar simply performed its constitutional duty
as the arbiter of legal disputes properly brought before it, especially in this
instance when public interest requires nothing less.
WHEREFORE, the motions for reconsideration filed by the respondent
PIATCO, respondent Congressmen and the respondents-in-intervention are
DENIED with finality.
SO ORDERED.
IRST DIVISION
CHARLES BERNARD H. REYES
doing business under the name and
style CBH REYES ARCHITECTS,
Petitioner,

G.R. No. 168384

Present:

Panganiban, C.J.
(Chairperson),
- versus Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ.
ANTONIO YULO BALDE II, PAULINO
M. NOTO and ERNESTO J. BATTAD,
SR., in their capacities as Arbitrators of
the CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION,
Promulgated:
SPOUSES CESAR and CARMELITA
ESQUIG and ROSEMARIE PAPAS,

Respondents.

August 18, 2006

x ---------------------------------------------------------------------------------------- x
RESOLUTION

rulings made by the Court. Like the three other Division members, he merely
concurred with the actions/rulings proposed by the ponente. While some orders and
actions, especially temporary restraining orders, are issued in the name of the
Division chairman (who in this case is the Chief Justice), they are really collective

YNARES-SANTIAGO, J.:

actions of the entire Division, not merely those of the Chair. This is the normal
procedure in all Divisions, not just in the First.

Before the Court is a Motion to Inhibit the Honorable Chief Justice and
Motion to Refer Case to the Court En Banc, dated August 4, 2006, filed by Atty.
Francisco I. Chavez.

(2)

The alleged unpleasant interaction these past 19 years between Atty.

Chavez and Atty. Sedfrey Ordoez with whom Chief Justice worked either as
I.

associate or partner sometime ago has nothing to do at all with the concurrences
made by the Chief Justice on this case. These concurrences were given on the basis

According to the movant, the Motion to Inhibit the Chief Justice is not an

only of legal merit, and on nothing else.

accusation of wrongdoing on the part of the Honorable Chief Justice. Rather it is

impelled by Atty. Chavezs perception that in this case, the Honorable Chief Justice
has not acted in an objective, impartial and neutral manner in disposing of incidental
issues and motions presented by the parties.

(3)

True, the Chief Justice was an associate (not a partner) in 1961 to 1963

in the Salonga, Ordoez and Associates, which incidentally had been dissolved in
1987. True also, he has had a close personal and professional relationship with the
principal partner in that law firm, Sen. Jovito R. Salonga. That is the reason the

The movant adds that the dizzying pace by which private respondents
motions have been received and favorably acted upon in record time supports Atty.

Chief Justice has inhibited himself from cases in which Sen. Salonga was/is a party
or a counsel.[1]

Chavezs perception that private respondents motions without as much as

requiring petitioner to respond thereto have been granted special attention and
favor by the Honorable Chief Justice. (bold types in original)

However, he had no similar closeness with Atty. Ordoez. That is why he has
not inhibited himself from cases involving Atty. Ordoez. In fact, he has not
hesitated, on several occasions, to vote against parties/causes represented by the

Atty. Chavezs perception about the alleged closeness and the good

former Secretary of Justice.

relationship between Atty. Ordoez and the Chief Justice to impair the latters
objectivity and impartiality has no basis, for the following reasons:

(4)

In fairness to all concerned, Atty. Ordoez has never spoken, directly or

indirectly, with the Chief Justice on any matter pending in the Supreme Court and in
(1)

The actions taken on the various motions and incidents enumerated by

the movant were made by the entire membership of the First Division. Not being
the ponente, the Chief Justice did not initiate or propose any of the actions and

any other court. He has never attempted, directly or indirectly, personally or through
others, to influence the Chief Justice in any manner whatsoever. In fact, the Chief
Justice understands that Atty. Ordoez has been seriously ill, going in and out of the

hospital, over the past several months. And yet the Chief Justice has not even visited
or spoken with him during such period.

Following his misperception of closeness and bonding between Atty. Ordoez

and the Chief Justice, the movant assailed certain proceedings in this Honorable
Courts First Division. However, these proceedings can easily be explained, thus:

(5)

On the other hand, the Chief Justice, when so warranted by the facts and

law, has voted in favor of causes and parties represented by Atty. Chavez. One

(1)

Respondents Motion to Include Hon. Pedro Sabundayo, Jr., Presiding

outstanding example is Chavez v. PCGG (360 Phil. 133, December 9, 1998; 366 Phil.

Judge, Regional Trial Court of Muntinlupa City, Branch 203, as public respondent

863, May 19, 1999), which was written by then Associate Justice Artemio V.

was denied because Section 4, Rule 45 of the Rules of Court provides that in a

Panganiban. Atty. Chavez knows that he has won the vote of the Chief Justice

petition for review on certiorari to the Supreme Court, there is no need to implead

without his having to speak with or influence him in any manner.

the lower courts or judges thereof either as petitioners or respondents. There is no

irregularity when the Resolution denying respondents motion was issued when the

(6)

Movants perception that Atty. Ordoezs concern for and interest in

Chief Justice was on official leave. The remaining Members of the Division can

upholding the CIAC jurisdiction must have somehow been relayed to the Honorable

proceed with official business despite the absence of the Chief Justice as long as the

Chief Justice is completely baseless. As already stated, there had been no

required majority is present. This is in accordance with Section 4(3), Article VIII of

conversation or communication, directly or indirectly, personally or through others,

the Constitution which provides that cases or matters heard by a division shall be

between the Chief Justice and Atty. Ordoez (or anyone representing him) about any

decided or resolved with the concurrence of a majority of the Members who actually

matter related to any case in this, or any other, court. Neither is the Chief Justice

took part in the deliberations on the issues in the case and voted thereon, and in no

aware of any alleged personal interest of Atty. Ordoez to uphold the CIAC.

case, without the concurrence of at least three of such Members.

(7)

In a few months, the incumbent Chief Justice is scheduled to retire

(2)

The issuance of a TRO enjoining the Presiding Judge of Muntinlupa

from the judiciary. It is totally inconceivable that he will smear his eleven year

City, Branch 203 from continuing with any of the proceedings in Civil Case No. 03-

record of integrity, independence and ethical conduct in the Supreme Court with any

110 and from enforcing the Order of the trial court dated June 29, 2006 ordering the

action that is less than objective, impartial and neutral. On the other hand, he

sheriff to implement the writ of execution dated May 17, 2006, is in

assures movant (and all concerned) that he will continue with his vow to lead a

order. Respondents satisfactorily established that they are entitled to the injunction.

judiciary characterized by four Ins: independence, integrity, industry and

intelligence.

It appears from the records that petitioner filed a complaint against

respondents with the Regional Trial Court of Muntinlupa City which was docketed
II.

as Civil Case No. 03-110 praying that an accounting be rendered to determine the
cost of the materials purchased by respondent Papas; that respondents be ordered to
pay the cost of the additional works done on the property; that the Design-Build
Construction Agreement be ordered rescinded because respondents breach the same;

and that respondents be ordered to pay moral and exemplary damages. Based on the
same Design-Build Construction Agreement, respondents filed with the Construction

It is important to mention that in both cases, the parties insist that the other

Industry Arbitration Commission (CIAC) a complaint praying that petitioner be

breached their obligation under the Design-Build Construction Agreement. Petitioner

ordered to finish the project or, in the alternative, to pay the cost to finish the same;

however argues that the Regional Trial Court properly took cognizance of the case

to reimburse the overpayments made by respondents; and to pay liquidated damages,

while respondents claim that CIAC has the exclusive and original jurisdiction on the

attorneys fees and costs of the suit.

subject matter. Otherwise stated, if we rule in the instant case that CIAC has
jurisdiction over the controversy, then it would necessarily follow that the Regional

On June 8, 2005,[2] the CIAC rendered a decision on the merits of the case

Trial Court does not have jurisdiction. Since it did not acquire jurisdiction over the

awarding in favor of respondents the sum of P4,419,094.98. The case is presently on

controversy, then the writ of execution that it issued was void. If we allow the RTC

appeal with the Court of Appeals[3] docketed as CA-G.R. SP No. 90136.[4]

Judge and the Sheriff to continue with the proceedings in Civil Case No. 03-110,
then, whatever judgment that would be rendered in the instant case would be

Meanwhile, on July 29, 2005, the trial court rendered judgment in Civil
Case No. 03-110 in favor of petitioner ordering the respondents to pay P840,300.00

rendered nugatory. In view of the above circumstances, respondents clearly

established that they are entitled to the issuance of a TRO.

representing the cost of the additional works; P296,658.95 representing the balance
of the contract price; P500,000.00 by way of moral damages; P500,000.00 as

Thus on July 12, 2006, the Court issued a Resolution that reads:

exemplary damages; P500,000.00 as attorneys fees and costs of the suit. In an

Acting on the prayer for issuance of a temporary

restraining order/injunction, the Court further resolves to issue a
TEMPORARY RESTRAINING ORDER enjoining the Presiding
Judge, Regional Trial Court, Branch 203, Muntinlupa City, from
continuing with any of the proceedings in Civil Case No. 03-110
entitled Charles Bernard H. Reyes, doing business under the name
and style of CBH Reyes Architects vs. Spouses Mely and Cesar
Esquig, et al. [subject matter of the assailed Court of Appeals
decision and resolution dated February 18, 2005 and May 20,
2005, respectively, in CA-G.R. SP No. 83816 entitled Charles
Bernard H. Reyes, doing business under the name and style CBH
REYES ARCHITECTS vs. Antonio Yulo Balde II, et al] and from
enforcing the Order dated June 29, 2006 ordering the designated
sheriff to implement the writ of execution dated May 17, 2006 to
enforce the decision dated July 29, 2005 in Civil Case No. 03-110,
upon the private respondents filing of a bond in the amount of
Three Hundred Thousand Pesos (P300,000.00) within a period of
five (5) days from notice hereof x x x.

Order dated May 17, 2006, Judge Sabundayo, Jr. directed Sheriff Melvin T.
Bagabaldo to implement the writ of execution by causing the respondents to render
an accounting of all the construction materials they bought for the construction of the
project x x x; to levy the goods and chattels of the [respondents] x x x and to make
the sale thereof x x x.[5]
In their Second Manifestation with Prayer for Issuance of a Temporary
Restraining Order/Injunction[6] filed with this Court on July 10, 2006, respondents
averred that from July 7, 2006 until 4 oclock in the morning of July 8, 2006, Sheriff
Bagabaldo went to the residence of respondent Papas and levied several of her
personal properties.[7] Respondents bewailed that despite the pronouncement of the
Court of Appeals that the CIAC, not the Regional Trial Court, which has jurisdiction
over the case, and despite the pendency of the instant case before us, the Regional
Trial Court still proceeded with the implementation of the writ.

(3)

Thereafter, respondents filed an Urgent Motion for Clarification of

(6)

There is no truth or basis to the allegation that the case has been given

the above resolution. Accordingly, on July 19, 2006, we issued a resolution which is

special attention. All actions on the motions and incidents have been performed

a clarification of the TRO issued on July 12, 2006. Both the July 12, 2006 and July

regularly.

19, 2006 Resolutions are covered by the same bond in the amount of P300,000.00.
WHEREFORE, the Motion to Inhibit the Honorable Chief Justice
(4)

A petition review under Rule 45 of the Rules of Court is not a matter

of right but of sound judicial discretion.

[8]

is DENIED. The Motion to Refer Case to the Court En Banc is GRANTED.

For purposes of determining whether the

petition should be dismissed or denied, or where the petition is given due course, the
Supreme Court may require or allow the filing of such pleadings, briefs, memoranda

SO ORDERED.
SECOND DIVISION

or documents asit may deem necessary within such periods and under such
conditions as it may consider appropriate, and impose the corresponding sanctions in
case of non-filing or unauthorized filing of such pleadings and documents or noncompliance with the conditions therefor.[9] This Court exercised its discretion when
it did not require petitioner to file comment on respondents Manifestation with

MARIA LUISA PARK ASSOCIATION,

INC.,
Petitioner,

G.R. No. 171763

Present:

Urgent Motion to Resolve with Prayer for Injunction, Second Manifestation with
Prayer for Issuance of a Temporary Restraining Order/Injunction, Urgent Motion

QUISUMBING, J., Chairpe

for Clarification, and Compliance.

YNARES-SANTIAGO,
(5)

The Court did not exceed its jurisdiction; neither did it encroach on

the jurisdiction of the Court of Appeals or of the lower court when it issued the

- versus -

VELASCO, JR.,

LEONARDO-DE CASTRO,

Resolution datedJuly 12, 2006. As discussed, there is compelling reason to issue a

TRO as the respondents satisfactorily established they are entitled to the relief

BRION, JJ.

demanded. It may further be said that the issuance of a TRO on July 12, 2006 is not
a final determination of the matter. It was a remedy intended to avoid any
irreparable injury that might be caused to the parties. It may be recalled that the
CIAC and the trial court each asserted its jurisdiction over the controversy to the
exclusion of the other.

SAMANTHA MARIE T. ALMENDRAS

and PIA ANGELA T. ALMENDRAS,

Promulgated:

Respondents.
June 5, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

On May 5, 2003, MLPAI, in its reply, pointed out respondents

specific violations of the subdivision rules, to wit: (a) installation of

QUISUMBING, J.:

a second water meter and tapping the subdivisions main water

the

pipeline, and (b) construction of two separate entrances that are

the

mutually exclusive of each other. It likewise reiterated its warning

Resolution[2] dated February 13, 2006 of the Court of Appeals in CA-

that failure to comply with its demand will result in its exercise of

G.R. SP No. 81069.

more stringent measures.

This

petition

for

review

Decision[1] dated August

on

31,

certiorari

assails

2005 and

In

The facts, culled from the records, are as follows:

view

of

these,

respondents

filed

with

the Regional Trial Court of Cebu City, Branch 7, a Complaint[5] on June

On February 6, 2002, respondents Samantha Marie T.

2, 2003 for Injunction, Declaratory Relief, Annulment of Provisions of

Almendras and Pia Angela T. Almendras purchased from MRO

Articles and By-Laws with Prayer for Issuance of a Temporary

Development

Restraining Order (TRO)/Preliminary Injunction.

Corporation

inMaria Luisa Estate Park,

residential

lot

Banilad, Cebu City. After

located

some

time,

respondents filed with petitioner Maria Luisa Park Association,

MLPAI moved for the dismissal of the complaint on the

Incorporated (MLPAI) an application to construct a residential

ground of lack of jurisdiction and failure to comply with the

house,

arbitration clause[6] provided for in MLPAIs by-laws.

which

was

approved

in February

10,

2002. Thus,

respondents commenced the construction of their house.

In an Order[7] dated July 31, 2003, the trial court dismissed
Upon ocular inspection of the house, MLPAI found out that

the complaint for lack of jurisdiction, holding that it was the

respondents violated the prohibition against multi-dwelling [3] stated

Housing and Land Use Regulatory Board (HLURB) that has original

in MLPAIs Deed of Restriction. Consequently, on April 28, 2003,

and exclusive jurisdiction over the case. Respondents moved for

MLPAI sent a letter to the respondents, demanding that they rectify

reconsideration but their motion was denied.

the

structure;

otherwise,

it

will

be

constrained

to

forfeit
Aggrieved, the respondents questioned the dismissal of their

respondents construction bond and impose stiffer penalties.

complaint in a petition for certiorari and prohibition before the Court

In

Letter[4] dated April

29,

2003,

respondents,

as

of Appeals.

represented by their father Ruben D. Almendras denied having

violated MLPAIs Deed of Restriction.

The Court of Appeals granted the petition in its Decision

dated August 31, 2005, the dispositive portion of which reads:

WHEREFORE, in view of all the foregoing, the

petition is GRANTED and the assailed orders of the
respondent trial court are declared NULL AND VOID,
and SET ASIDE. Respondent RTC is hereby ordered
to take jurisdiction of Civil Case No. CEB-29002.

between a subdivision lot owner and a subdivision association,

where the latter aimed to compel respondents to comply with the
MLPAIs Deed of Restriction, specifically the provision prohibiting
multi-dwelling.

SO ORDERED.[8]
Respondents, on the other hand, counter that the case they
MLPAI filed a motion for reconsideration but it was denied by
the Court of Appeals in its Resolution dated February 13, 2006.
Hence, this petition raising the following issues:
I.
WHETHER THE HONORABLE COURT OF APPEALS HAS
DISREGARDED
LAWS
AND
WELL-SETTLED
JURISPRUDENCE IN HOLDING THAT JURISDICTION
OVER [THE] DISPUTE BETWEEN HOMEOWNERS AND
HOMEOWNERS ASSOCIATION LIES WITH THE
REGULAR COURTS AND NOT WITH HLURB.
II.
WHETHER THERE IS NO OTHER RELIEF AND REMEDY
AVAILABLE TO PETITIONER TO AVERT THE CONDUCT
OF A VOID [PROCEEDING] THAN THE PRESENT
RECOURSE.[9]

filed against MLPAI is one for declaratory relief and annulment of

the provisions of the by-laws; hence, it is outside the competence
of the HLURB to resolve. They likewise stated that MLPAIs rules
and regulations are discriminatory and violative of their basic rights
as members of the association. They also argued that MLPAIs acts
are illegal, immoral and against public policy and that they did not
commit any violation of the MLPAIs Deed of Restriction.
We agree with the trial court that the instant controversy
falls squarely within the exclusive and original jurisdiction of the
Home Insurance and Guaranty Corporation (HIGC),[11] now HLURB.
Originally, administrative supervision over homeowners associations was
vested by law with the Securities and Exchange Commission (SEC). However,
pursuant to Executive Order No. 535,[12] the HIGC assumed the regulatory and
adjudicative functions of the SEC over homeowners associations. Section 2 of E.O.
No. 535 provides:

Simply stated, the issue is whether the appellate court erred

in ruling that it was the trial court and not the HLURB that has
jurisdiction over the case.

Petitioner MLPAI contends that the HLURB [10] has exclusive

jurisdiction over the present controversy, it being a dispute

2. In addition to the powers and functions vested under the

Home Financing Act, the Corporation, shall have among others,
the following additional powers:
(a) . . . and exercise all the powers, authorities and
responsibilities that are vested on the Securities and Exchange
Commission with respect to homeowners associations, the

provision of Act 1459, as amended by P.D. 902-A, to the contrary

notwithstanding;

xxxx
(b) Controversies arising out of intra-corporate relations
between and among members of the association, between any or
all of them and the association of which they are members, and
between such association and the state/general public or other
entity in so far as it concerns its right to exist as a corporate entity.
[16]
(Emphasis supplied.)

(b) To regulate and supervise the activities and

operations of all houseowners associations registered in
accordance therewith;
xxxx

xxxx

Moreover, by virtue of this amendatory law, the HIGC also assumed the SECs
original and exclusive jurisdiction under Section 5 of Presidential Decree No. 902-A
to hear and decide cases involving:

Later on, the above-mentioned powers and responsibilities, which had been
vested in the HIGC with respect to homeowners associations, were transferred to the

b) Controversies arising out of intra-corporate or

partnership relations, between and among stockholders, members,
or associates; between any and/or all of them and the
corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between
such corporation, partnership or association and the state insofar as
it concerns their individual franchise or right to exist as such
entity;[13] (Emphasis supplied.)

HLURB pursuant to Republic Act No. 8763,[17] entitled Home Guaranty

Corporation Act of 2000.
In the present case, there is no question that respondents are members of
MLPAI as they have even admitted it. [18] Therefore, as correctly ruled by the trial
court, the case involves a controversy between the homeowners association and
some of its members. Thus, the exclusive and original jurisdiction lies with the

xxxx
Consequently,

HLURB.
in Sta.

Clara

Homeowners

Association

v.

Gaston[14] and Metro Properties, Inc. v. Magallanes Village Association, Inc.,[15] the
Court recognized HIGCs Revised Rules of Procedure in the Hearing of Home
Owners Disputes, pertinent portions of which are reproduced below:
RULE II
Disputes Triable by HIGC/Nature of Proceedings
Section 1. Types of Disputes The HIGC or any person,
officer, body, board or committee duly designated or created by it
shall have jurisdiction to hear and decide cases involving the
following:

Indeed, in Sta. Clara Homeowners Association v. Gaston, we

held:
. . . the HIGC exercises limited jurisdiction
over homeowners' disputes. The law confines
its authority to controversies that arise from
any
of
the
following
intra-corporate
relations: (1) between and among members of the
association; (2) between any and/or all of them
and the association of which they are
members; and (3) between the association and
thestate insofar as the controversy concerns its right
to exist as a corporate entity. [19] (Emphasis
supplied.)

The extent to which the HLURB has been vested with quasi-

accomplish is to have a particular provision of the MLPAIs by-laws

judicial authority must also be determined by referring to Section 3

nullified and thereafter absolve them from any violations of the

of P.D. No. 957,

[20]

same.[23] In Kawasaki Port Service Corporation v. Amores,[24] the

which provides:

rule was stated:

SEC. 3. National Housing Authority. The

National Housing Authority shall have exclusive
jurisdiction to regulate the real estate trade and
business in accordance with the provisions of this
Decree. (Emphasis supplied.)

The provisions of P.D. No. 957 were intended to encompass

all

questions

regarding

subdivisions

and

condominiums. The

intention was aimed at providing for an appropriate government

agency,

the

HLURB,

to

which

all

parties

. . . where a declaratory judgment as to a

disputed fact would be determinative of issues rather
than a construction of definite stated rights, status
and other relations, commonly expressed in written
instrument, the case is not one for declaratory
judgment.[25]

aggrieved

in

the

Contrary to the observation of the Court of Appeals,

jurisdiction

cannot

be

made

to

depend

on

the

exclusive
[26]

implementation of provisions and the enforcement of contractual

characterization of the case by one of the parties.

While

rights with respect to said category of real estate may take

respondents are questioning the validity or legality of the MLPAIs

recourse. The business of developing subdivisions and corporations

articles of incorporation and its by-laws, they did not, however, raise

being imbued with public interest and welfare, any question arising

any legal ground to support its nullification. The legality of the by-

from the exercise of that prerogative should be brought to the HLURB

laws in its entirety was never an issue in the instant controversy but

which has the technical know-how on the matter.[21] In the exercise

merely the provision prohibiting multi-dwelling which respondents

of its powers, the HLURB must commonly interpret and apply

assert they did not violate.[27] So to speak, there is no justiciable

contracts and determine the rights of private parties under such

controversy here that would warrant declaratory relief, or even an

contracts. This ancillary power is no longer a uniquely judicial

annulment of contracts.

function, exercisable only by the regular courts.[22]

We reiterate that in jurisdictional issues, what determines the
It is apparent that although the complaint was denominated

nature of an action for the purpose of ascertaining whether a court

as one for declaratory relief/annulment of contracts, the allegations

has jurisdiction over a case are the allegations in the complaint and

therein reveal otherwise. It should be stressed that respondents

the nature of the relief sought.[28]

neither asked for the interpretation of the questioned by-laws nor

did they allege that the same is doubtful or ambiguous and require

Moreover, under the doctrine of primary administrative

judicial construction. In fact, what respondents really seek to

jurisdiction, courts cannot or will not determine a controversy

where the issues for resolution demand the exercise of sound

administrative
experience,

discretion

and

services

requiring
of

the

the

special

administrative

We also note that the parties failed to abide by the

knowledge,
tribunal

to

determine technical and intricate matters of fact.[29]

In the instant case, the HLURB has the expertise to resolve
the basic technical issue of whether the house built by the
respondents violated the Deed of Restriction, specifically the
prohibition against multi-dwelling.
As observed in C.T. Torres Enterprises, Inc. v. Hibionada:[30]
The argument that only courts of justice can
adjudicate claims resoluble under the provisions of
the Civil Code is out of step with the fast-changing
times. There are hundreds of administrative bodies
now performing this function by virtue of a valid
authorization from the legislature. This quasi-judicial
function, as it is called, is exercised by them as an
incident of the principal power entrusted to them of
regulating certain activities falling under their
particular expertise.
In the Solid Homes case for example the Court
affirmed the competence of the Housing and
Land Use Regulatory Board to award damages
although this is an essentially judicial power
exercisable ordinarily only by the courts of
justice. This
departure
from
the
traditional
allocation of governmental powers is justified by
expediency, or the need of the government to
respond swiftly and competently to the pressing
problems of the modern world.[31]

arbitration agreement in the MLPAI by-laws. Article XII of the MLPAI

by-laws entered into by the parties provide:
Mode of Dispute Resolution
Mode of Dispute Resolution. Should any member of
the Association have any grievance, dispute or claim
against the Association or any of the officers and
governors thereof in connection with their function
and/or position in the Association, the parties shall
endeavor to settle the same amicably. In the event
that efforts at amicable settlement fail, such dispute,
difference or disagreement shall be brought by the
member to an arbitration panel composed of three
(3) arbitrators for final settlement, to the exclusion of
all other fora. Such arbitration may be initiated by
giving notice to the other party, such notice
designating one (1) independent arbitrator. Within
thirty (30) from the receipt of said notice, the other
party shall designate a second independent
arbitrator by written notice to the first party. Both
arbitrators shall within fifteen (15) days thereafter
select a third independent arbitrator, who shall be
the chairman of the Arbitration Tribunal. In the event
that the two (2) arbitrators respectively nominated
by the parties fail to select the third independent
arbitrator within the fifteen-day period, the third
arbitrator shall be jointly selected by the parties. In
the event that the other party does not nominate an
arbitrator, the Arbitration Tribunal shall be composed
of one (1) arbitrator nominated by the party initiating
the proceedings. The Arbitration Tribunal shall render
its decision within forty-five (45) days from the
selection of the third arbitrator, which decision shall
be valid and binding between the parties unless
repudiated within five (5) days from receipt thereof

on grounds that the same was procured through

fraud or violence, or that there are patent or gross
errors in facts made basis of the decision. The award
of the Tribunal shall be enforced by a court of
competent jurisdiction. Venue of action covered by
this Article shall be in the courts of justice
of Cebu City only.

In the instant case, we observed that while both parties

exchanged correspondence pertaining to the alleged violation of
the Deed of Restriction, they, however, made no earnest effort to
resolve their differences in accordance with the arbitration clause
provided for in their by-laws. Mere exchange of correspondence

Under the said provision of the by-laws, any dispute or claim

will

not

suffice

much

less

satisfy

the

requirement

of

against the Association or any of its officers and governors shall

arbitration. Arbitration being the mode of settlement between the

first be settled amicably. If amicable settlement fails, such dispute

parties expressly provided for in their by-laws, the same should be

shall be brought by the member to an arbitration panel for final

respected. Unless an arbitration agreement is such as absolutely

settlement. The arbitral award shall be valid and binding between

to close the doors of the courts against the parties, the courts

the parties unless repudiated on grounds that the same was

should look with favor upon such amicable arrangements.[34]

procured through fraud or violence, or that there are patent or

gross errors in the tribunals findings of facts upon which the

Arbitration is one of the alternative methods of dispute

resolution that is now rightfully vaunted as the wave of the future

decision was based.

in international relations, and is recognized worldwide. To brush

The terms of Article XII of the MLPAI by-laws clearly express

aside a contractual agreement calling for arbitration in case of

the intention of the parties to bring first to the arbitration process

disagreement between the parties would therefore be a step

all disputes between them before a party can file the appropriate

backward.[35]

action. The agreement to submit all disputes to arbitration is a

WHEREFORE,

the

instant

petition

is GRANTED.

The

contract. As such, the arbitration agreement binds the parties

Decision dated August 31, 2005 and Resolution dated February 13,

thereto, as well as their assigns and heirs. [32] Respondents, being

2006 of the Court of Appeals in CA-G.R. SP No. 81069 are SET

members of MLPAI, are bound by its by-laws, and are expected to

abide by it in good faith.

[33]

ASIDE.

The

Order

dated July

the Regional Trial Court of Cebu City,

hereby REINSTATED.

Branch

31,

2003 of
7,

is

SO ORDERED.

DECISION

THIRD DIVISION

CHICO-NAZARIO, J.:
FORT BONIFACIO DEVELOPMENT
CORPORATION,
Petitioner,

G.R. No. 180765

Before this Court is a Petition for Review on Certiorari under

Present:

Rule 45 of the Revised Rules of Court, filed by petitioner Fort

Bonifacio Development Corporation, seeking to reverse and set
*

QUISUMBING, J.,
CARPIO,**
- versus -

CHICO-NAZARIO,
Acting Chairperson,

aside the Decision dated 19 July 2007[1] and the Resolution

dated 10 December 2007[2] of the Court of Appeals in CA-G.R.
SP No. 97731. The appellate court, in its assailed Decision,
affirmed the Order[3] of the Regional Trial Court (RTC) of Pasay City,
Branch 109, in Civil Case No. 06-2000-CFM, denying the Motion to
Dismiss of petitioner; and in its assailed Resolution, refused to

NACHURA, and
MANUEL N. DOMINGO,

reconsider its decision.

PERALTA, JJ.

Respondent.

Petitioner, a domestic corporation duly organized under

Philippine laws, is engaged in the real estate development
Promulgated:

business. Respondent is the assignee of L and M Maxco Specialist

Engineering Construction (LMM Construction) of its receivables from

February 27, 2009

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

petitioner.

On 5 July 2000, petitioner entered into a Trade Contract with

On 30 April 2005, petitioner received a letter dated 18 April

LMM Construction for partial structural and architectural works on

2005 from respondent inquiring on the retention money supposedly

one of its projects, the Bonifacio Ridge Condominium. According to

due to LMM Construction and informing petitioner that a portion of

the said Contract, petitioner had the right to withhold the retention

the amount receivable by LMM Construction therefrom was already

money equivalent to 5% of the contract price for a period of one

assigned to him as evidenced by the Deed of Assignment executed

year after the completion of the project. Retention money is a

by LMM Construction in respondents favor on 28 February

portion of the contract price, set aside by the project owner, from

2005. LMM Construction assigned its receivables from petitioner to

all approved billings and retained for a certain period to guarantee

respondent to settle the alleged unpaid obligation of LMM

the performance by the contractor of all corrective works during the

Construction to respondent amounting to P804,068.21.

defect-liability period.[4]

Through its letter dated 11 October 2005, addressed to

Due to the defect and delay in the work of LMM Construction

respondent, petitioner acknowledged that LMM Construction did

on the condominium project, petitioner unilaterally terminated the

have receivables still with petitioner, consisting of the retention

Trade Contract[5] and hired another contractor to finish the rest of

money; but petitioner also advised respondent that the retention

the work left undone by LMM Construction. Despite the pre-

money was not yet due and demandable and may be ascertained

termination of the Trade Contract, petitioner was liable to pay LMM

only after the completion of the corrective works undertaken by the

Construction a fraction of the contract price in proportion to the

new

works already performed by the latter.[6]

notified respondent that part of the receivables was also being

contractor

on

the

condominium

project. Petitioner also

garnished by the other creditors of LMM Construction.

On 30 July 2004, petitioner received the first Notice of

Garnishment against the receivables of LMM Construction issued by
the

Construction

Industry

Arbitration

Commission

(CIAC)

Unsatisfied with the reply of petitioner, respondent sent

in

another letter dated 14 October 2005 asserting his ownership over

connection with CIAC Case No. 11-2002 filed by Asia-Con Builders

a portion of the retention money assigned to him and maintaining

against LMM Construction, wherein LMM Construction was adjudged

that the amount thereof pertaining to him can no longer be

liable to Asia-Con Builders for the amount of P5,990,927.77.

garnished to satisfy the obligations of LMM Construction to other

persons since it already ceased to be the property of LMM
Construction by virtue of the Deed of Assignment. Attached to

respondents letter was the endorsement of LMM Construction

upon petitioner on 26 January 2006. The Order enjoined petitioner

dated 17 January 2005 approving respondents claim upon

to deliver the amount of P558,448.27 to the Sheriff to answer for

petitioner in the amount of P804,068.21 chargeable against the

the favorable judgment obtained by Concrete Masters, Inc.

retention money that may be received by LMM Construction from

(Concrete Masters) against LMM Construction in Civil Case No. 05-

the petitioner.

164.

Before

respondents

claim

could

be

fully

addressed,

Petitioner, in a letter dated 31 January 2006, categorically

petitioner, on 6 June 2005, received the second Notice of

denied respondents claim on the retention money, reasoning that

Garnishment against the receivables of LMM Construction, this

after the completion of the rectification works on the condominium

time, issued by the National Labor Relations Commission (NLRC) to

project and satisfaction of the various garnishment orders, there

satisfy the liability of LMM Construction to Nicolas Consigna in NLRC

was no more left of the retention money of LMM Construction.

Case No. 00-07-05483-2003.

It would appear, however, that petitioner fully satisfied the

On 13 July 2005, petitioner received an Order of Delivery of

first Notice of Garnishment in the amount of P5,110,833.44 only

Money issued by the Office of the Clerk of Court and Ex-Officio

on 31 January 2006,[7] the very the same date that it expressly

Sheriff enforcing the first Notice of Garnishment and directing

denied respondents claim. Also, petitioner complied with the

petitioner to deliver to Asia-Con Builders, through the Sheriff, the

Notice of Garnishment and its accompanying Order of Delivery of

amount

Money in the amount ofP558,448.27 on 8 February 2006, a week

of P5,990,227.77

belonging

to

LMM

Construction. In

compliance with the said Order, petitioner was able to deliver to

after its denial of respondents claim.[8]

Asia-Con Builders on 22 July 2005 and on 11 August 2005 partial

payments amounting to P1,170,601.81, covered by the appropriate
Acknowledgement Receipts.

The foregoing events prompted respondent to file a

Complaint for collection of sum of money, against both LMM
Construction and petitioner, docketed as Civil Case No. 06-0200-

A third Notice of Garnishment against the receivables of

LMM Construction, already accompanied by an Order of Delivery of
Money, both issued by the RTC of Makati, Branch 133, was served

CFM before the RTC of Pasay City, Branch 109.

Instead of filing an Answer, petitioner filed a Motion to

Trade Contract; and money claims of third persons against the

Dismiss Civil Case No. 06-0200-CFM on the ground of lack of

contractor, developer, or owner of the project are lodged in the

jurisdiction over the subject matter. Petitioner argued that since

regular courts and not in the CIAC.

respondent merely stepped into the shoes of LMM Construction as

its assignor, it was the CIAC and not the regular courts that had
jurisdiction over the dispute as provided in the Trade Contract.

Similarly ill-fated was petitioners Motion for Reconsideration,

which was denied by the Court of Appeals in its Resolution dated 10
December 2007.

On 6 June 2006, the RTC issued an Order denying the

Motion to Dismiss of petitioner, ruling that a full-blown trial was
necessary to determine which one between LMM Construction and

Petitioner now comes to this Court via this instant Petition for

petitioner should be made accountable for the sum due to

Review on Certiorari praying for the reversal of the 19 July 2007

respondent.

Decision of the Court of Appeals and 6 June 2006 Order of the RTC
and, ultimately, for the dismissal of Civil Case No. 06-0200-CFM
pending before the RTC.

Petitioner sought remedy from the Court of Appeals by filing

a Petition for Certiorari, docketed as CA-G.R. SP No. 97731,
challenging the RTC Order dated 6 June 2006for having been

For the resolution of this Court is the sole issue of:

rendered by the trial court with grave abuse of discretion.

In its Decision promulgated on 19 July 2007, the Court of

WHETHER OR NOT THE RTC HAS JURISDICTION

OVER CIVIL CASE NO. 06-0200-CFM.

Appeals dismissed the Petition for Certiorari and affirmed the 6 June
2006 Order

of

the

RTC

denying

the

Motion

to

Dismiss

of

petitioner. The appellate court rejected the argument of petitioner

that respondent, as the assignee of LMM Construction, was bound
by the stipulation in the Trade Contract that disputes arising
therefrom should be brought before the CIAC. The Court of Appeals
declared that respondent was not privy, but a third party, to the

The jurisdiction of CIAC is defined under Executive Order No.

1008 as follows:

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 disputes 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.

appellate court, in recognizing the existence of the Deed of

Assignment executed by LMM Construction -- in favor of respondent
-- of its receivables under the Trade Contract, should have
considered the concomitant result thereof, i.e., that respondent
became a party to the Trade Contract and, therefore, bound by the
arbitral clause therein.

Respondent counters that the CIAC is devoid of jurisdiction

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.

over money claims of third persons against the contractor,

developer or owner of the project. The jurisdiction of the CIAC is
limited to settling disputes arising among contractors, developers
and/or owners of construction projects. It does not include the
determination of who among the many creditors of the contractor
should enjoy preference in payment of its receivables from the
developer/owner.

It is an elementary rule of procedural law that jurisdiction of

the court over the subject matter is determined by the allegations
of the complaint, irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted
therein. As a necessary consequence, the jurisdiction of the court
cannot be made to depend upon the defenses set up in the answer

In assailing the 19 July 2007 Decision of the Court of

Appeals, petitioner invoked Article 1311 of the Civil Code on
relativity of contracts. According to said provision, all contracts
shall only take effect between the contracting parties, their
assigns and heirs except when the rights and obligations arising
from the contract are not transmissible. Petitioner argues that the

or upon the motion to dismiss; for otherwise, the question of

jurisdiction would almost entirely depend upon the defendant. What
determines the jurisdiction of the court is the nature of the action
pleaded as appearing from the allegations in the complaint. The
averments therein and the character of the relief sought are the

ones to be consulted.[9] Accordingly, the issues in the instant case

A cause of action is a partys act or omission that violates

can only be properly resolved by an examination and evaluation of

the rights of the other.[10] The right of the respondent that was

respondents allegations in his Complaint in Civil Case No. 06-0200-

violated, prompting him to initiate Civil Case No. 06-0200-CFM, was

CFM.

his right to receive payment for the financial obligation incurred by

LMM Construction and to be preferred over the other creditors of
LMM Construction, a right which pre-existed and, thus, was
The allegations in respondents Complaint are clear and

simple: That LMM Construction had an outstanding obligation to

separate

and

distinct

from

the

right

to

payment

of

LMM

Construction under the Trade Contract.

respondent in the amount of P804,068.21; that in payment of the

said

amount,

LMM Construction

assigned to

respondent

its

receivables from petitioner, which assignment was properly made

Petitioners unceasing reliance on Article 1311 [11] of the Civil

known to petitioner as early as 18 April 2005; that despite due

Code on relativity of contracts is unavailing. It is true that

notice of such assignment, petitioner still refused to deliver the

respondent, as the assignee of the receivables of LMM Construction

amount assigned to respondent, giving preference, instead, to the

from petitioner under the Trade Contract, merely stepped into the

garnishing creditors of LMM Construction; that at the time

shoes of LMM Construction. However, it bears to emphasize that

petitioner was notified of the assignment, only one notice of

the right of LMM Construction to such receivables from petitioner

garnishment, the first Notice of Garnishment, was received by it;

under the Trade Contract is not even in dispute in Civil Case No. 06-

that had petitioner properly recognized respondents right as an

0200-CFM. What respondent puts in issue before the RTC is the

assignee of a portion of the receivables of LMM Construction, there

purportedly arbitrary exercise of discretion by the petitioner in

could have been sufficient residual amounts to satisfy respondents

giving preference to the claims of the other creditors of LMM

claim;

Construction over the receivables of the latter.

and

that,

uncertain

over

which

one

between

LMM

Construction and petitioner he may resort to for payment,

respondent named them both as defendants in Civil Case No. 060200-CFM. A

scrupulous

examination

of

the

aforementioned

It is encouraged that disputes arising from construction

allegations in respondents Complaint unveils the fact that his

contracts be referred first to the CIAC for their arbitration and

cause of action springs not from a violation of the provisions of the

settlement, since such cases would often require expertise and

Trade Contract, but from the non-payment of the monetary

technical knowledge in construction. Hence, some of the matters

obligation of LMM Construction to him.

over which the CIAC may exercise jurisdiction, upon agreement of

the parties to the construction contract, include but [are] not

limited to violation of specifications for materials and workmanship;

clearly, does not require the CIACs expertise and technical

violation

knowledge of construction.

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.

[12]

The adjudication of Civil Case No. 06-0200-CFM necessarily

Although the jurisdiction of the CIAC is not

involves the application of pertinent statutes and jurisprudence to

limited to the afore-stated enumeration, other issues which it could

matters such as obligations, contracts of assignment, and, if

take cognizance of must be of the same or a closely related kind or

appropriate, even preference of credits, a task more suited for a

species applying the principle of ejusdem generis in statutory

trial court to carry out after a full-blown trial, than an arbitration

construction.

body specifically devoted to construction contracts.

Respondents claim is not even construction-related at

This Court recognizes the laudable objective of voluntary

all. Construction is defined as referring to all on-site works on

arbitration to provide a speedy and inexpensive method of settling

buildings or altering structures, from land clearance through

disputes by allowing the parties to avoid the formalities, delay,

completion including excavation, erection and assembly and

expense and aggravation which commonly accompany ordinary

installation

of

components

and

equipment.

[13]

Petitioners

litigation, especially litigation which goes through the entire

insistence on the application of the arbitration clause of the Trade

hierarchy of courts. It cannot, however, altogether surrender to

Contract to respondent is clearly anchored on an erroneous

arbitration those cases, such as the one at bar, the extant facts of

premise that respondent is seeking to enforce a right under the

which plainly call for the exercise of jurisdiction by the regular

same. Again, the right to the receivables of LMM Construction from

courts for their resolution.

petitioner under the Trade Contract is not being impugned

herein. In fact, petitioner readily conceded that LMM Construction
still had receivables due from petitioner, and respondent did not

WHEREFORE, premises considered, the instant Petition

even have to refer to a single provision in the Trade Contract to

is DENIED. The Decision dated 19 July 2007 and the Resolution

assert his claim. What respondent is demanding is that a portion of

dated 10 December 2007 of the Court of Appeals in CA-G.R. SP No.

such receivables amounting to P804,068.21 should have been paid

97731 are hereby AFFIRMED in toto. Costs against the petitioner.

to him first before the other creditors of LMM Construction, which,

SO ORDERED.

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

THIRD DIVISION
DECISION

HUTAMA-RSEA
INC.,

JOINT

OPERATIONS,

G.R. No. 180640

CHICO-NAZARIO, J.:

Petitioner,
Present:
Before Us is a Petition[1] for Review on Certiorari under Rule
45
YNARES-SANTIAGO,
Chairperson,

of

the

Rules

of

Court

seeking

to

set

aside

the

Decision[2] dated 23 May 2007 and Resolution[3] dated 16 November

2007 of the Court of Appeals in CA-G.R. SP No. 92504.

AUSTRIA-MARTINEZ,
- versus -

CHICO-NAZARIO,

The facts, culled from the records, are as follows:

NACHURA, and
PERALTA, JJ.
Petitioner HUTAMA-RSEA Joint Operations Incorporation and
respondent
Promulgated:
CITRA METRO
CORPORATION,

MANILA

TOLLWAYS

Metro

organized

Manila
and

Tollways
existing

Corporation
under

are

Philippine

laws. Petitioner is a sub-contractor engaged in engineering and

construction works. Respondent, on the other hand, is the general

April 24, 2009

Respondent.

corporations

Citra

contractor and operator of the South Metro Manila Skyway Project

(Skyway Project).

On 25 September 1996, petitioner and respondent entered

On 24 May 2004, petitioner, through counsel, sent a letter to

into an Engineering Procurement Construction Contract (EPCC)

respondent

whereby petitioner would undertake the construction of Stage 1 of

outstanding balance on the interim billings; (2) the amount of

the Skyway Project, which stretched from the junction of Buendia

petitioners final billing; (3) early completion bonus; and (4) interest

Avenue, Makati City, up to Bicutan Interchange, Taguig City. As

charges on the delayed payment. Thereafter, petitioner and

consideration for petitioners undertaking, respondent obliged itself

respondent, through their respective officers and representatives,

under

held several meetings to discuss the possibility of amicably settling

the

EPCC

to

pay

the

former

total

amount

of

US$369,510,304.00.[4]

the

demanding

dispute. Despite

payment

several

of

the

following:

meetings

and

(1)

the

continuous

negotiations, lasting for a period of almost one year, petitioner and

respondent failed to reach an amicable settlement.[7]
During the construction of the Skyway Project, petitioner
wrote respondent on several occasions requesting payment of the
formers interim billings, pursuant to the provisions of the EPCC.

Petitioner

finally

filed

with

the

Construction

Industry

Respondent only partially paid the said interim billings, thus,

Arbitration Commission (CIAC) a Request for Arbitration, seeking to

prompting

enforce

petitioner

to

demand

that

respondent

pay

the

outstanding balance thereon, but respondent still failed to do so. [5]

its

money

claims

against

respondent. [8] Petitioners

Request was docketed as CIAC Case No. 17-2005.

The Skyway Project was opened on 15 December 1999 for

In

its

Answer ad

cautelam with

Motion

to

Dismiss,

public use, and toll fees were accordingly collected. After informing

respondent averred that the CIAC had no jurisdiction over CIAC

respondent that the construction of the Skyway Project was already

Case No. 17-2005. Respondent argued that the filing by petitioner

complete, petitioner reiterated its demand that respondent pay the

of

outstanding balance on the interim billings, as well as the Early

precedent, i.e., prior referral by the parties of their dispute to the

Completion Bonus agreed upon in the EPCC. Respondent refused

Dispute Adjudication Board (DAB), required by Clause 20.4 of the

to comply with petitioners demands.

[6]

said

case

was

premature

because

condition

EPCC, had not been satisfied or complied with. Respondent asked

the CIAC to dismiss petitioners Request for Arbitration in CIAC Case

(3) Is [petitioner] entitled to the early

compensation bonus net of VAT due thereon? If so,
how much?;

No. 17-2005 and to direct the parties to comply first with Clause
20.4 of the EPCC.[9]

(4) Was there delay in the completion of the

project? If so, is [herein respondent] entitled to its
counterclaim for liquidated damages?;

After submission by the parties of the necessary pleadings

on the matter of jurisdiction, the CIAC issued on 30 August 2005,
an Order in CIAC Case No. 17-2005, favoring petitioner. The CIAC
ruled that it had jurisdiction over CIAC Case No. 17-2005, and that

(5) Is [petitioner] entitled to payment of

interest on the amounts of its claims for unpaid
billings and early completion bonus? If so, at what
rate and for what period?;

the determination of whether petitioner had complied with Clause

20.4 of the EPCC was a factual issue that may be resolved during
the trial. It then ordered respondent to file an Answer to
petitioners Request for Arbitration.[10]

(6) Which of the parties is entitled to

reimbursement of the arbitration costs incurred? [11]

After respondent and petitioner filed an Answer and a Reply,

respectively, in CIAC Case No. 17-2005, the CIAC conducted a
preliminary conference, wherein petitioner and respondent signed
the Terms of Reference outlining the issues to be resolved, viz:

Respondent, however, subsequently filed an Urgent Motion

requesting that CIAC refrain from proceeding with the trial proper of
CIAC Case No. 17-2005 until it had resolved the issue of whether

(1) Is prior resort to the DAB a precondition to

submission of the dispute to arbitration considering
that the DAB was not constituted?;

(2) Is [herein petitioner] entitled to the

balance of the principal amount of the contract? If so,
how much?;

prior resort by the parties to DAB was a condition precedent to the

submission of the dispute to CIAC. [12] Respondents Urgent Motion
was denied by the CIAC in its Order dated 6 December 2005.[13]

Respondent filed a Motion for Reconsideration of the CIAC

Order

dated 6

December

2005.[14] The

CIAC

issued,

on 12

December 2005, an Order denying respondents Motion for

Reconsideration.[15] It held that prior resort by the parties to DAB

was not a condition precedent for it to assume jurisdiction over
CIAC Case No. 17-2005. Aggrieved, respondent assailed the CIAC
Order dated 12 December 2005 by filing a special civil action
for certiorari and prohibition with the Court of Appeals,[16] docketed
as CA-G.R. SP No. 92504.

On 23 May 2007, the Court of Appeals rendered its Decision

dated
December
12,
2005
is
herebyANNULED and SET
ASIDE and,
instead,
[CIAC, members of the Arbitral Tribunal, [17] and herein
petitioner], their agents or anybody acting in their
behalf, are enjoined from further proceeding with
CIAC Case No. 17-2005, promulgating a decision
therein, executing the same if one has already been
promulgated or otherwise enforcing said order of
December 12, 2005 until the dispute has been
referred to and decided by the Dispute Adjudication
Board to be constituted by the parties in accordance
with Sub-Clause 20.4 of the Engineering Procurement
Construction Contract dated September 25, 1996.

in CA-G.R. SP No. 92504, annulling the 12 December 2005 Order of

the CIAC, and enjoining the said Commission from proceeding with
CIAC Case No. 17-2005 until the dispute between petitioner and
respondent had been referred to and decided by the DAB, to be

Petitioner filed a Motion for Reconsideration of the afore-

constituted by the parties pursuant to Clause 20.4 of the

mentioned Decision but this was denied by the Court of Appeals in

EPCC. The appellate court, thus, found that the CIAC exceeded its

a Resolution dated 16 November 2007.

jurisdiction in taking cognizance of petitioners Request for

Arbitration in CIAC Case No. 17-2005 despite the latters failure to
initially refer its dispute with respondent to the DAB, as directed by
Clause 20.4 of the EPCC.

Hence, petitioner filed the instant Petition for Review before

us raising the sole issue of whether CIAC has jurisdiction over CIAC
Case No. 17-2005.

The dispositive portion of the 23 May 2007 Decision of the

Court of Appeals reads:

Section 4 of Executive Order No. 1008[18] defines the

jurisdiction of CIAC, thus:

WHEREFORE,
the
instant
petition
is GRANTED and the order of the Arbitration Tribunal
of the Construction Industry Arbitration Commission

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 disputes 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.

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 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.

An arbitration agreement or a submission to

arbitration shall be in writing, but it need not be
signed by the parties, as long as the intent is clear
that the parties agree to submit a present or future
controversy arising from a construction contract to
arbitration.

Excluded from the coverage of this law are

disputes
arising
from
employer-employee
relationships which shall continue to be covered by
the Labor Code of the Philippines. (Emphasis ours.)

It may be in the form of exchange of letters

sent by post or by telefax, telexes, telegrams or any
other modes of communication. (Emphasis ours.)

Based on the foregoing provisions, the CIAC shall have

jurisdiction over a dispute involving a construction contract if said
Further, Section 1, Article III of the CIAC Rules of Procedure
Governing Construction Arbitration[19] (CIAC Rules), provides:

contract contains an arbitration clause (nothwithstanding any

reference by the same contract to another arbitration institution or
arbitral body); or, even in the absence of such a clause in the
construction contract, the parties still agree to submit their dispute

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

to arbitration.

It is undisputed that in the case at bar, the EPCC contains an

(a)

incorporate
the
model
terms
published
by
the
Fdration
Internationale des Ingnieurs-Conseils
(FIDIC),

(b)

require each member of the Dispute

Adjudication Board to be, and to
remain throughout the appointment,
independent of the parties,

(c)

require the Dispute Adjudication Board

to act impartially and in accordance
with the Contract, and

(d)

include undertakings by the parties (to

each other and to the Dispute
Adjudication Board) that the members
of the Dispute Adjudication Board shall
in no circumstances be liable for
breach of duty or of contract arising
out of their appointment; the parties
shall indemnify the members against
such claims.

arbitration clause in which the petitioner and respondent explicitly

agree to submit to arbitration any dispute between them arising
from or connected with the EPCC, under the following terms and
conditions[20]:

CLAIMS, DISPUTES and ARBITRATION

xxxx

20.3

Unless the member or members of the

Dispute Adjudication Board have been
previously mutually agreed upon by the
parties and named in the Contract, the parties
shall, within 28 days of the Effective Date,
jointly ensure the appointment of a Dispute
Adjudication
Board. Such
Dispute
Adjudication Board shall comprise suitably
qualified persons as members, the number of
members being either one or three, as stated
in the Appendix to Tender. If the Dispute
Adjudication Board is to comprise three
members, each party shall nominate one
member for the approval of the other party,
and the parties shall mutually agree upon and
appoint the third member (who shall act as
chairman).

The terms of appointment of the Dispute

Adjudication Board shall:

The terms of the remuneration of the Dispute

Adjudication
Board,
including
the
remuneration of each member and of any
specialist from whom the Dispute Adjudication
Board may require to seek advice, shall be
mutually agreed upon by the Employer, the
Contractor and each member of the Dispute
Adjudication Board when agreeing such terms
of appointment. In the event of disagreement,
the remuneration of each member shall

include
reimbursement
for
reasonable
expenses, a daily fee in accordance with the
daily fee established from time to time for
arbitrators under the administrative and
financial regulations of the International
Centre for Settlement of Investment Disputes,
and a retainer fee per calendar month
equivalent to three times such daily fee.

The Employer and the Contractor shall each

pay one-half of the Dispute Adjudication
Boards remuneration in accordance with its
terms of remuneration. If, at any time, either
party shall fail to pay its due proportion of
such remuneration, the other party shall be
entitled to make payment on his behalf and
recover if from the party in default.

The
Dispute
Adjudication
Boards
appointment may be terminated only by
mutual agreement of the Employer and the
Contractor. The Dispute Adjudication Boards
appointment shall expire when the discharge
referred to in Sub-Clause 13.12 shall have
become effective, or at such other time as the
parties may mutually agree.

It, at any time, the parties so agree, they may

appoint a suitably qualified person to replace
(or to be available to replace) any or all
members of the
Dispute
Adjudication
Board. The appointment will come into effect
if a member of the Dispute Adjudication Board
declines to act or is unable to act as a result
of death, disability, resignation or termination
of appointment. If a member so declines or is

unable to act, and no such replacement is

available to act, the member shall be replaced
in the same manner as such member was to
have been nominated.

If any of the following conditions apply,

namely:

(a)

the parties fail to agree upon the

appointment of the sole member of a
one-person Dispute Adjudication Board
within 28 days of the Effective Date,

(b)

either party fails to nominate an

acceptable member, for the Dispute
Adjudication Board of three members,
within 28 days of the Effective Date,

(c)

the parties fail to agree upon the

appointment of the third member (to
act as chairman) within 28 days of the
Effective Date, or

(d)

the parties fail to agree upon the

appointment of a replacement member
of the Dispute Adjudication Board
within 28 days of the date on which a
member of the Dispute Adjudication
Board declines to act or is unable to
act as a result of death, disability,
resignation
or
termination
of
appointment,

then the person or administration named in

the Appendix to the Tender shall, after due
consultation with the parties, nominate such
member of the Dispute Adjudication Board,
and such nomination shall be final and
conclusive.

20.4

If a dispute arises between the Employer and

the Contractor in connection with, or arising
out of, the Contract or the execution of the
Works, including any dispute as to any
opinion,
instruction,
determination,
certification or valuation of the Employers
Representative, the dispute shall initially be
referred in writing to the Dispute Adjudication
Board for its decision, with a copy to the other
party. Such reference shall state that it is
made under this Sub-Clause. The parties
shall promptly make available to the Dispute
Adjudication Board all such information,
access to the Site, and appropriate facilities,
as the Dispute Adjudication Board may require
for the purposes of rendering its decision. No
later than the fifty-sixth day after the day on
which it received such reference, the Dispute
Adjudication Board, acting as a panel of
expert(s) and not as arbitrator(s), shall give
notice of its decision to the parties. Such
notice shall include reasons and shall state
that it is given under this Sub-Clause.

Unless the Contract has already been

repudiated or terminated, the Contractor
shall, in every case, continue to proceed with
the Works with all due diligence, and the

Contractor and the Employer shall give effect

forthwith to every decision of the Dispute
Adjudication Board, unless and until the same
shall be revised, as hereinafter provided, in an
amicable settlement or an arbitral award.

If either party is dissatisfied with the Dispute

Adjudication Boards decision, then either
party, on or before the twenty-eighth day
after the day on which it received notice of
such decision, may notify the other party of
its dissatisfaction. If the Dispute Adjudication
Board fails to give notice of its decision on or
before the fifty-sixth day after the day on
which it received the reference, then either
party, on or before the twenty-eighth day
after the day on which the said period of fiftysix days has expired, may notify the other
party of its dissatisfaction. In either event,
such notice of dissatisfaction shall state that it
is given under this Sub-Clause, such notice
shall set out the matters in dispute and the
reason(s) for dissatisfaction and, subject to
Sub-Clauses 20.7 and 20.8, no arbitration in
respect of such dispute may be commenced
unless such notice is given.

If the Dispute Adjudication Board has given

notice of its decision as to a matter in dispute
to the Employer and the Contractor and no
notice of dissatisfaction has been given by
either party on or before the twenty-eighth
day after the day on which the parties
received the Dispute Adjudication Boards
decision, then the Dispute Adjudication
Boards decision shall become final and

binding upon
Contractor.

20.5

20.6

the

Employer

and

the

of such arbitration shall be as set out in

the
Appendix
to
Tender. The
arbitrator(s) shall have full power to
open up, review and revise any decision
of the Dispute Adjudication Board.

Where notice of dissatisfaction has

been given under Sub-Clause 20.4, the
parties shall attempt to settle such
dispute
amicably
before
the
commencement of arbitration. Provided
that unless the parties agree otherwise,
arbitration may be commenced on or
after the fifty-sixth day after the day on
which notice of dissatisfaction was
given, even if no attempt at amicable
settlement has been made.

Neither party shall be limited, in the

proceedings before such arbitrator(s), to
the evidence or arguments previously
put before the Dispute Adjudication
Board to obtain its decision.

Arbitration may be commenced prior to

or after completion of the Works. The
obligations of the parties and the
Dispute Adjudication Board shall not be
altered by reason of the arbitration
being conducted during the progress of
the Works.

Any dispute in respect of which:

(a)

(b)

the decision, if any, of the

Dispute Adjudication Board has
not become final and binding
pursuant
to
Sub-Clause 20.4, and

amicable settlement has not been

reached,

shall be finally decided by international

arbitration. The arbitration rules under
which the arbitration is conducted, the
institution to nominate the arbitrator(s)
or to administer the arbitration rules
(unless named therein), the number of
arbitrators, and the language and place

20.7

Where neither party has given notice of

dissatisfaction within the period stated
in Sub-Clause 20.4 and the Dispute
Adjudication Boards related decision, if
any, has become final and binding, either
party may, if the other party fails to
comply with such decision, and without
prejudice to any other rights it may
have,
refer
the
failure
itself
to
arbitration under Sub-Clause 20.6. The
provisions of Sub-Clauses 20.4 and 20.5
shall not apply to any such reference.

20.8

When the appointment of the Dispute

Adjudication
Board
and
of
any
replacement has expired, any such
dispute referred to in Sub-Clause 20.4
shall be finally settled by arbitration
pursuant
to
Sub-Clause
20.6. The
provisions of Sub-Clauses 20.4 and 20.5
shall
not
apply
to
any
such
reference. (Emphasis ours.)

Under Section 1, Article III of the CIAC Rules, an arbitration

clause in a construction contract shall be deemed as an agreement
to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the

reference

to

different

arbitration

institution or arbitral body in such contract x x x. Elementary is

the rule that when laws or rules are clear, it is incumbent on the
court to apply them. When the law (or rule) is unambiguous and

Despite the presence of the afore-quoted arbitration clause

unequivocal, application, not interpretation thereof, is imperative.

[22]

in the EPCC, it is respondents position, upheld by the Court of

Appeals, that the CIAC still cannot assume jurisdiction over CIAC
Case No. 17-2005 (petitioners Request for Arbitration) because
petitioner has not yet referred its dispute with respondent to the
DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the
dispute to DAB is a condition precedent and an indispensable
requirement for the CIAC to acquire jurisdiction over CIAC Case No.
17-2005.

[21]

Hence, the bare fact that the parties herein incorporated an

arbitration clause in the EPCC is sufficient to vest the CIAC with
jurisdiction over any construction controversy or claim between the
parties.[23] The arbitration clause in the construction contract ipso
facto vested

the

CIAC

with

jurisdiction. [24] This

rule

applies,

regardless of whether the parties specifically choose another forum

or make reference to another arbitral body. [25] Since the jurisdiction

It is true that Clause 20.4 of the EPCC states that a dispute

between petitioner and respondent as regards the EPCC shall be
initially referred to the DAB for decision, and only when the parties
are dissatisfied with the decision of the DAB should arbitration
commence. This does not mean, however, that the CIAC is barred
from assuming jurisdiction over the dispute if such clause was not
complied with.

of CIAC is conferred by law, it cannot be subjected to any condition;

nor can it be waived or diminished by the stipulation, act or
omission of the parties, as long as the parties agreed to submit
their construction contract dispute to arbitration, or if there is an
arbitration clause in the construction contract. [26] The parties will
not be precluded from electing to submit their dispute to CIAC,
because this right has been vested in each party by law. [27]

In China Chang Jiang Energy Corporation (Philippines) v.

Rosal Infrastructure Builders,[28] we elucidated thus:

What the law merely requires for a

particular construction contract to fall within
the jurisdiction of CIAC is for the parties to
agree to submit the same to voluntary
arbitration. Unlike in the original version of Section
1, as applied in the Tesco case, the law does not
mention that the parties should agree to submit
disputes arising from their agreement specifically to
the CIAC for the latter to acquire jurisdiction over
such disputes. 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 specially 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.

xxxx

Now that Section 1, Article III [CIAC Rules of

Procedure Governing Construction Arbitration], as
amended, is submitted to test in the present petition,
we
rule
to
uphold
its
validity
with
full
certainty. However, this should not be understood to
mean that the parties may no longer stipulate to
submit their disputes to a different forum or arbitral

body. Parties may continue to stipulate as

regards their preferred forum in case of
voluntary arbitration, but in so doing, they may
not divest the CIAC of jurisdiction as provided
by law. Under the elementary principle on the
law on contracts that laws obtaining in a
jurisdiction form part of all agreements, when
the law provides that the Board acquires
jurisdiction when the parties to the contract
agree to submit the same to voluntary
arbitration, the law in effect, automatically
gives the parties an alternative forum before
whom they may submit their disputes. That
alternative forum is the CIAC. This, to the
mind of the Court, is the real spirit of E.O. No.
1008, as implemented by Section 1, Article III
of the CIAC Rules. (Emphases ours.)

Likewise, in National Irrigation Administration v. Court of

Appeals,[29] we pronounced that:

Under the present Rules of Procedure [CIAC

Rules
of
Procedure
Governing
Construction
Arbitration], 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.

should

the

construction

contract

contain

an

arbitration

clause.

Moreover, the CIAC was created in recognition of the

contribution of the construction industry to national development
goals. Realizing that delays in the resolution of construction
industry disputes would also hold up the development of the

We note that this is not a case wherein the arbitration clause

in the construction contract named another forum, not the CIAC,
which shall have jurisdiction over the dispute between the parties;
rather, the said clause requires prior referral of the dispute to the
DAB. Nonetheless, we still hold that this condition precedent, or

country, Executive Order No. 1008 expressly mandates the CIAC

to expeditiously settle construction industry disputes and, for this
purpose, vests in the CIAC original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by
the parties involved in construction in the Philippines.[30]

more appropriately, non-compliance therewith, should not deprive

CIAC of its jurisdiction over the dispute between the parties.
The dispute between petitioner and respondent has been
lingering for almost five years now. Despite numerous meetings
It bears to emphasize that the mere existence of an
arbitration clause in the construction contract is considered by law
as an agreement by the parties to submit existing or future
controversies between them to CIAC jurisdiction, without any
qualification

or

condition

precedent. To

affirm

condition

precedent in the construction contract, which would effectively

suspend the jurisdiction of the CIAC until compliance therewith,
would be in conflict with the recognized intention of the law and
rules to automatically vestCIAC with jurisdiction over a dispute

and negotiations between the parties, which took place prior to

petitioners filing with the CIAC of its Request for Arbitration, no
amicable settlement was reached. A ruling requiring the parties to
still appoint a DAB, to which they should first refer their dispute
before the same could be submitted to the CIAC, would merely be
circuitous and dilatory at this point. It would entail unnecessary
delays and expenses on both parties, which Executive Order No.
1008 precisely seeks to prevent. It would, indeed, defeat the
purpose for which the CIAC was created.

WHEREFORE,

the

Petition

is

Respondent.

hereby GRANTED. The

September 26, 2008

Decision, dated 23 May 2007, and Resolution, dated 16 November

2007, of the Court of Appeals in CA-G.R. SP No. 92504 are
hereby REVERSED and SET

ASIDE. The

instant

case

is

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

hereby REMANDED for further proceedings to the CIAC which

is DIRECTED to resolve the same with dispatch.
DECISION
SO ORDERED.
NACHURA, J.:
THIRD DIVISION
Before us is a Petition for Review on Certiorari under Rule 45
of
EMPIRE EAST LAND HOLDINGS, INC.,

G.R. No. 168074

the

Decision

Rules
[1]

of

Court,

of

the

Court

of

Appeals

dated November 3, 2004 and its Resolution

[2]

(CA)

dated May

10, 2005, in CA-G.R. SP No. 58980. The assailed decision modified

Petitioner,
Present:

the Decision[3] of the Construction Industry Arbitration Commission

(CIAC) dated May 16, 2000 in CIAC No. 39-99.

YNARES-SANTIAGO,
- versus -

Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
*

VELASCO, JR., and

NACHURA, JJ.

The facts of the case, as found by the CIAC and affirmed by

the CA, follow:
On February 12, 1997, petitioner Empire East Land Holdings,
Inc. and respondent Capitol Industrial Corporation Groups, Inc.
entered into a Construction Agreement[4]whereby the latter bound
itself to undertake the complete supply and installation of the
building shell wet construction of the formers building known as
Gilmore Heights Phase I, located at Gilmore cor. Castilla St., San

CAPITOL INDUSTRIAL CONSTRUCTION

GROUPS, INC.,

Promulgated:

Juan, Metro Manila.[5] The pertinent portion of the aforesaid

agreement is quoted hereunder for easy reference:

e)
METAL WORKS trench grating, Ibeam separator, manhole cover, ladder rungs of
tanks, stair railings and stair nosing

ARTICLE II - SCOPE OF WORK

f)
2.1.
The CONTRACTOR shall complete the
civil/structural and masonry works of the building
based on the works (sic) items covered by the
CONTRACTORs Proposal of Complete Supply and
Installation of Building Shell Wet Construction Works
as indicated in the plans and specifications at the
Contract Price and within the Contract time herein
stipulated and in accordance with the plans and
specifications. The CONTRACTOR shall furnish and
supply all necessary labor, equipment and tools,
supervision and other facilities needed and shall
perform everything necessary for the complete and
successful masonry works of the building described
hereof, provided that it pertains to or is part of the
above mentioned work or items covered by the
Contract documents.
2.2.
The scope of works as
hereunder but not limited to the following:

stated

a)
CONCRETE WORKS foundation and
footings, tie beams, walls, columns, beams, girders,
slabs, stairs, stair slabs, cement floor topping, ramps,
rubbed concrete.
b)
MASONRY WORKS interior and
exterior walls including stiffeners, CHB laying, interior
and exterior plastering, non-skid tile installation and
scratch coating for tile installation.
c)

FORMWORKS

d)
OTHER CONCRETE WORKS trenches,
platform for transformers, ger sets and aircons

MISCELLANEOUS WORK
installation of Doors and Jambs (metal
and wood)
Lintel Beams/Stiffener Columns
Installation
accessories

of

Hardwares

and

Window and Door Openings

g)
MISCELLANEOUS ITEMS column
guard, wheel guard, waterstop, vapor barrier,
incidental embeds, floor hardener, dustproofer,
sealant, soil treatment, elevator block-outs for call
button, block-outs for electro-mechanical works and
concrete landing sills.
h)
ROOFING
WORKS
Steel
Trusses/Purlins, Rib Type pre-painted roofing sheets,
Insulation
i)

Garbage Chutes

2.3.
The work of the CONTRACTOR shall
include but not be limited to, preparing the bill of
materials, canvassing of prices, requisition of
materials for purchase by OWNER, following up of
orders, checking the quality and quantity of the
materials within the premises of the construction site
and returning defective materials.[6]
Respondent further agreed that the construction work would be
completed within 330 calendar days from Day 1, upon the
Construction

Managers

confirmation.[7] Petitioner

initially

considered February 20, 1997 as Day 1 of the project. However,

Sixth, the parties agreed: that the items of

work or any part thereof not completed by the
respondent as of February 28, 1999 should be
deleted from its contract, except demobilization; the
punch list items under respondents scope of
responsibility not yet made good/corrected as of the
same period shall be done by others at a fixed cost
to be agreed upon by all concerned; and respondent
should be compensated for the cost of utilities it
installed but were still needed by other contractors to
complete their work.[14]

when respondent entered the project site, it could not start work
due

to

the

on-going

bulk

excavation

by

another

contractor. Respondent thus asked petitioner to move Day 1 to a

later date, when the bulk excavation contractor would have
completely turned over the site.[8]
After a series of correspondence between petitioner and
respondent, February

25,

1997 was

proposed

as

Day

1. Accordingly, respondents completion date of the project was

Lastly, they agreed that a joint quantification

should be done to establish the bottom line figures
as to what were to be deleted from the respondents
contract and the cost of completing the punch list
items which were deductible from respondents
receivables.[15]

fixed on January 21, 1998.[9]

Prior to and during the construction period, changes in
circumstances arose, prompting the parties to make adjustments in
the initial terms of their contract. The following pertinent changes
were mutually agreed upon by the parties:
First, as the bulk excavation contractor
refused to return to the project site, petitioner
directed respondent to continue the excavation work;
[10]

million worth of work per month, respondent asked that the

topping-off be moved to February 1999. Respondent likewise
requested a price adjustment with respect to overhead and

Second, in addition to respondents scope of

work, it was made to perform side trimmings.
Third, petitioner
directed
respondent
to
reduce the monthly target accomplishment to P1
million worth of work and up to one (1) floor only.[11]
Fourth, the following
respondents scope of work: a)
related items from 6th floor
exterior masonry works from
and c) Garbage chute.[12]

In view of the limitation on the target accomplishment to P1

were deleted from

Masonry works and all
to roof deck; b) All
4th floor to roof deck;

equipment expenses and legislated additional labor cost. These

requests were not, however, acted upon by petitioner. [16]
After the completion of the side trimmings and excavation of
the buildings foundation, respondent demanded the payment
of P2,248,507.70

respectively. Instead

of

paying the amount, petitioner agreed with the respondent on a

negotiated amount of P900,000.00 for side trimmings.[17] However,
respondents claim for foundation excavation was not acted upon.
[18]

Fifth, as a consequence of the deletion of the

above works, the contract price was reduced
to P62,828,826.53.[13]

and P1,805,225.90,

During the construction period, petitioner granted, on separate

occasions,

respondents

accommodations.[19]

requests

for

payroll

and

material

On March 13, 1999, respondent submitted its final billing,

amounting to P4,442,430.90 representing its work accomplishment
and retention, less all deductions. On March 23, 1999, a punch list
was drawn as a result of the joint inspection undertaken by the
parties. Petitioner, on the other hand, refused to issue a certificate

On May 16, 2000, the CIAC rendered a decision[23] in favor of

the respondent, disposing, as follows:
WHEREFORE, judgment is hereby rendered
and AWARD of monetary claims is hereby made as
follows:

of completion. It, instead, sent a letter to respondent informing the

latter that it was already in default.[20]

FOR THE CLAIMANT:

On September 14, 1999, respondent was constrained to file

a

Request

for

Adjudication

[21]

with

the

1.

CIAC. Respondent

Retention Money
Unpaid Billings

specifically prayed, thus:

Retention Money

WHEREFORE,
premises
considered,
the
Claimant-Contractor prays that this Honorable
Commission render judgment against RespondentOwner EMPIRE EAST LAND HOLDINGS, INC., ordering
said Respondents to pay the Claimant the amount of
PhP22,770,976.66 plus costs of suit, broken down as
follows
a.

PhP4,442,430.90 as unpaid
amount from the contract price;

b.

PhP3,153,733.60
as
the
amount remaining unpaid for
additional works;

c.

PhP13,976,427.00
overhead expenses; and

d.

PhP1,198,385.16
as
additional costs due to wage
escalation;

P4,502,886
(P1,607,627.65)
(6,110,514.29)

2
.

Additional Work: Excavation for Foundations

1,805,225

3.

Overhead Expenses

1,397,642

4.

Labor Costs Escalation

Total due the Claimant

308,226

P8,013,981

as

Other reliefs equitable under the premises are

also prayed for.[22]

FOR THE RESPONDENT:

1.

Punch List Items

Total due the Respondent

P248,350

P248,350

Aggrieved, petitioner elevated the matter to the CA via a

All other
dismissed.

claims

and

counterclaims

are

OFFSETTING the lesser amount due from

Claimant with the bigger amount from the
Respondent, EMPIRE EAST LAND HOLDINGS, INC. is
hereby ordered to pay CAPITOL INDUSTRIAL
CONSTRUCTION GROUPS, INC. the net amount of
SEVEN MILLION SEVEN HUNDRED SIXTY-FIVE
THOUSAND SIX HUNDRED THIRTY-ONE AND 81/100
(P7,765,631.81) with 6% legal interest from the time
the request for adjudication was filed with the CIAC
on September 14, 1999 up to the time this Decision
becomes final and executory.
Thereafter, interest at the rate of 12% per
annum shall accrue on the final judgment until it is
fully paid.
The arbitration fees and expenses shall be
paid on a pro rata basis as initially shared by the
parties.
SO ORDERED.[24]
As to petitioners counterclaim, the CIAC denied those which
referred to masonry and other works that it took over, considering
that they were formally deleted from respondents scope of work,
which in turn caused the reduction of their total contract price.
[25]

Petitioners claim for liquidated damages was likewise found

unmeritorious because it allowed respondent to complete the

works despite knowledge that the latter was already in default.
[26]

On the other hand, as the punch list was drawn after the joint

inspection by the parties, CIAC found for the petitioner and thus
awarded a total amount of P248,350.00[27]

petition for review under Rule 43 of the Rules of Court. On

November 3, 2004, the CA affirmed the CIACs findings of fact and
conclusions of law with a slight modification, and ruled:
WHEREFORE, the Decision, dated 16 May
2000, of the Construction Industry Arbitration
Commission Arbitral Tribunal is hereby AFFIRMED
WITH MODIFICATION in that CIACs award on Labor
Cost Escalation is hereby DELETED for lack of factual
basis and, consequently, for lack of cause of action
and CIACs award on Additional Work for Foundation
Excavation
is
hereby
equitably
REDUCED
to P980,376.34. All other awards, as well as the
rates of interest, are hereby AFFIRMED.
Accordingly, the total amount due to CICG
is P6,880,905.68. While
EELH
is
entitled P248,350.00. Offsetting the award of EELH
from the amount due to CICG, EELH is hereby
ORDERED to pay CICG the total amount of SIX
MILLION SIX HUNDRED THIRTY-TWO THOUSAND FIVE
HUNDRED FIFTY-FIVE PESOS (P6,632,555.00). No
costs at this instance.
SO ORDERED.[28]
In deleting respondents claim for labor cost escalation and
reducing its claim for the cost of the excavation of foundation, the
appellate court said that respondent failed to show that it in fact
paid said wage increase pursuant to the New Wage Order, [29] while
the reduction of the cost of foundation excavation was the result of
the reduction of its cost per cubic meter.[30]
Hence, the present petition, raising the following issues:

I.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT ORDERED
THE RELEASE OF RETENTION MONEY IN FAVOR OF
CICG.

In the construction industry, the ten percent (10%) retention

money is a portion of the contract price automatically deducted
from the contractors billings, as security for the execution of
corrective work if any becomes necessary. [32]

II.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT AWARDED
THE CLAIM OF CICG FOR THE EXCAVATION OF
FOUNDATION.
III
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT AFFIRMED
CIACS AWARD FOR THE PAYMENT OF ALLEGED
OVERHEAD EXPENSES

The construction contract gave petitioner the right to retain

10% of each progress payment until completion and acceptance of
all

works.[33] Undoubtedly,

as

will

be

discussed

hereunder,

respondent complied fully with its obligations, save only those

items of work which were mutually deleted by the parties from its
scope

of

work. However,

apart

from

the

completion

and

acceptance of all works, the following requisites were set as preconditions for the release of the retention money:
a)

Contractors Sworn Statement showing

that all taxes due from the CONTRACTOR, and
all obligations on materials used and labor
employed in connection with this contract
have been duly paid

b)

Guarantee Bond to answer for faulty

and/or defective materials or workmanship as
stated in Article IX Section 9.3 of this
Contract;

c)

Original and signed and sealed Three

(3) sets of prints of As Built drawings.[34]

IV.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT DENIED
EMPIRE EASTS CLAIM FOR MASONRY AND OTHER
WORKS, LIQUIDATED DAMAGES, AND COST OF
MONEY FOR PAYROLL ASSISTANCE AND MATERIALS
ACCOMMODATION.[31]
The petition is partly meritorious.
On the Release of Retention Money

The CA affirmed the CIACs decision to order the release of

Petitioner contends that both the CIAC and the CA erred in

the retention money despite respondents failure to establish the

ordering the release of the retention money despite respondents

fulfillment of the aforementioned conditions, as both tribunals

failure to comply with the conditions for its release as set forth in

merely

the contract.

completion, which, according to respondent, was a pre-requisite to

We find for the petitioner.

focused

on

the

non-issuance

of

the

certificate

of

the issuance of a guarantee bond. The CA concluded that the

conditions were deemed fulfilled because the creditor voluntarily

prevented their fulfillment.

Respondent claimed P13,976,427.00 as additional overhead

To this, we cannot agree.

expenses brought about by the delay in the completion of the

The record of the case is bereft of any evidence to show that

conditions (a) and (c) were complied with. Petitioner categorically
stated in all its pleadings that they were not. Surprisingly,
respondent did not squarely argue this point. It relied solely on
petitioners failure to issue the certificate of completion, which
prevented the acquisition of a guarantee bond and thus resulted in
the non-release of the retention money. While it is true that
respondent was entitled to a certificate of completion as the
issuance

thereof

was

just

On Respondents Right to Additional Overhead Cost

ministerial

duty

of

petitioner

considering that the project had already been completed, the

certificate was not the only condition for said release. It was simply
a pre-requisite for the issuance of the guarantee bond. And there
was no showing that the absence of the certificate of completion
was the only reason why no guarantee bond was issued.

project due to petitioners own acts. The CIAC, however, awarded

only a nominal amount which is 10% of respondents claim
because of its failure to present supporting documents to prove
such additional expenses. The arbitral tribunal observed that
respondent only presented its own computation without any other
document to substantiate its claim. The CA, in turn, affirmed the
CIAC findings, ratiocinating that petitioners failure to present
countervailing evidence was an implied admission on its part that
the computation made by respondent was correct.
We beg to differ.
It is undisputed that the only piece of evidence presented
by respondent in support of its claim for additional overhead cost
was its own computation of the said expenses. It failed to adduce
actual receipts, invoices, contracts and similar documents. To be

If we were to apply the civil law rule of constructive

sure, respondents claim for overhead cost may be classified as a

fulfillment the condition shall be deemed fulfilled if the creditor

claim for actual damages. Actual damages are those damages

voluntarily prevented its fulfillment then the submission of a

which the injured party is entitled to recover for the wrong done

guarantee bond may be deemed to have been complied with. But

and injuries received when none were intended. They indicate

we cannot apply the rule to conditions (a) and (c), which remain as

such losses as are actually sustained and are susceptible of

unfulfilled conditions-precedent. Since no proof was adduced that

measurement. As such, they must be proven with a reasonable

these two conditions were complied with, petitioners obligation to

degree of certainty.[35]

release the retention money had not, as yet, arisen. We would like
to emphasize, though, that this is without prejudice to respondents
compliance with the unfulfilled conditions, after which, release of
the retention money must, perforce, follow.

This is not the first time that a contractors claim for

additional overhead costs was denied because of insufficiency or
absence of evidence to support the same. In Filipinas (Pre Fab

Bldg.) Systems, Inc. v. MRT Development Corporation, [36] we denied

find no reason to disturb the CIACs conclusion that respondent is

FSIs claim because only summaries, and not actual receipts,

entitled to its claim for the cost of excavation of foundation. As to

were presented during the hearing. Similarly, in the instant case,

the propriety of the award, both the CIAC and the CA were in a

respondent, by presenting only its own computation to substantiate

better position to compute the same considering that said issue is

its

factual

claim,

is

not

entitled

even

to

the

reduced

amount

in

nature. Significantly,

jurisprudence

teaches

that

of P1,397,642.70 which is 10% of its original claim. Instead, we

mathematical computations, as well as the propriety of arbitral

altogether deny its prayer for additional overhead costs.

awards, are factual determinations[39] which are better examined by

On Respondents Right to the Cost of Foundation

Excavation
As to respondents entitlement to the cost of excavation of
foundation, we find no cogent reason to disturb the CIACs
conclusion, as modified by the CA.
Side trimmings and the excavation of foundation were not
included in respondents original scope of work. They were,
however, undertaken by the respondent upon the directive of
petitioner, due to the previous contractors refusal to resume its
excavation work. These works, therefore, constitute an additional
claim of respondent over and above the original contract price. A
confirmation of these works had, in fact, been given by petitioner
through Change Order Nos. 3[37] and 4[38] where it agreed to

the lower courts as trier of facts. Thus, we affirm the award

of P980,376.34 for foundation excavation.
On

Petitioners

Counterclaim

for

the

Cost

of

Unfinished Works
During the construction period, the parties mutually agreed
that some items of work be deleted from respondents scope of
work. Specifically, as claimed by respondent, the following were
deleted: a) masonry works and all related items from the 6 th floor
to the roof deck; b) all exterior masonry works from the 4 th floor to
the roof deck; and c) the garbage chute. This deletion was,
however, denied by petitioner. It, instead, claimed that the only
modification it approved was the reduction by three floors of the
total number of floors to be constructed by respondent.[40]

pay P250,000.00 and P650,000.00, respectively. This P900,000.00

After a thorough review of the documents presented by

negotiated amount referred specifically to side trimmings and

both parties, both the CIAC and the CA concluded that the

hauling out of adobe soil. It is unfortunate, though, that the parties

unfinished works, i.e., masonry works, were actually recognized

failed to arrive at a settlement as to respondents claim for the cost

and accepted by petitioner. It thus agreed to take over, through its

of excavation of foundation.

new contractor, the balance of work. The only consequence of

The additional works having been undertaken by respondent,

and the fact of non-payment thereof having been established, we

such acceptance was the deduction of the value of the unfinished

works from the total contract price.[41] This was the reason why the
contract

price

was

reduced

from P84

million

to P62,828,826.53. The

deletion

was,

likewise,

confirmed

by

respondent in a letter dated August 21, 1998.[42]

Applying Article 1235[43] of the Civil Code, petitioners act exempted
respondent from liability for the unfinished works. A person entering into a contract
has a right to insist on its performance in all particulars, according to its meaning and
spirit. But if he chooses to waive any of the terms introduced for his own benefit, he
may do so.[44]When the obligee accepts the performance, knowing its incompleteness
or irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.

pine laws, they are in the nature of penalties. They are

attached to the obligation in order to ensure performance. [45] As a
pre-condition to such award, however, there must be proof of the
fact of delay in the performance of the obligation.
Thus, the resolution of the issue of petitioners entitlement
to liquidated damages hinges on whether respondent was in
default in the performance of its obligation
The completion date of the construction project was initially
fixed on January 21, 1998. However, due to causes beyond the
control of respondent, the latter failed to perform its obligation as

In the instant case, petitioner was aware of the unfinished work of

respondent; yet, it did not raise any objection or protest. It, instead, voluntarily hired
another contractor to perform the unfinished work, and opted to reduce the contract
price. By removing from the contract price the value of the works deleted, it is as if
said items were not included in the original terms, in the first place. Thus, as
correctly concluded by the CIAC, and as affirmed by the CA, petitioner is not
entitled to reimbursement from respondent for the expenses it incurred to complete
the unfinished works.
On Petitioners Counterclaim for Liquidated Damage

scheduled. The CIAC[46] and the CA enumerated the causes of the

delay, viz., the delayed issuance of building permit; [47] additional
work undertaken by respondent, i.e., bulk excavation and side
trimmings;[48] delayed payment of progress billings;[49] delayed
delivery of owner-supplied construction materials; [50] and limitation
of monthly accomplishment.[51] All these causes of respondents
failure to complete the project on time were attributable to
petitioners fault.
Still, petitioner contends that even at the start and for the

In addition to its claim for the cost of masonry and other

works, petitioner demanded the payment of liquidated damages on
the ground that respondent was in default in the performance of its
obligation.

entire duration of the construction, respondent was guilty of delay

due to insufficient manpower and lack of technical know-how.
[52]

Yet, petitioner allowed respondent to proceed with the project;

thus,

petitioner

cannot

now

be

permitted

to

raise

anew

Liquidated damages are those that the parties agree to be

respondents alleged delay. More importantly, respondent is not

paid in case of a breach. As worded, the amount agreed upon

guilty of breach of the obligation; hence, it cannot be held liable for

answers for damages suffered by the owner due to delays in the

liquidated damages.

completion of the project. Under Philip

On

Petitioners

Counterclaim

for

the

Cost

of

Payroll Assistance and Materials Accommodation

Finally, as to petitioners counterclaim for payroll assistance
and materials accommodation, we quote with approval the CAs
observation in this wise:
[W]ith respect to EELHs [petitioners] claim for
payroll and material assistance, a perusal of CIACs
questioned Decision reveals that these were already
taken into consideration and, were in fact, deducted
from CICGs [respondents] retention money itemized
as unpaid billings amounting to P1,607,627.65.

that the latter decision was based on substantial evidence. In

administrative or quasi-judicial bodies like the CIAC, a fact may be
established if supported by substantial evidence, or that amount of
relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.[54]
It is well established that under Rule 45 of the Rules of
Court, only questions of law, not of fact, may be raised before the
Supreme Court. It must be stressed that this Court is not a trier of
facts and it is not its function to re-examine and weigh anew the
respective evidence of the parties. [55] To be sure, findings of fact of
lower courts are deemed conclusive and binding upon the Supreme

On page 9 of CIACs Decision, the arbitral

tribunal found that the total amount of payroll
accommodation advanced by EELH [petitioner] for
(sic) CICG [respondent] isP10,044,966.16, while the
material assistance advanced by EELH [petitioner]
is P2,837,645.26. These
amounts
were
added
together with other items and were deducted from
the reduced contract price. Hence, as can be
gleaned from page 13 of the CIACs Decision, EELHs
[petitioners]
overpayment
amounting
to P1,607,627.65
already
included
EELHs
[petitioners] payroll accommodation and material
accommodations.[53]

Court, save only in clear exceptional cases.[56]

In view of the foregoing, after deducting from the final

contract price the retention money (that is yet to be released), the
payments as well as the payroll and material accommodations
made by the petitioner, there was an overpayment to respondent
in the total amount of P1,607,627.65. From said amount shall be
deducted P980,376.34

due

the

respondent

for

the

cost

of

foundation excavation. On the other hand, as held by the CIAC and

affirmed by the CA, petitioner is entitled to its claim for punch list
items amounting to P248,350.00.

As can be gleaned from the appealed CA decision, the

appellate court had reviewed the case based on the petition and
annexes, and weighed them against the Comment of respondent
and the decision of the arbitral tribunal to arrive at the conclusion

Considering that the conditions set forth in the contract

have not yet been complied with, the release of the retention
money shall be held in abeyance. Thus, respondent is liable to
petitioner for the payment of P875,601.31, which is the difference

between the overpayment and the cost of foundation excavation,

plus the cost of punch list items.

WHEREFORE,

premises

considered,

the

WORLD INTERACTIVE
NETWORK SYSTEMS (WINS)
JAPAN CO., LTD.,
Respondent.

February 11, 2008

petition

is PARTIALLY GRANTED. The Decision of the Court of Appeals

x--------------------------------------------------x
DECISION

dated November 3, 2004 and its Resolution datedMay 10, 2005 in

CA-G.R. SP No. 58980, are MODIFIED by deleting the award of

Promulgated:

CORONA, J.:

additional overhead cost amounting to P1,397,642.70.

This petition for review on certiorari under Rule 45 of the Rules of Court seeks
The petitioner is directed to issue to respondent the
required certificate of completion in order to enable the latter to
obtain the corresponding guarantee bond. In view of the nonfulfillment of the conditions-precedent, the release of the retention
money is hereby held in abeyance. Thus, respondent is ordered to

to set aside the February 16, 2005 decision [1] and August 16, 2005 resolution [2] of the
Court of Appeals (CA) in CA-G.R. SP No. 81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation

pay the petitioner P875,601.31 subject to the return of the amount

entered into a licensing agreement with respondent World Interactive Network

when

Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under the laws of

respondent

shall

have

complied

with

the

conditions

aforesaid.

Japan. Under the agreement, respondent was granted the exclusive license to
distribute and sublicense the distribution of the television service known as The
Filipino Channel (TFC) in Japan. By virtue thereof, petitioner undertook to transmit

SO ORDERED.
ABS-CBN BROADCASTING
CORPORATION,
Petitioner,
-versus-

G.R. No. 169332

the TFC programming signals to respondent which the latter received through its
decoders and distributed to its subscribers.

Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE
CASTRO, JJ.

A dispute arose between the parties when petitioner accused respondent of

inserting nine episodes of WINS WEEKLY, a weekly 35-minute community news
program for Filipinos in Japan, into the TFC programming from March to May 2002.

[3]

Petitioner claimed that these were unauthorized insertions constituting a material

The arbitrator found in favor of respondent.[7] He held that petitioner gave its

breach of their agreement. Consequently, on May 9, 2002, [4] petitioner notified

approval to respondent for the airing of WINS WEEKLY as shown by a series of

respondent of its intention to terminate the agreement effective June 10, 2002.

written exchanges between the parties. He also ruled that, had there really been a
material breach of the agreement, petitioner should have terminated the same instead

Thereafter, respondent filed an arbitration suit pursuant to the arbitration

of sending a mere notice to terminate said agreement. The arbitrator found that
clause of its agreement with petitioner. It contended that the airing of WINS
petitioner threatened to terminate the agreement due to its desire to compel
WEEKLY was made with petitioner's prior approval. It also alleged that petitioner
respondent to re-negotiate the terms thereof for higher fees. He further stated that
only threatened to terminate their agreement because it wanted to renegotiate the
even if respondent committed a breach of the agreement, the same was seasonably
terms thereof to allow it to demand higher fees. Respondent also prayed for damages
cured. He then allowed respondent to recover temperate damages, attorney's fees and
for petitioner's alleged grant of an exclusive distribution license to another entity,
one-half of the amount it paid as arbitrator's fee.
NHK (Japan Broadcasting Corporation).[5]
Petitioner filed in the CA a petition for review under Rule 43 of the Rules of
The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They
Court or, in the alternative, a petition for certiorari under Rule 65 of the same Rules,
stipulated on the following issues in their terms of reference (TOR)[6]:
1.
2.

3.
4.

Was the broadcast of WINS WEEKLY by the claimant

duly authorized by the respondent [herein petitioner]?
Did such broadcast constitute a material breach of the
agreement that is a ground for termination of the agreement
in accordance with Section 13 (a) thereof?
If so, was the breach seasonably cured under the same
contractual provision of Section 13 (a)?
Which party is entitled to the payment of damages they
claim and to the other reliefs prayed for?
xxx

xxx

xxx

with application for temporary restraining order and writ of preliminary injunction. It
was docketed as CA-G.R. SP No. 81940. It alleged serious errors of fact and law
and/or grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the arbitrator.
Respondent, on the other hand, filed a petition for confirmation of arbitral
award before the Regional Trial Court (RTC) of Quezon City, Branch 93, docketed
as Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental petition in the CA seeking to
enjoin the RTC of Quezon City from further proceeding with the hearing of

respondent's petition for confirmation of arbitral award. After the petition was
Petitioner moved for reconsideration. The same was denied. Hence, this
admitted by the appellate court, the RTC of Quezon City issued an order holding in
petition.
abeyance any further action on respondent's petition as the assailed decision of the
arbitrator had already become the subject of an appeal in the CA. Respondent filed a

Petitioner contends that the CA, in effect, ruled that: (a) it should have first

motion for reconsideration but no resolution has been issued by the lower court to

filed a petition to vacate the award in the RTC and only in case of denial could it

date.[8]

elevate the matter to the CA via a petition for review under Rule 43 and (b) the
assailed decision implied that an aggrieved party to an arbitral award does not have

On February 16, 2005, the CA rendered the assailed decision dismissing ABSthe option of directly filing a petition for review under Rule 43 or a petition for
CBNs petition for lack of jurisdiction. It stated that as the TOR itself provided that
certiorari under Rule 65 with the CA even if the issues raised pertain to errors of fact
the arbitrator's decision shall be final and unappealable and that no motion for
and law or grave abuse of discretion, as the case may be, and not dependent upon
reconsideration shall be filed, then the petition for review must fail. It ruled that it is
such grounds as enumerated under Section 24 (petition to vacate an arbitral award)
the RTC which has jurisdiction over questions relating to arbitration. It held that the
of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part of the
only instance it can exercise jurisdiction over an arbitral award is an appeal from the
CA.
trial court's decision confirming, vacating or modifying the arbitral award. It further
stated that a petition for certiorari under Rule 65 of the Rules of Court is proper in

The issue before us is whether or not an aggrieved party in a voluntary

arbitration cases only if the courts refuse or neglect to inquire into the facts of an

arbitration dispute may avail of, directly in the CA, a petition for review under Rule

arbitrator's award. The dispositive portion of the CA decision read:

43 or a petition for certiorari under Rule 65 of the Rules of Court, instead of filing a
petition to vacate the award in the RTC when the grounds invoked to overturn the

WHEREFORE,
the
instant
petition
is
hereby DISMISSED for lack of jurisdiction. The application for a
writ of injunction and temporary restraining order is
likewise DENIED. The Regional Trial Court of Quezon City
Branch 93 is directed to proceed with the trial for the Petition for
Confirmation of Arbitral Award.
SO ORDERED.

arbitrators decision are other than those for a petition to vacate an arbitral award
enumerated under RA 876.

RA 876 itself mandates that it is the Court of First Instance, now the RTC,

a statute means the elimination of others not specifically mentioned. As RA 876 did

which has jurisdiction over questions relating to arbitration, [9] such as a petition to

not expressly provide for errors of fact and/or law and grave abuse of discretion

vacate an arbitral award.

(proper grounds for a petition for review under Rule 43 and a petition for certiorari
under Rule 65, respectively) as grounds for maintaining a petition to vacate an

Section 24 of RA 876 provides for the specific grounds for a petition to vacate
arbitral award in the RTC, it necessarily follows that a party may not avail of the
an award made by an arbitrator:
latter remedy on the grounds of errors of fact and/or law or grave abuse of discretion

Sec. 24. Grounds for vacating award. - In any one of the

following cases, the court must make an order vacating the
award upon the petition of any party to the controversy when such
party proves affirmatively that in the arbitration proceedings:

to overturn an arbitral award.

Adamson v. Court of Appeals[10] gave ample warning that a petition to vacate

(a) The award was procured by corruption, fraud, or other

undue means; or

filed in the RTC which is not based on the grounds enumerated in Section 24 of RA

(b) That there was evident partiality or corruption in the

arbitrators or any of them; or

876 should be dismissed. In that case, the trial court vacated the arbitral award
seemingly based on grounds included in Section 24 of RA 876 but a closer reading

(c) That the arbitrators were guilty of misconduct in

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

thereof revealed otherwise. On appeal, the CA reversed the decision of the trial court
and affirmed the arbitral award. In affirming the CA, we held:

(d) That the arbitrators exceeded their powers, or so

imperfectly executed them, that a mutual, final and definite award
upon the subject matter submitted to them was not made.

Based on the foregoing provisions, the law itself clearly provides that the
RTC must issue an order vacating an arbitral award only in any one of the . . .
cases

enumerated

therein.

Under

the

legal

maxim

in

statutory

construction expressio unius est exclusio alterius, the explicit mention of one thing in

The Court of Appeals, in reversing the trial court's decision

held that the nullification of the decision of the Arbitration
Committee was not based on the grounds provided by the
Arbitration Law and that xxx private respondents (petitioners
herein) have failed to substantiate with any evidence their claim of
partiality. Significantly, even as respondent judge ruled against the
arbitrator's award, he could not find fault with their impartiality and
integrity. Evidently, the nullification of the award rendered at the
case at bar was not made on the basis of any of the grounds
provided by law.
xxx

xxx

xxx

It is clear, therefore, that the award was vacated not

because of evident partiality of the arbitrators but because the
latter interpreted the contract in a way which was not favorable to
herein petitioners and because it considered that herein private

respondents, by submitting the controversy to arbitration, was

seeking to renege on its obligations under the contract.
xxx

xxx

xxx

It is clear then that the Court of Appeals reversed the trial

court not because the latter reviewed the arbitration award involved
herein, but because the respondent appellate court found that the
trial court had no legal basis for vacating the award. (Emphasis
supplied).

In cases not falling under any of the aforementioned grounds to vacate an

award, the Court has already made several pronouncements that a petition for review
under Rule 43 or a petition for certiorari under Rule 65 may be availed of in the CA.
Which one would depend on the grounds relied upon by petitioner.
In Luzon Development Bank v. Association of Luzon Development Bank
Employees,[11] the Court held that a voluntary arbitrator is properly classified as a

As such, decisions handed down by voluntary arbitrators fall within the

exclusive appellate jurisdiction of the CA. This decision was taken into consideration
in approving Section 1 of Rule 43 of the Rules of Court.[12] Thus:
SECTION 1. Scope. - This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of or authorized by
any quasi-judicial agency in the exercise of its quasi-judicial
functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities and
Exchange Commission, Office of the President, Land Registration
Authority, Social Security Commission, Civil Aeronautics Board,
Bureau of Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian Reform
under Republic Act Number 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission, Philippine Atomic
Energy Commission, Board of Investments, Construction Industry
Arbitration Commission, and voluntary arbitrators authorized
by law. (Emphasis supplied)

quasi-judicial instrumentality and is, thus, within the ambit of Section 9 (3) of the
Judiciary Reorganization Act, as amended. Under this section, the Court of Appeals
This rule was cited in Sevilla Trading Company v. Semana,[13] Manila Midtown

shall exercise:
xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all final

judgments, decisions, resolutions, orders or awards of Regional
Trial Courts and quasi-judicial agencies, instrumentalities, boards
or commissions, including the Securities and Exchange
Commission, the Employees Compensation Commission and the
Civil Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with the
Constitution, the Labor Code of the Philippines under Presidential
Decree No. 442, as amended, the provisions of this Act and of
subparagraph (1) of the third paragraph and subparagraph (4) of
the fourth paragraph of Section 17 of the Judiciary Act of 1948.
(Emphasis supplied)

Hotel v. Borromeo,[14] and Nippon Paint Employees Union-Olalia v. Court of

Appeals.[15] These cases held that the proper remedy from the adverse decision of a
voluntary arbitrator, if errors of fact and/or law are raised, is a petition for review
under Rule 43 of the Rules of Court. Thus, petitioner's contention that it may avail of
a petition for review under Rule 43 under the circumstances of this case is correct.

As to petitioner's arguments that a petition for certiorari under Rule 65 may

Significantly, Insular Savings Bank v. Far East Bank and Trust

also be resorted to, we hold the same to be in accordance with the Constitution and

Company[19] definitively outlined several judicial remedies an aggrieved party to an

jurisprudence.

arbitral award may undertake:

(1)

Section 1 of Article VIII of the 1987 Constitution provides that:

SECTION 1. The judicial power shall be vested in one
Supreme Court and in such lower courts as may be established by
law.

(2)
(3)

Judicial power includes the duty of the courts of

justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis supplied)

a petition in the proper RTC to issue an order to vacate

the award on the grounds provided for in Section 24 of
RA 876;
a petition for review in the CA under Rule 43 of the
Rules of Court on questions of fact, of law, or mixed
questions of fact and law; and
a petition for certiorari under Rule 65 of the Rules of
Court should the arbitrator have acted without or in
excess of his jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction.

Nevertheless, although petitioners position on the judicial remedies available

to it was correct, we sustain the dismissal of its petition by the CA. The remedy
As may be gleaned from the above stated provision, it is well within the power
petitioner availed of, entitled alternative petition for review under Rule 43 or
and jurisdiction of the Court to inquire whether any instrumentality of the
petition for certiorari under Rule 65, was wrong.
Government, such as a voluntary arbitrator, has gravely abused its discretion in the
exercise of its functions and prerogatives. Any agreement stipulating that the
decision of the arbitrator shall be final and unappealable and that no further

Time and again, we have ruled that the remedies of appeal and certiorari are
mutually exclusive and not alternative or successive.[20]

judicial recourse if either party disagrees with the whole or any part of the
Proper issues that may be raised in a petition for review under Rule 43 pertain
arbitrator's award may be availed of cannot be held to preclude in proper cases the
to errors of fact, law or mixed questions of fact and law. [21] While a petition for
power of judicial review which is inherent in courts.

[16]

We will not hesitate to review

certiorari under Rule 65 should only limit itself to errors of jurisdiction, that is, grave

a voluntary arbitrator's award where there is a showing of grave abuse of authority or

abuse of discretion amounting to a lack or excess of jurisdiction. [22] Moreover, it
discretion and such is properly raised in a petition for certiorari

[17]

and there is no
cannot be availed of where appeal is the proper remedy or as a substitute for a lapsed

appeal, nor any plain, speedy remedy in the course of law.[18]

appeal.[23]

presented by the parties. Therefore, the issues clearly fall under the classification of
In the case at bar, the questions raised by petitioner in its alternative
errors of fact and law questions which may be passed upon by the CA via a
petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED SERIOUS
ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT THE BROADCAST OF WINS WEEKLY WAS
DULY AUTHORIZED BY ABS-CBN.
B. THE SOLE ARBITRATOR COMMITTED SERIOUS
ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT THE UNAUTHORIZED BROADCAST DID
NOT CONSTITUTE MATERIAL BREACH OF THE
AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS
ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT WINS SEASONABLY CURED THE BREACH.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS
ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT TEMPERATE DAMAGES IN THE AMOUNT
OF P1,166,955.00 MAY BE AWARDED TO WINS.
E. THE SOLE ARBITRATOR COMMITTED SERIOUS
ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
AWARDING ATTORNEY'S FEES IN THE UNREASONABLE
AMOUNT
AND
UNCONSCIONABLE
AMOUNT
OF P850,000.00.
F. THE ERROR COMMITTED BY THE SOLE
ARBITRATOR IS NOT A SIMPLE ERROR OF JUDGMENT OR
ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION.

petition for review under Rule 43. Petitioner cleverly crafted its assignment of errors
in such a way as to straddle both judicial remedies, that is, by alleging serious errors
of fact and law (in which case a petition for review under Rule 43 would be proper)
and grave abuse of discretion (because of which a petition for certiorari under Rule
65 would be permissible).
It must be emphasized that every lawyer should be familiar with the
distinctions between the two remedies for it is not the duty of the courts to determine
under which rule the petition should fall.[24] Petitioner's ploy was fatal to its
cause. An appeal taken either to this Court or the CA by the

wrong

inappropriate mode shall be dismissed. [25] Thus, the alternative petition filed in the
CA, being an inappropriate mode of appeal, should have been dismissed outright by
the CA.
WHEREFORE, the petition is hereby DENIED. The February 16, 2005
decision and August 16, 2005 resolution of the Court of Appeals in CA-G.R. SP No.
81940 directing the Regional Trial Court of Quezon City, Branch 93 to proceed with
the trial of the petition for confirmation of arbitral award is AFFIRMED.

A careful reading of the assigned errors reveals that the real issues calling for
the CA's resolution were less the alleged grave abuse of discretion exercised by the
arbitrator and more about the arbitrators appreciation of the issues and evidence

or

Costs against petitioner.

SO ORDERED.

DIESEL CONSTRUCTION CO.,

INC.,
Petitioner,

G.R. No. 154885

the Decision dated December 14, 2001 of the Arbitral Tribunal of the Construction
Industry Arbitration Commission (CIAC) in CIAC Case No. 18-2001, while the CA
Resolution granted in part the motion of Diesel for reconsideration and denied a
similar motion of UPSI.

- versus -

The Facts
The facts, as found in the CA Decision under review, are as follows:

UPSI PROPERTY HOLDINGS, INC.,

Respondent.
x------------------------------------------------x
UPSI PROPERTY HOLDINGS, INC., G.R. No. 154937
Petitioner,
Present:
- versus -

QUISUMBING, J., Chairperson,

CARPIO MORALES,
TINGA,
VELASCO, JR., and
CHICO-NAZARIO, JJ.

DIESEL CONSTRUCTION CO., INC. Promulgated:

and FGU INSURANCE CORP.,
Respondents.
March 24, 2008
x-----------------------------------------------------------------------------------------x
DECISION

On August 26, 1995, Diesel, as Contractor, and UPSI, as Owner, entered into a
Construction Agreement[3] (Agreement) for the interior architectural construction
works for the 14th to 16th floors of the UPSI Building 3 Meditel/Condotel Project
(Project) located on Gen. Luna St., Ermita, Manila. Under the Agreement, as
amended, Diesel, for PhP 12,739,099, agreed to undertake the Project, payable by
progress billing.[4] As stipulated, Diesel posted, through FGU Insurance Corp.
(FGU), a performance bond in favor of UPSI.[5]
Inter alia, the Agreement contained provisions on contract works and Project
completion, extensions of contract period, change/extra works orders, delays, and
damages for negative slippage.

VELASCO, JR., J.:

Tasked to oversee Diesels work progress were: Grace S. Reyes Designs, Inc.
The Case

for interior design and architecture, D.L. Varias and Associates as Construction
Manager, and Ryder Hunt Loacor, Inc. as Quantity Surveyor.[6]

Before the Court are these petitions for review under Rule 45 separately
interposed by Diesel Construction Co., Inc. (Diesel) and UPSI Property Holdings,

Under the Agreement, the Project prosecution proper was to start on August 2,

Inc. (UPSI) to set aside the Decision [1] dated April 16, 2002 as partly modified in a

1999, to run for a period of 90 days or until November 8, 1999. The parties later

Resolution[2] of August 21, 2002, both rendered by the Court of Appeals (CA) in

agreed to move the commencement date to August 21, 1999, a development

CA-G.R. SP No. 68340, entitled UPSI Property Holdings, Inc. v. Diesel

necessitating the corresponding movement of the completion date to November 20,

Construction Co., Inc., and FGU Insurance Corporation. The CA Decision modified

1999.

Of particular relevance to this case is the section obliging the contractor, in

case of unjustifiable delay, to pay the owner liquidated damages in the amount

and for a declaration that the deductions it made for liquidated damages were
proper. UPSI also sought payment of attorneys fees.[11]

equivalent to one-fifth (1/5) of one (1) percent of the total Project cost for each
calendar day of delay.[7]

After due hearing following a protracted legal sparring, the Arbitral

Tribunal of the CIAC, on December 14, 2001, in CIAC Case No. 18-2001, rendered

In the course of the Project implementation, change orders were effected and

judgment for Diesel, albeit for an amount lesser than its original demand. To be

extensions sought. At one time or another, Diesel requested for extension owing to

precise, the CIAC ordered UPSI to pay Diesel the total amount of PhP 4,027,861.60,

the following causes or delaying factors: (1) manual hauling of materials from the

broken down as follows: PhP 3,661,692.60, representing the unpaid balance of the

14th to 16th floors; (2) delayed supply of marble; (3) various change orders; and (4)

contract price; and PhP 366,169 as attorneys fees. In the same decision, the CIAC

delay in the installation of shower assembly.[8]

dismissed UPSIs counterclaim[12]and assessed it for arbitration costs in the amount

of PhP 298,406.03.[13]

UPSI, it would appear, disapproved the desired extensions on the basis of

the foregoing causes, thus putting Diesel in a state of default for a given contract

In time, UPSI went to the CA on a petition for review, docketed as CA-G.R.

work. And for every default situation, UPSI assessed Diesel for liquidated damages

SP No. 68340. Eventually, the appellate court rendered its assailed Decision

in the form of deductions from Diesels progress payments, as stipulated in the

dated April 16, 2002, modifying that of the CIAC, thus:

Agreement.[9]
Apparently irked by and excepting from the actions taken by UPSI, Diesel,
thru its Project manager, sent, on March 16, 2000, a letter notice to UPSI stating that
the Project has been completed as of that date. UPSI, however, disregarded the
notice, and refused to accept delivery of the contracted premises, claiming that
Diesel had abandoned the Project unfinished. Apart therefrom, UPSI withheld
Diesels 10% retention money and refused to pay the unpaid balance of the
contract price.[10]
It is upon the foregoing factual backdrop that Diesel filed a complaint
before the CIAC, praying that UPSI be compelled to pay the unpaid balance of the
contract price, plus damages and attorneys fees. In an answer with counterclaim,
UPSI denied liability, accused Diesel of abandoning a project yet to be finished, and
prayed for repayment of expenses it allegedly incurred for completing the Project

WHEREFORE, premises considered, the petition is

GRANTED and the questioned Decision is MODIFIED in this
wise:
a.
The claim of [UPSI] for liquidated damages is
GRANTED to the extent of PESOS: ONE MILLION THREE
HUNDRED NINE THOUSAND AND FIVE HUNDRED
(P1,309,500.00) representing forty-five (45) days of delay at
P29,100 per diem;
b.
We hold that [Diesel] substantially complied with
the Construction Contract and is therefore entitled to one hundred
percent (100%) payment of the contract price. Therefore, the claim
of [Diesel] for an unpaid balance of PESOS: TWO MILLION
FOUR HUNDRED FORTY-ONE THOUSAND FOUR
HUNDRED EIGHTY TWO and SIXTY FOUR centavos
(P2,441,482.64), which amount already includes the retention on
the additional works or Change Orders, is GRANTED, minus
liquidated damages. In sum, [UPSI] is held liable to [Diesel] in the
amount of PESOS: ONE MILLION ONE HUNDRED THIRTY
ONE THOUSAND NINE HUNDRED EIGHTY TWO and sixty

four centavos (P1,131,982.64), with legal interest until the same is

fully paid;
c.
The parties are liable equally for the payment of
arbitration costs;
d.
All claims for attorneys fees are DISMISSED; and
e.
Since there is still due and owing from UPSI an
amount of money in favor of Diesel, respondent FGU is
DISCHARGED as surety for Diesel.
Costs de officio.
SO ORDERED.[14]

1.

Whether or not the [CA] has the discretion, indeed the

jurisdiction, to pass upon the qualifications of the
individual members of the CIAC Arbitral Tribunal and
declare them to be non-technocrats and not exceptionally
well-versed in the construction industry warranting
reversal and nullification of the tribunals findings.

2.

Whether or not the [CA] may intervene to annul the

findings of a highly specialized agency, like the CIAC, on
the ground that essentially the question to be resolved
goes to the very heart of the substantiality of evidence,
when in so doing, [CA] merely substituted its own
conjectural opinion to that of the CIAC Arbitral Tribunals
well-supported findings and award.

3.

Whether or not the [CA] erred in its findings, which

are contrary to the findings of the CIAC Arbitral Tribunal.

Therefrom, Diesel and UPSI each sought reconsideration. On August 21,

2002, the CA issued its equally assailed Resolution denying reconsideration to UPSI,
but partially granting Diesels motion, disposing as follows:
WHEREFORE, the Motion for Reconsideration of
[Diesel] is partially GRANTED. The liquidated damages are
hereby reduced to P1,146,519.00 (45 days multiplied by
P25,478.20 per diem). However, in accordance with the main
opinion, We hold that [UPSI] is liable to [Diesel] for the total
amount of P3,661,692.64, representing the unpaid balance of the
contract price plus the ten-percent retention, from which the
liquidated damages, must, of course, be deducted. Thus, in sum, as
amended, We hold that petitioner is still liable to respondent Diesel
in the amount of P2,515,173.64, with legal interest until the same
is fully paid.
The main opinion, in all other respects, STANDS.
SO ORDERED.

[15]

Hence, these separate petitions are before us.

Per its Resolution of March 17, 2003, the Court ordered the consolidation of
the petitions.
The Issues

[16]

On the other hand, in G.R. No. 154937, UPSI presents the following issues:
I
Whether or not portion of the Decision dated April 16, 2002 of the
Honorable [CA] denying additional expenses to complete the
unfinished and abandoned work of [Diesel], is null and void for
being contrary to clean and convincing evidence on record.
II
Whether or not portion of the Decision x x x of the [CA]
finding delay of only forty five (45) days is null and void for
being not in accord with contractual stipulations upon which the
controversy arise.
III
Whether or not the resolution of the Honorable Court of Appeals
denying the herein petitioners motion for reconsideration and
partially granting the respondents motion for reconsideration is
likewise null and void as it does not serve its purpose for being
more on expounding than rectifying errors.[17]
The issues shall be discussed in seriatim.

In its petition in G.R. No. 154885, Diesel raises the following issues:
The Courts Ruling

We resolve to modify the assailed CA Decision.

First Issue
Diesel maintains that the CA erred in its declaration that it may review the
CIACs decision considering the doctrine on the binding effect of conclusions of fact
of highly specialized agencies, such as the CIAC, when supported by substantial
evidence.
The above contention is erroneous and, as couched, misleading.

This dictum finds greater application in the case of the

CIAC because x x x as pointed out by petitioner in its Comment,
the doctrine of primary jurisdiction relied upon by [Diesel] is
diluted by the indubitable fact that the CIAC panel x x x is not at
all composed of technocrats, or persons exceptionally well-versed
in the construction industry. For instance, its chair x x x is a
statistician; another member, x x x a former magistrate, is a
member of the Bar. Doubtless, these two are preeminent in their
fields, and their competence and proficiency in their chosen
professions are unimpeachable. However, when it comes to
determining findings of fact with respect to the matter before Us,
the said panel which they partly comprise cannot claim to have any
special advantage over the members of this Court.[19]

The question of whether or not the findings of fact of the CIAC are
supported by substantial evidence has no causal connection to the personal

As is noted, the CA, in its assailed resolution, dismissed as untenable Diesels

qualifications of the members of the arbitration panel. Surely, a persons

position that the factual findings of the CIAC are binding on and concludes the

undergraduate or postgraduate degrees, as the case may be, can hardly be invoked as

appellate court. The CA went to clarify, however, that the general rule is that factual

the sole, fool proof basis to determine that persons qualification to hold a certain

conclusions of highly specialized bodies are given great weight and even finality

position. Ones work experiences and attendance in relevant seminars and trainings

when supported by substantial evidence. Given this perspective, the CA was correct

would perhaps be the more important factors in gauging a persons fitness to a

in holding that it may validly review and even overturn such conclusion of facts

certain undertaking.

when the matter of its being adequately supported by substantial evidence duly
adduced on record comes to the fore and is raised as an issue.

Correlatively, Diesel, obviously having in mind the disputable presumption

of regularity, correctly argues that highly specialized agencies are presumed to have

Well-established jurisprudence has it that [t]he consequent policy and practice

the necessary technical expertise in their line of authority. In other words, the

underlying our Administrative Law is that courts of justice should respect the

members of the Arbitral Tribunal of the CIAC have in their favor the presumption of

findings of fact of said administrative agencies, unless there is absolutely no

possessing the necessary qualifications and competence exacted by law. A party in

evidence in support thereof or such evidence is clearly, manifestly and patently

whose favor the legal presumption exists may rely on and invoke such legal

insubstantial.

[18]

There can be no serious dispute about the correctness of the CAs above
posture. However, what the appellate court stated later to belabor its point strikes the
Court as specious and uncalled for. Wrote the CA:

presumption to establish a fact in issue. One need not introduce evidence to prove
that the fact for a presumption is prima facie proof of the fact presumed.[20]
To set the records straight, however, the CA did not cast aspersion on the
competence let alone the bona fides of the members of the Arbitral Tribunal to
arbitrate. In context, what the appellate court saidin reaction to Diesels negative

commentary about the CAs expertise on construction mattersis that the said

The CIAC found Diesel not to have incurred delay, thus negating UPSIs

members do not really enjoy a special advantage over the members of the CA in

entitlement to liquidated damages. The CA, on the other hand, found Diesel to have

terms of fleshing out the facts from the evidence on record.

been in delay for 45 days.

In any event, the fact remains that the CA stands justified in reviewing the
CIAC decision.

In determining whether or not Diesel was in delay, the CIAC and CA first
turned on the question of Diesels claimed entitlement to have the Project period
extended, an excusable delay being chargeable against the threshold 90-day

Second and Third Issues

completion period. Both were one in saying that occurrence of certain events gave
Diesel the right to an extension, but differed on the matter of length of the extension,

The next two issues, being interrelated, shall be discussed jointly.

and on the nature of the delay, that is, whether the delay is excusable or not. The CA
deemed the delay, and the resulting extension of 14 days, arising from the manual

Diesel submits that the CA, in reaching its decision, substituted its own
conjectural opinion to that of the CIACs well-grounded findings and award.

hauling of materials, as undeserved. But the CIAC saw it otherwise for the reason
that Frederick W. Crespillo, the witness UPSI presented to refute the allegation of
Diesels entitlement to time extension for the manual hauling of materials, was

Even as Diesels submission has little to commend itself, we deem it prudent

to address its concern by reviewing the incongruent determinations of the CIAC and

incompetent to testify on the issue. As CIAC observed, Crespillo lacked personal

knowledge of the real situation at the worksite.

CA and the factual premises holding such determinations together.

The CIACs reasoning, however, is flawed, assuming that the onus rested on
As it were, the CA reduced the award for unpaid balance of the contract cost

UPSI, instead of on Diesel, to prove that the delay in the execution of the Project was

from PhP 3,661,692.60, as earlier fixed by the CIAC, to PhP 2,441,482.64, although

excusable. Diesel explained that there was no place for its own hoisting machine at

it would consider the reduction and revert to the original CIAC figure. Unlike the

the Project site as the assigned location was being used by the General Contractor,

CIAC which found the award of liquidated damages to be without basis, the CA was

while the alternative location was not feasible due to power constraint. Moreover,

of a different disposition and awarded UPSI PhP 1,309,500, only to reduce the same

Diesel could not use the site elevator of the General Contractor as its personnel were

to PhP 1,146,519 in its assailed resolution. Also, the CA struck out the CIAC award

only permitted to use the same for one hour every day at PhP 600 per hour.

of PhP 366,169 to Diesel for attorneys fees. Additionally, the CIACs ruling making
UPSI alone liable for the costs of arbitration was modified by the CA, which directed
UPSI and Diesel to equally share the burden.
The provisions in the Agreement on excusable delays read:
2.3
Excusable delays: The Contractor shall inform the
owner in a timely manner, of any delay caused by the following:

2.3.a Acts of God, such as storm, floods or earthquakes.

2.3.b Civil disturbance, such as riots, revolutions,
insurrection.
2.3.c Any government acts, decrees, general orders or
regulations limiting the performance of the work.
2.3.d Wars (declared or not).
2.3.e Any delays initiated by the Owner or his personnel
which are clearly outside the control of the Contractor.
2.3.1 Delays caused by the foregoing shall be excusable.
A new schedule or adjustments in contract time shall be negotiated
with the Owner. As time is of the essence of this agreement, all
other delays shall not be excusable.[21]
As may be noted, a common thread runs among the events listed above, that is,
the delaying event is unforeseeable and/or its occurrence is beyond the control of
Diesel as contractor. Here, the lack of a location to establish Diesels own hoisting
machine can hardly be tagged as a foreseeable event. As the CA aptly observed:
[U]nder the terms of the contract, it is Diesel that would
formulate the schedule to be followed in the completion of the
works; therefore, it was encumbent upon Diesel to take into
account all factors that would come into play in the course of the
project. From the records it appears that the General Contractor x x
x had been in the premises ahead of Diesel; hence it would have
been a simple matter for Diesel to have conferred with the formers
officer if the use of its equipment would be viable. Likewise, it
would not have been too much trouble for Diesel to have made a
prior request from UPSI for the use of its freight elevator in the
face of the denial thereof, it could have made the necessary
remedial measures x x x. In other words, those delays were
foreseeable on the part of Diesel, with the application of even
ordinary diligence. But Diesel did all of those when construction
was about to commence. Therefore, We hold that the delays
occasioned by Diesels inability to install its hoisting machine x x
x [were] attributable solely to Diesel, and thus the resultant delay
cannot be charged against the ninety-day period for the termination
of the construction.[22]
There can be no quibbling that the delay caused by the manual hauling of
materials is not excusable and, hence, cannot validly be set up as ground for an

extension. Thus, the CA excluded the delay caused thereby and only allowed Diesel
a total extension period of 85 days. Such extension, according to that court,
effectively translated to a delay of 45 days in the completion of the project. The CA,
in its assailed decision, explained why:
7. All told, We find, and so hold, that [Diesel] has
incurred in delay. x x x However, under the circumstances wherein
UPSI was responsible for some of the delay, it would be most
unfair to charge Diesel with two hundred and forty (240) days of
delay, so much so that it would still owe UPSI, even after
liquidated damages have eaten up the retention and unpaid balance,
the amount of [P4,340,000.00]. Thus, based on Our own
calculations, We deem it more in accord with the spirit of the
contract, as amended, x x x to assess Diesel with an unjustifiable
delay of forty-five (45) days only; hence, at the rate of 1/5 of one
percent as stated in the contract, [or at P1,309,500.00], which
should be deducted from the total unpaid balance of
[P2,441,482.64], which amount already includes the retention on
the additional works or Change Orders.[23]
The CA, in its questioned resolution, expounded on how it arrived at the
figure of 45-day delay in this wise:
7. x x x We likewise cannot give Our assent to the
asseveration of [Diesel] that Our calculations as to the number of
days of delay have no basis. For indeed, the same was arrived at
after taking a holistic view of the entire circumstances attendant to
the instant case. x x x
But prescinding from the above, the basis for Our ruling
should not be hard to discern. To disabuse the mind of [Diesel] that
the forty-five day delay was plucked from out of the blue, allow Us
to let the records speak. The records will show that while the
original target date for the completion x x x was 19 November
1999 x x x, there is a total of eighty-five (85) days of extension
which are justifiable and sanctioned by [UPSI], to wit: thirty (30)
days as authorized on 27 January 2000 by UPSIs Construction
Manager x x x; thirty (30) days as again consented to by the same
Construction Manager on 24 February 2000 x x x; and twenty-five
(25) days on 16 March 2000 by Rider Hunt and Liacom x x x. The
rest of the days claimed by Diesel were, of course, found by Us to
be unjustified in the main opinion. Hence, the project should have

been finished by February 12, 2000. However, by 22 March 2000,

as certified to by Grace S. Reyes Designs, Inc. the project was only
97.56% finished, meaning while it was substantially finished, it
was not wholly finished. By 25 March 2000, the same consultant
conditionally accepted some floors but were still punch listed, so
that from 12 February 2000 to 25 March 2000 was a period of
forty-one (41) days. Allowing four (4) more days for the punch
listed items to be accomplished, and for the general cleaning
mentioned by Grace S. Reyes Designs, Inc., to be done, which to
Us is a reasonable length of time, equals forty-five (45) days.

Pursuant thereto, UPSI issued Change Order (CO) Nos. 1 to 4 on February

3, 2, 8, and 9, 2000 respectively. Thereafter, Diesel submitted a Schedule of
Completion of Additional Works[26] under which Diesel committed to undertake CO
No. 1 for 30 days from February 10, 2000; CO No. 2 for 21 days from January 6,
2000; CO No. 3 for 15 days, subject to UPSIs acceptance of Diesels proposal; and
CO No. 4 for 10 days after the receipt of the items from UPSI.

This is why We find the [conclusion] made by the CIAC,

x x x that there was no delay whatsoever in the work done by
[Diesel], too patently absurd for Us to offer Our unconditional
assent.[24]
Aside from the fact that the CA seemingly assumed contradictory positions
in the span of two paragraphs, its holding immediately adverted to above is patently
erroneous. The CA completely failed to factor in the change orders of UPSI to

The CIAC found that the COs were actually implemented on the following
dates:
CO No. 1 February 9 to March 3, 2000
CO No. 3 February 24 to March 10, 2000
CO No. 4 March 16 to April 7, 2000[27]

Dieselthe directives effectively extending the Project completion time at the behest
of UPSI.

Hence, as correctly held by the CIAC, UPSI, no less, effectively moved the
Section V of the Agreement on the subject Change Orders reads:
V. CHANGES IN SCOPE OF WORK AND EXTRA

completion date, through the various COs, to April 7, 2000.

Moreover, as evidenced by UPSIs Progress Report No. 19 for the period

WORK

ending March 22, 2000, Diesels scope of work, as of that date, was already 97.56%

Any changes or extra work in the SCOPE OF WORK

recommended by the INTERIOR DESIGNER/ARCHITECT or
directed and approved by the OWNER shall be presented to the
CONTRACTOR. Within the shortest time possible, the
CONTRACTOR x x x shall also inform the OWNER if such
changes shall require a new schedule and/or revised completion
date.

complete.[28] Such level of work accomplishment would, by any rational norm, be

The Parties shall then negotiate mutually agreeable terms

x x x. The CONTRACTOR shall not perform any change order or
extra work until the covering terms are agreed upon [in writing and
signed by the parties].[25]

considered as substantial to warrant full payment of the contract amount, less actual
damages suffered by UPSI. Article 1234 of the Civil Code says as much, If the
obligation had been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the
obligee.
The fact that the laborers of Diesel were still at the work site as of March
22, 2000 is a reflection of its honest intention to keep its part of the bargain and

complete the Project. Thus, when Diesel attempted to turn over the premises to
UPSI, claiming it had completed the Project on March 15, 2000, Diesel could no
longer be considered to be in delay. Likewise, the CIAC cited the Uniform General
Conditions of Contract for Private Construction (CIAP Document 102), wherein it is

And for the same reason justifying the award of attorneys fees, arbitration
costs ought to be charged against UPSI, too.

stated that no liquidated damages for delay beyond the completion time shall accrue
after the date of substantial completion of the work.[29]
In all, Diesel cannot be considered as in delay and, hence, is not amenable
under the Agreement for liquidated damages.
As to the issue of attorneys fees, Diesel insists that bad faith tainted UPSIs
act of imposing liquidated damages on account of its (Diesels) alleged delay. And,
this prompted Diesel to file its petition for arbitration. Thus, the CIAC granted
Diesel an award of PhP 366,169 as attorneys fees. However, the CA reversed the

Fourth Issue
UPSI urges a review of the factual basis for the parallel denial by the CIAC
and CA of its claim for additional expenses to complete the Project. UPSI states that
the reality of Diesel having abandoned the Project before its agreed completion is
supported by clear and convincing evidence.

CIAC on the award, it being its finding that Diesel was in delay.
The Court cannot accord the desired review. It is settled rule that the Court,
The Court resolves to reinstate the CIACs award of attorneys fees, there
being sufficient justification for this kind of disposition. As earlier discussed, Diesel
was not strictly in delay in the completion of the Project. No valid reason, therefore,
obtains for UPSI to withhold the retention money or to refuse to pay the unpaid
balance of the contract price. Indeed, the retention and nonpayment were, to us, as
was to the CIAC, resorted to by UPSI out of whim, thus forcing the hand of Diesel to
sue to recover what is rightfully due. Thus, the grant of attorneys fees would be
justifiable under Art. 2208 of the Civil Code, thus:
Article 2208. In the absence of stipulation, attorneys fees
and expenses of litigation x x x cannot be recovered, except:
xxxx
(5) Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiffs plainly valid, just and
demandable claim.

not being a trier of facts, is under no obligation to examine, winnow, and weigh anew
evidence adduced below. This general rule is, of course, not absolute. In Superlines
Transportation Company, Inc. v. Philippine National Construction Company, the
Court enumerated the recognized exceptions to be:
x x x (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond
the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and

(11) when the Court of Appeals manifestly overlooked certain

relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.[30] (Emphasis
supplied.)
In the instant case, the factual findings of the CIAC and CA, with regard to
the completion of the Project and UPSIs entitlement to recover expenses allegedly
incurred to finish the Project, do not fall under any one of these exceptions. As things
stand, the factual findings of the CIAC and CA are supported by evidence presented
during the hearing before the Arbitral Tribunal. Consider what the CIAC wrote:
This Tribunal finds overwhelming evidence to prove that
accomplishment as of the alleged period of takeover was 95.87%
as of March 3, 2000 and increased to 97.56% on March 15,
2000 based on Progress Report # 18. x x x This is supported by the
statement of [UPSIs] witness, Mr. Crespillo x x x where he
conceded that such admissions and statements bound [UPSI, the
Owner]. By that time, [Diesel] had substantially completed the
project and only needed to correct the items included in the
punchlist.[31]
The CA seconded what the CIAC said, thus:

face. We can concede hypothetically that UPSI undertook what it characterized as

additional or rectification works on the Project. But as both the CIAC and CA
held, UPSI failed to show that such additional or rectification works, if there be
any, were the necessary result of the faulty workmanship of Diesel.
The Court perceives of no reason to doubt, much less disturb, the
coinciding findings of the CIAC and CA on the matter.
The foregoing notwithstanding and considering that Diesel may only be
credited for 97.56% work accomplishment, UPSI ought to be compensated, by way
of damages, in the amount corresponding to the value of the 2.44% unfinished
portion (100% 97.56% = 2.44%). In absolute terms, 2.44% of the total Project cost
translates to PhP 310,834.01. This disposition is no more than adhering to the
command of Art. 1234 of the Civil Code.
The fifth and sixth issues have already been discussed earlier and need not
detain us any longer.

6.
Neither are We prepared to sustain UPSIs
argument that Diesel left the work unfinished and pulled-out all of
its workmen from the project. This claim is belied by the
assessment of its own Construction Manager in Progress Report
No. 19 for the period ending 22 March 2000, wherein it was
plaintly stated that as of that period, with respect to Diesel, there
were still twenty-three laborers on site with the project 97.56%
complete x x x. This indicates that the contracted works of Diesel
were substantially completed with only minor corrections x x
x, thus contradicting the avowal of UPSI that the work was
abandoned in such a state that necessitated the engagement of
another contractor for the project to be finished. It was therefore
not right for UPSI to have declined the turn-over and refused the
full payment of the contract price, x x x.[32]

WHEREFORE,

Diesels

petition

is PARTIALLY GRANTED and

UPSIs Petition is DENIED with qualification. The assailed Decision dated April 16,
2002 and Resolution dated August 21, 2002 of the CA are MODIFIED, as follows:
(1)

The award for liquidated damages is DELETED;

(2)

The award to Diesel for the unpaid balance of the contract price of

PhP 3,661,692.64 is AFFIRMED;

(3)

UPSI shall pay the costs of arbitration before the CIAC in the amount

of PhP 298,406.03;
Given the 97.56% work accomplishment tendered by Diesel, UPSIs theory
of abandonment and of its having spent a sum to complete the work must fall on its

(4) Diesel is awarded attorneys fees in the amount of PhP 366,169; and

DECISION

(5) UPSI is awarded damages in the amount of PhP 310,834.01, the same to
be deducted from the retention money, if there still be any, and, if necessary, from the
VELASCO, JR., J.:

amount referred to in item (2) immediately above.

PhP

In our jurisdiction, the policy is to favor alternative methods of resolving

3,717,027.64. From this amount shall be deducted the award of actual damages of

disputes, particularly in civil and commercial disputes. Arbitration along with

PhP 310,834.01 to UPSI which shall pay the costs of arbitration in the amount of PhP

mediation, conciliation, and negotiation, being inexpensive, speedy and less hostile

298,406.03.

methods have long been favored by this Court. The petition before us puts at issue

In

summary,

the

aggregate

award

to

Diesel

shall

be

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.
FGU is released from liability for the performance bond that it issued in
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation

favor of Diesel.

which is engaged in the supply and installation of Liquefied Petroleum Gas (LPG)
Cylinder manufacturing plants, while private respondent Pacific General Steel

No costs.

Manufacturing Corp. (PGSMC) is a domestic corporation.

SO ORDERED.
KOREA TECHNOLOGIES CO.,
LTD.,
Petitioner,

G.R. No. 143581

KOGIES
Present:

- versus -

On March 5, 1997, PGSMC and KOGIES executed a Contract [1] whereby

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

HON. ALBERTO A. LERMA, in

his capacity as Presiding Judge of
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL
Promulgated:
MANUFACTURING
CORPORATION,
Respondents.
January 7, 2008
x-----------------------------------------------------------------------------------------x

would

set

up

an

LPG

Cylinder

Manufacturing

Plant

in

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

On October 14, 1997, PGSMC entered into a Contract of Lease [3] with

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES

Worth Properties, Inc. (Worth) for use of Worths 5,079-square meter property with a

were fully funded but the payments were stopped for reasons previously made

4,032-square meter warehouse building to house the LPG manufacturing plant. The

known to KOGIES.[7]

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

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling

manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona

their Contract dated March 5, 1997 on the ground that KOGIES had altered the

plant. PGSMC paid KOGIES USD 1,224,000.

quantity and lowered the quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment,
[4]

However, gleaned from the Certificate executed by the parties on January

and facilities installed in the Carmona plant. Five days later, PGSMC filed before

22, 1998, after the installation of the plant, the initial operation could not be

the Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as

conducted as PGSMC encountered financial difficulties affecting the supply of

I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of KOGIES.

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.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that
PGSMC could not unilaterally rescind their contract nor dismantle and transfer the

For the remaining balance of USD306,000 for the installation and initial

machineries and equipment on mere imagined violations by KOGIES. It also

operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No.

insisted that their disputes should be settled by arbitration as agreed upon in Article

0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No.

15, the arbitration clause of their contract.

0316413 dated March 30, 1998 for PhP 4,500,000.[5]

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of
When KOGIES deposited the checks, these were dishonored for the reason
[6]

its June 1, 1998 letter threatening that the machineries, equipment, and facilities

PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter to

installed in the plant would be dismantled and transferred on July 4, 1998. Thus,

PGSMC threatening criminal action for violation of Batas Pambansa Blg. 22 in case

on July 1, 1998, KOGIES instituted an Application for Arbitration before the Korean

of nonpayment. On the same date, the wife of PGSMCs President faxed a letter

Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the

dated May

Contract as amended.

7,

1998to

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 July 3, 1998, KOGIES filed a Complaint for Specific Performance,

docketed as Civil Case No. 98-117[8] 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

reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the

checks for the reason that their value was not received as the former allegedly

machineries and equipment as shown in the contract such that KOGIES no longer

breached their contract by altering the quantity and lowering the quality of the

had proprietary rights over them. And finally, the RTC held that Art. 15 of the

machinery and equipment installed in the plant and failed to make the plant

Contract as amended was invalid as it tended to oust the trial court or any other court

operational although it earlier certified to the contrary as shown in a January 22,

jurisdiction over any dispute that may arise between the parties. KOGIES prayer for

1998 Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their

an injunctive writ was denied.[10] The dispositive portion of the Order stated:

Contract, as amended, by unilaterally rescinding the contract without resorting to

arbitration. KOGIES also asked that PGSMC be restrained from dismantling and

WHEREFORE, in view of the foregoing consideration, this

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

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 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.[11] KOGIES denied it had altered the quantity and lowered the quality

On July 17, 1998, PGSMC filed its Answer with Compulsory

[9]

of the machinery, equipment, and facilities it delivered to the plant. It claimed that it

Counterclaim asserting that it had the full right to dismantle and transfer the

had performed all the undertakings under the contract and had already produced

machineries and equipment because it had paid for them in full as stipulated in the

certified samples of LPG cylinders. It averred that whatever was unfinished was

contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks

PGSMCs fault since it failed to procure raw materials due to lack of

for failing to completely install and make the plant operational; and that KOGIES

funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,

was liable for damages amounting to PhP 4,500,000 for altering the quantity and

[12]

insisted that the arbitration clause was without question valid.

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

After KOGIES filed a Supplemental Memorandum with Motion to

Worth and it was not willing to further shoulder the cost of renting the premises of

Dismiss[13] answering PGSMCs memorandum of July 22, 1998 and seeking

the plant considering that the LPG cylinder manufacturing plant never became

dismissal of PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its Motion

operational.

for Reconsideration[14] of the July 23, 1998 Order denying its application for
an injunctive writ claiming that the contract was not merely for machinery and

After the parties submitted their Memoranda, on July 23, 1998, the RTC
issued an Order denying the application for a writ of preliminary injunction,

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

praying for the issuance of writs of prohibition, mandamus, and preliminary

technology for a total contract price of USD 1,530,000 such that the dismantling

injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and

and transfer of the machinery and facilities would result in the dismantling and

transferring the machineries and equipment in the Carmona plant, and to direct the

transfer of the very plant itself to the great prejudice of KOGIES as the still unpaid

RTC to enforce the specific agreement on arbitration to resolve the dispute.

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

In the meantime, on October 19, 1998, the RTC denied KOGIES urgent

Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries

motion for reconsideration and directed the Branch Sheriff to proceed with the

(Phils.), Inc.[15]

inspection of the machineries and equipment in the plant on October 28, 1998.[19]

In the meantime, PGSMC filed a Motion for Inspection of Things [16] to

Thereafter, KOGIES filed a Supplement to the Petition [20] in CA-G.R. SP

determine whether there was indeed alteration of the quantity and lowering of quality

No. 49249 informing the CA about the October 19, 1998 RTC Order. It also

of

properly

reiterated its prayer for the issuance of the writs of prohibition, mandamus and

installed. KOGIES opposed the motion positing that the queries and issues raised in

preliminary injunction which was not acted upon by the CA. KOGIES asserted that

the motion for inspection fell under the coverage of the arbitration clause in their

the Branch Sheriff did not have the technical expertise to ascertain whether or not the

contract.

machineries and equipment conformed to the specifications in the contract and were

the

machineries

and

equipment,

and

whether

these

were

properly installed.
On September 21, 1998, the trial court issued an Order (1) granting
PGSMCs motion for inspection; (2) denying KOGIES motion for reconsideration

On November
[21]

of the July 23, 1998 RTC Order; and (3) denying KOGIES motion to dismiss

Report

PGSMCs compulsory counterclaims as these counterclaims fell within the requisites

properly installed.

11,

1998,

the

Branch

Sheriff filed

his

Sheriffs

finding that the enumerated machineries and equipment were not fully and

of compulsory counterclaims.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
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 PGSMCs compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its
October 2, 1998 urgent motion for reconsideration, KOGIES filed before the Court
of Appeals (CA) a petition for certiorari [18] docketed as CA-G.R. SP No. 49249,
seeking annulment of the July 23, 1998 and September 21, 1998 RTC Orders and

On May 30, 2000, the CA rendered the assailed Decision[22] 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.

EXCESS OF JURISDICTION, AND CONCLUDING THAT THE

TRIAL COURTS FINDING ON THE SAME QUESTION WAS
IMPROPERLY RAISED IN THE PETITION BELOW;
b.
DECLARING
AS
NULL
AND
VOID
THE
ARBITRATION CLAUSE IN ARTICLE 15 OF THE
CONTRACT BETWEEN THE PARTIES FOR BEING
CONTRARY TO PUBLIC POLICY AND FOR OUSTING THE
COURTS OF JURISDICTION;
c.
DECREEING
PRIVATE
RESPONDENTS
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]

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)

The Courts Ruling

The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the
procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it

order

of

the

trial

court.[26] The

CA

erred

on

its

reliance

should have paid docket fees and filed a certificate of non-forum shopping, and that

on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case

its failure to do so was a fatal defect.

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

We disagree with KOGIES.

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

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated

trial court is adverse to him. The general rule is that interlocutory orders cannot be

in its Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with

challenged by an appeal.[27] Thus, in Yamaoka v. Pescarich Manufacturing

Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was

Corporation, we held:

effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing
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 pingpong 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]

counterclaim or cross-claimstates, 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.

Also, appeals from interlocutory orders would open the floodgates to

As to the failure to submit a certificate of forum shopping, PGSMCs

endless occasions for dilatory motions. Thus, where the interlocutory order was

Answer is not an initiatory pleading which requires a certification against forum

issued without or in excess of jurisdiction or with grave abuse of discretion, the

shopping under Sec. 5

[24]

of Rule 7, 1997 Revised Rules of Civil Procedure. It is a

remedy is certiorari.[29]

responsive pleading, hence, the courts a quo did not commit reversible error in
denying KOGIES motion to dismiss PGSMCs compulsory counterclaims.

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

Interlocutory orders proper subject of certiorari

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

[25]

Citing Gamboa v. Cruz,

the CA also pronounced that certiorari and

Prohibition are neither the remedies to question the propriety of an interlocutory

65.

Prematurity of the petition before the CA

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

Neither do we think that KOGIES was guilty of forum shopping in filing

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.)

the petition for certiorari. Note that KOGIES motion for reconsideration of the July
23, 1998 RTC Order which denied the issuance of the injunctive writ had already
been denied. Thus, KOGIES only remedy was to assail the RTCs interlocutory
order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the
September 21, 1998 RTC Order relating to the inspection of things, and the
allowance of the compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the rule that before certiorari

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

may be availed of, the petitioner must have filed a motion for reconsideration and

Petitioner is correct.

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

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.)

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

Arts. 2038,[31] 2039,[32] and 2040[33] 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
[35]

parties. In Gonzales v. Climax Mining Ltd.,

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

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]

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]

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

Arbitration clause not contrary to public policy

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

The arbitration clause which stipulates that the arbitration must be done

award shall be final and binding.

in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB,

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory

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 ofEastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,[38] this Court

For domestic arbitration proceedings, we have particular agencies to

had occasion to rule that an arbitration clause to resolve differences and breaches of

arbitrate disputes arising from contractual relations. In case a foreign arbitral body is

mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals,

chosen by the parties, the arbitration rules of our domestic arbitration bodies would

we held that [i]n this jurisdiction, arbitration has been held valid and

not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law

constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876,

on International Commercial Arbitration[41] of the United Nations Commission on

this Court has countenanced the settlement of disputes through arbitration. Republic

International Trade Law (UNCITRAL) in the New York Convention on June 21,

Act No. 876 was adopted to supplement the New Civil Codes provisions on

1985, the Philippinescommitted itself to be bound by the Model Law. We have even

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, arbitrationalong with mediation, conciliation
and negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. It is thus
regarded as the wave of the future in international civil and

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:

(1)

The RTC must refer to arbitration in proper cases

CHAPTER 4 - INTERNATIONAL COMMERCIAL

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

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

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:

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.

sent al least fifteen (15) days before the date set for the initial
hearing of the application.

The applicant shall establish that the country in which

foreign arbitration award was made in party to the New York
Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign
Arbitral Awards Not Covered by the New York Convention.The
recognition and enforcement of foreign arbitral awards not covered
by the New York Convention shall be done in accordance with
procedural rules to be promulgated by the Supreme Court. The
Court may, on grounds of comity and reciprocity, recognize and
enforce a non-convention award as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign
Judgment.A foreign arbitral award when confirmed by a court of
a foreign country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional
Trial Court, shall be enforced in the same manner as final and
executory decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for
recognition and enforcement of an arbitration agreement or for
vacations, setting aside, correction or modification of an arbitral
award, and any application with a court for arbitration assistance
and supervision shall be deemed as special proceedings and shall
be filed with the Regional Trial Court (i) where arbitration
proceedings are conducted; (ii) where the asset to be attached or
levied upon, or the act to be enjoined is located; (iii) where any of
the parties to the dispute resides or has his place of business; or
(iv) in the National Judicial Capital Region, at the option of the
applicant.
SEC. 48. Notice of Proceeding to Parties.In a special
proceeding for recognition and enforcement of an arbitral award,
the Court shall send notice to the parties at their address of record
in the arbitration, or if any part cannot be served notice at such
address, at such partys last known address. The notice shall be

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.

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:
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

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

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.

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

The issues arising from the contract between PGSMC and KOGIES on

requires that the arbitral award that may be rendered by KCAB must be confirmed

whether the equipment and machineries delivered and installed were properly

here by the RTC before it can be enforced.

installed and operational in the plant in Carmona, Cavite; the ownership of

equipment and payment of the contract price; and whether there was substantial

With our disquisition above, petitioner is correct in its contention that an

compliance by KOGIES in the production of the samples, given the alleged fact that

arbitration clause, stipulating that the arbitral award is final and binding, does not

PGSMC could not supply the raw materials required to produce the sample LPG

oust our courts of jurisdiction as the international arbitral award, the award of which

cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998,

is not absolute and without exceptions, is still judicially reviewable under certain

KOGIES

conditions provided for by the UNCITRAL Model Law on ICA as applied and

in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is

incorporated in RA 9285.

incumbent upon PGSMC to abide by its commitment to arbitrate.

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

instituted

an

Application

for

Arbitration

before

the

KCAB

Corollarily, the trial court gravely abused its discretion in granting

PGSMCs Motion for Inspection of Things on September 21, 1998, as the subject
matter of the motion is under the primary jurisdiction of the mutually agreed arbitral

Unilateral rescission improper and illegal

body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch

Having ruled that the arbitration clause of the subject contract is valid and

Sheriff from the inspection made on October 28, 1998, as ordered by the trial court

binding on the parties, and not contrary to public policy; consequently, being bound

on October 19, 1998, is of no worth as said Sheriff is not technically competent to

to the contract of arbitration, a party may not unilaterally rescind or terminate the

ascertain the actual status of the equipment and machineries as installed in the plant.

contract for whatever cause without first resorting to arbitration.

What this Court held in University of the Philippines v. De Los

For these reasons, the September 21, 1998 and October 19, 1998 RTC

Angeles[47] and reiterated in succeeding cases, [48] that the act of treating a contract as

Orders pertaining to the grant of the inspection of the equipment and machineries

rescinded on account of infractions by the other contracting party is valid albeit

have to be recalled and nullified.

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

Issue on ownership of plant proper for arbitration

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

Petitioner assails the CA ruling that the issue petitioner raised on whether the

from the contract must be brought first and resolved by arbitration, and not through

total contract price of USD 1,530,000 was for the whole plant and its installation is

an extrajudicial rescission or judicial action.

beyond the ambit of a Petition for Certiorari.

Petitioners position is untenable.

It is settled that questions of fact cannot be raised in an original action for
certiorari.[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 RTCs determination of such factual issue constitutes grave abuse of
discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ
paving the way for PGSMC to dismantle and transfer the equipment and
machineries, we find it to be in order considering the factual milieu of the instant
case.
Firstly, while the issue of the proper installation of the equipment and
machineries might well be under the primary jurisdiction of the arbitral body to
decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant
interim measures to protect vested rights of the parties. Sec. 28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It
is not incompatible with an arbitration agreement for a party
to request, before constitution of the tribunal, from a Court to
grant such measure. After constitution of the arbitral tribunal and
during arbitral proceedings, a request for an interim measure of
protection, or modification thereof, may be made with the

arbitral or to the extent that the arbitral tribunal has no power

to act or is unable to act effectivity, the request may be made
with the Court. The arbitral tribunal is deemed constituted when
the sole arbitrator or the third arbitrator, who has been nominated,
has accepted the nomination and written communication of said
nomination and acceptance has been received by the party making
the request.
(b) The following rules on interim or provisional relief
shall be observed:
Any party may request that provisional relief be granted
against the adverse party.
Such relief may be granted:
(i)
(ii)
obligation;
(iii)
(iv)

to prevent irreparable loss or injury;

to provide security for the performance of any
to produce or preserve any evidence; or
to compel any other appropriate act or omission.

(c) The order granting provisional relief may be

conditioned upon the provision of security or any act or omission
specified in the order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against whom the
relief is sought, describing in appropriate detail the precise relief,
the party against whom the relief is requested, the grounds for the
relief, and the evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance
in implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(g) A party who does not comply with the order shall be
liable for all damages resulting from noncompliance, including all
expenses, and reasonable attorney's fees, paid in obtaining the
orders judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim

measure of protection as:

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:

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.

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

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

machineries in the best way it can. Considering that the LPG plant was nonoperational, 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

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.

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

Fourthly, and corollarily, while the KCAB can rule on motions or petitions
relating to the preservation or transfer of the equipment and machineries as an

(2)

The September 21, 1998 and October 19, 1998 RTC Orders in Civil

Case No. 98-117 are REVERSED and SET ASIDE;

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

(3)

The parties are hereby ORDERED to submit themselves to the

courts of the arbitral clause, has accorded an interim measure of protection to

arbitration of their dispute and differences arising from the subject Contract before

PGSMC which would otherwise been irreparably damaged.

the KCAB; and

Fifth, KOGIES is not unjustly prejudiced as it has already been

(4)

PGSMC is hereby ALLOWED to dismantle and transfer the

paid a substantial amount based on the contract. Moreover, KOGIES is amply

equipment and machineries, if it had not done so, and ORDERED to preserve and

protected by the arbitral action it has instituted before the KCAB, the award of which

maintain them until the finality of whatever arbitral award is given in the arbitration

can be enforced in our jurisdiction through the RTC. Besides, by our decision,

proceedings.

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

No pronouncement as to costs.
SO ORDERED.
ESTATE OF NELSON R. DULAY, represented by his
wife MERRIDY JANE P. DULAY,
Petitioner,

or dispose of the same considering the pending arbitral proceedings to settle the
equipment and machineries with the diligence of a good father of a family [51] until
final resolution of the arbitral proceedings and enforcement of the award, if any.

Present:

PERALTA, J., Acting Chai

ABAD,
VILLARAMA, JR.,**
MENDOZA, and
PERLAS-BERNABE, JJ.

- versus

differences of the parties. PGSMC therefore must preserve and maintain the subject

G.R. No. 172642

ABOITIZ JEBSEN MARITIME, INC. and GENERAL

CHARTERERS, INC.,
Respondents.

Promulgated:

June 13, 2012

x-----------------------------------------------------------------------------------------x
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1)

DECISION

The May 30, 2000 CA Decision in CA-G.R. SP No. 49249

is REVERSED and SET ASIDE;

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to reverse and set aside the Decision [1] and Resolution[2] dated
July 11, 2005 and April 18, 2006 of the Court of Appeals (CA) in CA-G.R. SP No.
76489.
The factual and procedural antecedents of the case, as summarized by the CA,
are as follows:
Nelson R. Dulay (Nelson, for brevity) was employed by
[herein respondent] General Charterers Inc. (GCI), a subsidiary
of co-petitioner [herein co-respondent] Aboitiz Jebsen Maritime
Inc. since 1986. He initially worked as an ordinary seaman and
later as bosun on a contractual basis. From September 3, 1999
up to July 19, 2000, Nelson was detailed in petitioners vessel,
the MV Kickapoo Belle.
On August 13, 2000, or 25 days after the completion of his
employment contract, Nelson died due to acute renal failure
secondary to septicemia. At the time of his death, Nelson was a
bona fide member of the Associated Marine Officers and
Seamans Union of the Philippines (AMOSUP), GCIs collective
bargaining agent. Nelsons widow, Merridy Jane, thereafter
claimed for death benefits through the grievance procedure of
the Collective Bargaining Agreement (CBA) between AMOSUP
and GCI. However, on January 29, 2001, the grievance
procedure was declared deadlocked as petitioners refused to
grant the benefits sought by the widow.
On March 5, 2001, Merridy Jane filed a complaint with the
NLRC Sub-Regional Arbitration Board in General Santos City
against GCI for death and medical benefits and damages.
On March 8, 2001, Joven Mar, Nelsons brother,
received P20,000.00 from [respondents] pursuant to article
20(A)2 of the CBA and signed a Certification acknowledging
receipt of the amount and releasing AMOSUP from further
liability. Merridy Jane contended that she is entitled to the
aggregate sum of Ninety Thousand Dollars ($90,000.00)
pursuant to [A]rticle 20 (A)1 of the CBA x x x
xxxx

Merridy Jane averred that the P20,000.00 already received

by Joven Mar should be considered advance payment of the total
claim of US$90,000.[00].
[Herein respondents], on the other hand, asserted that the
NLRC had no jurisdiction over the action on account of the
absence of employer-employee relationship between GCI and
Nelson at the time of the latters death. Nelson also had no
claims against petitioners for sick leave allowance/medical
benefit by reason of the completion of his contract with GCI.
They further alleged that private respondent is not entitled to
death benefits because petitioners are only liable for such in
case of death of the seafarer during the term of his contract
pursuant to the POEA contract and the cause of his death is not
work-related. Petitioners admitted liability only with respect to
article 20(A)2 [of the CBA]. x x x
xxxx
However, as petitioners stressed, the same was already
discharged.
The Labor Arbiter ruled in favor of private respondent. It
took cognizance of the case by virtue of Article 217 (a),
paragraph 6 of the Labor Code and the existence of a reasonable
causal connection between the employer-employee relationship
and the claim asserted. It ordered the petitioner to
pay P4,621,300.00,
the
equivalent
of
US$90,000.00
less P20,000.00, at the time of judgment x x x
xxxx
The Labor Arbiter also ruled that the proximate cause of
Nelsons death was not work-related.
On appeal, [the NLRC] affirmed the Labor Arbiters
decision as to the grant of death benefits under the CBA but
reversed the latters ruling as to the proximate cause of Nelsons
death.[3]

Herein respondents then filed a special civil action for certiorari with the
CA contending that the NLRC committed grave abuse of discretion in affirming the
jurisdiction of the NLRC over the case; in ruling that a different provision of the

CBA covers the death claim; in reversing the findings of the Labor Arbiter that the

Filipino workers. Petitioner argues that the abovementioned Section amended Article

cause of death is not work-related; and, in setting aside the release and quitclaim

217 (c) of the Labor Code which, in turn, confers jurisdiction upon voluntary

executed by the attorney-in-fact and not considering the P20,000.00 already received

arbitrators over interpretation or implementation of collective bargaining agreements

by Merridy Jane through her attorney-in-fact.

and interpretation or enforcement of company personnel policies.

On July 11, 2005, the CA promulgated its assailed Decision, the dispositive
portion of which reads as follows:
WHEREFORE, in view of the foregoing, the petition is
hereby GRANTED and the case is REFERRED to the National
Conciliation and Mediation Board for the designation of the
Voluntary Arbitrator or the constitution of a panel of Voluntary
Arbitrators for the appropriate resolution of the issue on the matter
of the applicable CBA provision.

The pertinent provisions of Section 10 of R.A. 8042 provide as follows:

SEC. 10. Money Claims. - Notwithstanding any provision
of law to the contrary, the Labor Arbiters of the National Labor
Relations Commission (NLRC) shall have the original and
exclusive jurisdiction to hear and decide, within ninety (90)
calendar days after filing of the complaint, the claims arising out of
an employer-employee relationship or by virtue of any law or
contract involving Filipino workers for overseas deployment
including claims for actual, moral, exemplary and other forms of
damages.

SO ORDERED.[4]
Article 217(c) of the Labor Code, on the other hand, states that:
The CA ruled that while the suit filed by Merridy Jane is a money claim, the
same basically involves the interpretation and application of the provisions in the
subject CBA. As such, jurisdiction belongs to the voluntary arbitrator and not the
labor arbiter.

Petitioner filed a Motion for Reconsideration but the CA denied it in its

Resolution of April 18, 2006.

xxxx
(c) Cases arising from the interpretation or implementation
of collective bargaining agreements and those arising from the
interpretation or enforcement of company personnel policies shall
be disposed by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitration as may be provided
in said agreements.
On their part, respondents insist that in the present case, Article 217, paragraph
(c) as well as Article 261 of the Labor Code remain to be the governing provisions of

Hence, the instant petition raising the sole issue of whether or not the CA
committed error in ruling that the Labor Arbiter has no jurisdiction over the case.

law with respect to unresolved grievances arising from the interpretation and
implementation of collective bargaining agreements. Under these provisions of law,
jurisdiction remains with voluntary arbitrators.

Petitioner contends that Section 10 of Republic Act (R.A.) 8042, otherwise

known as the Migrant Workers and Overseas Filipinos Act of 1995, vests jurisdiction
on the appropriate branches of the NLRC to entertain disputes regarding the
interpretation of a collective bargaining agreement involving migrant or overseas

Article 261 of the Labor Code reads, thus:

ARTICLE
261. Jurisdiction
of
Voluntary
Arbitrators or panel of Voluntary Arbitrators. The Voluntary
Arbitrator or panel of Voluntary Arbitrators shall have original and
exclusive jurisdiction to hear and decide all unresolved grievances
arising from the interpretation or implementation of the Collective
Bargaining Agreement and those arising from the interpretation or
enforcement of company personnel policies referred to in the
immediately preceding article. Accordingly, violations of a
Collective Bargaining Agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice and
shall be resolved as grievances under the Collective Bargaining
Agreement. For purposes of this article, gross violations of
Collective Bargaining Agreement shall mean flagrant and/or
malicious refusal to comply with the economic provisions of such
agreement.
The Commission, its Regional Offices and the
Regional Directors of the Department of Labor and Employment
shall not entertain disputes, grievances or matters under the
exclusive and original jurisdiction of the Voluntary Arbitrator or
panel of Voluntary Arbitrators and shall immediately dispose and
refer the same to the Grievance Machinery or Voluntary Arbitration
provided in the Collective Bargaining Agreement.

The petition is without merit.

It is true that R.A. 8042 is a special law governing overseas Filipino workers.
However, a careful reading of this special law would readily show that there is no

general, which the general statute (Labor Code) treats in particular. [5] In the present
case, the basic issue raised by Merridy Jane in her complaint filed with the NLRC is:
which provision of the subject CBA applies insofar as death benefits due to the heirs
of Nelson are concerned. The Court agrees with the CA in holding that this issue
clearly involves the interpretation or implementation of the said CBA. Thus, the
specific or special provisions of the Labor Code govern.
In any case, the Court agrees with petitioner's contention that the CBA is the
law or contract between the parties. Article 13.1 of the CBA entered into by and
between respondent GCI and AMOSUP, the union to which petitioner belongs,
provides as follows:
The Company and the Union agree that in case of
dispute or conflict in the interpretation or application of any of
the provisions of this Agreement, or enforcement of Company
policies, the same shall be settled through negotiation,
conciliation or voluntary arbitration. The Company and the
Union further agree that they will use their best endeavor to ensure
that any dispute will be discussed, resolved and settled amicably by
the parties hereof within ninety (90) days from the date of filing of
the dispute or conflict and in case of failure to settle thereof any of
the parties retain their freedom to take appropriate action.
[6]
(Emphasis supplied)

specific provision thereunder which provides for jurisdiction over disputes or

unresolved grievances regarding the interpretation or implementation of a
CBA. Section 10 of R.A. 8042, which is cited by petitioner, simply speaks, in
general, of claims arising out of an employer-employee relationship or by virtue of
any law or contract involving Filipino workers for overseas deployment including
claims for actual, moral, exemplary and other forms of damages. On the other hand,

From the foregoing, it is clear that the parties, in the first place, really intended
to bring to conciliation or voluntary arbitration any dispute or conflict in the
interpretation or application of the provisions of their CBA. It is settled that when
the parties have validly agreed on a procedure for resolving grievances and to submit
a dispute to voluntary arbitration then that procedure should be strictly observed.[7]

Articles 217(c) and 261 of the Labor Code are very specific in stating that voluntary
arbitrators have jurisdiction over cases arising from the interpretation or
implementation of collective bargaining agreements. Stated differently, the instant
case involves a situation where the special statute (R.A. 8042) refers to a subject in

It may not be amiss to point out that the abovequoted provisions of the CBA
are in consonance with Rule VII, Section 7 of the present Omnibus Rules and
Regulations Implementing the Migrant Workers and Overseas Filipinos Act of 1995,

as amended by Republic Act No. 10022, which states that [f]or OFWs with

employers, principals, contracting partners and Filipino seafarers.

(Emphasis supplied)

collective bargaining agreements, the case shall be submitted for voluntary

arbitration in accordance with Articles 261 and 262 of the Labor Code. The Court
notes that the said Omnibus Rules and Regulations were promulgated by the
Department of Labor and Employment (DOLE) and the Department of Foreign
Affairs (DFA) and that these departments were mandated to consult with the Senate
Committee on Labor and Employment and the House of Representatives Committee
on Overseas Workers Affairs.
In the same manner, Section 29 of the prevailing Standard Terms and
Conditions Governing the Employment of Filipino Seafarers on Board Ocean Going
Vessels, promulgated by the Philippine Overseas Employment Administration
(POEA), provides as follows:
Section 29. Dispute Settlement Procedures. In
cases of claims and disputes arising from this employment, the
parties covered by a collective bargaining agreement shall
submit the claim or dispute to the original and exclusive
jurisdiction of the voluntary arbitrator or panel of
arbitrators. If the parties are not covered by a collective
bargaining agreement, the parties may at their option submit the
claim or dispute to either the original and exclusive jurisdiction of
the National Labor Relations Commission (NLRC), pursuant to
Republic Act (RA) 8042, otherwise known as the Migrant Workers
and Overseas Filipinos Act of 1995 or to the original and exclusive
jurisdiction of the voluntary arbitrator or panel of arbitrators. If
there is no provision as to the voluntary arbitrators to be appointed
by the parties, the same shall be appointed from the accredited
voluntary arbitrators of the National Conciliation and Mediation
Board of the Department of Labor and Employment.

It is clear from the above that the interpretation of the DOLE, in consultation
with their counterparts in the respective committees of the Senate and the House of
Representatives, as well as the DFA and the POEA is that with respect to disputes
involving claims of Filipino seafarers wherein the parties are covered by a collective
bargaining agreement, the dispute or claim should be submitted to the jurisdiction of
a voluntary arbitrator or panel of arbitrators. It is only in the absence of a collective
bargaining agreement that parties may opt to submit the dispute to either the NLRC
or to voluntary arbitration. It is elementary that rules and regulations issued by
administrative bodies to interpret the law which they are entrusted to enforce, have
the force of law, and are entitled to great respect. [8] Such rules and regulations
partake of the nature of a statute and are just as binding as if they have been written
in the statute itself.[9] In the instant case, the Court finds no cogent reason to depart
from this rule.
The above interpretation of the DOLE, DFA and POEA is also in consonance
with the policy of the state to promote voluntary arbitration as a mode of settling
labor disputes.[10]
No less than the Philippine Constitution provides, under the third paragraph,
Section 3, Article XIII, thereof that [t]he State shall promote the principle of shared
responsibility between workers and employers and the preferential use of voluntary
modes in settling disputes, including conciliation, and shall enforce their mutual
compliance therewith to foster industrial peace.

The
Philippine
Overseas
Employment
Administration (POEA) shall exercise original and exclusive
jurisdiction to hear and decide disciplinary action on cases, which
are administrative in character, involving or arising out of
violations of recruitment laws, rules and regulations involving

Consistent with this constitutional provision, Article 211 of the Labor Code
provides the declared policy of the State [t]o promote and emphasize the primacy of

union for illegal dismissal and unfair labor practice. The filing of a
request for reconsideration by the respondent union, which is the
condition sine qua non to categorize the termination dispute and the
ULP complaint as a grievable dispute as per CBA, was decidedly absent
in the case at bench. Hence, the respondent union acted well within
their rights in filing their complaint directly with the Labor Arbiter.

free collective bargaining and negotiations, including voluntary arbitration,

mediation and conciliation, as modes of settling labor or industrial disputes.
On the basis of the foregoing, the Court finds no error in the ruling of the CA
that the voluntary arbitrator has jurisdiction over the instant case.
2.
WHEREFORE, the petition is DENIED. The Decision and Resolution of
the Court of Appeals in CA-G.R. SP No. 76489 dated July 11, 2005 and April 18,
2006, respectively, are AFFIRMED.
SO ORDERED.

[G.R. No. 108001. March 15, 1996]

SAN

MIGUEL CORPORATION, ANGEL G. ROA and MELINDA

MACARAIG, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION (Second Division), LABOR ARBITER EDUARDO J.
CARPIO, ILAW AT BUKLOD NG MANGGAWA (IBM), ET
AL., respondents.
SYLLABUS

1.

LABOR LAW AND SOCIAL LEGISLATION; LABOR CODE; LABOR

ARBITER;
ORIGINAL
AND
EXCLUSIVE
JURISDICTION;
TERMINATION DISPUTES AND UNFAIR LABOR PRACTICES;
EXCEPTIONS; NOT PRESENT IN CASE AT BAR. - The law in point is
Article 217 (a) of the Labor Code. It is elementary that this law is
deemed written into the CBA. In fact, the law speaks in plain and
unambiguous terms that termination disputes, together with unfair labor
practices, are matters falling under the original and exclusive jurisdiction
of the Labor Arbiter. The sole exception can be found under Article 262
of the same Code, which provides: The voluntary arbitrator or panel of
voluntary arbitrators, upon agreement of the parties, shall also hear and
decide all other labor disputes including unfair labor practices and
bargaining deadlocks. The exception, being present, the Labor Arbiter
properly has jurisdiction over the complaint filed by the respondent

ID.; ID.; ID.; ID.; ID.; DETERMINED BY ALLEGATIONS OF THE

COMPLAINT. The questioned discharges due to alleged redundancy
can hardly be considered company personnel policies and therefore
need not directly be subject to the grievance machinery nor to voluntary
arbitration. All of the dismissed employees were officers and members
of their respective unions, and their employers failed to give a
satisfactory explanation as to why this group of employees was singled
out. It may be the case that the discharges may really be for a bona
fide authorized caused under Article 283 of the Labor Code. But it is
also possible that such may be a scheme to camouflage the real
intention of discriminating against union members. In any case, these
matters will be best ventilated in a hearing before the Labor Arbiter. The
complaint alleges facts sufficient to constitute a bona fide case of ULP,
cognizable by the Labor Arbiter. This is consistent with the rule that
jurisdiction over the subject matter is determined by the allegations of
the complaint.
APPEARANCES OF COUNSEL
Roco Guag Kapunan Migallos & Jardeleza for petitioners.
The Solicitor General for public respondent.
Potenciano A. Flores, Jr. for private respondents.
DECISION

HERMOSISIMA, JR., J.:

In the herein petition for certiorari under Rule 65, petitioners question
the jurisdiction of the Labor Arbiter to hear a complaint for unfair labor
practice, illegal dismissal, and damages, notwithstanding the provision for
grievance and arbitration in the Collective Bargaining Agreement.

Let us unfurl the facts.

Private respondents, employed by petitioner San Miguel Corporation
(SMC) as mechanics, machinists, and carpenters, were and still are, bona
fide officers and members of private respondent Ilaw at Buklod ng
Manggagawa.
On or about July 31, 1990, private respondents were served a
Memorandum from petitioner Angel G. Roa, Vice-President and Manager of
SMCs Business Logistics Division (BLD), to the effect that they had to be
seperated from the service effective October 31, 1990 on the ground of
redundancy or excesss personnel. Respondent union, in behalf of private
respondents, opposed the intended dismissal and asked for a dialogue with
management.

11, 1992. Petitioners promptly filed a Motion for Reconsideration which,

however, was denied through the likewise assailed Resolution, dated
October 29, 1992.
Hence, the instant petition for certiorari alleging the following grounds
was filed by the petitioners:
I.
RESPONDENT LABOR ARBITER CANNOT EXERCISE JURISDICTION OVER
THE ALLEGED ILLEGAL TERMINATION AND ALLEGED ULP CASES
WITHOUT PRIOR RESORT TO GRIEVANCE AND ARBITRATION PROVIDED
UNDER THE CBA.
II

Accordingly, a series of dialogues were held between petitioners and

private respondents. Even before the conclusion of said dialogues, the
aforesaid petitioner Angel Roa issued another Memorandum on October 1,
1990 informing private respondents that they would be dismissed from work
effective as of the close of business hours on November 2, 1990. Private
respondents were in fact purged on the date aforesaid.
Thus, on February 25, 1991, private respondents filed a complaint
against petitioners for Illegal Dismissal and Unfair Labor Practices, with a
prayer for damages and attorneys fees, with the Arbitration Branch of
respondent National Labor Relations Commission. The complaint[1] was
assigned to Labor Arbiter Eduardo F. Carpio for hearing and proper
disposition.
On April 15, 1991, petitioners filed a motion to dismiss the complaint,
alleging that respondent Labor Arbiter had no jurisdiction over the subject
matter of the complaint, and that respondent Labor Arbiter must defer
consideration of the unfair labor practice complaint until after the parties have
gone through the grievance procedure provided for in the existing Collective
Bargaining Agreement (CBA). Respondent Labor Arbiter denied this motion
in a Resolution, dated September 23, 1991.
The petitioners appealed the denial to respondent Commission on
November 8, 1991. Unimpressed by the grounds therefor, respondent
Commission dismissed the appeal in its assailed Resolution, dated August

THE STRONG STATE POLICY ON THE PROMOTION OF VOLUNTARY

MODES OF SETTLEMENT OF LABOR DISPUTES CRAFTED IN THE
CONSTITUTION AND THE LABOR CODE DICTATES THE SUBMISSION OF
THE CBA DISPUTE TO GRIEVANCE AND ARBITRATION.[2]
Petitioners posit the basic principle that a collective bargaining
agreement is a contract between management and labor that must bind and
be enforced in the first instance as between the parties thereto. In this case,
the CBA between the petitioners and respondent union provides, under
Section 1, Article V entitled ARBITRATION, that wages, hours of work,
conditions of employment and/or employer-employee relations shall be
settled by arbitration. Petitioners thesis is that the dispute as to the
termination of the union members and the unfair labor practice should first be
settled by arbitration, and not directly by the labor arbiter, following the above
provision of the CBA, which ought to be treated as the law between the
parties thereto.
The argument is unmeritorious. The law in point is Article 217 (a) of the
Labor Code. It is elementary that this law is deemed written into the CBA. In
fact, the law speaks in plain and unambiguous terms that termination
disputes, together with unfair labor practices, are matters falling under the
original and exclusive jurisdiction of the Labor Arbiter, to wit:

Article 217. Jurisdiction of Labor Arbiters and the Commission - (a) Except as
otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide x x x the following cases involving all
workers, whether agricultural or non-agricultural:
(1) Unfair labor practice cases:
(2) Termination disputes;
x x x

xxx

Petitioners allege that respondent union requested management for a

reconsideration and review of the companys decision to terminate the
employment of the union members. By this act, petitioners argue,
respondent union recognized that the questioned dismissal is a grievable
dispute by virtue of Section 2, Article III of the CBA. This allegation was
strongly denied by the respondent union. In a Memorandum filed for the
public respondent NLRC, the Solicitor General supported the position of the
respondent union that it did not seek reconsideration from the SMC
management in regard to the dismissal of the employees.

x x x.

The sole exception to the above rule can be found under Article 262 of the
same Code, which provides:
Aricle 262. Jurisdiction over other labor disputes - The voluntary arbitrator or panel
of voluntary arbitrators, upon agreement of the parties, shall also hear and decide
all other labor disputes including unfair labor practices and bargaining deadlocks.
(As added by R.A. 6715)
We subjected the records of this case, particularly the CBA, to meticulous
scrutiny and we find no agreement between SMC and the respondent union
that would state in unequivocal language that petitioners and the respondent
union conform to the submission of termination disputes and unfair labor
practices to voluntary arbitration. Section 1, Article V of the CBA, cited by the
herein petitioners, certainly does not provide so. Hence, consistent with the
general rule under Article 217 (a) of the Labor Code, the Labor Arbiter
properly has jurisdiction over the complaint filed by the respondent union on
February 25, 1991 for illegal dismissal and unfair labor practice.
Petitioners point however to Section 2, Article III of the CBA, under the
heading Job Security, to show that the dispute is a proper subject of the
grievance procedure, viz:
x x x The UNION, however, shall have the right to seek reconsideration of any
discharge, lay-off or disciplinary action, and such requests for reconsideration shall
be considered a dispute or grievance to be dealt with in accordance with the
procedure outlined in Article IV hereof [on Grievance Machinery] x x x[3]
(Emphasis ours)

Petitioners fail miserably to prove that, indeed, the respondent union

requested for a reconsideration or review of the management decision to
dismiss the private respondents. A punctilious examination of the records
indubitably reveals that at no time did the respondent union exercise its right
to seek reconsideration of the companys move to terminate the employment
of the union members, which request for reconsideration would have
triggered the application of Section 2, Article III of the CBA, thus resulting in
the treatment of the dispute as a grievance to be dealt with in accordance
with the Grievance Machinery laid down in Article IV of, the CBA. Stated
differently, the filing of a request. for reconsideration by the respondent union,
which is the condition sine qua non to categorize the termination dispute and
the ULP complaint as a grievable dispute, was decidedly absent in the case
at bench. Hence, the respondent union acted well within their rights in filing
their complaint for illegal dismissal and ULP directly with the Labor Arbiter
under Article 217 (a) of the Labor Code.
Second. Petitioners insist that involved in the controversy is the
interpretation and implementation of the CBA which is grievable and
arbitrable by law under Article 217(c) of the Labor Code, viz:
ART. 217(c). Cases arising from the interpretation or implementation of collective
bargaining agreements and those arising from the interpretation or enforcement of
company personnel policies shall be disposed of by the Labor Arbiter by referring
the same to the grievance machinery and voluntary arbitration as may be provided in
said agreements. (As amended by R.A. 6715).
Petitioners theorize that since respondents questioned the discharges,
the main question for resolution is whether SMC had the management right
or prerogative to effect the discharges on the ground of redundancy, and this

necessarily calls for the interpretation or implementation of Article III (Job

Security) in relation to Article IV (Grievance Machinery)of the CBA. [4]
Petitioners theory does not hold water. There is no connection
whatsoever between SMCs management prerogative to effect the
discharges and the interpretation or implementation of Articles III and IV of
the CBA. The only relevant provision under Article III that may need
interpretation or implementation is Section 2 which was cited
herein. However, as patiently pointed out by this court, said provision does
not come into play considering that the union never exercised its right to seek
reconsideration of the discharges effected by the company. It would have
been different had the union sought reconsideration. Such recourse under
Section 2 would have been treated as a grievance under Article IV
(Grievance Machinery) of the CBA, thus calling for the possible interpretation
or implementation of the entire provision on Grievance Machinery as agreed
upon by the parties. This was not the case however. The union brought the
termination dispute directly to the Labor Arbiter rendering Articles III and IV of
the CBA inapplicable for the resolution of this case.
The discharges, petitioners also contend, call for the interpretation or
enforcement of company personnel policies, particulary SMCs personnel
policies on lay-offs arising from redundacy, and so, they may be considered
grievable and arbitrable by virtue of Article 2 17(c). Not necessarily
so. Company personnel policies are guiding principles stated in broad, longrange terms that express the philosophy or beliefs of an organizations top
authority regarding personnel matters. They deal with matters affecting
efficiency and well-being of employees and include, among others, the
procedure in the administration of wages, benefits, promotions, transfer and
other personnel movements which are usually not spelled out in the
collective agreement. The usual source of grievances, however, is the rules
and regulations governing disciplinary actions.[5] Judging therefrom, the
questioned discharges due to alleged redundancy can hardly be cosidered
company personnel policies and therefore need not directly be subject to the
grievance machinery nor to voluntary arbitration.
Third. Petitioners would like to persuade us that respondents ULP
claims are merely conclusory and cannot serve to vest jurisdiction to the
Labor Arbiters. Petitioners argue with passion: How was the discharges (sic)
right to self-organization restrained by their termination? Respondent did not
show.. There is no allegation of the existence of anti-union animus or of the

ultimate facts showing how the discharges affected the rights to selforganization of individual respondents. [6] In short, petitioners maintain that
respondents complaint does not allege a genuine case for ULP.
The Court is not convinced.
The complaint alleges that:
5. Individual complainants are bona fide officers and members of complainant Ilaw
at Buklod ng Manggagawa (IBM). They are active and militant in the affairs and
activities of the union.
xxx

xxx

xxx

23. The dismissal or lock-out from work of the individual complainants clearly
constitutes an act of unfair labor practices in the light of the fact that the work being
performed by the individual complainants are being contracted out by the respondent
company, and, therefore, deprives individual complainants of their right to work and
it constitutes a criminal violation of existing laws.
xxx

xxx

xxx

25. The acts of the respondent company in economically coercing employees to

accept payment of seperation and/or retirement benefits, pending final resolution of
the labor disputes between the parties constitute acts of unfair labor practice in the
light of the fact that there is undue interference, restraint, and coercion of employees
in the exercise of their right to self-organization and collective bargaining.[7]
Short of pre-empting the proceedings before the Labor Arbiter, the
above complaint, makes Out a genuine case for ULP.
In Manila Pencil Co. v. CIR,[8] This Court had occasion to observe that
even where business conditions justified a lay-off of employees, unfair labor
practices were committed in the form of discriminatory dismissal where only
unionists were permanently dismissed. This was despite the valid excuse
given by the Manila Pencil Company that the dismissal of the employees was
due to the reduction of the companys dollar allocations for importation and
that both union members and non-union members were laid-off. The Court,
thru Justice Makalintal, rebuffed the petitioner Company and said:

x x x The explanation, however, does not by any means account for the permanent
dismissal of five of the unionists, where it does not appear that non-unionists were
similarly dismissed.
xxx

xxx

xxx

And the discrimination shown by the Company strongly is confirmed by the fact that
during the period from October 1958 to August 17, 1959 it hired from fifteen to
twenty new employees and ten apprentices. It says these employees were for its new
lead factory, but is (sic) not shown that the five who had been permanently dismissed
were not suitable for work in that new factory.
A similar ruling was made by this Court in Peoples Bank and Trust
Co. v. Peoples Bank and Trust Co. Employees Union [9] involving the lay-off
by a bank of sixty-five (65) employees who were active union members
allegedly by reason of retrechment. The Court likewise found the employer
in that case to have committed ULP in effecting the discharges.
This Court was more emphatic however in Bataan Shipyard and
Engineering Co., Inc. v. NLRC, et al.:[10]
Under the circumstances obtaining in this case, We are inclined to believe that the
company had indeed been discriminatory in selecting the employees who were to be
retrenched. All of the retrenched employees are officers and members of the
NAFLU. The record of the case is bereft of any satisfactory explanation from the
Company regarding this situation. As such, the action taken by the firm becomes
highly suspect. It leads Us to conclude that the firm had been discriminating
against membership in the NAFLU, an act which amounts to interference in the
employees exercise of their right of self-organization. Under Art. 249 (now Art.
248) of the Labor Code of the Philippines, such interference is considered an act of
unfair labor practice on the part of the Company x x x. (Emphasis ours)
It matters not that the cause of termination in the above cited cases was
retrenchment while that in the instant case was redundancy. The important
fact is that in all of these cases, including the one at bar, all of the dismissed
employees were officers and members of their respective unions, and their
employers failed to give a satisfactory explanation as to why this group of
employees was singled out.

It may be the case that employees other than union members may have
been terminated also by petitioner SMC on account of its redundancy
program. If that is true, the discharges may really be for a bona fide
authorized cause under Article 283 [11] of the Labor Code. On the other hand,
it is also possible that such may only be a clever scheme of the petitioner
company to camouflage its real intention of discriminating against union
members particularly the private respondents. In any case, these matters will
be best ventilated in a hearing before the Labor Arbiter.
It is for the above reason that we cannot hold the petitioners guilty of the
ULP charge. This will be the task of the Labor Arbiter. We however find that
based on the cicumstances surrounding this case and settled jurisprudence
on the subject, the complaint filed by the private respondents on
February 25, 1991 alleges facts sufficient to costitute a bona fide case of
ULP, and therefore properly cognizable by the Labor Arbiter under Article 2
17(a) of the Labor Code. This is consistent with the rule that jurisdictioin over
the subject matter is determined by the allegations of the complaint. [12]
Finally, petitioners try to impress on this Court the strong State policy on
the promotion of voluntary modes of settlement of labor disputes crafted in
the Constitution and the Labor Code which dictate the submission of the CBA
dispute to grievance and arbitration.[13]
In this regard, the response of the Solicitor General is apt:
Petitioners deserve commendation for divulging and bringing to public respondents
attention the noble legislative intent behind the law mandating the inclusion of
grievance and voluntary arbitration provisions in the CBA. However, in the absence
of an express legal conferment thereof, jurisdiction cannot be appropriated by an
official or tribunal (sic) no matter how well-intentioned it is, even in the pursuit of
the clearest substantial right (Concurring Opinion of Justice Barredo,
Estanislao v. Honrado, 114 SCRA 748, 29 June 1982).[14]
In the same manner, petitioners cannot arrogate into the powers of voluntary
arbitrators the original and exclusive jurisdiction of Labor Arbiters over unfair labor
practices, termination disputes, and claims for damages, in the absence of an express
agreement between the parties in order for Article 262[15] of the Labor Law to apply
in the case at bar.[16]

WHEREFORE, the instant petition is DISMISSED for lack of merit and

the resolutions of the National Labor Relations Commission dated August 11,
1992 and October 29, 1992 are hereby AFFIRMED.
SO ORDERED
G.R. No. L-37878

November 25, 1932

MANILA ELECTRIC COMPANY, petitioner,

vs.
PASAY TRANSPORTATION COMPANY, INC., ET AL., respondents.
Ross, Lawrence & Selph for petitioner.
Rivera & Francisco for respondent Pasay Transportation Co.
P. A. Remigio for respondent E. B. Gutierrez. A. M. Zarate for respondent
Raymundo Transportation Co.
Vicente Ampil for respondent J. Ampil.

MALCOLM, J.:
The preliminary and basic question presented by the petition of the Manila
Electric Company, requesting the members of the Supreme Court, sitting as
a board of arbitrators, to fix the terms upon which certain transportation
companies shall be permitted to use the Pasig bridge of the Manila Electric
Company and the compensation to be paid to the Manila Electric Company
by such transportation companies, relates to the validity of section 11 of Act
No. 1446 and to the legal right of the members of the Supreme Court, sitting
as a board of arbitrators, to act on the petition. Act No. 1446 above referred
to is entitled. "An Act granting a franchise to Charles M. Swift to construct,
maintain, and operate an electric railway, and to construct, maintain, and
operate an electric light, heat, and power system from a point in the City of
Manila in an easterly direction to the town of Pasig, in the Province of Rizal."
Section 11 of the Act provides: "Whenever any franchise or right of way is
granted to any other person or corporation, now or hereafter in existence,
over portions of the lines and tracks of the grantee herein, the terms on
which said other person or corporation shall use such right of way, and the
compensation to be paid to the grantee herein by such other person or
corporation for said use, shall be fixed by the members of the Supreme

Court, sitting as a board of arbitrators, the decision of a majority of whom

shall be final."
When the petition of the Manila Electric Company was filed in this court, it
was ordered that the petitioner be required to serve copies on the AttorneyGeneral and the transportation companies affected by the petition.
Thereafter, the Attorney-General disclaimed any interest in the proceedings,
and opposition was entered to the petition by a number of public utility
operators. On the submission of memoranda after an oral hearing, the
petition was made ready for resolution.
Examining the statutory provision which is here invoked, it is first noted that
power is attempted to be granted to the members of the Supreme Court
sitting as a board of arbitrators and to the Supreme Court as an entity. It is
next seen that the decision of a majority of the members of the Supreme
Court is made final. And it is finally observed that the franchise granted the
Manila Electric Company by the Government of the Philippine Islands,
although only a contract between the parties to it, is now made to effect the
rights of persons not signatories to the covenant.
The law calls for arbitration which represents a method of the parties' own
choice. A submission to arbitration is a contract. The parties to an arbitration
agreement may not oust the courts of jurisdiction of the matters submitted to
arbitration. These are familiar rules which find support in articles 1820 and
1821 of the Civil Code. Citation of authority is hardly necessary, except that it
should be recalled that in the Philippines, and in the United States for that
matter, it has been held that a clause in a contract, providing that all matters
in dispute between the parties shall be referred to arbitrators and to them
alone, is contrary to public policy and cannot oust the courts of jurisdiction
(Wahl and Wahl vs. Donaldson, Sims & Co. [1903], 2 Phil., 301;
Puentebella vs. Negros Coal Co. [1927], 50 Phil., 69; Vega vs. San Carlos
Milling Co. [1924], 51 Phil., 908; District of Columbia vs. Bailey [1897], 171 U.
S., 161.)
We would not be understood as extending the principles governing
arbitration and award too far. Unless the arbitration agreement is such as
absolutely to close the doors of the courts against the parties, the courts
should look with favor upon such amicable arrangements. We can also
perceive a distinction between a private contract for submission to arbitration
and agreements to arbitrate falling within the terms of a statute enacted for

such purpose and affecting others than the parties to a particular franchise.
Here, however, whatever else may be said in extenuation, it remains true that
the decision of the board of arbitrators is made final, which if literally enforced
would leave a public utility, not a party to the contract authorized by Act No.
1446, without recourse to the courts for a judicial determination of the
question in dispute.
Counsel for the petitioner rely principally on the case of Tallassee Falls Mfg.
Co. vs. Commissioner's Court [1908], 158 Ala., 263. It was there held that an
Act of a state legislature authorizing the commissioners' court of a certain
county to regulate and fix the rate of toll to be charged by the owners of a
bridge is not unconstitutional as delegating legislative power to the courts.
But that is not the question before us. Here the question is not one of
whether or not there has been a delegation of legislative authority to a court.
More precisely, the issue concerns the legal right of the members of the
Supreme Court, sitting as a board of arbitrators the decision of a majority of
whom shall be final, to act in that capacity.
We run counter to this dilemma. Either the members of the Supreme Court,
sitting as a board of arbitrators, exercise judicial functions, or the members of
the Supreme Court, sitting as board of arbitrators, exercise administrative
or quasi judicial functions. The first case would appear not to fall within the
jurisdiction granted the Supreme Court. Even conceding that it does, it would
presuppose the right to bring the matter in dispute before the courts, for any
other construction would tend to oust the courts of jurisdiction and render the
award a nullity. But if this be the proper construction, we would then have the
anomaly of a decision by the members of the Supreme Court, sitting as a
board of arbitrators, taken therefrom to the courts and eventually coming
before the Supreme Court, where the Supreme Court would review the
decision of its members acting as arbitrators. Or in the second case, if the
functions performed by the members of the Supreme Court, sitting as a
board of arbitrators, be considered as administrative or quasi judicial in
nature, that would result in the performance of duties which the members of
the Supreme Court could not lawfully take it upon themselves to perform.
The present petition also furnishes an apt illustration of another anomaly, for
we find the Supreme Court as a court asked to determine if the members of
the court may be constituted a board of arbitrators, which is not a court at
all.lawphil.net

The Supreme Court of the Philippine Islands represents one of the three
divisions of power in our government. It is judicial power and judicial power
only which is exercised by the Supreme Court. Just as the Supreme Court,
as the guardian of constitutional rights, should not sanction usurpations by
any other department of the government, so should it as strictly confine its
own sphere of influence to the powers expressly or by implication conferred
on it by the Organic Act. The Supreme Court and its members should not and
cannot be required to exercise any power or to perform any trust or to
assume any duty not pertaining to or connected with the administering of
judicial functions.
The Organic Act provides that the Supreme Court of the Philippine Islands
shall possess and exercise jurisdiction as heretofore provided and such
additional jurisdiction as shall hereafter be prescribed by law (sec. 26). When
the Organic Act speaks of the exercise of "jurisdiction" by the Supreme
Court, it could not only mean the exercise of "jurisdiction" by the Supreme
Court acting as a court, and could hardly mean the exercise of "jurisdiction"
by the members of the Supreme Court, sitting as a board of arbitrators.
There is an important distinction between the Supreme Court as an entity
and the members of the Supreme Court. A board of arbitrators is not a "court"
in any proper sense of the term, and possesses none of the jurisdiction which
the Organic Act contemplates shall be exercised by the Supreme
Court.lawph!l.net
In the last judicial paper from the pen of Chief Justice Taney, it was said:
The power conferred on this court is exclusively judicial, and it
cannot be required or authorized to exercise any other. . . . Its
jurisdiction and powers and duties being defined in the organic law of
the government, and being all strictly judicial, Congress cannot
require or authorize the court to exercise any other jurisdiction or
power, or perform any other duty. . . . The award of execution is a
part, and an essential part of every judgment passed by a court
exercising judicial power. It is no judgment, in the legal sense of the
term, without it. Without such an award the judgment would be
inoperative and nugatory, leaving the aggrieved party without a
remedy. It would be merely an opinion, which would remain a dead
letter, and without any operation upon the rights of the parties, unless
Congress should at some future time sanction it, and pass a law
authorizing the court to carry its opinion into effect. Such is not the

judicial power confided to this court, in the exercise of its appellate

jurisdiction; yet it is the whole power that the court is allowed to
exercise under this act of Congress. . . . And while it executes firmly
all the judicial powers entrusted to it, the court will carefully abstain
from exercising any power that is not strictly judicial in its character,
and which is not clearly confided to it by the Constitution. . . .
(Gordon vs. United States [1864], 2 Wall., 561; 117 U. S., 697
Appendix.)
Confirming the decision to the basic question at issue, the Supreme Court
holds that section 11 of Act No. 1446 contravenes the maxims which guide
the operation of a democratic government constitutionally established, and
that it would be improper and illegal for the members of the Supreme Court,
sitting as a board of arbitrators, the decision of a majority of whom shall be
final, to act on the petition of the Manila Electric Company. As a result, the
members of the Supreme Court decline to proceed further in the matter.

12.01. Should any dispute, difference or disagreement arise

between the CLAIM-OWNER and the COMPANY regarding
the meaning, application or effect of this Agreement or of any
clause thereof, or in regard to the amount and computation
of the royalties, deductions, or other item of expense
hereinabove provided, such dispute, difference or
disagreement shall be referred to a board of arbitration to be
composed of one arbitrator to be appointed by the
COMPANY, another to be appointed by the CLAIM-OWNER,
and a third to be selected by the two aforementioned
arbitrators, the decision of a majority of the said arbitrators to
be binding upon the parties, insofar as the same is permitted
by law. No action shall be instituted in any Court by either
party hereto, unless the dispute, difference or disagreement,
shall have been first submitted to and received by said board
of arbitrators, and any such action shall be based upon the
award as obtained.

G.R. No. L-51996 November 23, 1988

WESTERN MINOLCO CORPORATION, petitioner,
vs.
COURT OF APPEALS and GREGORIAN MINING COMPANY, respondents.

12.02The parties stipulate that the venue of the actions

referred to in Section 12.01 shall be in the City of Manila.
There are, it will be noted, only two (2) classes of disputes or disagreements
governed by these provisions:

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bernardino F. Catbagan, Jr. for respondent Gregorian Mining Company.

1) those "regarding the meaning, application or effect of the agreement(s) or

any clause thereof," and
2) those "in regard to the amount and computation of the royalties,
deductions, or other item of expense" provided in the agreement.

NARVASA, J.:
A series of contracts was entered into between Western Minolco Corporation
and Gregorian Mining Company, basically for the operation by the former of
the latter's mining claims. 1 One of the stipulations in the contracts (a)
declared certain particular disputes to be subject to arbitration and (b)
specified the manner of enforcement by court action of the resulting
arbitration awards. 2 The stipulation reads as follows:
Article XII

It is made quite clear that these two (2) classes of disputes are to be
"referred to a board of arbitration." It is made equally clear that no action
concerning them may be instituted in any court by either party (1) unless the
controversy be "first submitted to and received by said board of arbitrators,"
and (2) only if the action "be based upon the award as obtained. " In the
event of such an action, the venue thereof "shall be in the City of Manila."
Now, it appears that Western Minolco Corporation subsequently executed
another agreement with another firm, the Dreamers Mining Association, for
the validation of 36 mineral lode claims in the latter's favor. As it happened,

those 36 claims were believed by Gregorian Mining Company to be in conflict

with, and had been superimposed on its own claims, which it had earlier
located and which were in fact subject of the series of agreements signed by
it and Western Minolco Corporation. Gregorian Mining Company
consequently brought suit against Western Minolco Corporation in the Court
of First Instance of Baguio and Benguet, for the rescission of their
agreements and damages. 3
Western Minolco moved to dismiss the complaint, theorizing that (a) venue
had been improperly laid, and (b) the complaint stated no cause of
action. 4 Gregorian opposed the motion, arguing that (a) the stipulation
regarding venue in the parties' agreements was merely permissive and did
not preclude the filing of an action conformably with the general rules of
venue in Section 2, Rule 4 of the Rules of Court, and (b) there was a cause
of action set forth in the complaint within the Trial Court's jurisdiction because
the action involved a dispute which was not arbitrable in accordance with
their contracts. 5 Western Minolco filed a reply. 6 The Trial Court 7 denied
Western Minolco's motion to dismiss and required it to file its responsive
pleading within the prescribed period. 8 The Court also denied Western
Minolco's motion for reconsideration. 9
In the meantime, and while it was seeking reconsideration of the Baguio
Court's adverse order, Western Minolco filed a petition with the Court of First
Instance of Manila to compel arbitration, in line with its agreement with
Gregorian, and for recovery of damages against the latter. 10 After an
exchange of pleadings, the petition was granted. 11 Gregorian sought to take
an appeal to the Court of Appeals; 12 but the Manila Court ruled that the
appeal should more properly be taken to this Court. 13
Gregorian decided to forego the appeal, and to await instead the decision of
the Court of Appeals on the petition for certiorari and prohibition which
Western Minolco had in the meantime filed to assail the Orders of the CFI of
Baguio and Benguet (refusing to dismiss the action [Case No. 2272 (220)]
brought against it by Gregorian). 14 The Court of Appeals was not persuaded
by Western Minolco's arguments, and dismissed its petition, by decision
dated August 29, 1979. 15 It later denied Western Minolco's motion for
reconsideration. 16 This decision of August 29, 1979, and the order denying
reconsideration, are challenged in the instant appeal. The verdict must go
against the petitioner, Western Minolco Corporation.

It is Western Minolco's thesis that it was reversible error for the Court of
Appeals to find and declare that
a) the venue of the action instituted against it by Gregorian
Mining Co. was improperly laid;
b) the action could not be instituted until and unless the
dispute subject thereof had first been resolved by arbitration,
as covenanted by the parties;
c) public policy encourages arbitration and arbitration
agreements are to be liberally construed;
d) the Trial Court had no business interpreting the provisions
of the agreement the terms of which were otherwise clear,
unambiguous and unequivocal.
The terms of the applicable provision of the parties' agreements are indeed
"clear, unambiguous, and unequivocal." As pointed out in the opening
paragraphs of this opinion, only two (2) kinds of "disputes, differences or
disagreements" have been made subject of arbitration:
1) those "regarding the meaning, application or effect of the agreement(s) or
any clause thereof;" and
2) those "in regard to the amount and computation of the royalties, deduction,
or other item of expense" provided in the agreement.
The controversy involved in the action brought by Gregorian against Western
Minolco was the alleged violation by the latter of its agreements with the
former, consisting of its entering into a contract with a third party for the
validation of mining claims which it knew had already been located by
Gregorian. What was involved, in other words, was the breach of faith, or the
double dealing of Western Minolco in undertaking to validate in favor of a
third party the selfsame claims which it had earlier undertaken to operate
for Gregorian. Clearly, such a controversy does not fall within either of the
two categories of disputes which must first be submitted for arbitration. The
stipulation in question (for arbitration to be first had) did not therefore
constitute an impediment or a bar to the institution of the action commenced
by Gregorian against Western Minolco, for rescission and damages.

Even if, for the sake of argument, some measure of tenability be conceded to
the opposite view: that the controversy subject of Civil Case No. 2272 (220)
might be considered as dealing with the "meaning, application or effect" of
the agreementspecifically, whether the claims therein described are the
very same mining claims subject of Western Minolco's subsequent
agreement with a third partyand therefore should first be submitted to and
resolved by a board of arbitrators, the worst that could then be said of the
orders of the Trial Court, affirmed by the Court of Appeals, is that they are
attended by an error in the analysis and interpretation of the language and
import of the stipulation in question, but certainly not by that whimsical,
capricious, or totally groundless or tangential exercise of adjudgment or
discretion as would justify the issuance of the extraordinary writ of certiorari
or prohibition. 17 In no sense may it be said that power has been exercised
by either the Appellate Court or the Trial Court in so arbitrary or despotic a
manner, as by reason of passion, prejudice or personal hostility, or in so
patently and grossly mistaken a manner as to amount to an evasion of
positive duty or a virtual refusal to perform a duty enjoined or to act at all in
contemplation of law, so as to make needful the extension of this Court's
correcting hand by the peremptory writ of certiorari or prohibition. 18
Since the stipulation as to venue becomes relevant only when an action has
to be instituted "based upon the award as obtained" (from the board of
arbitrators) (i.e., as the mode of enforcement of the award); and since there
is here no such award because no controversy subject to arbitration existed
and was ever submitted to arbitration, no error can possibly be imputed to
the Trial Court in not applying the stipulation to the action a quo. In any
event, it is not entirely amiss to restate the doctrine that stipulations in a
contract, which specify a definite place for the institution of an action arising
in connection therewith, do not, as a rule, supersede the general rules on the
matter set out in Rule 4 of the Rules of Court, but should be construed
merely as an agreement on an additional forum, not as limiting venue to the
specified place. 19
WHEREFORE, the petition is DENIED, and the decision of the Court of
Appeals subject of the appeal is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 55159 December 22, 1989

PHILIPPINE AIRLINES, INC., petitioner

vs.
NATIONAL LABOR RELATIONS COMMISSION and ARMANDO
DOLINA, respondents.
Ermitano Manzano & Associates for petitioner.
Solon Garcia collaborating counsel for petitioner.

CORTES, J.:
Petitioner impugns in this petition for certiorari that part of the public
respondent National Labor Relations Commission's (NLRC) decision in
NLRC Case No. RB-IV-9319-77 which ordered petitioner to restore private
respondent Dolina to its payroll, and to pay his salaries from 1 April 1979
"until this case is finally resolved" [Rollo, p. 33]. Petitioner contends that
public respondent NLRC gravely abused its discretion considering that in the
same decision public respondent affirmed the decision of the Labor Arbiter in
toto granting respondent's application for clearance to dismiss the private
respondent.
The pertinent facts are as follows:
Private respondent Dolina was admitted to the Philippine Airlines (PAL)
Aviation School for training as a pilot beginning 16 January 1973. The
training agreement bound PAL to provide regular and permanent
employment to Dolina upon completion of the training course. On 25 January
1974, Dolina completed the course, and undertook an equipment
qualification course up to 4 October 1974. On 9 October 1974, the Civil
Aeronautics Administration issued him a license as Commercial Pilot and
PAL then extended him a temporary appointment for six (6) months as
Limited First Officer. When his appointment was due to expire on 30 April
1975, Dolina had only logged eighty four (84) hours and fifty five (55) minutes
flying time, short of the minimum 500 flying hours required for regularization
as First Officer. To enable him to complete the requirement, his employment
was extended for another six months which appointment was described as
"permanent." On 31 October 1975, when his appointment was again due to
expire, he was still short of the minimum flying time requirement such that his

appointment was again extended up to 30 April 1976. During this third

extension of his appointment, Dolina completed the 500 flying hours
requirement, and thus on 31 March 1976 he applied for regularization as
First Officer. Pending his physical examination by the chief Flight Surgeon,
his appointment was again extended to 31 October 1976. On 17 August
1976, Dolina took a psychological examination wherein his "Adaptability
Rating" was found to be "unacceptable" [Annex "L" to the Petition. p. 8; Rollo,
p. 116]. On 23 September 1976, complainant was again subjected to an
examination and interview by the Pilot Acceptance Qualifications Board as
part of the regularization process, which examination revealed the following:
xxx xxx xxx
b. Armando Dolina - After thorough evaluation of the
candidate's past records, his performance and the result of
his medical examination as submitted by the Medical SubDepartment, the Board finds Mr. A. Dolina not qualified for
regular employment in the Company.
xxx xxx xxx

The undersigned parties hereby agree to the following:

1 While pending final resolution of the complaint of Mr.
Armando Dolina against the Philippine Airlines, he shall be
considered in the payroll effective 1 October 1976.
2 The order of Regional Director Vicente Leogardo for the
reinstatement with backwages of Mr. Dolina is hereby
rendered moot and academic.
3 The parties shall consider this arrangement pending final
resolution of the case by arbitration.
xxx xxx xxx
Subsequently, on 30 May 1977, the Acting Secretary of Labor issued an
order finding that the propriety of the suspension had been rendered moot
and academic by the above agreement and referred the case for compulsory
arbitration to the Executive Labor Arbiter [Annex "J" to the Petition; Rollo, p.
85]. On 23 March 1979, the Labor Arbiter rendered its decision, the
dispositive portion of which reads as follows:

[NLRC Decision, pp. 3-4; Rollo, pp. 25-26].

Conformably, the Board recommended the termination of the complainant
pursuant to which PAL filed a clearance application [Rollo, p. 34] for Dolina's
termination. In the meantime Dolina was placed under preventive suspension
effective 1 October 1976. Dolina countered with a complaint for illegal
dismissal on 6 October 1976 [Rollo, 35]. On 26 January 1977 the Officer-inCharge of the Department of Labor Regional Office No. IV lifted the
preventive suspension, and ordered petitioner to reinstate Dolina to his
former position with full backwages from 1 October 1976 up to actual
reinstatement. The issue of termination and damages was referred to the
Executive Labor Arbiter for compulsory arbitration [Rollo, p. 71].
Petitioner appealed the order lifting Dolina's suspension to the Secretary of
Labor. However, on 2 March 1977, pending the resolution of petitioner's
appeal, the parties signed an agreement before the Undersecretary of Labor,
the terms of which are as follows:
AGREEMENT

IN VIEW OF ALL THE FOREGOING, it is our considered

opinion that there is merit on the application for clearance,
and therefore, the same should be as it is hereby
GRANTED. Consequently, the oppositor's TERMINATION IS
IN ORDER.
Since the termination is upheld, perforce the claim for moral
damages is denied. Besides pursuant to P.D. No. 1367 dated
May 1, 1978, this office is devoid of jurisdiction to entertain
said claim.
SO ORDERED. [Decision of Labor Arbiter, p. 12; Rollo, p.
97].
By virtue of the above decision, PAL removed Dolina from its payroll effective
1 April 1979. Dolina then appealed the Labor Arbiter's decision to the public
respondent NLRC on 29 April 1979 and there filed a motion praying that PAL
be ordered to return him to PAL's payroll, contending that the Labor Arbiter's

decision was not yet final because of his timely appeal. PAL opposed the
motion claiming that it was no longer obliged to return Dolina to its payroll
since the decision of the Labor Arbiter dated 23 March 1979 in its favor was a
final resolution of the case by arbitration [Annex "N" to the Petition, p. 1;
Rollo, p. 137].
On 8 February 1980, public respondent NLRC rendered its decision
containing the assailed portion to wit:
xxx xxx xxx
In fine it is our considered view that the respondent's
application for clearance to dismiss the complainant has
sufficiently surmounted the test of validity.
Be that as it may, we are not in accord with the
discontinuation of the payment of complainant's salaries.
The agreement of the parties stipulated in no uncertain
terms that the complainant [Dolina] is to be carried in
respondent's payroll until this case is finally resolved. As
things stand, the main issue is still being litigated. The
complainant, therefore, must be restored to the payroll and
paid for his salaries from 1 April 1979, the date he was
dropped from the respondent's payroll.
WHEREFORE, the Decision appealed from should be as it is
hereby affirmed in toto. However the respondent is ordered
to restore the complainant to its payroll and to pay his
salaries from 1 April 1979 until this case is finally resolved.
SO ORDERED. [NLRC Decision, pp. 10-11; Rollo, pp. 32-33;
Italics supplied]
Hence, this petition, with a prayer for a temporary restraining order. The
Court issued a temporary restraining order on 10 October 1980. Private
respondent Dolina failed to file his comment and the Solicitor General
submitted his own Comment supporting the stand of petitioner. Due to the
adverse stand of the Solicitor General, public respondent NLRC submitted its
own Comment.

The issue before the Court is whether or not the NLRC committed grave
abuse of discretion in holding that private respondent Dolina was entitled to
his salaries from 1 April 1979 "until this case is finally resolved."
PAL contends that inasmuch as the respondent Commission acting en banc
had affirmed in toto the decision of the Labor Arbiter granting petitioner the
clearance for the dismissal of private respondent Dolina, it is an act of grave
abuse of discretion amounting to lack of jurisdiction on its part to order
petitioner to pay private respondent's salaries from 1 April 1979 until the case
is finally terminated. PAL contends that said stipulation refers only to the
resolution of the case by arbitration and said arbitration of the case was
terminated when the Labor Arbiter rendered its decision dated 23 March
1979. PAL argues that the arbitration of the case is limited to and comprises
merely the proceedings before the Labor Arbiter such that when the latter
renders a decision, arbitration of the dispute is terminated .
Public respondent NLRC on the other hand contends that arbitration is a
continuing process from the time the case is referred by the Secretary of
Labor to the Arbitration Branch until the final judgment is had on appeal.
Since the Labor Arbiter's decision in favor of petitioner did not finally resolve
the case in view of the timely appeal by private respondent from said
decision, the case was not yet finally terminated by arbitration and Dolina is
entitled to be placed in petitioner's payroll until the complaint is finally
resolved.
The above contentions call for the proper interpretation of the agreement
between the parties, specifically the third stipulation containing the clause
"pending final resolution of the case by arbitration."
It is a basic rule in interpretation of contracts that the circumstances under
which an instrument was made, including the situation of the subject thereof
and the parties to it, may be considered so that the intention of the
contracting parties may be judged correctly [Art. 1371, Civil Code of the
Philippines; Section 11, Rule 130, Rules of Court; Lim v. Court of Appeals,
G.R. No. L-40258, September 11, 1980, 99 SCRA 668.] In the instant case,
the stipulation in the 2 March 1977 agreement that Dolina shag be included
in the payroll of PAL until final resolution of the case by arbitration was
intended to supersede the order of the Regional Director which, by stipulation
of the parties, was rendered moot and academic. In lieu of reinstatement and
the payment of his backwages, private respondent was included in

petitioner's payroll, effective from the time he was preventively suspended

until final resolution of the case by arbitration, without having to perform any
work for the petitioner. In entering into the agreement, the parties could not
have intended to include in the clause "final resolution of the case by
arbitration" the whole adjudicatory process, including appeal. For if it were
so, even proceedings on certiorari before this Court would be embraced by
the term "arbitration" and private respondent will continue to receive monthly
salary without rendering any service to the petitioner regardless of the
outcome of the proceedings before the Labor Arbiter, for as long as one of
the parties appeal to the NLRC and until the case is finally resolved by this
Court. This is clearly an absurdity which could not have been contemplated
by the parties.

More important, however, is the fact that the NLRC's order for the continued
payment of Dolina's salaries is inconsistent with its affirmance of the Labor
Arbiter's decision upholding the validity of Dolina's dismissal. In affirming the
Labor Arbiter's decision granting the termination clearance, the NLRC held
that:

Neither can proceedings on appeal before the NLRC en banc be considered

as part of the arbitration proceeding. In its broad sense, arbitration is the
reference of a dispute to an impartial third person, chosen by the parties or
appointed by statutory authority to hear and decide the case in controversy
[Chan Linte v. Law Union and Rock, Ins. Co., 42 Phil. 548 (1921)]. When the
consent of one of the parties is enforced by statutory provisions, the
proceeding is referred to as compulsory arbitration. In labor cases,
compulsory arbitration is the process of settlement of labor disputes by a
government agency which has the authority to investigate and to make an
award which is binding on all the parties [See Wood v. Seattle, 23 Wash. 1,
62 P 135, 52 LRA 369 (1920); Amalgamated Association v. Wisconsin
Employees' Relations Board, 340 U.S. 383-410,95 L. Ed. 381 (1951)]. Under
the Labor Code, it is the Labor Arbiter who is clothed with the authority to
conduct compulsory arbitration on cases involving termination disputes
[Article 217, Pres. Decree No. 442, as amended]. When the Labor Arbiter
renders his decision, compulsory arbitration is deemed terminated because
by then the hearing and determination of the controversy has ended. Any
appeal raised by an aggrieved party from the Labor Arbiter's decision is
already beyond the scope of arbitration since in the appeal stage, the NLRC
en banc merely reviews the Labor Arbiter's decision for errors of fact or law
and no longer duplicates the proceedings before the Labor Arbiter. Thus, the
clause "pending final resolution of the case by arbitration" should be
understood to be limited only to the proceedings before the Labor Arbiter,
such that when the latter rendered his decision, the case was finally resolved
by arbitration.

This is understandable for it concerns the safety of its

properties, and above all, the safety of the lives and
properties of its passengers, which by law it is committed to
transport safely. In the absence, therefore, of any showing
that its standards are unreasonable and discriminatory,
which we do not find here, We cannot disturb them. We can
only say that for exercising extraordinary diligence in the
selection of its pilots, We join the public in commending it.

With respect to the issue of whether or not the complainant's

[Dolina] dismissal was sufficiently grounded, we are not
persuaded that the respondent [herein petitioner PAL] is
under obligation to employ him as regular employee simply
because he was certified physically fit and technically to
proficient by the CAA.

xxx xxx xxx

In fine, it is Our considered view that the respondent's
application for clearance to dismiss the complainant has
sufficiently surmounted the test of validity.
In view of the above finding of valid dismissal, the NLRC had no authority to
order the continued payment of Dolina's salaries from 1 April 1979 until the
case is finally resolved. The NLRC's order would result in compensating
Dolina for services no longer rendered and when he is no longer in PAL's
employ. This is contrary to the age-old rule of "a fair day's wage for a fair
day's labor" which continues to govern the relation between labor and capital
and remains a basic factor in determining employees' wages [Durabilt
Recapping Plant & Co. v. National Labor Relations Commission, G.R. No.
76746, July 27, 1987, 152 SCRA 328]. So that, if there is no work performed
by the employee there can be no wage or pay unless the laborer was able,
willing and ready to work but was prevented by management or was illegally
locked out, suspended or dismissed. Where the employee's dismissal was

for a just cause, it would neither be fair nor just to allow the employee to
recover something he has not earned and could not have earned [Santos v.
National Labor Relations Commission, G.R. No. 76721, September 21, 1987,
154 SCRA 166].
Moreover, in ordering the continued payment of Dolina's salaries from 1 April
1979 until the case is finally resolved, the NLRC in effect ordered the
payment of backwages to Dolina notwithstanding its finding of a valid
dismissal.
This is clearly untenable.
In the first place, backwages in general are granted on grounds of equity for
earnings which a worker or employee has lost due to his illegal dismissal
[New Manila Candy Workers Union (NACONWA-PAFLU) v. Court of
Industrial Relations, G.R. No. L-29728, October 30, 1978, 86 SCRA 37;
Durabilt Recapping Plant & Co. v. National Labor Relations Commission,
supra; Chong Guan Trading v. National Labor Relations Commission, G. R.
No. 81471, April 26, 1989; Santos v. National Labor Relations Commission,
supra]. Where, as in this case, the dismissal was for a just cause, there is no
factual or legal basis for ordering the payment of backwages. The order of
the NLRC for the continued payment of Dolina's salaries would allow the
latter to unjustly enrich himself at the expense of the petitioner. This Court
has reiterated time and again that the law, in protecting the rights of the
laborer, authorizes neither oppression nor self-destruction of the employer
[Colgate Palmolive Philippines, Inc. v. Ople, G.R. No. 73681, June
30,1988,163 SCRA 323]. In this case, the NLRC chose not to adhere with
fidelity to this doctrine.

Secondly, NLRC's order for continued payment of Dolina's salary from 1 April
1979 up to the final resolution of the case would place Dolina in a better
position than those workers who were found to have been illegally dismissed
by their employer. For in the latter case, the backwages that can be
recovered by the worker is limited to three years [Mercury Drug Co., Inc. v.
Court of Industrial Relations, G.R. No. L-23357, April 30, 1974, 56 SCRA
694; Philippine Airlines, Inc. v. National Labor Relations Commission, G.R.
No. 64809, November 29, 1983, 126 SCRA 223; Madrigal & Co., Inc. v.
Zamora, G.R. No. L-48237, Madrigal & Co., Inc. v. Minister of Labor, G.R.
No. L-49023, June 30,1987] while Dolina, whose dismissal was found to be
valid, can recover approximately ten years backwages, which corresponds to
the period from 1 April 1979 until "final resolution" of the instant case.
Considering the foregoing, the Court holds that respondent NLRC's order for
the continued payment of Dolina's salaries from "l April 1979 until the case is
finally resolved" is contrary to law and established jurisprudence and the
NLRC acted in excess of its jurisdiction in issuing the assailed order. In the
recent case of Llora Motors, Inc. v. Drilon, G.R. No. 82895, November 7,
1989 the Court held as an act without or in excess of jurisdiction the portion
of the Labor Arbiter's award, which required the employer to pay to its
employee an amount equivalent to a half month's pay for every year of
service as retirement benefits, for being without basis either in law or
contract. Similarly, there is in this case an excess of jurisdiction on the part of
the NLRC in ordering the continued payment of Dolina's salaries "from 1 April
1979 until the case is finally resolved."
WHEREFORE, that part of the dispositive portion of the decision of the
National Labor Relations Commission in NLRC CASE NO. RB-IV-9319-77
requiring petitioner to restore private respondent to its payroll and ordering
the payment of his salaries from 1 April 1979 until the case is finally resolved
is hereby declared NULL and VOID and SET ASIDE. The temporary
Restraining Order issued by the Court on 10 October 1980 is made
PERMANENT.
SO ORDERED.
G.R. No. 102881 December 7, 1992
TOYOTA MOTOR PHILIPPINES CORPORATION, petitioner,
vs.

THE COURT OF APPEALS, HON. FERNANDO V. GOROSPE, JR. and

SUN VALLEY MANUFACTURING & DEVELOPMENT
CORPORATION, respondents.

GUTIERREZ, JR., J.:

This case involves a boundary dispute between Toyota Motor Phil.
Corporation (Toyota) and Sun Valley Manufacturing and Development
Corporation (Sun Valley).
Both Toyota and Sun Valley are the registered owners of two (2) adjoining
parcels of land situated in La Huerta, Paraaque, Metro Manila which they
purchased from the Asset Privatization Trust (APT).
The properties in question formerly belonged to Delta Motors Corporation
(DMC). They were foreclosed by the Philippine National Bank (PNB) and
later transferred to the national government through the APT for disposition.
APT then proceeded to classify the DMC properties according to the existing
improvements, i.e., buildings, driveways, parking areas, perimeter fence,
walls and gates and the land on which the improvements stood. The entire
DMC property is called GC III-Delta Motors Corporation, divided into Delta I,
Delta II, and Delta III. Further subdivisions for the separate catalogues were
made for each division e.g. Delta I into Lots 1, 2 and 3. After this
classification, APT parcelled out and catalogued the properties for bidding
and sale.
Part of the duly parcelled Delta I property (Lot 2) was sold to Toyota through
public bidding on May 12, 1988 for the amount of P95,385,000.00. After its
purchase, Toyota constructed a concrete hollow block (CHB) perimeter fence
around its alleged property.

On October 5, 1990, another part of the parcelled Delta I (Lot 1) covering an

area of 55,236 square meters was purchased by Sun Valley from APT for the
bid price of P124,349,767.00. Relying upon the title description of its property
and the surveys it had commissioned, Sun Valley claimed that Toyota's
perimeter fence overlaps Sun Valley's property along corners 11 to 15 by 322
square meters and corners 19 to 1 by 401 square meters for a total of 723
square meters. (Rollo, p. 841)
Negotiations between the two (2) corporations for a possible settlement of
the dispute bogged down. Court battles ensued, grounded on purely
procedural issues. In pursuing the resolution of the dispute, both Toyota and
Sun Valley opted to file separate actions. Much of the complications that
arose and are now before us can be traced to the two separate cases
pursued by both parties. There are other cases arising from the same dispute
but which are not before us.
Culled from the records, these are the antecedents of the two cases which
transpired below.

TOYOTA CASE (Civil Case No. 91-2504)

On September 11, 1991, Toyota filed a case against APT and Sun Valley
docketed as Civil Case No. 91-2504 with the Regional Trial Court of Makati,
Branch 146 presided by Judge Salvador Tensuan. The complaint was for the
reformation of the Deed of Sale executed between Toyota and APT. Toyota
alleges that the instrument failed to reflect the true intention of the parties, as
evidenced by the failure of the title to include the 723 square meters strip of
land.
Toyota alleges that the discrepancy came about because of the serious flaw
in the classification/cataloguing of properties bidded out for sale by APT.
Toyota was made to understand that included in its perimeter fence is the
disputed strip of land. Thus, Toyota sought the resurvey of the property to
correct this error in the title. Sun Valley was impleaded considering that it
purchased the adjoining land whose title allegedly included the 723 square
meters property.

On September 11, 1991, upon Toyota's application, Judge Tensuan issued a

temporary restraining order (TRO) enjoining Sun Valley and APT from any
act of destruction and removal of Toyota's walls and structures. Sun Valley
and APT were respectively served summons on the following day.
On September 16, 1991, Sun Valley filed a motion to dismiss, on the ground
that the Toyota complaint failed to state a cause of action against it (1) since
it was not a party to the contract of the deed of sale between Toyota and
APT, and (2) the complaint was in effect a collateral attack on its title.
On September 27, 1991, Judge Tensuan initially denied Toyota's application
for preliminary injunction on the finding that there was no evidence of any
threatened destruction, removal or dispossession of Toyota's property.

Judge Tensuan's jurisdiction to act considering the defense of prematurity of

action for failure to arbitrate the validity of the TRO issued on December 4,
1991 and the order granting injunctive reliefs were challenged in a petition
for certiorari filed with the Court of Appeals and docketed as CA-G.R. No.
26813, assigned to the Second (2nd) Division.

SUN VALLEY CASE (Civil Case No. 91-2550)

On September 16, 1991, Sun Valley, on the other hand, filed a case for
recovery of possession of the disputed 723 square meters boundary with the
Regional Trial Court (RTC) Makati, Branch 61 presided by Judge Fernando
Gorospe, Jr.

On October 10, 1991, Judge Tensuan denied Sun Valley's motion to dismiss.
Both Toyota and Sun Valley filed their respective motions for reconsideration.
Toyota moved to reconsider the denial of its injunctive application while Sun
Valley moved to reconsider the denial of its motion to dismiss.
On October 30, 1991, APT filed its answer with affirmative defenses alleging
that the complaint must be dismissed on the ground that Toyota and APT
should first have resorted to arbitration as provided in Toyota's deed of sale
with APT. On December 4, 1991, Toyota filed a motion alleging that Sun
Valley's long threatened destruction and removal of Toyota's walls and
structures were actually being implemented to which Judge Tensuan issued
another TRO enjoining acts of destruction and removal of the perimeter walls
and structures on the contested area.
Consequently, on December 17, 1991, Judge Tensuan reconsidered his
earlier denial of Toyota's application for injunction and granted a writ of
preliminary injunction enjoining Sun Valley from proceeding with its
threatened destruction and removal of Toyota's walls and directed Sun Valley
to restore the premises to the status quo ante.
On December 11, 1991, Judge Tensuan denied Sun Valley's motion for
reconsideration of its motion to dismiss. Sun Valley elevated this denial to the
Court of Appeals. The case was docketed as CA-G.R. Sp. No. 26942 and
raffled to the Eleventh (11th) Division.

On the same day, Judge Gorospe issued a TRO enjoining Toyota from
committing further acts of dispossession against Sun Valley.
On September 19, 1991, Toyota moved to lift the TRO and opposed Sun
Valley's application for injunction.
On September 23, 1991, Toyota filed a motion to dismiss on the ground that
the RTC has no jurisdiction over the case since the complaint was a simple
ejectment case cognizable by the Metropolitan Trial Court (MTC). The motion
to dismiss was set for hearing on September 27, 1991.
On September 27, 1991, Sun Valley filed an amended complaint to
incorporate an allegation that Toyota's possession of the alleged disputed
area began in September, 1988 when Toyota purchased the property.
Ruling that the amendment was a matter of right, Judge Gorospe admitted
the amended complaint. Toyota adopted its motion to dismiss the original
complaint as its motion to dismiss the amended complaint. After the
arguments to Toyota's motion to dismiss, the same was submitted for
resolution. Sun Valley's application for prohibitory and mandatory injunction
contained in its complaint was set for hearing on October 1, 1991.
Protesting the admission of the amended complaint, Toyota went to the Court
of Appeals, on certiorari on October 1, 1991. This petition was docketed as
CA-G.R. No. 26152 raffled to the Tenth (10th) Division.

Toyota was later prompted to file two supplemental petitions, before the
Court of Appeals as a result of Judge Gorospe's alleged hasty issuance of
four (4) Orders, all dated October 1, 1992. These are:

cease and desist from further proceeding with Civil Case No. 91-2504 and
from enforcing the Order dated December 17, 1991 and the writ of
preliminary mandatory injunction dated December 19, 1991.

(1) First supplemental petition dated October 4, 1991 which sought to nullify
the Order denying Toyota's motion to dismiss the amended complaint.

This prompted Toyota to file a motion to quash the TRO and file a
supplemental petition with this Court impleading the Court of Appeals'
Second Division.

(2) Second supplemental petition dated October 23, 1991 which sought the
nullification of the orders granting Sun Valley's application for preliminary
prohibitory and mandatory injunction and denying Toyota's motion to crossexamine Sun Valley's witnesses on the latter's injunction application.
On November 27, 1991, respondent Court of Appeals' Tenth Division
promulgated its questioned decision which is primarily the subject matter of
the present petition before us.

On January 13, 1992, we admitted the supplemental petition.

On January 10, 1992, the Court of Appeals' Second Division issued the
Resolution granting Sun Valley's application for preliminary injunction which
enjoined Judge Tensuan in the Toyota case from implementing his injunction
Order and from proceeding with the case before him (Civil Case No. 912504).

The respondent court denied due course to the Toyota petition on the finding
that the amendment of Sun Valley's complaint was a valid one as Sun
Valley's action was not for unlawful detainer but an accion publiciana.
Furthermore, the supplemental petitions filed by Toyota assailing the
prohibitory and mandatory injunctive writ were not ruled upon as they were
expunged from the records because of Toyota's failure to attach a motion to
admit these supplemental petitions.

Thus, Toyota filed its Second Supplemental Petition with this Court
challenging the validity of the injunction writ issued by the Court of Appeals'
Second Division.

Consequently, Toyota filed the present petition for certiorari on December 9,

1991.

Subsequently, through a manifestation dated April 29, 1992, Toyota informed

the Court that on April 15, 1992, the Court of Appeals' 11th Division (Sun
Valley case) rendered a decision dismissing the case before it for lack of
merit. The Court of Appeals ruled that the Toyota complaint was not a
collateral attack on Sun Valley's title and that misjoinder of parties is not a
ground for dismissal.

Earlier, upon an ex-parte motion to clarify filed by Sun Valley on October 25,
1991, Judge Gorospe issued another order dated December 2, 1991 which
followed Sun Valley to break open and demolish a portion of the Toyota
perimeter walls, and eventually to secure possession of the disputed area.
Toyota was constrained to come to this Court for relief.
On December 11, 1991, we issued a TRO enjoining the implementation of
Judge Gorospe's injunction and break-open orders dated October 1, 1991
and December 2, 1991 respectively as well as further proceedings in Civil
Case No. 91-2550.
Meanwhile, the Court of Appeals' Second Division issued a TRO ordering
respondent Judge Tensuan and all other persons acting in his behalf to

This Second Supplemental Petition was admitted on February 10, 1992.

On February 10, 1992, we gave due course to Toyota's petition.

A subsequent motion for reconsideration was denied in a resolution dated

August 10, 1992.
In the instant petition Toyota raises the following issues, to wit:
1. The Court of Appeals' 10th Division gravely abused its discretion when it
ignored or pretended to ignore Toyota's protests against Judge Gorospe's
injunction orders.

2. Sun Valley is guilty of forum-shopping and Judge Gorospe of casegrabbing.

Sun Valley, on the other hand raises the following:
1. Whether or not the petitioner availed of the proper mode of elevating the
case to this Court.

courts on segments of the basic issue and disconnected

appeals to different Divisions of the Court of Appeals
resulting in separate decisions each dealing with only part of
the problem are discouraged. Needless multiplicity of suits is
something which is frowned upon.
xxx xxx xxx

3. Whether or not the complaint filed in the court below is an accion

publiciana which is within the jurisdiction of the RTC.

Amid the clutter of extraneous materials which have certainly bloated the
records of this case, we find only two (2) issues vital to the disposition of the
petition: first, is the matter of jurisdiction, who as between Judge Tensuan or
Judge Gorospe has jurisdiction over the dispute; and second, who as
between the parties has the rightful possession of the land.

4. Whether or not Judge Salvador S. Tensuan had jurisdiction to take

cognizance of Civil Case No. 2504 for reformation of instrument.

Anent the issue on jurisdiction, we examine the two actions filed by the
parties.

5. Whether or not respondent Judge Gorospe, Jr. committed grave abuse of

discretion in granting private respondent's application for a writ of preliminary
prohibitory/mandatory injunction.

Toyota filed an action for reformation on September 11, 1991, before Judge
Tensuan alleging that the true intentions of the parties were not expressed in
the instrument (Art. 1359 Civil Code). The instrument sought to be reformed
is the deed of sale executed by APT in favor of Toyota. Toyota alleges that
there was a mistake in the designation of the real properties subject matter of
the contract. Sun Valley was impleaded in order to obtain complete relief
since it was the owner of the adjacent lot.

2. Whether or not the Court of Appeals committed grave abuse of discretion

in refusing to act upon petitioner's supplemental petitions for certiorari.

6. Whether or not Judge Tensuan committed grave abuse of discretion in

issuing the writ of mandatory injunction dated December 19, 1991.
This case is far from settlement on the merits. Through legal maneuverings,
the parties have succeeded in muddling up the vital issues of the case and
getting the lower courts embroiled in numerous appeals over technicalities.
As it is now, there are three appellate decisions/resolutions before us for
review and conflicting orders issued by lower courts as a result of the
separate cases filed by the parties. As in the case of Consolidated Bank and
Trust Corp. v. Court of Appeal,s 193 SCRA 158 [1991], the Court is explicit in
stating that:
xxx xxx xxx
Where there are conflicting but inextricably interconnected
issues in one and the same complicated case, it is best that
these be resolved in one integrated proceeding where an
overall picture of the entirety of the case can be presented
and examined. Piecemeal determinations by several trial

Sun Valley, however, argues that the complaint for reformation states no
cause of action against it since an action for reformation is basically one
strictly between the parties to the contract itself. Third persons who are not
parties to the contract cannot and should not be involved. Thus, Sun Valley
contends that it should not have been impleaded as a defendant.
The Court of Appeals' 11th Division, in its decision promulgated on April 15,
1992 where the denial of Sun Valley's motion to dismiss was sustained,
correctly ruled that misjoinder of parties is not a ground for dismissal.
American jurisprudence from where provisions on reformation of instruments
were taken discloses that suits to reform written instruments are subject to
the general rule in equity that all persons interested in the subject matter of
the litigation, whether it is a legal or an equitable interest should be made
parties, so that the court may settle all their rights at once and thus prevent

the necessity of a multiplicity of suits (Bevis Construction Co. v. Grace [Fla

App] 115 So 2d 84; Green v. Stone, 54 N.J.E. 387, 34 A 1099). As a general
rule, therefore, all persons to be affected by the proposed reformation must
be made parties (American Fidelity & Casualty Co. v. Elder, 189 Ga 229, 5
SE 2d 668; Kemp v. Funderburk, 224 NC 353, 30 SE 2d 155). In an action to
reform a deed, all parties claiming an interest in the land or any part thereof
purportedly conveyed by the instrument sought to be reformed, and whose
interests will be affected by the reformation of the instrument are necessary
parties to the action (Kemp v. Funderburk, 224 NC 353, 30 SE 2d 155).

arbitration of the dispute within three (3) calendar months

counted therefrom. By written mutual agreement by the
parties hereto, such time limit for the arbitration may be
extended for another calendar month. The decision of the
Arbitration Committee by majority vote of at least two (2)
members shall be final and binding upon both the VENDOR
and the VENDEE; (Rollo, pp. 816-817)

From the foregoing jurisprudence, it would appear that Toyota was correct in
impleading Sun Valley as party defendant. However, these principles are not
applicable under the particular circumstances of this case. Under the facts of
the present case, Toyota's action for reformation is dismissible as against
Sun Valley.

The contention that the arbitration clause has become disfunctional because
of the presence of third parties is untenable.

Attention must first be brought to the fact that the contract of sale executed
between APT and Toyota provides an arbitration clause which states that:

xxx xxx xxx

Contracts are respected as the law between the contracting parties

(Mercantile Ins. Co. Inc. v. Felipe Ysmael, Jr. & Co., Inc., 169 SCRA 66
[1989]). As such, the parties are thereby expected to abide with good faith in
their contractual commitments (Quillan v. CA, 169 SCRA 279 [1989]). Toyota
is therefore bound to respect the provisions of the contract it entered into with
APT.

xxx xxx xxx

5. In case of disagreement or conflict arising out of this
Contract, the parties hereby undertake to submit the matter
for determination by a committee of experts, acting as
arbitrators, the composition of which shall be as follows:
a) One member to be appointed by the
VENDOR;
b) One member to be appointed by the
VENDEE;
c) One member, who shall be a lawyer, to be
appointed by both of the aforesaid parties;
The members of the Arbitration Committee shall be
appointed not later than three (3) working days from receipt
of a written notice from either or both parties. The Arbitration
Committee shall convene not later than three (3) weeks after
all its members have been appointed and proceed with the

Toyota filed an action for reformation of its contract with APT, the purpose of
which is to look into the real intentions/agreement of the parties to the
contract and to determine if there was really a mistake in the designation of
the boundaries of the property as alleged by Toyota. Such questions can only
be answered by the parties to the contract themselves. This is a controversy
which clearly arose from the contract entered into by APT and Toyota.
Inasmuch as this concerns more importantly the parties APT and Toyota
themselves, the arbitration committee is therefore the proper and convenient
forum to settle the matter as clearly provided in the deed of sale.
Having been apprised of the presence of the arbitration clause in the motion
to dismiss filed by APT, Judge Tensuan should have at least suspended the
proceedings and directed the parties to settle their dispute by arbitration
(Bengson v. Chan, 78 SCRA 113 [1977], Sec. 7, RA 876). Judge Tensuan
should have not taken cognizance of the case.
But the more apparent reason which warrants the dismissal of the action as
against Sun Valley is the fact that the complaint for reformation amounts to a
collateral attack on Sun Valley's title, contrary to the finding of the Court of
Appeals' 11th Division.

It is disputed that Sun Valley has a Torrens title registered in its name by
virtue of its purchase of the land from APT.
Toyota contends that the 723 square meters strip of land which it understood
to be included in its purchase from APT was erroneously included in Sun
Valley's title. This is the reason why reformation was sought to correct the
mistake.
Well-settled is the rule that a certificate of title can not be altered, modified, or
cancelled except in a direct proceeding in accordance with law (Section 48,
P.D. No. 1529).
In the case of Domingo v. Santos Ongsiako, Lim y Sia (55 Phil. 361 [1930]),
the Court held that:
. . . The fact should not be overlooked that we are here
confronted with what is really a collateral attack upon a
Torrens title. The circumstance that the action was directly
brought to recover a parcel of land does not alter the truth
that the proceeding involves a collateral attack upon a
Torrens title, because as we have found, the land in
controversy lies within the boundaries determined by that
title. The Land Registration Law defines the methods under
which a wrongful adjudication of title to land under the
Torrens system may be corrected . . .
While reformation may often be had to correct mistakes in defining the
boundary of lands conveyed so as to identify the lands, it may not be used to
pass other lands from those intended to be bought and sold, notwithstanding
a mistake in pointing out the lines, since reformation under these
circumstances would be inequitable and unjust. (McCay v. Jenkins, 244 Ala
650, 15 So 2d 409, 149 ALR 746)
Assuming that Toyota is afforded the relief prayed for in the Tensuan court,
the latter can not validly order the contested portion to be taken out from the
Sun Valley's TCT and award it in favor of Toyota.
An action for reformation is in personam, not in rem (Cohen v. Hellman
Commercial Trust & Savings Bank, 133 Cal App 758, 24 P2d 960; Edwards
v. New York Life Ins. Co. 173 Tenn 102, 114 SW 2d 808) even when real

estate is involved (Agurs v. Holt, 232 La 1026, 95 So 2d 644; Vallee v. Vallee

(La App) 180 So 2d 570). It is merely an equitable relief granted to the parties
where through mistake or fraud, the instrument failed to express the real
agreement or intention of the parties. While it is a recognized remedy
afforded by courts of equity it may not be applied if it is contrary to wellsettled principles or rules. It is a long standing principle that equity follows the
law. It is applied in the abscence of and never against statutory law (Zabat v.
Court of Appeals, 142 SCRA 587 [1986]). Courts are bound by rules of law
and have no arbitrary discretion to disregard them. (See Arsenal v.
Intermediate Appellate Court, 143 SCRA 40 [1986].) Courts of equity must
proceed with utmost caution especially when rights of third parties may
intervene. Thus in the instant case, vis-a-vis well-settled principles or rules in
land registration, the equitable relief of reformation may not come into play in
order to transfer or appropriate a piece of land that one claims to own but
which is titled in the name of a third party.
On the other hand, Sun Valley filed an action for reconveyance against
Toyota to recover possession of the strip of land encroached upon and
occupied by the latter. What Sun Valley seeks in its complaint is the recovery
of possession de jure and not merely possession de facto. Toyota moved to
dismiss on the assumption that the complaint was one for unlawful detainer
cognizable by the MTC.
We do not find any reversible error in the decision of the Court of Appeals'
10th Division where it upheld Judge Gorospe's order denying Toyota's motion
to dismiss. An amendment to a complaint before a responsive pleading is
filed, is a matter of right (Rule 10, Sec. 2). Whether or not the complaint was
amended, Sun Valley's complaint was one for accion publiciana cognizable
by the RTC. Its right over the land is premised on the certificate of title
registered in its name after it had purchased said land from APT. As the
registered owner it had the right of possession of said land illegally occupied
by another (Ybaez v. IAC, 194 SCRA 743 [1991]). The case ofBanayos
v. Susana Realty, Inc. (71 SCRA 557 [1976]) is quite instructive:
xxx xxx xxx
We deem it advisable, at this point, to reiterate the essential
differences between three kinds of actions for the recovery of
possession of real property, namely: (1) the summary action

for forcible entry and unlawful detainer; (2) the accion

publiciana; and (3) the accion de reivindicacion.
The action for forcible entry may be brought where
dispossession of real property had taken place by any of the
means provided for in Section 1 of Rule 70 of the Revised
Rules of Court, and in the case of unlawful detainer, where
the possession is withheld after the expiration or termination
of the right to hold possession, by virtue of any contract
express or implied. These two actions must be filed within
one (1) year after such unlawful deprivation or withholding of
possession with the municipal or city court. These actions in
their essence are mere quieting processes by virtue of which
a party in possession of land may not be, by force,
dispossessed of that land, the law restoring to him such
possession in a summary manner, until the right of
ownership can be tried in due course of law. They are,
therefore, intended to provide an expeditious means of
protecting actual possession or right to possession of
property. The aforesaid Rule 70 does not, however, cover all
of the cases of dispossession of lands. Thus, "whenever the
owner is dispossessed by any other means than those
mentioned he may maintain his action in the Court of First
Instance, and it is not necessary for him to wait until the
expiration of twelve months before commencing an action to
be repossessed or declared to be owner of land." (Gumiran
v. Gumiran, 21 Phil. 174, 179. Cf. Medina, et al. v. Valdellon,
63 SCRA 278) Courts of First Instance have jurisdiction over
actions to recover possession of real property illegally
detained, together with rents due and damages, even though
one (1) year has not expired from the beginning of such
illegal detention, provided the question of ownership of such
property is also involved. In other words, if the party illegal
dispossessed desires to raise the question of illegal
dispossession as well as that of the ownership over the
property, he may commence such action in the Court of First
Instance immediately or at any time after such illegal
dispossession. If he decides to raise the question of illegal
dispossession only, and the action is filed more than one (1)
year after such deprivation or withholding of possession,

then the Court of First Instance will have original jurisdiction

over the case. (Bishop of Cebu v. Mangoron, 6 Phil. 286;
Catholic Church v. Tarlac and Victoria, 9 Phil. 450; Ledesma
v. Marcos, 9 Phil. 618; Medina, et al. v. Valdellon, supra) The
former is an accion de reivindicacion which seeks the
recovery of ownership as well as possession, while the latter
refers to an accion publiciana, which is the recovery of the
right to possess and is a plenary action in an ordinary
proceeding in the Court of First Instance. (Sec. 88, Rep. Act
No. 296; Rule 70, Rules of Court; Manila Railroad Co. v.
Attorney General, 20 Phil. 523; Lim Cay v. Del, 55 Phil. 692;
Central Azucarera de Tarlac v. De Leon, 56 Phil. 169;
Navarro v. Aguila, 66 Phil. 604; Luna v. Carandang, 26
SCRA 306; Medina, et al. v. Valdellon, supra; Pasaqui, et al.
v. Villablanca, et al., supra).
With the finding that Toyota's action for reformation is dismissable as it is in
effect a collateral attack on Sun Valley's title, Sun Valley's action for recovery
of possession filed before Judge Gorospe now stands to be the proper forum
where the following dispute may be tried or heard.
We now come to the issue as to which of the parties has a legal right over
the property to warrant the issuance of the preliminary mandatory/prohibitory
injunction.
In actions involving realty, preliminary injunction will lie only after the plaintiff
has fully established his title or right thereto by a proper action for the
purpose. To authorize a temporary injunction, the complainant must make out
at least a prima facie showing of a right to the final relief. Preliminary
injunction will not issue to protect a right notin esse (Buayan Cattle Co. Inc. v.
Quintillan, 128 SCRA 286-287 [1984]; Ortigas & Company, Limited
Partnership v. Ruiz, 148 SCRA 326 [1987]).
Two requisites are necessary if a preliminary injunction is to issue, namely,
the existence of the right to be protected, and the facts against which the
injunction is to be directed, are violative of said right. In particular, for a writ of
preliminary injunction to issue, the existence of the right and the violation
must appear in the allegations of the complaint and an injunction is proper
also when the plaintiff appears to be entitled to the relief demanded in his
complaint. Furthermore, the complaint for injunctive relief must be construed

strictly against the pleader (Ortigas & Company, Limited Partnership v.

Ruiz, supra).

SUBJECT: PHASE I RENOVATION WORK

PERIMETER FENCE

In the instant case the existence of a "clear positive right" especially calling
for judicial protection has been shown by Sun Valley.

GENTLEMEN:

Toyota's claim over the disputed property is anchored on the fact of its
purchase of the property from APT, that from the circumstances of the
purchase and the intention of the parties, the property including the disputed
area was sold to it.
Sun Valley, on the other hand has TCT No. 49019 of the Registry of Deeds of
Paraaque embracing the aforesaid property in its name, having been validly
acquired also from APT by virtue of a Deed of Sale executed in its favor on
December 5, 1990 (Rollo, pp. 823-825; 826-827).
There are other circumstances in the case which militate against Toyota's
claim for legal possession over the disputed area.
The fact that Toyota has filed a suit for reformation seeking the inclusion of
the 723 square meters strip of land is sufficient to deduce that it is not
entitled to take over the piece of property it now attempts to appropriate for
itself.
As early as September, 1988 prior to the construction of the perimeter fence,
Toyota was already aware of the discrepancies in the property's description
in the title and the actual survey.

This is in connection with the construction of the Perimeter

Fence for the Toyota Motor Plant Facilities which to this date
we have not started yet due to the following reasons:
1. Lack of fencing permit which can only be applied to and
issued by the Paraaque Building Official upon receipt of the
transfer certificate to title and tax declaration.
2. Although the Building Official has verbally instructed us to
proceed with the renovation work and construction of
fence, we could not execute the fencing work due to
discrepancies on the consolidation plan and the existing
property monuments. These discrepancies was (sic)
confirmed with the representatives of the Geodetic Engineer.
Kindly expedite the immediate confirmation with the
Geodetic Engineer on the final descriptions of the property
lines.
We would appreciate your usual prompt attention regarding
this matter.
Very truly yours,

The letter of its surveyor company, Summa Kumagai thus reveals:

09 September, 1988
TOYOTA MOTOR PHILIPPINES CORPORATION
10th Floor, Metrobank Plaza
Sen. Gil J. Puyat Ave.
Makati, Metro Manila
ATTENTION: MR. FLORENCIO JURADO
Finance Officer

CESAR D. ELE
Project Manager (Emphasis supplied, Rollo, p. 811)
Despite such notification, Toyota continued to build the perimeter fence. It is
highly doubtful whether Toyota may be considered a builder in good faith to
be entitled to protection under Article 448 of the Civil Code.
The records also reveal that Toyota's own surveyor, the Certeza Surveying &
Acrophoto Systems, Inc. confirmed in its reports dated April 1 and April 5,
1991 that Toyota's perimeter fence overlaps the boundaries of Sun Valley's
lot (Rollo, pp. 833-383).

Even communication exchanges between and among APT, Toyota & Sun
Valley show that the parties are certainly aware that the ownership of the
disputed property more properly pertains to Sun Valley. Among these are the
following:
May 28,
1991
MR. JOSE CH. ALVAREZ
President
Sun Valley Manufacturing &
Development Corp. (SVMDC)
Cor. Aurora Blvd. and Andrews Ave.
Pasay City, Metro Manila
Dear Mr. Alvarez:
Thank you for honoring our invitation to a luncheon meeting
held at noon time today at Sugi Restaurant.
As per our understanding, we would like to propose as a
package the settlement of differences between your property
and ours as follows:
1. Boundary Issue between TMP Main Office
& Factory and the recently acquired property
of SVMDC.
The boundary lines to our property lines
bidded early 1988 were determined after
making full payment in August 1988 jointly
by representatives of TMP/Metrobank
Messrs. Mitake, Pedrosa, Alonzo and
Jurado, APT Mr. Bince together with
representatives of Geo-Resources who
installed the monuments and prepared the
technical description of the property. The
construction of the fence utilized existing
fence marked yellow on Exhibit 1 and made
sure that the new fence to set boundaries

were on top of the monuments set by GeoResources. The replacement of existing wire
fence were affected by setting concrete
walls on exactly the same position.
This is the reason why we are surprised top
be informed that our fence goes beyond the
boundary lines set forth in the Technical
Description on the Transfer Certificate of
Title (TCT) to our property. This occurs even
on fence already existing and should have
been maintained in the TCT.
Since we have manifested our intention
when we set boundaries to our property, we
propose the following in relation to the
excess area occupied by TMP.
1. We offer to give way to an access road 5
m. wide more or less from point 15 to 16 of
Lot 2 (14.65 m. in length) at the back of our
Paint Storage Building (Exhibit 2).
2. We propose to pay for the balance of
excess land inside TMP fence (contested
areas) at a price mutually agreed upon.
II. Question of ownership of certain
permanent improvements (underground
water reservoir and perimeter walls/fences)
located at Lot 6 which we won by bidding
from APT on October 5, 1990.
We have made our position to APT that
these permanent improvements are part of
Lot 6 on "as is where is" bid basis (See
explanatory map Exhibit 3). However,
since you have relayed to us that the
underground water reservoir is of no use to
you, as part of the total package we are

proposing to pay for the underground water

reservoir, the applicable perimeter
walls/fences and the water pump/pipings at
a price mutually agreed upon.
We hope that through this proposal we would settle our
differences and look forward to a more cooperative
relationship between good neighbors.
We will appreciate your favorable consideration and
immediate attention on the matter
July 4, 1991
TOYOTA MOTOR PHILIPPINES CORPORATION
Rm. 15, South Superhighway
Paraaque, Metro Manila
ATTENTION: MR. MASAO MITAKE
President
Gentlemen:
This refers to our several meetings regarding the property
problems at "Lot 6" and your encroachment of SVMD LOT I.
We wish to thank you for finally acknowledging the
legitimacy of our demands on both properties. In order to
start a good business relationship, we propose that the
property problem at "LOT 6" which consists of the perimeter
fence, water reservoir, water pump and systems be settled
first, in the amount of P3,500,000.00 payable to CMANC.
We also would like to request you to allow us to continue
usage of the MERALCO posts and lines connecting to
SVMD power station which passes thru your property and
allow entry of MERALCO linemen from time to time.
Upon acceptance of these requests, I will confer which our
Japanese partners to consider the selling of the 723 sq. m.

of land adjacent to your Assembly Plant which you continue

to use even after said property has been legally transferred
to us from last quarter of 1990.
In view of your present good behavior, we are hoping that
this first problem be settled not later than July 15, 1991,
otherwise, we will consider the whole matter as
unacceptable to you and we, therefore, proceed as earlier
demanded to immediately demolish the CHB fence that
prevents us from using our property.
We hope for your immediate action to start the resolution of
these unwanted problems.
Moreover, Sun Valley puts forth evidence that Toyota has altered the
boundaries of its own property by moving the monuments erected thereon by
APT's surveyor Geo-Resources and Consultancy, Inc. when Lot 2 was
initially surveyed in August 1988:
The Asset Privitalization Trust
10th Floor, BA-Lepanto Building
9847 Paseo de Roxas Building
Metro Manila
Attention: Mr. Felipe B. Bince, Jr.
Associate Executive Trustee
Dear Sirs:
This has reference to our letter to your office dated April 8,
1991, a copy of which is attached, regarding the check
survey of Delta I. After asking some of the field men who
participated in the various surveys of Delta I from the
consolidation to subdivision surveys, we found out that some
more of the present corner points are not the same points
shown to them during the surveys. We shall show this during
a meeting with the representatives of the owners of Lots 1
and 2.
We hope this will clarify the discrepancies.

There is therefore sufficient and convincing proof that Sun

Valley has a clear legal right to possession in its favor to
warrant the issuance of a writ of preliminary/mandatory
injunction. Sun Valley's TCT gives it that right to possession.
On the other hand, Toyota has not established its right over
the said property except for the assertion that there was a
mistake in an instrument which purportedly should have
included the questioned strip of land.
As between the two (2) parties, Sun Valley has a better right. Under the
circumstances, therefore, and considering that the clear legal right of Toyota
to possession of the disputed area has not been established sufficient to
grant the prayed for relief, a writ of preliminary mandatory injunction may be
issued pendente lite. (See Mara, Inc. v. Estrella, 65 SCRA 471 [1975]; De
Gracia v. Santos, 79 Phil. 365 [1947]; Rodulfa v. Alfonso, 76 Phil. 225 [1946]
and Torre v. Querubin, 101 Phil. 53 [1957])
In view of all the foregoing, the petition is hereby DISMISSED for failure to
show reversible error, much less grave abuse of discretion, on the part of the
respondent court.
G.R. No. 126212

March 2, 2000

SEA-LAND SERVICE, INC., petitioner,

vs.
COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSKTABACALERA SHIPPING AGENCY (FILIPINAS), INC., respondents.
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set aside the decision
of the Court of Appeals dated September 29, 1995 in CA-G.R. SP No.
35777,1 dismissing the petition for certiorari filed by petitioner to annul the
two (2) orders issued by the Regional Trial Court of Quezon City, Branch
216, in Civil Case No. Q-92-12593.
The facts are as follows:
On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent
A.P. Moller/Maersk Line (hereinafter referred to as "AMML"), both carriers of

cargo in containerships as well as common carriers, entered into a contract

entitled, "Co-operation in the Pacific"2 (hereinafter referred to as the
"Agreement"), a vessel sharing agreement whereby they mutually agreed to
purchase, share and exchange needed space for cargo in their respective
containerships. Under the Agreement, they could be, depending on the
occasion, either a principal carrier (with a negotiable bill of lading or other
contract of carriage with respect to cargo) or a containership operator (owner,
operator or charterer of containership on which the cargo is carried).
During the lifetime of the said Agreement, or on 18 May 1991, Florex
International, Inc. (hereinafter referred to as "Florex") delivered to private
respondent AMML cargo of various foodstuffs, with Oakland, California as
port of discharge and San Francisco as place of delivery. The corresponding
Bill of Lading No. MAEU MNL110263 was issued to Florex by respondent
AMML. Pursuant to the Agreement, respondent AMML loaded the subject
cargo on MS Sealand Pacer, a vessel owned by petitioner. Under this
arrangement, therefore, respondent AMML was the principal carrier while
petitioner was the containership operator.
The consignee refused to pay for the cargo, alleging that delivery thereof was
delayed. Thus, on June 26, 1992, Florex filed a complaint against respondent
Maersk-Tabacalera Shipping Agency (Filipinas), Inc. for reimbursement of the
value of the cargo and other charges.3 According to Florex, the cargo was
received by the consignee only on June 28, 1991, since it was discharged in
Long Beach, California, instead of in Oakland, California on June 5, 1991 as
stipulated.
Respondent AMML filed its Answer4 alleging that even on the assumption
that Florex was entitled to reimbursement, it was petitioner who should be
liable. Accordingly, respondent AMML filed a Third Party Complaint 5 against
petitioner on November 10, 1992, averring that whatever damages sustained
by Florex were caused by petitioner, which actually received and transported
Florex's cargo on its vessels and unloaded them.
On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party
Complaint6 on the ground of failure to state a cause of action and lack of
jurisdiction, the amount of damages not having been specified therein.
Petitioner also prayed either for dismissal or suspension of the Third Party
Complaint on the ground that there exists an arbitration agreement between
it and respondent AMML. On September 27, 1993, the lower court issued an

Order denying petitioner's Motion to Dismiss. Petitioner's Motion for

Reconsideration was likewise denied by the lower court in its August 22,
1994 Order.
7

Undaunted, petitioner filed a petition for certiorari with the Court of Appeals
on November 23, 1994. Meanwhile, petitioner also filed its Answer to the
Third Party Complaint in the trial court.
On September 29, 1995, respondent Court of Appeals rendered the assailed
Decision dismissing the petition forcertiorari. With the denial of its Motion for
Reconsideration, petitioner filed the instant petition for review, raising the
following issues
I.
THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO
ARBITRATE IN VIOLATION OF STATUTE AND SUPREME COURT
DECISIONS HOLDING THAT ARBITRATION IS A CONDITION
PRECEDENT TO SUIT WHERE SUCH AN AGREEMENT TO
ARBITRATE EXISTS.
II.
THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN
ACCORD WITH JURISPRUDENCE WHEN IT REFUSED TO HAVE
THE THIRD-PARTY COMPLAINT DISMISSED FOR FAILURE TO
STATE A CAUSE OF ACTION AND FOR RULING THAT THE
FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY
REFERENCE TO ITS ATTACHMENTS.8
Resolving first the issue of failure to state a cause of action, respondent
Court of Appeals did not err in reading the Complaint of Florex and
respondent AMML's Answer together with the Third Party Complaint to
determine whether a cause of action is properly alleged. In Fil-Estate Golf
and Development, Inc. vs. Court of Appeals,9 this Court ruled that in the
determination of whether or not the complaint states a cause of action, the
annexes attached to the complaint may be considered, they being parts of
the complaint.

Coming now to the main issue of arbitration, the pertinent clauses of the "Cooperation in the Pacific" contract entered into by the parties provide:
16.2 For the purposes of this agreement the Containership Operator
shall be deemed to have issued to the Principal Carrier for good
consideration and for both loaded and empty containers its nonnegotiable memo bills of lading in the form attached hereto as
Appendix 6, consigned only to the Principal Carrier or its agents,
provisions of which shall govern the liability between the Principal
Carrier and the Containership Operator and that for the purpose of
determining the liability in accordance with either Lines' memo bill of
lading, the number of packages or customary freight units shown on
the bill of lading issued by the Principal Carrier to its shippers shall
be controlling.
16.3 The Principal Carrier shall use all reasonable endeavours to
defend all in personam and in rem suits for loss of or damage to
cargo carried pursuant to bills of lading issued by it, or to settle such
suits for as low a figure as reasonably possible. The Principal Carrier
shall have the right to seek damages and/or an indemnity from the
Containership Operator by arbitration pursuant to Clause 32
hereof. Notwithstanding the provisions of the Lines' memo bills of
lading or any statutory rules incorporated therein or applicable
thereto, the Principal Carrier shall be entitled to commence such
arbitration at any time until one year after its liability has been finally
determined by agreement, arbitration award or judgment, such
award or judgment not being the subject of appeal, provided that the
Containership Operator has been given notice of the said claim in
writing by the Principal Carrier within three months of the Principal
Carrier receiving notice in writing of the claim. Further the Principal
Carrier shall have the right to grant extensions of time for the
commencement of suit to any third party interested in the cargo
without prior reference to the Containership Operator provided that
notice of any extension so granted is given to the Containership
Operator within 30 days of any such extension being granted.
xxx
32. ARBITRATION

xxx

xxx

32.1 If at any time a dispute or claim arises out of or in connection

with the Agreement the Lines shall endeavour to settle such
amicably, failing which it shall be referred to arbitration by a single
arbitrator in London, such arbitrator to be appointed by agreement
between the Lines within 14 days after service by one Line upon the
other of a notice specifying the nature of the dispute or claim and
requiring reference of such dispute or claim to arbitration pursuant to
this Article.
32.2 Failing agreement upon an arbitrator within such period of 14
days, the dispute shall be settled by three Arbitrators, each party
appointing one Arbitrator, the third being appointed by the President
of the London Maritime Arbitrators Association.
32.3 If either of the appointed Arbitrators refuses or is incapable of
acting, the party who appointed him shall appoint a new Arbitrator in
his place.
32.4 If one of the parties fails to appoint an Arbitrator either
originally or by way of substitution for two weeks after the other
party having appointed his Arbitrator has sent the party making
default notice by mail, fax or telex to make the appointment, the party
appointing the third Arbitrator shall, after application from the party
having appointed his Arbitrator, also appoint an Arbitrator in behalf of
the party making default.
32.5 Any such arbitration shall be in accordance with the Arbitration
Act 1950 as amended by the Arbitration Act 1979 or any other
subsequent legislation and the arbitrator's award shall be final and
binding upon Lines. To the extent permitted by the Arbitration Act
1979 the Lines hereto exclude pursuant to S 3(1) of that Act the
jurisdiction of the English High Court of Justice to entertain any
appeal or application under Section 1 and 2 of the Arbitration Act
1979. 10
From the foregoing, the following matters are clear: First, disputes between
the Principal Carrier and the Containership Operator arising from contracts of
carriage shall be governed by the provisions of the bills of lading issued to
the Principal Carrier by the Containership Operator. Second, the Principal
Carrier shall use its best efforts to defend or settle all suits against it for loss

of or damage to cargo pursuant to bills of lading issued by it.Third, the

Principal Carrier shall have the right to seek damages and/or indemnity from
the Containership Operator by arbitration, pursuant to Clause 32 of the
agreement. Fourth, the Principal Carrier shall have the right to commence
such arbitration any time until one year after its liability has been finally
determined by agreement, arbitration award or judgment, provided that the
Containership Operator was given notice in writing by the Principal Carrier
within three months of the Principal Carrier receiving notice in writing of said
claim.
Prescinding from the foregoing matters, we find that both the trial court and
the Court of Appeals erred in denying petitioner's prayer for arbitration.
To begin with, allowing respondent AMML's Third Party Claim against
petitioner to proceed would be in violation of Clause 16.2 of the Agreement.
As summarized, the clause provides that whatever dispute there may be
between the Principal Carrier and the Containership Operator arising from
contracts of carriage shall be governed by the provisions of the bills of lading
deemed issued to the Principal Carrier by the Containership Operator. On the
other hand, to sustain the Third Party Complaint would be to allow private
respondent to hold petitioner liable under the provisions of the bill of lading
issued by the Principal Carrier to Florex, under which the latter is suing in its
Complaint, not under the bill of lading petitioner, as containership operator,
issued to respondent AMML, as Principal Carrier, contrary to what is
contemplated in Clause 16.2.
The Court of Appeals ruled that the terms of the Agreement "explicitly
required that the principal carrier's claim against the containership operator
first be finally determined by, among others, a court judgment, before the
right to arbitration accrues." However, the Court of Appeals failed to consider
that, precisely, arbitration is the mode by which the liability of the
Containership Operator may be finally determined. This is clear from the
mandate of Clause 16.3 that "(T)he Principal Carrier shall have the right to
seek damages and/or an indemnity from the Containership Operator by
arbitration" and that it "shall be entitled to commence such arbitration at any
time until one year after its liability has been finally determined by
agreement, arbitration award or judgment".
For respondent Court of Appeals to say that the terms of the contract do not
require arbitration as a condition precedent to judicial action is erroneous. In

the light of the Agreement clauses aforequoted, it is clear that arbitration is

the mode provided by which respondent AMML as Principal Carrier can seek
damages and/or indemnity from petitioner, as Containership Operator. Stated
differently, respondent AMML is barred from taking judicial action against
petitioner by the clear terms of their Agreement.
As the Principal Carrier with which Florex directly dealt with, respondent
AMML can and should be held accountable by Florex in the event that it has
a valid claim against the former. Pursuant to Clause 16.3 of the Agreement,
respondent AMML, when faced with such a suit "shall use all reasonable
endeavours to defend" itself or "settle such suits for as low a figure as
reasonably possible". In turn, respondent AMML can seek damages and/or
indemnity from petitioner as Containership Operator for whatever final
judgment may be adjudged against it under the Complaint of Florex. The
crucial point is that collection of said damages and/or indemnity from
petitioner should be by arbitration.

between the parties expressly provided for by their Agreement, the Third
Party Complaint should have been dismissed.
This Court has previously held that arbitration is one of the alternative
methods of dispute resolution that is now rightfully vaunted as "the wave of
the future" in international relations, and is recognized worldwide. To brush
aside a contractual agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward. 12
WHEREFORE, premises considered, the instant Petition for Review
on Certiorari is GRANTED. The decision of the Court of Appeals in CA-G.R.
SP No. 35777 is REVERSED and SET ASIDE. The Regional Trial Court of
Quezon City, Branch 77, is ordered to DISMISS Respondent AMML's Third
Party Complaint in Civil Case No. Q-92-12593. No pronouncement as to
costs.
SO ORDERED.1wphi1.nt

All told, when the text of a contract is explicit and leaves no doubt as to its
intention, the court may not read into it any other intention that would
contradict its plain import. 11 Arbitration being the mode of settlement