Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 212081               February 23, 2015

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

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

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari  is the Decision  dated March 26, 2014 of the Court of
1 2

Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner
the Department of Environment and Natural Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an
Agreement for Consultancy Services  (Consultancy Agreement) with respondent United Planners
3

Consultants, Inc. (respondent) in connection with the LMB' s Land Resource Management Master
Plan Project (LRMMP).  Under the Consultancy Agreement, petitioner committed to pay a total
4

contract price of ₱4,337,141.00, based on a predetermined percentage corresponding to the

particular stage of work accomplished. 5

In December 1994, respondent completed the work required, which petitioner formally accepted on
December 27, 1994.  However, petitioner was able to pay only 47% of the total contract price in the
6

amount of ₱2,038,456.30. 7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office
Report  (TSO) finding the contract price of the Agreement to be 84.14% excessive.  This
8 9

notwithstanding, petitioner, in a letter dated December 10, 1998, acknowledged its liability to
respondent in the amount of ₱2,239,479.60 and assured payment at the soonest possible time. 10

For failure to pay its obligation under the Consultancy Agreement despite repeated demands,
respondent instituted a Complaint  against petitioner before the Regional Trial Court of Quezon City,
11

Branch 222 (RTC), docketed as Case No. Q-07-60321. 12

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the
arbitration clause of the Consultancy Agreement,  which petitioner did not oppose.  As a result, Atty.
13 14

Alfredo F. Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission
(CIAC) Accredited Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral
Tribunal. The court-referred arbitration was then docketed as Arbitration Case No. A-001. 15

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing
Construction Arbitration  (CIAC Rules) to govern the arbitration proceedings.  They further agreed to
16 17
submit their respective draft decisions in lieu of memoranda of arguments on or before April 21,
2010, among others. 18

On the due date for submission of the draft decisions, however, only respondent complied with the
given deadline,  while petitioner moved for the deferment of the deadline which it followed with
19

another motion for extension of time, asking that it be given until May 11, 2010 to submit its draft
decision.20

In an Order  dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and deemed its
21

non-submission as a waiver, but declared that it would still consider petitioner’s draft decision if
submitted before May 7, 2010, or the expected date of the final award’s promulgation.  Petitioner
22

filed its draft decision  only on May 7, 2010.

23

The Arbitral Tribunal rendered its Award  dated May 7, 2010 (Arbitral Award) in favor of respondent,
24

directing petitioner to pay the latter the amount of (a) ₱2,285,089.89 representing the unpaid
progress billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral
Award upon confirmation by the RTC until fully paid; (b) ₱2,033,034.59 as accrued interest thereon;
(c) ₱500,000.00 as exemplary damages; and (d) ₱150,000.00 as attorney’s fees.  It also ordered
25

petitioner to reimburse respondent its proportionate share in the arbitration costs as agreed upon in
the amount of ₱182,119.44. 26

Unconvinced, petitioner filed a motion for reconsideration,  which the Arbitral Tribunal merely noted
27

without any action, claiming that it had already lost jurisdiction over the case after it had submitted to
the RTC its Report together with a copy of the Arbitral Award. 28

Consequently, petitioner filed before the RTC a Motion for Reconsideration  dated May 19, 2010
29

(May 19, 2010 Motion for Reconsideration)and a Manifestation and Motion  dated June 1, 2010
30

(June 1, 2010 Manifestation and Motion), asserting that it was denied the opportunity to be heard
when the Arbitral Tribunal failed to consider its draft decision and merely noted its motion for
reconsideration.  It also denied receiving a copy of the Arbitral Award by either electronic or
31

registered mail.  For its part, respondent filed an opposition thereto and moved for the
32

confirmation  of the Arbitral Award in accordance with the Special Rules of Court on Alternative
33

Dispute Resolution (Special ADR Rules). 34

In an Order  dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding
35

that copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal,
including the OSG, contrary to petitioner’s claim. Onthe other hand, the RTC confirmed the Arbitral
Award pursuant to Rule 11.2 (A)  of the Special ADR Rules and ordered petitioner to pay
36

respondent the costs of confirming the award, as prayed for, in the total amount of ₱50,000.00. From
this order, petitioner did not file a motion for reconsideration.

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

September 12, 2011, the RTC granted respondent’s motion. 38

Petitioner moved to quash  the writ of execution, positing that respondent was not entitled to its
39

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

The RTC Ruling

In an Order  dated July 9, 2012, the RTC denied petitioner’s motion to quash.
41

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19,
2010 Motion for Reconsideration was a prohibited pleading under Section 17.2,  Rule 17 of the
42

CIAC Rules. It explained that the available remedy to assail an arbitral award was to file a motion for
correction of final award pursuant to Section 17.1  of the CIAC Rules, and not a motion for
43

reconsideration of the said award itself.  On the other hand, the RTC found petitioner’s June 1, 2010
44

Manifestation and Motion seeking the resolution of its May 19, 2010 Motion for Reconsideration to
be defective for petitioner’s failure to observe the three day notice rule.  Having then failed to avail of
45

the remedies attendant to an order of confirmation, the Arbitral Award had become final and
executory. 46

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

Dissatisfied, it filed on September 10, 2012a petition for certiorari  before the CA, docketed as CA-
48

G.R. SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in
confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision  dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds,
49

namely: (a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under
Rule 19.7  of the Special ADR Rules;  and (b) the petition was filed out of time, having been filed
50 51

way beyond 15 days from notice of the RTC’s July 9, 2012 Order, in violation of Rule 19.28  in 52

relation to Rule 19.8  of said Rules which provide that a special civil action for certiorari must be filed
53

before the CA within 15 days from notice of the judgment, order, or resolution sought to be annulled
or set aside (or until July 27, 2012). Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

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

The Court’s Ruling

The petition lacks merit.

I.

Republic Act No. (RA) 9285,  otherwise known as the Alternative Dispute Resolution Act of 2004,"
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institutionalized the use of an Alternative Dispute Resolution System (ADR System)  in the55

Philippines. The Act, however, was without prejudice to the adoption by the Supreme Court of any
ADR system as a means of achieving speedy and efficient means of resolving cases pending before
all courts in the Philippines. 56

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on
Alternative Dispute Resolution (referred herein as Special ADR Rules) that shall govern the
procedure to be followed by the courts whenever judicial intervention is sought in ADR proceedings
in the specific cases where it is allowed. 57
Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely:
"(a) Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b)
Referral to Alternative Dispute Resolution ("ADR"); (c) Interim Measures of Protection; (d)
Appointment of Arbitrator; (e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of
Arbitrator; (g) Assistance in Taking Evidence; (h) Confirmation, Correction or Vacation of Award in
Domestic Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in International
Commercial Arbitration; (j) Recognition and Enforcement of a Foreign Arbitral Award; (k)
Confidentiality/Protective Orders; and (l) Deposit and Enforcement of Mediated Settlement
Agreements." 58

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A
pivotal feature of arbitration as an alternative mode of dispute resolution is that it is a product of party
autonomy or the freedom of the parties to make their own arrangements to resolve their own
disputes.  Thus, Rule 2.3 of the Special ADR Rules explicitly provides that "parties are free to agree
59

on the procedure to be followed in the conduct of arbitral proceedings. Failing such agreement, the
arbitral tribunal may conduct arbitration in the manner it considers appropriate." 60

In the case at bar, the Consultancy Agreement contained an arbitration clause.  Hence, respondent,
61

after it filed its complaint, moved for its referral to arbitration  which was not objected to by
62

petitioner.  By its referral to arbitration, the case fell within the coverage of the Special ADR Rules.
63

However, with respect to the arbitration proceedings itself, the parties had agreed to adopt the CIAC
Rules before the Arbitral Tribunal in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under
Section 17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought,
but any of the parties may file a motion for correction  of the final award, which shall interrupt the
64

running of the period for appeal,  based on any of the following grounds, to wit: a. an evident
65

miscalculation of figures, a typographical or arithmetical error;

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

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

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

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

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

Moreover, the parties may appeal the final award to the CA through a petition for review under
Rule43 of the Rules of Court. 67

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

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

SEC. 40. Confirmation of Award.– The confirmation of a domestic arbitral award shall be governed
by Section 23  of R.A. 876.
69 70

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

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

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

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation by filing a
petition to vacate the Arbitral Award under Rule 11.2 (D)  of the Special ADR Rules. Neither did it
71

seek reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead,
petitioner filed only on September 10, 2012 a special civil action for certiorari before the CA
questioning the propriety of (a) the RTC Order dated September 12, 2011 granting respondent’s
motion for issuance of a writ of execution, and (b) Order dated July 9,2012 denying its motion to
quash. Under Rule 19.26 of the Special ADR Rules, "[w]hen the Regional Trial Court, in making a
ruling under the Special ADR Rules, has acted without or in excess of its jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law, a party may file a special civil action for
certiorari to annul or set aside a ruling of the Regional Trial Court." Thus, for failing to avail of the
foregoing remedies before resorting to certiorari, the CA correctly dismissed its petition.

II.

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

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

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

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

d. Granting or refusing an interim relief;

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

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

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

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

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

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

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

Further, Rule 19.7  of the Special ADR Rules precludes a party to an arbitration from filing a petition
72

for certiorari questioning the merits of an arbitral award.

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

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

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

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

doctrine was explained, thus:

No statute can be enacted that can provide all the details involved in its application.  There is always
1âwphi1

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

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an arbitral
award. To construe it otherwise would result in an absurd situation whereby the confirming court
previously applying the Special ADR Rules in its confirmation of the arbitral award would later shift to
the regular Rules of Procedure come execution. Irrefragably, a court’s power to confirm a judgment
award under the Special ADR Rules should be deemed to include the power to order its execution
for such is but a collateral and subsidiary consequence that may be fairly and logically inferred from
the statutory grant to regional trial courts of the power to confirm domestic arbitral awards.
All the more is such interpretation warranted under the principle of ratio legis est anima which
provides that a statute must be read according to its spirit or intent,  for what is within the spirit is
76

within the statute although it is not within its letter, and that which is within the letter but not within the
spirit is not within the statute.  Accordingly, since the Special ADR Rules are intended to achieve
77

speedy and efficient resolution of disputes and curb a litigious culture,  every interpretation thereof
78

should be made consistent with these objectives.

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

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

specific rule is provided under the Special ADR Rules, the court shall resolve such matter summarily
and be guided by the spirit and intent of the Special ADR Rules and the ADR Laws."

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed
within a period of fifteen (15) days from notice of the judgment, order or resolution sought to be
annulled or set aside.  Hence, since petitioner’s filing of its certiorari petition in CA-G.R. SP No.
80

126458 was made nearly two months after its receipt of the RTC’s Order dated July 9, 2012,or on
September 10, 2012,  said petition was clearly dismissible.
81 82

III.

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

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show
that it was accorded ample opportunity to ventilate its position. There was clearly nothing out of line
when the Arbitral Tribunal denied petitioner’s motions for extension to file its submissions having
failed to show a valid reason to justify the same or in rendering the Arbitral Award sans petitioner’s
draft decision which was filed only on the day of the scheduled promulgation of final award on May
7, 2010.  The touchstone of due process is basically the opportunity to be heard. Having been given
83

such opportunity, petitioner should only blame itself for its own procedural blunder.

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

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral
Award against the petitioner, a government agency, in the light of Presidential Decree No. (PD)
1445  otherwise known as the "Government Auditing Code of the Philippines." Section 26 of PD
84

1445 expressly provides that execution of money judgment against the Government or any of its
subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:

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

From the foregoing, the settlement of respondent’s money claim is still subject to the primary
jurisdiction of the COA despite finality of the confirmed arbitral award by the RTC pursuant to the
Special ADR Rules.  Hence, the respondent has to first seek the approval of the COA of their
85

monetary claim. This appears to have been complied with by the latter when it filed a "Petition for
Enforcement and Payment of Final and Executory Arbitral Award"  before the COA. Accordingly, it is
86

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 175404               January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

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

DECISION

PERALTA, J.:

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

The factual antecedents are as follows:

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

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

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association. The
Arbitration Award shall be final and binding on both parties. 5
that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC
must either dismiss the case or suspend the proceedings and direct the parties to proceed with
arbitration, pursuant to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the Arbitration Law.

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

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been
rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and
unenforceable, considering that the requirements imposed by the provisions of the Arbitration Law
had not been complied with.

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

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

Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer

Controversy To Voluntary Arbitration" is hereby DENIED. Defendant is directed to file its answer
within ten (10) days from receipt of a copy of this order. 9

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

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

Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess
of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least suspend the
proceedings a quo, despite the fact that the party's agreement to arbitrate had not been complied
with.
Respondent filed its Comment and Reply. The parties were then required to file their respective
Memoranda.

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

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

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

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

Hence, this petition.

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

defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial
court is premature.

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause
between the parties as valid and enforceable and yet in the same breath decreed that the arbitration
cannot proceed because petitioner assailed the existence of the entire agreement containing the
arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005,
because in the present case, it was respondent who had filed the complaint for rescission and
damages with the RTC, which based its cause of action against petitioner on the alleged agreement
dated July 11, 2006 between the parties; and that the same agreement contained the arbitration
clause sought to be enforced by petitioner in this case. Thus, whether petitioner assails the
genuineness and due execution of the agreement, the fact remains that the agreement sued upon
provides for an arbitration clause; that respondent cannot use the provisions favorable to him and
completely disregard those that are unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the
parties had not entered into any agreement upon which respondent as plaintiff can sue upon; and,
assuming that such agreement existed, there was an arbitration clause that should be enforced,
thus, the dispute must first be submitted to arbitration before an action can be instituted in court.
Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground to
dismiss a complaint is when a condition precedent for filing the complaint has not been complied
with; and that submission to arbitration when such has been agreed upon is one such condition
precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at least
suspended, and the parties be ordered to proceed with arbitration.

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

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

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

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

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

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to
question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.13 (Gonzales
case), wherein we ruled the impropriety of a petition for certiorari under Rule 65 as a mode of appeal
from an RTC Order directing the parties to arbitration.

We find the cited case not in point.

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

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

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

In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly confines
the court’s authority only to the determination of whether or not there is an agreement in writing
providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. If
the court, upon the other hand, finds that no such agreement exists, the proceedings shall be
dismissed.
In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer
Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining only the issue
of whether or not there is an agreement in writing providing for arbitration by directing petitioner to
file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it acted in excess
of its jurisdiction and since there is no plain, speedy, and adequate remedy in the ordinary course of
law, petitioner’s resort to a petition for certiorari is the proper remedy.

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

We find merit in the petition.

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

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

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

ARBITRATION

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

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

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

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

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

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

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

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

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

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

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

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

We are not persuaded.

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

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

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

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

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

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

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

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the
adjudication of mining cases a purely administrative matter. Decisions of the Supreme Court on
mining disputes have recognized a distinction between (1) the primary powers granted by pertinent
provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau
directors) of an executive or administrative nature, such as granting of license, permits, lease and
contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting
applications, and (2) controversies or disagreements of civil or contractual nature between litigants
which are questions of a judicial nature that may be adjudicated only by the courts of justice. This
distinction is carried on even in Rep. Act No. 7942. 28

We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents
with disregarding and ignoring the addendum contract, and acting in a fraudulent and oppressive
manner against petitioner, the complaint filed before the Panel was not a dispute involving rights to
mining areas, or was it a dispute involving claimholders or concessionaires, but essentially judicial
issues. We then said that the Panel of Arbitrators did not have jurisdiction over such issue, since it
does not involve the application of technical knowledge and expertise relating to mining. It is in this
context that we said that:

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

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21549             October 22, 1924

TEODORO VEGA, plaintiff-appellee,
vs.
THE SAN CARLOS MILLING CO., LTD., defendant-appellant.

Fisher, Dewitt, Perkins, & Brady, John R. McFie, Jr., Jesus Trinidad, and Powell & Hill for appellant.
R. Nolan and Feria & La O for appellee.

ROMUALDEZ, J.:

This action is for the recovery of 32,959 kilos of centrifugal sugar, or its value, P6,252, plus the
payment of P500 damages and the costs.

The defendants filed an answer, and set up two special defenses, the first of which is at the same
time a counterclaim.

The Court of First Instance of Occidental Negros that tried the case, rendered judgment, the
dispositive part of which is as follows:

By virtue of these considerations, the court is of opinion that with respect to the complaint,
the plaintiff must be held to have a better right to the possession of the 32,959 kilos of
centrifugal sugar manufactured in the defendants' central and the latter is sentenced to
deliver them to the plaintiff, and in default, the selling price thereof, amounting to P5,981.06
deposited in the office of the clerk of the court. Plaintiff's claim for damages is denied,
because it has not been shown that the defendant caused the plaintiff any damages. Plaintiff
is absolved from defendant's counterclaim and declared not bound to pay the such claimed
therein. Plaintiff is also absolved from the counterclaim of P1,000, for damages, it not having
been proved that any damages were caused and suffered by defendant, since the writ of
attachment issued in this case was legal and proper. Without pronouncement as to costs.

So ordered.

The defendant company appealed from this judgment, and alleges that the lower court erred in
having held itself with jurisdiction to take cognizance of and render judgment in the cause; in holding
that the defendant was bound to supply cars gratuitously to the plaintiff for the cane; in not ordering
the plaintiff to pay to the defendant the sum of P2,866 for the cars used by him, with illegal interest
on said sum from the filing of the counterclaim, and the costs, and that said judgment is contrary to
the weight of the evidence and the law.

The first assignment of error is based on clause 23 of the Mill's covenants and clause 14 of the
Planter's Covenant as they appear in Exhibit A, which is the same instrument as Exhibit 1.
Said clauses are as follows:

23. That it (the Mill — Party of the first part) will submit and all differences that may arise
between the Mill and the Planters to the decision of arbitrators, two of whom shall be chosen
by the Mill and two by the Planters, who in case of inability to agree shall select a fifth
arbitrator, and to respect and abide by the decision of said arbitrators, or any three of them,
as the case may be.

xxx     xxx     xxx

14. That they (the Planters--Parties of the second part) will submit any and all differences
that may arise between the parties of the first part and the parties of the second part of the
decision of arbitrators, two of whom shall be chosen by the said parties of the first part and
two by the said party of the second part, who in case of inability to agree, shall select a fifth
arbitrator, and will respect and abide by the decision of said arbitrators, or any three of them,
as the case may be.

It is an admitted fact that the differences which arose between the parties, and which are the subject
of the present litigation have not been submitted to the arbitration provided for in the above quoted
clauses.

Defendant contends that as such stipulations on arbitration are valid, they constitute a condition
precedent, to which the plaintiff should have resorted before applying to the courts, as he
prematurely did.

The defendant is right in contending that such covenants on arbitration are valid, but they are not for
the reason a bar to judicial action, in view of the way they are expressed:

An agreement to submit to arbitration, not consummated by an award, is no bar to suit at law

or in equity concerning the subject matter submitted. And the rule applies both in respect of
agreements to submit existing differences and agreements to submit differences which may
arise in the future. (5 C. J., 42.)

And in view of the terms in which the said covenants on arbitration are expressed, it cannot be held
that in agreeing on this point, the parties proposed to establish the arbitration as a condition
precedent to judicial action, because these clauses quoted do not create such a condition either
expressly or by necessary inference.

Submission as Condition Precedent to Suit. — Clauses in insurance and other contracts

providing for arbitration in case of disagreement are very similar, and the question whether
submission to arbitration is a condition precedent to a suit upon the contract depends upon
the language employed in each particular stipulation. Where by the same agreement which
creates the liability, the ascertainment of certain facts by arbitrators is expressly made a
condition precedent to a right of action thereon, suit cannot be brought until the award is
made. But the courts generally will not construe an arbitration clause as ousting them of their
jurisdiction unless such construction is inevitable, and consequently when the arbitration
clause is not made a condition precedent by express words or necessary implication, it will
be construed as merely collateral to the liability clause, and so no bar to an action in the
courts without an award. (2 R. C. L., 362, 363.)
Neither does not reciprocal covenant No. 7 of said contract Exhibit A expressly or impliedly establish
the arbitration as a condition precedent. Said reciprocal covenant No. 7 reads:

7. Subject to the provisions as to arbitration, hereinbefore appearing, it is mutually agreed

that the courts of the City of Iloilo shall have jurisdiction of any and all judicial proceedings
that may arise out of the contractual relations herein between the party of the first and the
part is of the second part.

The expression "subject to the provisions as to arbitration, hereinbefore appearing" does not declare
such to be a condition precedent. This phrase does not read "subject to the arbitration," but "subject
to the provisions as to arbitration hereinbefore appearing." And, which are these "provisions as to
arbitration hereinbefore appearing?" Undoubtedly clauses 23 and 14 quoted above, which do not
make arbitration a condition precedent.

We find no merit in the first assignment of error.

The second raises the most important question in this controversy, to wit: Whether or not the
defendant was obliged to supply the plaintiff which cars gratuitously for cane.

The Central, of course, bound itself according to the contract exhibit A in clause 3 of the "Covenant
by Mill," as follows:

3. That it will construct and thereafter maintain and operate during the term of this agreement
a steam or motor railway, or both, for plantation use in transporting sugar cane, sugar and
fertilizer, as near the center of the can ands as to contour of the lands will permit paying due
attention to grades and curves; that it will also construct branch lines at such points as may
be necessary where the present plantations are of such shape that the main line cannot run
approximately through the center of said plantations, free of charge to the Planters, and will
properly equip said railway with locomotives or motors and cars, and will further construct a
branch line from the main railway line, mill and warehouses to the before mentioned wharf
and will further construct yard accomodations near the sugar mill. All steam locomotives shall
be provided which effective spark arresters. The railway shall be constructed upon suitable
and properly located right-of-way, through all plantations so as to give, as far as practicable,
to each plantations equal benefit thereof; said right-of-way to b two and one-half meters in
width on either said from the center of track on both main line and switches and branches.

By this covenant, the defendant, the defendant bound itself to construct branch lines of the railway at
such points on the estate as might be necessary, but said clause No. 3 can hardly be construed to
bind the defendant to gratuitously supply the plaintiff with cars to transport cane from his fields to the
branch lines agreed upon on its estate.

But on March 18, 1916, the defendant company, through its manager Mr. F. J. Bell, addressed the
following communication to the plaintiff:

DEAR SIR: In reply to yours of March 15th.

Yesterday I tried to come out to San Antonio to see you but the railway was full of
cars of San Jose and I could not get by with my car. I will try again as soon as I finish
shipping sugar. The steamer is expected today.
 I had a switch built in the big cut on San Antonio for loading your cane near the
boundary of Santa Cruz. will not this sufficient? We have no another switch here and
I hope you can get along with the 3 you now have.

Some of the planters are now using short switches made of 16-lb. portable track.
These can be placed on the main line at any place and cars run off into the field and
loaded. I think one on your hacienda would repay you in one season.

The rain record can wait.

                              Sincerely yours,

SAN CARLOS MILLING CO., LTD.           (Sgd.) F.J. BELL         

"Manager"          

It is suggested to the plaintiff in this letter that he install a 16-lb. rail portable track switch, to be used
in connection with the main line, so the cars may run on it. It is not suggested that he purchase cars,
and the letter implies that the cars mentioned therein belong to the defendant.

As a result of this suggestion, the plaintiff bought a portable track which cost him about P10,000, and
after the track was laid, the defendant began to use it without comment or objection from the latter,
nor payment of any indemnity for over four years.

With this letter Exhibit D, and its conduct in regard to the same, the defendant deliberately and
intentionally induced the plaintiff to believe that by the latter purchasing the said portable track, the
defendant would allow the free use of its cars upon said track, thus inducing the plaintiff to act in
reliance on such belief, that is, to purchase such portable track, as in fact he did and laid it and used
it without payment, the cars belonging to the defendant.

This is an estoppel, and defendant cannot be permitted to gainsay its own acts and agreement.

The defendant cannot now demand payment of the plaintiff for such use of the cars. And this is so,
not because the fact of having supplied them was an act of pure liberality, to which having once
started it, the defendant was forever bound, which would be unreasonable, but because the act of
providing such cars was, under the circumstances of the case, of compliance of an obligation to
which defendant is bound on account of having induced the plaintiff to believe, and to act and incur
expenses on the strenght of this belief.

The question of whether or not the plaintiff was under the necessity of first showing a cooperative
spirit and conduct, does not affect the right which he thus acquired of using the cars in question
gratuitously.

We do not find sufficient reason to support the second assignment of error.

The point raised in the third assignment of error is a consequence of the second. If the plaintiff was
entitled, as we have said, to use the cars gratuitously, the defendant has no right to demand any
payment from him for the use of said cars.

The other assignments of error are consequences of the preceding ones.

We find nothing in the record to serve as a legal and sufficient bar to plaintiff's action against the
defendant for the delivery of the sugar in question, or its value. A discussion as to the retention of
this deposit to apply upon what is due by reason thereof made in the judgment appealed from, is
here necessary. The parties do not raise this question in the present instance. Furthermore, it has
not been proven that the plaintiff owes the defendant anything by reason of such deposit.

The judgment appealed from is hereby affirmed with the costs of this instance against the appellant.
So ordered.

Johnson, Street and Villamor, JJ., concur.

 

IRST DIVISION

[G.R. NO. 156660 : August 24, 2009]

ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC. (OSPA),OCCIDENTAL

LEYTE FARMERS MULTI-PURPOSE COOPERATIVE, INC. (OLFAMCA),
UNIFARM MULTI-PURPOSE COOPERATIVE, INC. (UNIFARM) and ORMOC
NORTH DISTRICT IRRIGATION MULTI-PURPOSE COOPERATIVE, INC.
(ONDIMCO), Petitioners, v. THE COURT OF APPEALS (Special Former Sixth
Division), HIDECO SUGAR MILLING CO., INC., and ORMOC SUGAR MILLING
CO., INC., Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a special civil action for certiorari assailing the Decision1 dated

December 7, 2001 and the Resolution dated October 30, 2002 of the Court of
Appeals (CA) in CA-G.R. SP No. 56166 which set aside the Joint Orders2 dated
August 26, 1999 and October 29, 1999 issued by the Regional Trial Court (RTC) of
Ormoc City, Branch 12 upholding petitioners' legal personality to demand
arbitration from respondents and directing respondents to nominate two arbitrators
to represent them in the Board of Arbitrators.

Petitioners are associations organized by and whose members are individual sugar
planters (Planters). The membership of each association follows: 264 Planters were
members of OSPA; 533 Planters belong to OLFAMCA; 617 Planters joined UNIFARM;
760 Planters enlisted with ONDIMCO; and the rest belong to BAP-MPC which did not
join the lawsuit.

Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar Milling Co,
Inc. (OSCO) are sugar centrals engaged in grinding and milling sugarcane delivered
to them by numerous individual sugar planters, who may or may not be members
of an association such as petitioners.

Petitioners assert that the relationship between respondents and the individual
sugar planters is governed by milling contracts. To buttress this claim, petitioners
presented representative samples of the milling contracts.3
Notably, Article VII of the milling contracts provides that 34% of the sugar and
molasses produced from milling the Planter's sugarcane shall belong to the centrals
(respondents) as compensation, 65% thereof shall go to the Planter and the
remaining 1% shall go the association to which the Planter concerned belongs, as
aid to the said association. The 1% aid shall be used by the association for any
purpose that it may deem fit for its members, laborers and their dependents. If the
Planter was not a member of any association, then the said 1% shall revert to the
centrals. Article XIV, paragraph B4 states that the centrals may not, during the life
of the milling contract, sign or execute any contract or agreement that will provide
better or more benefits to a Planter, without the written consent of the existing and
recognized associations except to Planters whose plantations are situated in areas
beyond thirty (30) kilometers from the mill. Article XX provides that all differences
and controversies which may arise between the parties concerning the agreement
shall be submitted for discussion to a Board of Arbitration, consisting of five (5)
members'two (2) of which shall be appointed by the centrals, two (2) by the Planter
and the fifth to be appointed by the four appointed by the parties.

On June 4, 1999, petitioners, without impleading any of their individual members,

filed twin petitions with the RTC for Arbitration under R.A. 876, Recovery of Equal
Additional Benefits, Attorney's Fees and Damages, against HIDECO and OSCO,
docketed as Civil Case Nos. 3696-O and 3697-O, respectively.

Petitioners claimed that respondents violated the Milling Contract when they gave
to independent planters who do not belong to any association the 1% share,
instead of reverting said share to the centrals. Petitioners contended that
respondents unduly accorded the independent Planters more benefits and thus
prayed that an order be issued directing the parties to commence with arbitration in
accordance with the terms of the milling contracts. They also demanded that
respondents be penalized by increasing their member Planters' 65% share provided
in the milling contract by 1%, to 66%.

Respondents filed a motion to dismiss on ground of lack of cause of action because

petitioners had no milling contract with respondents. According to respondents,
only some eighty (80) Planters who were members of OSPA, one of the petitioners,
executed milling contracts. Respondents and these 80 Planters were the signatories
of the milling contracts. Thus, it was the individual Planters, and not petitioners,
who had legal standing to invoke the arbitration clause in the milling contracts.
Petitioners, not being privy to the milling contracts, had no legal standing
whatsoever to demand or sue for arbitration.

On August 26, 1999, the RTC issued a Joint Order5 denying the motion to dismiss,
declaring the existence of a milling contract between the parties, and directing
respondents to nominate two arbitrators to the Board of Arbitrators, to wit:

When these cases were called for hearing today, counsels for the petitioners and
respondents argued their respective stand. The Court is convinced that there is an
existing milling contract between the petitioners and respondents and these
planters are represented by the officers of the associations. The petitioners have
the right to sue in behalf of the planters.

This Court, acting on the petitions, directs the respondents to nominate two
arbitrators to represent HIDECO/HISUMCO and OSCO in the Board of Arbitrators
within fifteen (15) days from receipt of this Order. xxx

However, if the respondents fail to nominate their two arbitrators, upon proper
motion by the petitioners, then the Court will be compelled to use its discretion to
appoint the two (2) arbitrators, as embodied in the Milling Contract and R.A. 876.

xxx

Their subsequent motion for reconsideration having been denied by the RTC in its
Joint Order6 dated October 29, 1999, respondents elevated the case to the CA
through a Petition for Certiorari with Prayer for the Issuance of Temporary
Restraining Order and/or Writ of Preliminary Injunction.

On December 7, 2001, the CA rendered its challenged Decision, setting aside the
assailed Orders of the RTC. The CA held that petitioners neither had an existing
contract with respondents nor were they privy to the milling contracts between
respondents and the individual Planters. In the main, the CA concluded that
petitioners had no legal personality to bring the action against respondents or to
demand for arbitration.

Petitioners filed a motion for reconsideration, but it too was denied by the CA in its
Resolution7 dated October 30, 2002. Thus, the instant petition.

At the outset, it must be noted that petitioners filed the instant petition
for certiorari under Rule 65 of the Rules of Court, to challenge the judgment of the
CA. Section 1 of Rule 65 states:

Section 1. Petition for Certiorari. - When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its jurisdiction,
or with grave abuse of discretion amounting to lack or excess of its or his
jurisdiction and there is no appeal, or any plain, speedy and adequate remedy in
the course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental relief as law and justice require. xxx xxx xxx
(emphasis ours)

The instant recourse is improper because the resolution of the CA was a final order
from which the remedy of appeal was available under Rule 45 in relation to Rule 56.
The existence and availability of the right of appeal proscribes resort
to certiorari because one of the requirements for availment of the latter is precisely
that there should be no appeal. It is elementary that for certiorari to prosper, it is
not enough that the trial court committed grave abuse of discretion amounting to
lack or excess of jurisdiction; the requirement that there is no appeal, nor any
plain, speedy and adequate remedy in the ordinary course of law must likewise be
satisfied.8 The proper mode of recourse for petitioners was to file a Petition for
Review of the CA's decision under Rule 45.

Petitioners principally argue that the CA committed a grave error in setting aside
the challenged Joint Orders of the RTC which allegedly unduly curtailed the right of
petitioners to represent their planters-members and enforce the milling contracts
with respondents. Petitioners assert the said which orders were issued in
accordance with Article XX of the Milling Contract and the applicable provisions of
Republic Act (R.A.) No. 876.

Where the issue or question involved affects the wisdom or legal soundness of the
decision - not the jurisdiction of the court to render said decision - the same is
beyond the province of a special civil action for certiorari . Erroneous findings and
conclusions do not render the appellate court vulnerable to the corrective writ
of certiorari . For where the court has jurisdiction over the case, even if its findings
are not correct, they would, at most constitute errors of law and not abuse of
discretion correctable by certiorari .9

Moreover, even if this Court overlooks the procedural lapse committed by

petitioners and decides this matter on the merits, the present petition will still not
prosper.

Stripped to the core, the pivotal issue here is whether or not petitioners ― sugar
planters' associations ― are clothed with legal personality to file a suit against, or
demand arbitration from, respondents in their own name without impleading the
individual Planters.

On this point, we agree with the findings of the CA.

Section 2 of R.A. No. 876 (the Arbitration Law)10 pertinently provides:

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

The foregoing provision speaks of two modes of arbitration: (a) an agreement to

submit to arbitration some future dispute, usually stipulated upon in a civil contract
between the parties, and known as an agreement to submit to arbitration, and (b)
an agreement submitting an existing matter of difference to arbitrators, termed the
submission agreement. Article XX of the milling contract is an agreement to submit
to arbitration because it was made in anticipation of a dispute that might arise
between the parties after the contract's execution.
Except where a compulsory arbitration is provided by statute, the first step toward
the settlement of a difference by arbitration is the entry by the parties into a valid
agreement to arbitrate. An agreement to arbitrate is a contract, the relation of the
parties is contractual, and the rights and liabilities of the parties are controlled by
the law of contracts.11 In an agreement for arbitration, the ordinary elements of a
valid contract must appear, including an agreement to arbitrate some specific thing,
and an agreement to abide by the award, either in express language or by
implication.

The requirements that an arbitration agreement must be written and subscribed by

the parties thereto were enunciated by the Court in B.F. Corporation v. CA.12

During the proceedings before the CA, it was established that there were more than
two thousand (2,000) Planters in the district at the time the case was commenced
at the RTC in 1999. The CA further found that of those 2,000 Planters, only about
eighty (80) Planters, who were all members of petitioner OSPA, in fact individually
executed milling contracts with respondents. No milling contracts signed by
members of the other petitioners were presented before the CA.

By their own allegation, petitioners are associations duly existing and organized
under Philippine law, i.e. they have juridical personalities separate and distinct from
that of their member Planters. It is likewise undisputed that the eighty (80) milling
contracts that were presented were signed only by the member Planter concerned
and one of the Centrals as parties. In other words, none of the petitioners were
parties or signatories to the milling contracts. This circumstance is fatal to
petitioners' cause since they anchor their right to demand arbitration from the
respondent sugar centrals upon the arbitration clause found in the milling contracts.
There is no legal basis for petitioners' purported right to demand arbitration when
they are not parties to the milling contracts, especially when the language of the
arbitration clause expressly grants the right to demand arbitration only to the
parties to the contract.

Simply put, petitioners do not have any agreement to arbitrate with respondents.
Only eighty (80) Planters who were all members of OSPA were shown to have such
an agreement to arbitrate, included as a stipulation in their individual milling
contracts. The other petitioners failed to prove that any of their members had
milling contracts with respondents, much less, that respondents had an agreement
to arbitrate with the petitioner associations themselves.

Even assuming that all the petitioners were able to present milling contracts in
favor of their members, it is undeniable that under the arbitration clause in these
contracts it is the parties thereto who have the right to submit a controversy or
dispute to arbitration.

Section 4 of R.A. 876 provides:

Section 4. Form of Arbitration Agreement - A contract to arbitrate a controversy

thereafter arising between the parties, as well as a submission to arbitrate an
existing controversy, shall be in writing and subscribed by the party sought to be
charged, or by his lawful agent.

The making of a contract or submission for arbitration described in section two

hereof, providing for arbitration of any controversy, shall be deemed a consent of
the parties to the jurisdiction of the Court of First Instance of the province or city
where any of the parties resides, to enforce such contract of submission.

The formal requirements of an agreement to arbitrate are therefore the following:

(a) it must be in writing and (b) it must be subscribed by the parties or their
representatives. To subscribe means to write underneath, as one's name; to sign at
the end of a document. That word may sometimes be construed to mean to give
consent to or to attest.13

Petitioners would argue that they could sue respondents, notwithstanding the fact
that they were not signatories in the milling contracts because they are the
recognized representatives of the Planters.

This claim has no leg to stand on since petitioners did not sign the milling contracts
at all, whether as a party or as a representative of their member Planters. The
individual Planter and the appropriate central were the only signatories to the
contracts and there is no provision in the milling contracts that the individual
Planter is authorizing the association to represent him/her in a legal action in case
of a dispute over the milling contracts.

Moreover, even assuming that petitioners are indeed representatives of the

member Planters who have milling contracts with the respondents and assuming
further that petitioners signed the milling contracts as representatives of their
members, petitioners could not initiate arbitration proceedings in their own
name as they had done in the present case. As mere agents, they should have
brought the suit in the name of the principals that they purportedly represent. Even
if Section 4 of R.A. No. 876 allows the agreement to arbitrate to be signed by a
representative, the principal is still the one who has the right to demand arbitration.

Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought in the
name of the real party in interest, to wit:

Sec. 2. Parties in interest. 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. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.

We held in Oco v. Limbaring14 that:

As applied to the present case, this provision has two requirements: 1) to institute
an action, the plaintiff must be the real party in interest; and 2) the action must be
prosecuted in the name of the real party in interest. Necessarily, the purposes of
this provision are 1) to prevent the prosecution of actions by persons without any
right, title or interest in the case; 2) to require that the actual party entitled to legal
relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4)
to discourage litigation and keep it within certain bounds, pursuant to sound public
policy.

Interest within the meaning of the Rules means material interest or an

interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no
material interest to protect cannot invoke the jurisdiction of the court as the
plaintiff in an action. When the plaintiff is not the real party in interest, the
case is dismissible on the ground of lack of cause of action.

xxx     xxx     xxx

The parties to a contract are the real parties in interest in an action upon
it, as consistently held by the Court. Only the contracting parties are bound by
the stipulations in the contract; they are the ones who would benefit from and
could violate it. Thus, one who is not a party to a contract, and for whose benefit
it was not expressly made, cannot maintain an action on it. One cannot do
so, even if the contract performed by the contracting parties would
incidentally inure to one's benefit. (emphasis ours)

In Uy v. Court of Appeals,15 this Court held that the agents of the parties to a
contract do not have the right to bring an action even if they rendered some service
on behalf of their principals. To quote from that decision:

'[Petitioners] are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or on
behalf of their principals. The rendering of such service did not make them
parties to the contracts of sale executed in behalf of the latter. Since a contract
may be violated only by the parties thereto as against each other, the real
parties-in-interest, either as plaintiff or defendant, in an action upon that
contract must, generally, either be parties to said contract. (emphasis and
words in brackets ours)

The main cause of action of petitioners in their request for arbitration with the RTC
is the alleged violation of the clause in the milling contracts involving the
proportionate sharing in the proceeds of the harvest. Petitioners essentially demand
that respondents increase the share of the member Planters to 66% to equalize
their situation with those of the non-member Planters. Verily, from petitioners' own
allegations, the party who would be injured or benefited by a decision in the
arbitration proceedings will be the member Planters involved and not
petitioners. In sum, petitioners are not the real parties in interest in the present
case.

Assuming petitioners had properly brought the case in the name of their members
who had existing milling contracts with respondents, petitioners must still prove
that they were indeed authorized by the said members to institute an action for and
on the members' behalf. In the same manner that an officer of the corporation
cannot bring action in behalf of a corporation unless it is clothed with a board
resolution authorizing an officer to do so, an authorization from the individual
member planter is a sine qua non for the association or any of its officers to bring
an action before the court of law. The mere fact that petitioners were organized for
the purpose of advancing the interests and welfare of their members does not
necessarily mean that petitioners have the authority to represent their members in
legal proceedings, including the present arbitration proceedings.

As we see it, petitioners had no intention to litigate the case in a representative

capacity, as they contend. All the pleadings from the RTC to this Court belie this
claim. Under Section 3 of Rule 3, where the action is allowed to be prosecuted by a
representative, the beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. As repeatedly pointed out earlier, the
individual Planters were not even impleaded as parties to this case. In addition,
petitioners need a power-of-attorney to represent the Planters whether in the
lawsuit or to demand arbitration.16 None was ever presented here.

Lastly, petitioners theorize that they could demand and sue for arbitration
independently of the Planters because the milling contract is a contract pour autrui
under Article 1311 of the Civil Code.

ART. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may

demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.

To summarize, the requisites of a stipulation pour autrui or a stipulation in favor of

a third person are the following: (1) there must be a stipulation in favor of a third
person, (2) the stipulation must be a part, not the whole, of the contract, (3) the
contracting parties must have clearly and deliberately conferred a favor upon a
third person, not a mere incidental benefit or interest, (4) the third person must
have communicated his acceptance to the obligor before its revocation, and (5)
neither of the contracting parties bears the legal representation or authorization of
the third party.17 These requisites are not present in this case.

Article VI of the Milling Contract is the solitary provision that mentions some benefit
in favor of the association of which the planter is a member and we quote:

VI
SHARE IN THE SUGAR
Thirty four per centrum (34%) of the sugar ad molasses resulting from the milling
of the PLANTER's sugarcane, as computed from the weight and analysis of the
sugarcane delivered by the PLANTER, shall belong to the CENTRAL; sixty five per
centum (65%) thereof to the PLANTER, and one per centum (1%) as aid to the
association of the PLANTER; provided that, if the PLANTER is not a member of any
association recognized by the CENTRAL, said one per centum (1%) shall revert to
the CENTRAL. The 1% aid shall be used by the association for any purpose that it
may deem fit for its members, laborers and their dependents, or for its other socio-
economic projects.

The foregoing provision cannot, by any stretch of the imagination, be considered as

a stiputation pour autrui or for the benefit of the petitioners. The primary rationale
for the said stipulation is to ensure a just share in the proceeds of the harvest to
the Planters. In other words, it is a stipulation meant to benefit the Planters. Even
the 1% share to be given to the association as aid does not redound to the benefit
of the association but is intended to be used for its member Planters. Not only that,
it is explicit that said share reverts back to respondent sugar centrals if the
contracting Planter is not affiliated with any recognized association.

To be considered a pour autrui provision, an incidental benefit or interest, which

another person gains, is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person.18 Even the clause stating
that respondents must secure the consent of the association if respondents grant
better benefits to a Planter has for its rationale the protection of the member
Planter. The only interest of the association therein is that its member Planter will
not be put at a disadvantage vis a vis other Planters. Thus, the associations'
interest in these milling contracts is only incidental to their avowed purpose of
advancing the welfare and rights of their member Planters.

In all, the Court finds no grave abuse of discretion nor reversible error committed
by the CA in setting aside the Joint Orders issued by the RTC.

WHEREFORE, petition is hereby DISMISSED.

Costs against petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

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.

KAPUNAN, J.:

The petition for review on certiorari before us seeks 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
RTC's 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 latter's
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. 1528, as amended by Republic Acts Nos.
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.  MMIC is a domestic corporation engaged in mining with respondent
1

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 bonds and extension of guarantees. Further, the Philippine Government obtained
a firm commitment form the DBP and/or other government financing institutions to subscribe
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  whereby MMIC,
3

as mortgagor, agreed to constitute a mortgage in favor or PNB and DBP as mortgagees, over
all MMIC's 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 requests for advances/remittances of loans if huge amounts, Deeds of

Undertaking, Promissory Notes, Loan 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 PNB's financial 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 with PNB in the amount of P8,789,028,249.38 as July 15, 1984 or a
total Government expose of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred
Thirty-Seven Hundred Seventy and 05/100 (P22, 668,537,770.05), Philippine Currency.   Thus,
6

a financial restructuring plan (FRP) designed to reduce MMIC's interest expense through debt
conversion to equity was drafted by the Sycip Gorres Velayo accounting firm.   On April 30,
7

1984, the FRP was approved by the Board of Directors of the MMIC.  However, the proposed
8

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.   The suit, docketed as Civil
12

Case No. 9900, prayed that the court: (1) annul the foreclosures, 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, attorney's fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP
and the PNB's 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 contained herein the parties agree 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 from 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 interests 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 be discharged by and be enforceable
against APT, the parties 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
prayed 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 Committee's 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 61, 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, 1997, 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 as it 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 foreclosures were found to
be null and void.

The documentary evidence submitted and adopted by the parties (Exhibits "3",
"3-B"; Exhibit "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 the obligations
of, MMIC in proportion to its 87% equity in tile total capital stock of MMIC.

x x x           x x x          x x x
 As this Committee holds that the FRP is valid, DBP's 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 annum reckoned 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 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 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 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;

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) 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

Motions for reconsideration were filed by both parties, but the same were denied.
On October 17, 1993, 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 71 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, 1993, 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 for 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 P1,705,410.23 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 Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's 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 APT's 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 filing
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.   As ground therefor, petitioner alleged that:
19

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.
 III

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 COURT'S COPY CONFIRMING
THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT
PRESUMABLY IS THE OPPOSING COUNSEL'S COPY THEREOF.  20

On July 12, 1995, he 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:

ASSIGNMENT OF ERRORS

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI

REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOUSLY DISMISSED
CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL
AWARD UNDER THE SAME CIVIL CASE AND 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.

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.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT'S

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

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.

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,  neither of the parties questioned said
24

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 case. 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 be 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."   As a rule then, neither waiver nor
25

estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and
exceptional circumstances.   One such exception was enunciated in Tijam vs.
26

Sibonghanoy,   where it was held that "after voluntarily submitting a cause and encountering
27

an adverse decision on the merits, it is too late for the loser to question the jurisdiction or
power of the court."

Petitioner's 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 RTC's jurisdiction.
Petitioner's prayer for the setting aside of the arbitral award was not inconsistent with its
disavowal of the court's jurisdiction.

III

Appeal of petitioner to the

Court of Appeals thru certiorari

under Rule 65 was proper.

The Court of Appeals in dismissing APT's petition for certiorari upheld the trial court's denial
of APT's motion for reconsideration of the trial court's 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 99 of Republic Act No. 876,   provides that:

28

. . . An appeal may be taken from an order made in a proceeding under this Act,
or from a judgment entered upon an award through certiorari proceedings, but
such appeals shall be limited to questions of law. . . ..

The 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, speed,
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 clear from the pleadings and the evidence that the trial court lacked
jurisdiction and/or committed grave abuse of discretion in taking cognizance of private
respondents' 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' power.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as
to the law or as to the facts.   Courts are without power to amend or overrule merely because
29

of disagreement with matters of law or facts determined by the arbitrators.   They will not
30

review the findings of law and fact contained in an award, and will not undertake to substitute
their judgment for that of the arbitrators, since any other rule would make an award the
commencement, not the end, of litigation.   Errors of law and fact, or an erroneous decision
31

of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award
fairly and honestly made.   Judicial review of an arbitration is thus, more limited than judicial
32

review of a trial.  33

Nonetheless, the arbitrators' award is not absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the submission agreement.   The parties to such
34

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.   Thus, 35

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,   and 1040   of the Civil Code applicable to compromises and arbitration are attendant,
37 38

the arbitration award may also be annulled.

In Chung Fu Industries (Phils.) vs. Court of Appeals,   we held:

39

. . . . It is stated explicitly under Art. 2044 of the Civil Code that the finality of
the arbitrators' award is not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrator's award may be
annulled or rescended. Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the factual circumstances referred to the
above-cited provisions are present, judicial review of the award is properly
warranted.

According, Section 20 of R.A. 876 provides:

Sec. 20. Form and contents of award. — The award must be made in writing
and signed and acknowledge by a majority of the arbitrators, if more than one;
 and by the sole arbitrator, if there is only only. 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.

x x x           x x x          x x x

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. (Emphasis ours).

x x x           x x x          x x x

Sec. 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
proceeding:

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

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

xxx xxx 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 commissioner's report, the defect could
have been amended or disregarded by the court.

x x x           x x x          x x x

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

disregard of the law." 41

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.

There was no financial

structuring program:

foreclosure of mortgage

was fully justified.

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.

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a
separate opinion:

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 the 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.

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

Q : 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"?

A : 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.

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

A : Yes.

x x x           x x x          x x x

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 allegations 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 follow:

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, accommodation, 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 debtors, 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 the mandatory 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. (Emphasis supplied.)

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 aliegation
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

VI

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:

1. Declaring the foreclosures 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 investments
amounting to not less than P80,000,000, the damnum emergens and lucrum
cessans in such amount as may be established 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,
attorney's 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

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:

8. Decision. The committee shall issue a decision on the controversy not later
than six (6) months from the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file
this suit and the 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-in-interest within sixty (60) days from the date of the award in
accordance with the provisions of par. 9 hereunder. . . . . 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.

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.

The arbiters overstepped

their powers by declaring as

valid the 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 relief 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.   The contract must bind both contracting parties.   Private
47 48

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"   on the
51

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 FRP's 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.

Although the DBP sat in the board in a dual capacity — as holder of 36% of
MMIC's equity (at that time) and as MMIC's creditor — the DBP can not validly
renege on its commitments simply because at the same time, it held interests
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 DBP's equity in MMIC to 87%. It is not an excuse, however, for the
government to deny its commitments.  52

Atty. Sison, however, did not agree and correctly observed that:

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.   In the case at bar, there
54

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, MMIC's
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" besmirched by the act of foreclosure.  55

The arbiters exceeded their

 authority in awarding damages

to MMIC, which is not impleaded

as a party to the derivative suit.

Civil Case 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 corporation's behalf is only a 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. . . . . 
56

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

. . . Not only is the corporation an indispensable 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 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 corporation
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) . . . "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 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) . . . 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 . . .;

(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. DBP's 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.   Notably, the
59

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:

x x x           x x x          x x x

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; . . .  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 acknowledged 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 by 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.   Worse, private respondents violated the rule against non-forum shopping.
62
It is a basic postulate that a corporation has a personality separate and distinct from its
stockholders.   The properties foreclosed belonged to MMIC, not to its stockholders. Hence,
63

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 corporation's
assets before the dissolution of the corporation and the liquidation of its debts and liabilities.
The Arbitration Committee, therefore, passed upon matters nor 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.
 EN BANC

[G.R. No. L-23390. April 24, 1967.]

MINDANAO PORTLAND CEMENT CORPORATION, Petitioner-Appellee, v.

MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA, Respondent-
Appellant.

Gonzalo W. Gonzales & Associates for Respondent-Appellant.

Alberto O. Villaraza for Petitioner-Appellee.

SYLLABUS

1. SUMMARY PROCEEDING; ENFORCEMENT OF AGREEMENT TO ARBITRATE; CASE

AT BAR. — Where as in this case, there obtains a written provision for arbitration as
well as failure on respondent’s part to comply therewith, the court a quo rightly
ordered the parties to proceed to arbitration in accordance with the terms of their
agreement (Sec. 6, Republic Act 876). Respondent’s arguments touching upon the
merits of the dispute are improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to enforce the agreement
to arbitrate.

2. ID.; ID.; ID.; EXISTENCE OF DEFENSE AGAINST A CLAIM; ITS EFFECT. — Altho
it has been ruled that a frivolous or patently baseless claim should not be ordered
to arbitration, it is also recognized that the mere fact that a defense exists against
a claim does not make it frivolous or baseless.

DECISION

BENGZON, J.P., J.:
On February 13, 1961, petitioner Mindanao Portland Cement Corporation and
respondent McDonough Construction Company of Florida, U.S.A., executed a
contract 1 for the construction by the respondent for the petitioner of a dry portland
cement plant at Iligan City. In a separate contract, Turnbull, Inc. — the "engineer"
referred to in the construction contract — was engaged to design and manage the
construction of the plant, supervise the construction, schedule deliveries and the
construction work as well, as check and certify all contractors’ progress and fiscal
requests for payment.

Alterations in the plans and specifications were subsequently made during the
progress of the construction as set forth in Addenda 2 to 8 thereto. Due to this and
to other causes deemed sufficient by Turnbull, Inc., extensions of time for the
termination of the project, initially agreed to be finished on December 17, 1961,
were granted. 2

Respondent finally completed the project on October 22, 1962, except as to

delivery of certain spare parts for replacements and installation of floodlamps; and
on November 14, 1862, these latter items were complied with.

As to the Addenda in the plans and specifications, Addenda 2, 3 and 7 were not
signed by petitioner altho the same were forwarded to it, after having been signed
by respondent; these are still in its possession. Addenda 4, 5 and 6, were signed by
petitioner and Respondent. 3

Differences later arose. Petitioner claimed from respondent damages in the amount
of more than P2,000.00 allegedly occasioned by the delay in the project’s
completion. Respondent in turn asked for more than P450,000 from petitioner for
alleged losses due to cost of extra work and overhead as of April 1962. A
conference was held on or about May 29, 1962 between petitioner and Turnbull,
Inc., on one hand, and respondent on the other to settle the differences
aforementioned, but no satisfactory results were reached.

Petitioner sent respondent, on August 8,1962, and again on September 24, 1962,
written invitations to arbitrate, invoking a provision in their contract regarding
arbitration of disputes.

Instead of answering said invitations, respondent, on November 14, 1962, with

Turnbull, Inc.’s approval, submitted to petitioner for payment its final statement of
work accomplished, asking P403.700 as unpaid balance of the consideration of the
contract.

Petitioner, on January 29, 1963, filed the present action in the Court of First
Instance of Manila to compel respondent to arbitrate with it concerning alleged
disputes arising from their contract. It averred inter alia that deletions and
additions to the plans and specifications were agreed upon during the progress of
the construction; that disagreement arose between them as to the cost of
additional or extra work done, and respondent’s deviations from some agreed
specifications; that petitioner claims having overpaid respondent by P33,810.81;
that petitioner further claims to have suffered damages due to respondent’s delay
in finishing the project; that respondent, on the other hand, still claims an unpaid
balance of about P403,700; that these matters fall under the general arbitration
clause of their contract; and that respondent has failed to proceed to arbitration
despite several requests therefor.

Respondent filed, on February 23, 1963, its answer. It denied the alleged existence
of disagreement between the parties. And as special defense, it alleged that its
claim for P403,700 was not disputed and that the respective claims for damages
should be resolved by Turnbull, Inc., pursuant to the exception in the arbitration
clause of the construction contract.

After stipulation of facts and submission of documentary evidence, the court, on

May 13, 1964, rendered its decision finding that dispute or disagreement obtained
between the parties with respect to their rights and obligations under their contract
and that the same should be submitted to arbitration pursuant to par. 39 of said
contract — the arbitration clause — and to Republic Act 876 — the Arbitration Law.
And thus it ordered petitioner and respondent to proceed to arbitration in
accordance with the terms of their contract.

Not satisfied with the ruling, respondent appealed therefrom to US to raise the
purely legal question of whether under these facts respondent is duty-bound to
submit to arbitration.

The provision of the contract on "Arbitration of Disagreements" (par. 39) says: jgc:chanrobles.com.ph

"39. In the event of disagreement between the Owner and the Contractor in respect
of the rights or obligations of either of the parties hereunder except the
interpretation of the plans and specifications and questions concerning the
sufficiency of materials, the time, sequence and method of performing the work,
which questions are to be finally determined by the Engineer, they shall submit the
matter to arbitration, the Owner choosing one arbitrator, the Contractor one, and
the two so chosen shall select a third. The decision of such arbitrators or a majority
of them shall be made in writing to both parties and when so made shall be binding
upon the parties thereto." (Italics supplied).

Respondent, herein appellant, contends first, that there is no showing of

disagreement; and second, that if there is, the same falls under the exception, to
be resolved by the engineer.

As to the first point, the fact of disagreement has been determined by the court
below upon the stipulation of facts and documentary evidence submitted. In this
appeal involving pure questions of law the above finding should not be disturbed.
Furthermore, the existence of disagreement is plainly shown in the record.
Respondent admits the existence of petitioner’s claim but denies its merit. 4 It
likewise admits that petitioner has refused to pay its claim for the unpaid balance of
the price of the contract. 5 Paragraph 8 of the stipulation of facts shows the dispute
of the parties regarding their mutual claims and that said dispute remained
unsettled: jgc:chanrobles.com.ph

"8. That on or about May 29, 1962, a conference was held between petitioner and
Turnbull, Inc., on the one hand, and respondent, on the other, to settle their
differences involving the claim for damages of petitioner in the amount of more
than P2,000,000 occasioned by the delay in the completion of the project, and the
claim of respondent for losses due to the cost of extra plant and overhead in the
amount of more than P450,000, as of April 1962, but no satisfactory results were
reached;" (Italics supplied).

Regarding the second point, the parties agreed by way of exception that
disagreements with respect to the following matters shall be finally resolved by the
engineer, instead of being submitted to arbitration: (1) The interpretation of plans
and specifications; (2) sufficiency of materials; and (3) the time, sequence and
method of performing the work.

The disputes involved here, on the other hand, are on (1) the proper computation
of the total contract price, 6 including the cost of additional or extra work; 7 and
(2) the liability for alleged delay in completing the project and for alleged losses
due to change in the plans and specifications.

Now from the contract itself We can determine the scope of the exceptions
aforementioned. Thus, pars. 19 to 22 of its General Conditions deal with the subject
"Interpretation of Plans and Specifications." And there under, the engineer is
empowered to correct all discrepancies, errors or omissions in the plans and
specifications; to explain all doubts that may arise thereon; and to furnish further
plans and specifications as may be required. No mention is made therein as to the
cost of the project; this matter is covered by the engineering contract, under which
Turnbull, Inc.’s function is limited to making estimates of costs only.

"Sufficiency of materials" and "method of performing the work" — under the second
and third exceptions abovementioned — are treated in pars. 2 to 6 of the General
Conditions under the heading "QUALITY OF WORKS AND MATERIALS." Turnbull,
Inc., is therein empowered to determine the amount, quality, acceptability and
fitness of the several kinds of work and materials furnished and to reject or
condemn any of them which, in its opinion, does not fully conform to the terms of
the contract. In the present case, the dispute is not as to the quality of the
materials or of the kind of work done.

"Time" and "Sequence of Work" are covered by pars. 9 to 17 of the General

Conditions under the heading "SCHEDULING." Neither would the disputes fall under
these exceptions. Turnbull, Inc.’s power here is to schedule the deliveries and
construction work and expedite the same so that the project can be finished on
time. It is also authorized, under par. 15, to determine whether any eventuality is
sufficient enough to warrant an extension of time and if so, to determine the period
of such extension. The delay envisioned here is one that occurs during the progress
of the work which disturbs the pre-scheduling plan, thus necessitating an extension
of the over-all deadline precisely to prevent respondent from going beyond the
same. Turnbull, Inc.’s function goes no further than to calculate and fix the period
of extension. But the delay petitioner alleged is different; it is delay beyond the last
date of extension fixed by Turnbull, Inc. Clearly, the question of liability therefor is
not embraced in the exception.

To none of the exceptions then do the disagreements in question belong; the rule of
arbitration therefore applies. The parties in fact also stipulated in their contract,
under "EXTRA WORK", that the cost of extra work to be paid shall be subject to
negotiation. 8 This negates the proposition that Turnbull, Inc.’s cost estimates
appearing in Addenda 2, 3 and 7 are final and conclusive.

The reason, moreover, for the exceptions — interpretation of plans and

specifications; sufficiency of materials, sequence, time and method of performing
the work — is the need to decide these matters immediately, since the progress of
the work would await their determination. The same is not true as to matters
relating to the liability for delay in the project’s completion; these are questions
that the engineer does not have to resolve before the project can go on.
Consequently, We view that it is not included in the exceptions, as indeed the
related provisions of their agreement indicate.

Since there obtains herein a written provision for arbitration as well as failure on
respondent’s part to comply therewith, the court a quo rightly ordered the parties
to proceed to arbitration in accordance with the terms of their agreement (Sec. 6,
Republic Act 876). Respondent’s arguments touching upon the merits of the dispute
are improperly raised herein. They should be addressed to the arbitrators. This
proceeding is merely a summary remedy to enforce the agreement to arbitrate. The
duty of the court in this case is not to resolve the merits of the parties’ claims but
only to determine if they should proceed to arbitration or not. And altho it has been
ruled that a frivolous or patently baseless claim should not be ordered to
arbitration, it is also recognized that the mere fact that a defense exists against a
claim does not make it frivolous or baseless. 9

Wherefore, the judgment appealed from, ordering the parties to proceed to

arbitration according to the terms of their agreement, is hereby affirmed, with costs
against appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 120105 March 27, 1998

BF CORPORATION, petitioner,
vs.
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C.
RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.

ROMERO, J.:

The basic issue in this petition for review on certiorari is whether or not the contract for the
construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la
Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in the
implementation of contractual provisions.

Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the
latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping
mall complex in the City of Mandaluyong. The construction work was in progress when SPI decided
to expand the project by engaging the services of petitioner again. Thus, the parties entered into an
agreement for the main contract works after which construction work began.

However, petitioner incurred delay in the construction work that SPI considered as "serious and
substantial."  On the other hand, according to petitioner, the construction works "progressed in
1

faithful compliance with the First Agreement until a fire broke out on November 30, 1990 damaging
Phase I" of the Project.  Hence, SPI proposed the re-negotiation of the agreement between them.
2

Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated
as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement
would cover the construction work on said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner "failed to complete the construction works and abandoned the
project."  This resulted in disagreements between the parties as regards their respective liabilities
3

under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective representatives
met in conference but they failed to come to an agreement. 4

Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a
complaint for collection of the balance due under the construction agreement. Named defendants
therein were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco,
Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.

On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing
an answer. The motion was anchored on defendants' allegation that the formal trade contract for the
construction of the project provided for a clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the contract. The following day, SPI
submitted a copy of the conditions of the contract containing the arbitration clause that it failed to
append to its motion to suspend proceedings.

Petitioner opposed said motion claiming that there was no formal contract between the parties
although they entered into an agreement defining their rights and obligations in undertaking the
project. It emphasized that the agreement did not provide for arbitration and therefore the court could
not be deprived of jurisdiction conferred by law by the mere allegation of the existence of an
arbitration clause in the agreement between the parties.

In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing
contract between petitioner and SPI. It alleged that suspension of proceedings would not necessarily
deprive the court of its jurisdiction over the case and that arbitration would expedite rather than delay
the settlement of the parties' respective claims against each other.

In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract
between the parties. It averred that granting that such a clause indeed formed part of the contract,
suspension of the proceedings was no longer proper. It added that defendants should be declared in
default for failure to file their answer within the reglementary period.

In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of
the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI
president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the
agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R.
Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register. 5

Thereafter, upon a finding that an arbitration clause indeed exists, the lower court  denied the motion
6

to suspend proceedings, thus:

It appears from the said document that in the letter-agreement dated May 30, 1991
(Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed
upon the terms and conditions of the Builders Work for the EDSA Plaza Project
(Phases I, II and Carpark), subject to the execution by the parties of a formal trade
contract. Defendants have submitted a copy of the alleged trade contract, which is
entitled "Contract Documents For Builder's Work Trade Contractor" dated 01 May
1991, page 2 of which is entitled "Contents of Contract Documents" with a list of the
documents therein contained, and Section A thereof consists of the abovementioned
Letter-Agreement dated May 30, 1991. Section C of the said Contract Documents is
entitled "Articles of Agreement and Conditions of Contract" which, per its Index,
 consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said
Articles of Agreement appears to have been duly signed by President Rufo B.
Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and
their witnesses, and was thereafter acknowledged before Notary Public Nilberto R.
Briones of Makati, Metro Manila on November 15, 1991. The said Articles of
Agreement also provides that the "Contract Documents" therein listed "shall be
deemed an integral part of this Agreement", and one of the said documents is the
"Conditions of Contract" which contains the Arbitration Clause relied upon by the
defendants in their Motion to Suspend Proceedings.

This Court notes, however, that the 'Conditions of Contract' referred to, contains the following
provisions:

3. Contract Document.

Three copies of the Contract Documents referred to in the Articles of

Agreement shall be signed by the parties to the contract and
distributed to the Owner and the Contractor for their safe keeping."
(emphasis supplied).

And it is significant to note further that the said "Conditions of Contract" is not duly
signed by the parties on any page thereof — although it bears the initials of BF's
representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials
thereon of any representative of Shangri-La Properties, Inc.

Considering the insistence of the plaintiff that the said Conditions of Contract was not
duly executed or signed by the parties, and the failure of the defendants to submit
any signed copy of the said document, this Court entertains serious doubt whether or
not the arbitration clause found in the said Conditions of Contract is binding upon the
parties to the Articles of Agreement." (Emphasis supplied.)

The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it
was "too late in the day for defendants to invoke arbitration." It quoted the following provision of the
arbitration clause:

Notice of the demand for arbitration of a dispute shall be filed in writing with the other
party to the contract and a copy filed with the Project Manager. The demand for
arbitration shall be made within a reasonable time after the dispute has arisen and
attempts to settle amicably have failed; in no case, however, shall the demand he
made be later than the time of final payment except as otherwise expressly stipulated
in the contract.

Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project
was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each
day of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of
the total contract price."

The lower court also found that after the project was completed in accordance with the agreement
that contained a provision on "progress payment billing," SPI "took possession and started
operations thereof by opening the same to the public in November, 1991." SPI, having failed to pay
for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand
letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its
own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The
conference took place but it proved futile.

Upon the above facts, the lower court concluded:

Considering the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that "Notice of the demand for arbitration of a dispute shall
be filed in writing with the other party . . . . in no case . . . . later than the time of final
payment . . . "which apparently, had elapsed, not only because defendants had taken
possession of the finished works and the plaintiff's billings for the payment thereof
had remained pending since November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed to file any written notice of
any demand for arbitration during the said long period of one year and eight months,
this Court finds that it cannot stay the proceedings in this case as required by Sec. 7
of Republic Act No. 876, because defendants are in default in proceeding with such
arbitration.

The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other
defendants to file their responsive pleading or answer within fifteen (15) days from notice.

Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the
Rules of Court before the Court of Appeals. Said appellate court granted the petition, annulled and
set aside the orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals
held:

The reasons given by the respondent Court in denying petitioners' motion to suspend
proceedings are untenable.

1. The notarized copy of the articles of agreement attached as Annex A to

petitioners' reply dated August 26, 1993, has been submitted by them to the
respondent Court (Annex G, petition). It bears the signature of petitioner Rufo B.
Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani Fernando,
president of respondent Corporation (Annex G-1, petition). At page D/4 of said
articles of agreement it is expressly provided that the conditions of contract are
"deemed an integral part" thereof (page 188, rollo). And it is at pages D/42 to D/44 of
the conditions of contract that the provisions for arbitration are found (Annexes G-3
to G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides:

Provided always that in case any dispute or difference shall arise

between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or
as to any matter or thing of whatsoever nature arising thereunder or
in connection therewith (including any matter or being left by this
Contract to the discretion of the Project Manager or the withholding
by the Project Manager of any certificate to which the Contractor may
claim to be entitled or the measurement and valuation mentioned in
clause 30 (5) (a) of these Conditions' or the rights and liabilities of the
parties under clauses 25, 26, 32 or 33 of these Conditions), the
Owner and the Contractor hereby agree to exert all efforts to settle
their differences or dispute amicably. Failing these efforts then such
 dispute or difference shall be referred to Arbitration in accordance
with the rules and procedures of the Philippine Arbitration Law.

The fact that said conditions of contract containing the arbitration clause bear only
the initials of respondent Corporation's representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La
Properties, Inc. does not militate against its effectivity. Said petitioner having
categorically admitted that the document, Annex A to its reply dated August 26, 1993
(Annex G, petition), is the agreement between the parties, the initial or signature of
said petitioner's representative to signify conformity to arbitration is no longer
necessary. The parties, therefore, should be allowed to submit their dispute to
arbitration in accordance with their agreement.

2. The respondent Court held that petitioners "are in default in proceeding with such
arbitration." It took note of "the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that "Notice of the demand for arbitration of a
dispute shall be filed in writing with the other party . . . in no case . . . later than the
time of final payment," which apparently, had elapsed, not only because defendants
had taken possession of the finished works and the plaintiff's billings for the payment
thereof had remained pending since November, 1991 up to the filing of this case on
July 14, 1993, but also for the reason that defendants have failed to file any written
notice of any demand for arbitration during the said long period of one year and eight
months, . . . ."

Respondent Court has overlooked the fact that under the arbitration
clause —

Notice of the demand for arbitration dispute shall be filed in writing

with the other party to the contract and a copy filed with the Project
Manager. The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle
amicably had failed; in no case, however, shall the demand be made
later than the time of final payment except as otherwise expressly
stipulated in the contract (emphasis supplied)

quoted in its order (Annex A, petition). As the respondent Court there said, after the
final demand to pay the amount of P110,883,101.52, instead of paying, petitioners
set up its own claim against respondent Corporation in the amount of
P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference
proved futile. The next day, July 14, 1993, respondent Corporation filed its complaint
against petitioners. On August 13, 1993, petitioners wrote to respondent Corporation
requesting arbitration. Under the circumstances, it cannot be said that petitioners'
resort to arbitration was made beyond reasonable time. Neither can they be
considered in default of their obligation to respondent Corporation.

Hence, this petition before this Court. Petitioner assigns the following errors:

THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT

OF CERTIORARI ALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO
RESPONDENTS.
 B

THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION

IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:

(i) THE PARTIES DID NOT ENTER INTO AN

AGREEMENT TO ARBITRATE.

(ii) ASSUMING THAT THE PARTIES DID ENTER

INTO THE AGREEMENT TO ARBITRATE,
RESPONDENTS ARE ALREADY IN DEFAULT IN
INVOKING THE AGREEMENT TO ARBITRATE.

On the first assigned error, petitioner contends that the Order of the lower court denying the motion
to suspend proceedings "is a resolution of an incident on the merits." As such, upon the continuation
of the proceedings, the lower court would appreciate the evidence adduced in their totality and
thereafter render a decision on the merits that may or may not sustain the existence of an arbitration
clause. A decision containing a finding that the contract has no arbitration clause can then be
elevated to a higher court "in an ordinary appeal" where an adequate remedy could be obtained.
Hence, to petitioner, the Court of Appeals should have dismissed the petition for certiorari because
the remedy of appeal would still be available to private respondents at the proper time. 7

The above contention is without merit.

The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of
appeal is succinctly reiterated in Ongsitco v. Court of Appeals  as follows:
8

. . . . Countless times in the past, this Court has held that "where appeal is the proper
remedy, certiorari will not lie." The writs of certiorari and prohibition are remedies to
correct lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of
jurisdiction committed by a lower court. "Where the proper remedy is appeal, the
action for certiorari will not be entertained. . . . Certiorari is not a remedy for errors of
judgment. Errors of judgment are correctible by appeal, errors of jurisdiction are
reviewable by certiorari."

Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition

and mandamus are available only when "there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law . . . ." That is why they are referred to
as "extraordinary." . . . .

The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special civil action of certiorari." 9

This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of
the lower court over the controversy, the issue posed basically is whether the lower court
prematurely assumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction
over the case, then it becomes an error of jurisdiction which is a proper subject of a petition
for certiorari before the Court of Appeals. And if the lower court does not have jurisdiction over the
controversy, then any decision or order it may render may be annulled and set aside by the
appellate court.

However, the question of jurisdiction, which is a question of law depends on the determination of the
existence of the arbitration clause, which is a question of fact. In the instant case, the lower court
found that there exists an arbitration clause. However, it ruled that in contemplation of law, said
arbitration clause does not exist.

The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the
Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is not
proper in a petition for certiorari.

The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of
fact, the Court of Appeals interpreted the construction of the subject contract documents containing
the Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing
jurisprudence which will be extensively discussed hereunder. In effect, the issue posed before the
Court of Appeals was likewise a question of law. Being a question of law, the private respondents
rightfully invoked the special civil action of certiorari.

It is that mode of appeal taken by private respondents before the Court of Appeals that is being
questioned by the petitioners before this Court. But at the heart of said issue is the question of
whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before the Court of Appeals.

For this Court to be able to resolve the question of whether private respondents took the proper
mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of
whether there exists an Arbitration Clause which, admittedly, is a question of fact.

Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will
result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are
technical rules may be relaxed.   As we shall show hereunder, had the Court of Appeals
10

dismissed the petition for certiorari, the issue of whether or not an arbitration clause exists in
the contract would not have been resolved in accordance with evidence extant in the record
of the case. Consequently, this would have resulted in a judicial rejection of a contractual
provision agreed by the parties to the contract.

In the same vein, this Court holds that the question of the existence of the arbitration clause
in the contract between petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.

Petitioner, while not denying that there exists an arbitration clause in the contract in
question, asserts that in contemplation of law there could not have been one considering the
following points. First, the trial court found that the "conditions of contract" embodying the
arbitration clause is not duly signed by the parties. Second, private respondents
misrepresented before the Court of Appeals that they produced in the trial court a notarized
duplicate original copy of the construction agreement because what were submitted were
mere photocopies thereof. The contract(s) introduced in court by private respondents were
therefore "of dubious authenticity" because: (a) the Agreement for the Execution of Builder's
Work for the EDSA Plaza Project does not contain an arbitration clause, (b) private
respondents "surreptitiously attached as Annexes "G-3" to "G-5" to their petition before the
Court of Appeals but these documents are not parts of the Agreement of the parties as "there
was no formal trade contract executed," (c) if the entire compilation of documents "is indeed
a formal trade contract," then it should have been duly notarized, (d) the certification from the
Records Management and Archives Office dated August 26, 1993 merely states that "the
notarial record of Nilberto Briones . . . is available in the files of (said) office as Notarial
Registry Entry only," (e) the same certification attests that the document entered in the
notarial registry pertains to the Articles of Agreement only without any other accompanying
documents, and therefore, it is not a formal trade contract, and (f) the compilation submitted
by respondents are a "mere hodge-podge of documents and do not constitute a single
intelligible agreement."

In other words, petitioner denies the existence of the arbitration clause primarily on the
ground that the representatives of the contracting corporations did not sign the "Conditions
of Contract" that contained the said clause. Its other contentions, specifically that insinuating
fraud as regards the alleged insertion of the arbitration clause, are questions of fact that
should have been threshed out below.

This Court may as well proceed to determine whether the arbitration clause does exist in the
parties' contract. Republic Act No. 876 provides for the formal requisites of an arbitration
agreement as follows:

Sec. 4. Form of arbitration agreement. — A contract to arbitrate a controversy

thereafter arising between the parties, as well as a submission to arbitrate an
existing controversy, shall be in writing and subscribed by the party sought to
be charged, or by his lawful agent.

The making of a contract or submission for arbitration described in section

two hereof, providing for arbitration of any controversy, shall be deemed a
consent of the parties of the province or city where any of the parties resides,
to enforce such contract of submission. (Emphasis supplied.).

The formal requirements of an agreement to arbitrate are therefore the following: (a) it must
be in writing and (b) it must be subscribed by the parties or their representatives. There is no
denying that the parties entered into a written contract that was submitted in evidence before
the lower court. To "subscribe" means to write underneath, as one's name; to sign at the end
of a document.   That word may sometimes be construed to mean to give consent to or to
11

attest.
12

The Court finds that, upon a scrutiny of the records of this case, these requisites were
complied with in the contract in question. The Articles of Agreement, which incorporates all
the other contracts and agreements between the parties, was signed by representatives of
both parties and duly notarized. The failure of the private respondent's representative to
initial the "Conditions of Contract" would therefor not affect compliance with the formal
requirements for arbitration agreements because that particular portion of the covenants
between the parties was included by reference in the Articles of Agreement.

Petitioner's contention that there was no arbitration clause because the contract
incorporating said provision is part of a "hodge-podge" document, is therefore untenable. A
contract need not be contained in a single writing. It may be collected from several different
writings which do not conflict with each other and which, when connected, show the parties,
subject matter, terms and consideration, as in contracts entered into by correspondence.   A 13

contract may be encompassed in several instruments even though every instrument is not
signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or
referred to and made part of the signed instrument or instruments. Similarly, a written
agreement of which there are two copies, one signed by each of the parties, is binding on
both to the same extent as though there had been only one copy of the agreement and both
had signed it. 
14

The flaw in petitioner's contentions therefore lies in its having segmented the various
components of the whole contract between the parties into several parts. This
notwithstanding, petitioner ironically admits the execution of the Articles of Agreement.
Notably, too, the lower court found that the said Articles of Agreement "also provides that the
'Contract Documents' therein listed 'shall be deemed an integral part of this Agreement,' and
one of the said documents is the 'Conditions of Contract' which contains the Arbitration
Clause.'" It is this Articles of Agreement that was duly signed by Rufo B. Colayco, president
of private respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The
same agreement was duly subscribed before notary public Nilberto R. Briones. In other
words, the subscription of the principal agreement effectively covered the other documents
incorporated by reference therein.

This Court likewise does not find that the Court of Appeals erred in ruling that private
respondents were not in default in invoking the provisions of the arbitration clause which
states that "(t)he demand for arbitration shall be made within a reasonable time after the
dispute has arisen and attempts to settle amicably had failed." Under the factual milieu,
private respondent SPI should have paid its liabilities tinder the contract in accordance with
its terms. However, misunderstandings appeared to have cropped up between the parties
ostensibly brought about by either delay in the completion of the construction work or by
force majeure or the fire that partially gutted the project. The almost two-year delay in paying
its liabilities may not therefore be wholly ascribed to private respondent SPI.

Besides, private respondent SPI's initiative in calling for a conference between the parties
was a step towards the agreed resort to arbitration. However, petitioner posthaste filed the
complaint before the lower court. Thus, while private respondent SPI's request for arbitration
on August 13, 1993 might appear an afterthought as it was made after it had filed the motion
to suspend proceedings, it was because petitioner also appeared to act hastily in order to
resolve the controversy through the courts.

The arbitration clause provides for a "reasonable time" within which the parties may avail of
the relief under that clause. "Reasonableness" is a relative term and the question of whether
the time within which an act has to be done is reasonable depends on attendant
circumstances.   This Court finds that under the circumstances obtaining in this case, a one-
15

month period from the time the parties held a conference on July 12, 1993 until private
respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it
under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.

In this connection, it bears stressing that the lower court has not lost its jurisdiction over the
case. Section 7 of Republic Act No. 876 provides that proceedings therein have only been
stayed. After the special proceeding of arbitration   has been pursued and completed, then
16

the lower court may confirm the award   made by the arbitrator.
17

It should be noted that in this jurisdiction, arbitration has been held valid and constitutional.
Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration.   Republic Act No. 876 was
18

adopted to supplement the New Civil Code's provisions on arbitration.   Its potentials as one
19
of the alternative dispute resolution methods that are now rightfully vaunted as "the wave of
the future" in international relations, is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties would therefore
be a step backward.

WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the
petition for certiorari DENIED. This Decision is immediately executory. Costs against
petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 107918 June 14, 1994

ASSOCIATED BANK, petitioner,
vs.
HON. COURT OF APPEALS, HON. MARINA L. BUZON, as Presiding Judge of RTC, Quezon
City, MM, Br. 91, VISITACION SERRA FLORES RTC, Quezon City, MM, Br. 91, MA. ASUNCION
FLORES, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST
CO., SECURITY BANK & TRUST CO. and CITYTRUST BANKING CORPORATION, respondents.

Soluta, Leonidas, Marifosque, Balce, Santiago & Aguila Law Office for petitioner.

Rector Law Office for respondent Flores.

Balgos and Perez Law Office for respondent PCIB.

Dumaraos, Oracion, Panganiban & Associates for respondent FEBTC.

Cauton, Banares, Carpio, Ishiwata and Associates for respondent SBTC.

Gonzaga, Soneja and Gale Law Offices for respondent Citytrust.

KAPUNAN, J.:
This is a petition for review on certiorari seeking the reversal of the decision of the Court of Appeals
on November 18, 1992 affirming in toto the Order of the Regional Trial Court of Quezon City, Branch
91 dismissing the petitioner’s third-party complaint against private respondent banks for lack of
jurisdiction.

The facts of the case, as found by both the trial court and the Court of Appeals are undisputed:

In a complaint for Violation of the Negotiable Instrument Law and Damages,

plaintiffs   seek the recovery of the amount of P900,913.60 which defendant
1

bank   charged against their current account by virtue of the sixteen (16) checks
2

drawn by them despite the apparent alterations therein with respect to the name of
the payee, that is, the name Filipinas Shell was erased and substituted with Ever
Trading and DBL Trading by their supervisor Jeremias Cabrera, without their
knowledge and consent.

Answering the complaint, defendant bank claimed that the subject checks appeared
to have been regularly issued and free from any irregularity which would excite or
arouse any suspicion or warrant their dishonor when the same were negotiated and
honored by it; that it observed and exercised the required diligence, care and the
prescribed standard verification procedures before finally accepting and honoring the
subject checks and that the proximate cause of plaintiffs’ loss, if any, was their own
laxity, negligence and lack of control, due care and diligence in the conduct of their
business affairs.

With leave of court, defendant bank filed a Third-Party Complaint against Philippine
Commercial International Bank, Far East Bank & Trust Company, Security Bank and
Trust Company and Citytrust Banking Corporation for reimbursement, contribution,
indemnity from said third-party defendants for being the collecting banks of the
subject checks and by virtue of their bank guarantee for all checks sent for clearing
to the Philippine Clearing House Corporation (PCHC), as provided for in Section 17,
(PCHC), as provided for in Section 17, PCHC Clearing House Rules and
Regulations.

In its Answer to the Third-Party Complaint, Citytrust Banking Corporation averred

that the subject checks appeared to be complete and regular on their face with no
indication that an original payee’s name was erased and superimposed with another;
that plaintiffs’ fault and negligence in failing to examine their monthly bank
statements, together with the returned checks and their own check stubs, put them
under estoppel and cannot recover the proceeds of the checks against it, an innocent
third-party, and plaintiff must suffer the loss as their negligence was the proximate
cause thereof; and that third party plaintiff is barred from recovering from it base on
the provisions of Sections 20 and 21 of the Philippine Clearing Rules and
Regulations.

Philippine Commercial International Bank alleged that the subject check was
complete and regular on its face and was paid by it only upon presentment to the
drawee bank for clearing who, upon examination thereof, found the same to be
complete and regular on its face; that it was only after said check was cleared by
third-party plaintiff for payment that it allowed the payee to withdraw the proceeds of
the check from its account; that the cause of action of the third-party plaintiff is barred
by estoppel and/or laches for its failure to return the check to it within the period
provided for under Clearing House Rules and Regulations; that this Court has no
 jurisdiction over the suit as it and third-party plaintiff are members of the Philippine
Clearing House and bound by the Rules and Regulations thereof providing for
arbitration.

A Motion To Dismiss was filed by Security Bank and Trust Company on the grounds
that third-party plaintiff failed to resort to arbitration as provided for in Section 36 of
the Clearing House Rules and Regulations of the Philippine Clearing House
Corporation, and that it was released from any liability with the acceptance by third-
party plaintiff of the subject check.

The record does not show of any Answer to the Third-Party Complaint having been
filed by Far East Bank & Trust Company, although a "Reply To FEBTC Answer" was
filed by third-party plaintiff.

On the other hand, third-party plaintiff maintains that this Court has jurisdiction over
the suit as the provisions of the Clearing House Rules and Regulations are
applicable only if the suit or action is between participating member banks, whereas
the plaintiffs are private persons and the third-party complaint between participating
member banks is only a consequence of the original action initiated by the plaintiffs.  3

The trial court dismissed the third-party complaint for lack of jurisdiction citing Section 36 of the
Clearing House Rules and Regulations of the PCHC providing for settlement of disputes and
controversies involving any check or item cleared through the body with the PCHC. It ruled — citing
the Arbitration Rules of Procedure — that the decision or award of the PCHC through its arbitration
committee/arbitrator is appealable only on questions of law to any of the Regional Trial Courts in the
National Capital Region where the head office of any of the parties is located.  4

On the plaintiffs’ contention that jurisdiction vests with the court only if the suit or action is between
participating member banks without the involvement of private parties the trial court held:

The third-party complaint concerning a dispute or controversy among clearing

participants involving the subject checks cleared through PCHC is actually
independent of, separate and distinct from the plaintiff’s complaint. . . .

xxx xxx xxx

As the plaintiffs are not parties to the third party complaint, the provisions of the
clearing house rules and regulations on arbitration are, therefore, applicable to Third-
Party plaintiff and third party defendant. Consequently this court has no jurisdiction
over the third party complaint.  5

After the trial court denied plaintiffs Motion for Reconsideration,   petitioner appealed to the Court of
6

Appeals which promulgated the challenged decision on November 18, 1992 dismissing the petition
for lack of merit.

Undaunted, petitioner is now before this Court seeking a review of respondent court’s decision on a
lone assignment of error:

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

DRAWEE BANK’S THIRD PARTY COMPLAINT AGAINST PRIVATE
 RESPONDENT COLLECTING BANKS FALL WITHIN THE JURISDICTION OF THE
PCHC AND NOT THE REGULAR COURT.

We find no merit in the petition.

The Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House
Corporation are clearly applicable to petitioner and private respondents, third party plaintiff and
defendants, respectively, in the court below. Petitioner Associated Bank’s third party complaint in the
trial court was one for reimbursement, contribution and indemnity against the Philippine Commercial
and Industrial Bank (PCIB), the Far East Bank and Trust, Co. (FEBTC), Security Bank and Trust Co.
(SBTC), and the CityTrust Banking Corporation (CTBC), in connection with petitioner’s having
honored sixteen checks which said respondent banks supposedly endorsed to the former for
collection in 1989. Under the rules and regulations of the Philippine Clearing House Corporation
(PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a
manifestation of agreement by the parties to abide by its rules and regulations.   As a consequence
7

of such participation, a party cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations without first going through the
arbitration processes laid out by the body. Since claims relating to the regularity of checks cleared by
banking institutions are among those claims which should first be submitted for resolution by the
PCHC’s Arbitration Committee, petitioner Associated Bank, having voluntarily bound itself to abide
by such rules and regulations, is estopped from seeking relief from the Regional Trial Court on the
coattails of a private claim and in the guise of a third party complaint without first having obtained a
decision adverse to its claim from the said body. It cannot bypass the arbitration process on the
basis of its averment that its third party complaint is inextricably linked to the original complaint in the
Regional Trial Court.

Under its Articles of Incorporation, the PCHC provides "an effective, convenient, efficient,
economical and relevant exchange and facilitate service limited to check processing and sorting by
way of assisting member banks, entities in clearing checks and other clearing items as defined and
existing in future Central Bank of the Philippines Circulars, memoranda, circular letters rules and
regulations and policies in pursuance of Section 107 of RA 265." Pursuant to its function involving
the clearing of checks and other clearing items, the PCHC has adopted rules and regulations
designed to provide member banks with a procedure whereby disputes involving the clearance of
checks and other negotiable instruments undergo a process of arbitration prior to submission to the
courts below. This procedure not only ensures a uniformity of rulings relating to factual disputes
involving checks and other negotiable instruments but also provides a mechanism for settling minor
disputes among participating and member banks which would otherwise go directly to the trial
courts. While the PCHC Rules and Regulations allow appeal to the Regional Trial Courts only on
questions of law, this does not preclude our lower courts from dealing with questions of fact already
decided by the PCHC arbitration when warranted and appropriate.

In Banco de Oro Savings and Mortgage Banks vs. Equitable Banking Corporation   this Court had
8

the occasion to rule on the validity of these rules as well as the jurisdiction of the PCHC as a forum
for resolving disputes and controversies involving checks and other clearing items when it held that
"the participation of two banks. . . in the Clearing Operations of the PCHC (was) a manifestation of
its submission to its jurisdiction." 
9

The applicable PCHC provisions on the question of jurisdiction provide:

Sec. 3 — AGREEMENT TO THESE RULES

 It is the general agreement and understanding, that any participant in the PCHC
MICR clearing operations, by the mere act of participation, thereby manifests its
agreement to these Rules and Regulations, and its subsequent amendments.

xxx xxx xxx

Sec. 36 — ARBITRATION

36.1 Any dispute or controversy between two or more clearing participants involving
any check/item cleared thru PCHC shall be submitted to the Arbitration Committee,
upon written complaint of any involved participant by filing the same with the PCHC
serving the same upon the other party or parties, who shall within fifteen (15) days
after receipt thereof, file with the Arbitration Committee its written answer to such
written complaint and also within the same period serve the same upon the
complaining participant. This period of fifteen (15) days may be extended by the
Committee not more than once for another period of fifteen (15) days, but upon
agreement in writing of the complaining party, said extension may be for such period
as the latter may agree to.

Section 36.6 is even more emphatic:

36.6 The fact that a bank participates in the clearing operations of PCHC shall be
deemed its written and subscribed consent to the binding effect of this arbitration
agreement as if it had done so in accordance with Section 4 of the Republic Act No.
876 otherwise known as the Arbitration Law.

Thus, not only do the parties manifest by mere participation their consent to these rules, but such
participation is deemed (their) written and subscribed consent to the binding effect of arbitration
agreements under the PCHC rules. Moreover, a participant subject to the Clearing House Rules and
Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in the National
Capital Region where the head office of any of the parties is located only after a decision or award
has been rendered by the arbitration committee or arbitrator on questions of law.  10

Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the
arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so.
The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly
applicable to all the parties in the third party complaint under their obligation to first seek redress of
their disputes and grievances with the PCHC before going to the trial court.

Finally, the contention that the third party complaint should not have been dismissed for being a
necessary and inseparable offshoot of the main case over which the court a quo had already
exercised jurisdiction misses the fundamental point about such pleading. A third party complaint is a
mere procedural device which under the Rules of Court is allowed only with the court’s permission. It
is an action "actually independent of, separate and distinct from the plaintiffs’ complaint" (s)uch that,
were it not for the Rules of Court, it would be necessary to file the action separately from the original
complaint by the defendant against the third party.  11

IN VIEW OF THE FOREGOING, the petition is DENIED for lack of merit. With costs against
petitioner.

SO ORDERED.
KOREA TECHNOLOGIES CO. v. ALBERTO A. LERMA, GR No. 143581, 2008-01-07

Facts:

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

PGSMC and KOGIES executed a Contract[1] whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines.

On April 7, 1997, the parties executed, in Korea, an Amendment for

Contract No. KLP-970301 dated March 5, 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 plant's production of the 11-kg. LPG cylinder samples. Thus, the total
contract price amounted to USD 1,530,000.

PGSMC entered into a Contract of Lease[3] with Worth Properties, Inc. (Worth) for use of Worth's
5,079-square meter property... o house the LPG manufacturing plant

Subsequently, the machineries, equipment, and facilities for the manufacture of LPG cylinders were
shipped, delivered, and installed in the Carmona plant.

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

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

4,500,000

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT
STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter[6] to PGSMC threatening criminal
action for violation of Batas Pambansa Blg. 22 in case of nonpayment

On the... same date, the wife of PGSMC's President faxed a letter dated May 7, 1998 to KOGIES'
President who was then staying at a Makati City hotel. She complained that not only did KOGIES
deliver a different brand of hydraulic press from that agreed upon but it had not delivered several...
equipment parts already paid for.

PGSMC replied that the two checks it issued KOGIES were fully funded but the payments were
stopped for reasons previously made known to KOGIES.

PGSMC informed KOGIES that PGSMC was canceling their Contract... on the ground that KOGIES
had altered the quantity and lowered the quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer the... machineries, equipment, and facilities
installed in the Carmona plant. Five days later, PGSMC filed before the Office of the Public
Prosecutor an Affidavit-Complaint for Estafa... against Mr. Dae Hyun Kang, President of KOGIES.

KOGIES. It also insisted that their disputes should be settled by... arbitration as agreed upon in
Article 15, the arbitration clause of their contract... hus, on July 1, 1998, KOGIES instituted an

Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea
pursuant to Art. 15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance... gainst PGSMC before the
Muntinlupa City Regional Trial Court (RTC).

In its complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were
stopped were not funded but later on claimed that it stopped payment of the checks for the reason
that "their value was not received" as the... former allegedly breached their contract by "altering the
quantity and lowering the quality of the machinery and equipment" installed in the plant and failed to
make the plant operational although it earlier certified to the contrary as shown in a January 22,
1998 Certificate.

Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as amended, by
unilaterally rescinding the contract without resorting to arbitration.

PGSMC filed an opposition... 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.

RTC issued an Order denying the application for a writ of preliminary injunction, reasoning that
Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the parties.

KOGIES filed before the Court of Appeals (CA) a petition for certiorari... eeking annulment... of the
July 23, 1998 and September 21, 1998 RTC Orders and praying for the issuance of writs of
prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting,
dismantling, and transferring the machineries and equipment in the Carmona plant, and to... direct
the RTC to enforce the specific agreement on arbitration to resolve the dispute

CA... affirming the RTC Orders and dismissing the petition for certiorari filed by KOGIES.

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.

Issues:

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

Ruling:

It provides:

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

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

Petitioner is correct.

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

(Emphasis supplied.)

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

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final
and binding, is not contrary to public policy

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

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

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

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

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

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.

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.

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

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

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

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as
it bound itself through the subject contract. While it may have misgivings on the foreign arbitration
done in Korea by the KCAB, it has available remedies under RA

9285. Its interests are duly protected by the law which requires that the arbitral award that
may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.

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

being bound to the contract of arbitration, a party may not unilaterally rescind or terminate the
contract for whatever cause... without first resorting to arbitration.

Where an arbitration clause in a contract is availing, neither of the parties can unilaterally treat the
contract as rescinded since... whatever infractions or breaches by a party or differences arising from
the contract must be brought first and resolved by arbitration, and not through an extrajudicial
rescission or judicial action.

Principles:

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.

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