FIRST DIVISION

[G.R. NO. 169332 : February 11, 2008]

ABS-CBN BROADCASTING CORPORATION, Petitioner, v. WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO.,
LTD., Respondent.
DECISION
CORONA, J.:
1

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the February 16, 2005 decision and
2
August 16, 2005 resolution of the Court of Appeals (CA) in CA-G.R. SP No. 81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensing agreement with respondent World
Interactive Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under the laws of Japan. Under the agreement,
respondent was granted the exclusive license to distribute and sublicense the distribution of the television service known as "The
Filipino Channel" (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC programming signals to respondent
which the latter received through its decoders and distributed to its subscribers.
A dispute arose between the parties when petitioner accused respondent of inserting nine episodes of WINS WEEKLY, a weekly 353
minute community news program for Filipinos in Japan, into the TFC programming from March to May 2002. Petitioner claimed
that these were "unauthorized insertions" constituting a material breach of their agreement. Consequently, on May 9,
4
2002, petitioner notified respondent of its intention to terminate the agreement effective June 10, 2002.
Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with petitioner. It contended that
the airing of WINS WEEKLY was made with petitioner's prior approval. It also alleged that petitioner only threatened to terminate
their agreement because it wanted to renegotiate the terms thereof to allow it to demand higher fees. Respondent also prayed for
5
damages for petitioner's alleged grant of an exclusive distribution license to another entity, NHK (Japan Broadcasting Corporation).
The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on the following issues in their terms of
6
reference (TOR) :
1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the respondent [herein petitioner]?cralawred
2. Did such broadcast constitute a material breach of the agreement that is a ground for termination of the agreement in accordance
with Section 13 (a) thereof?cralawred
3. If so, was the breach seasonably cured under the same contractual provision of Section 13 (a)?cralawred
4. Which party is entitled to the payment of damages they claim and to the other reliefs prayed for?
xxx

xxx

xxx

The arbitrator found in favor of respondent. He held that petitioner gave its approval to respondent for the airing of WINS WEEKLY
as shown by a series of written exchanges between the parties. He also ruled that, had there really been a material breach of the
agreement, petitioner should have terminated the same instead of sending a mere notice to terminate said agreement. The
arbitrator found that petitioner threatened to terminate the agreement due to its desire to compel respondent to re-negotiate the
terms thereof for higher fees. He further stated that even if respondent committed a breach of the agreement, the same was
seasonably cured. He then allowed respondent to recover temperate damages, attorney's fees and one-half of the amount it paid as
arbitrator's fee.
Petitioner filed in the CA a Petition for Review under Rule 43 of the Rules of Court or, in the alternative, a petition
for certiorari under Rule 65 of the same Rules, with application for temporary restraining order and writ of preliminary injunction. It
was docketed as CA-G.R. SP No. 81940. It alleged serious errors of fact and law and/or grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of the arbitrator.

Respondent, on the other hand, filed a petition for confirmation of arbitral award before the Regional Trial Court (RTC) of Quezon
City, Branch 93, docketed as Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of Quezon City from further proceeding
with the hearing of respondent's petition for confirmation of arbitral award. After the petition was admitted by the appellate court,
the RTC of Quezon City issued an order holding in abeyance any further action on respondent's petition as the assailed decision of
the arbitrator had already become the subject of an appeal in the CA. Respondent filed a motion for reconsideration but no
8
resolution has been issued by the lower court to date.
On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBN's petition for lack of jurisdiction. It stated that as
the TOR itself provided that the arbitrator's decision shall be final and unappealable and that no motion for reconsideration shall be
filed, then the Petition for Review must fail. It ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It
held that the only instance it can exercise jurisdiction over an arbitral award is an appeal from the trial court's decision confirming,
vacating or modifying the arbitral award. It further stated that a petition for certiorariunder Rule 65 of the Rules of Court is proper in
arbitration cases only if the courts refuse or neglect to inquire into the facts of an arbitrator's award. The dispositive portion of the
CA decision read:
WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The application for a writ of injunction and temporary
restraining order is likewise DENIED. The Regional Trial Court of Quezon City Branch 93 is directed to proceed with the trial for the
Petition for Confirmation of Arbitral Award.
SO ORDERED.
Petitioner moved for reconsideration. The same was denied. Hence, this petition.
Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to vacate the award in the RTC and only
in case of denial could it elevate the matter to the CA via a Petition for Review under Rule 43 and (b) the assailed decision implied
that an aggrieved party to an arbitral award does not have the option of directly filing a Petition for Review under Rule 43 or a
petition for certiorari under Rule 65 with the CA even if the issues raised pertain to errors of fact and law or grave abuse of
discretion, as the case may be, and not dependent upon such grounds as enumerated under Section 24 (petition to vacate an
arbitral award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part of the CA.
The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail of, directly in the CA, a Petition
for Review under Rule 43 or a petition forcertiorari under Rule 65 of the Rules of Court, instead of filing a petition to vacate the
award in the RTC when the grounds invoked to overturn the arbitrator's decision are other than those for a petition to vacate an
arbitral award enumerated under RA 876.
RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction over questions relating to
9
arbitration, such as a petition to vacate an arbitral award.
Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made by an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of the following cases,the court must make an order vacating the awardupon the
petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in 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 of 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.

Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an order vacating an arbitral award only "in
any one of the . . . cases" enumerated therein. Under the legal maxim in statutory construction expressio unius est exclusio alterius,
the explicit mention of one thing in a statute means the elimination of others not specifically mentioned. As RA 876 did not expressly
provide for errors of fact and/or law and grave abuse of discretion (proper grounds for a Petition for Review under Rule 43 and a
petition for certiorari under Rule 65, respectively) as grounds for maintaining a petition to vacate an arbitral award in the RTC, it
necessarily follows that a party may not avail of the latter remedy on the grounds of errors of fact and/or law or grave abuse of
discretion to overturn an arbitral award.
10

Adamson v. Court of Appeals gave ample warning that a petition to vacate filed in the RTC which is not based on the grounds
enumerated in Section 24 of RA 876 should be dismissed. In that case, the trial court vacated the arbitral award seemingly based on
grounds included in Section 24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, the CA reversed the decision of
the trial court and affirmed the arbitral award. In affirming the CA, we held:
The Court of Appeals, in reversing the trial court's decision held that the nullification of the decision of the Arbitration Committee
was not based on the grounds provided by the Arbitration Law and that xxx private respondents (petitioners herein) have failed to
substantiate with any evidence their claim of partiality. Significantly, even as respondent judge ruled against the arbitrator's award,
he could not find fault with their impartiality and integrity. Evidently, the nullification of the award rendered at the case at bar was
not made on the basis of any of the grounds provided by law.
xxx

xxx

xxx

It is clear, therefore, that the award was vacated not because of evident partiality of the arbitrators but because the latter
interpreted the contract in a way which was not favorable to herein petitioners and because it considered that herein private
respondents, by submitting the controversy to arbitration, was seeking to renege on its obligations under the contract.
xxx

xxx

xxx

It is clear then that the Court of Appeals reversed the trial court not because the latter reviewed the arbitration award involved
herein, but because the respondent appellate court found that the trial court had no legal basis for vacating the award. (Emphasis
supplied).
In cases not falling under any of the aforementioned grounds to vacate an award, the Court has already made several
pronouncements that a Petition for Review under Rule 43 or a petition for certiorari under Rule 65 may be availed of in the CA.
Which one would depend on the grounds relied upon by petitioner.
11

In Luzon Development Bank v. Association of Luzon Development Bank Employees, the Court held that a voluntary arbitrator is
properly classified as a "quasi-judicial instrumentality" and is, thus, within the ambit of Section 9 (3) of the Judiciary Reorganization
Act, as amended. Under this section, the Court of Appeals shall exercise:
xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and
quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the
Employees' Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of
Section 17 of the Judiciary Act of 1948. (Emphasis supplied)cralawlibrary
As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate jurisdiction of the CA. This decision was
12
taken into consideration in approving Section 1 of Rule 43 of the Rules of Court. Thus:
SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards,
judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities and Exchange Commission,
Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian Reform under Republic Act Number 6657, Government Service Insurance

System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by
law.(Emphasis supplied)cralawlibrary
13

14

This rule was cited in Sevilla Trading Company v. Semana, Manila Midtown Hotel v. Borromeo, and Nippon Paint Employees
15
Union-Olalia v. Court of Appeals. These cases held that the proper remedy from the adverse decision of a voluntary arbitrator, if
errors of fact and/or law are raised, is a Petition for Review under Rule 43 of the Rules of Court. Thus, petitioner's contention that it
may avail of a Petition for Review under Rule 43 under the circumstances of this case is correct.
As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to, we hold the same to be in
accordance with the Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides that:
SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable
and enforceable, andto determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)cralawlibrary
As may be gleaned from the above stated provision, it is well within the power and jurisdiction of the Court to inquire whether any
instrumentality of the Government, such as a voluntary arbitrator, has gravely abused its discretion in the exercise of its functions
and prerogatives. Any agreement stipulating that "the decision of the arbitrator shall be final and unappealable" and "that no
further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award may be availed of" cannot be
16
held to preclude in proper cases the power of judicial review which is inherent in courts. We will not hesitate to review a voluntary
arbitrator's award where there is a showing of grave abuse of authority or discretion and such is properly raised in a petition
17
18
for certiorari and there is no appeal, nor any plain, speedy remedy in the course of law.
19

Significantly, Insular Savings Bank v. Far East Bank and Trust Company definitively outlined several judicial remedies an aggrieved
party to an arbitral award may undertake:
(1) a petition in the proper RTC to issue an order to vacate the award on the grounds provided for in Section 24 of RA 876;
(2) a Petition for Review in the CA under Rule 43 of the Rules of Court on questions of fact, of law, or mixed questions of fact and
law; andcralawlibrary
(3) a petition for certiorari under Rule 65 of the Rules of Court should the arbitrator have acted without or in excess of his
jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction.
Nevertheless, although petitioner's position on the judicial remedies available to it was correct, we sustain the dismissal of its
petition by the CA. The remedy petitioner availed of, entitled "alternative petition for review under Rule 43 or petition
for certiorari under Rule 65," was wrong.
Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and not alternative or successive.

20

Proper issues that may be raised in a Petition for Review under Rule 43 pertain to errors of fact, law or mixed questions of fact and
21
law. While a petition for certiorari under Rule 65 should only limit itself to errors of jurisdiction, that is, grave abuse of discretion
22
amounting to a lack or excess of jurisdiction. Moreover, it cannot be availed of where appeal is the proper remedy or as a
23
substitute for a lapsed appeal.
In the case at bar, the questions raised by petitioner in its alternative petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE
BROADCAST OF "WINS WEEKLY" WAS DULY AUTHORIZED BY ABS-CBN.

B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE
UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS
SEASONABLY CURED THE BREACH.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE
DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS.
E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES
IN THE UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT OF P850,000.00.
F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.
A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution were less the alleged grave abuse
of discretion exercised by the arbitrator and more about the arbitrator's appreciation of the issues and evidence presented by the
parties. Therefore, the issues clearly fall under the classification of errors of fact and law - questions which may be passed upon by
the CA via a Petition for Review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as to straddle both
judicial remedies, that is, by alleging serious errors of fact and law (in which case a Petition for Review under Rule 43 would be
proper) and grave abuse of discretion (because of which a petition for certiorari under Rule 65 would be permissible).
It must be emphasized that every lawyer should be familiar with the distinctions between the two remedies for it is not the duty of
24
the courts to determine under which rule the petition should fall. Petitioner's ploy was fatal to its cause. An appeal taken either to
25
this Court or the CA by the wrong or inappropriate mode shall be dismissed. Thus, thealternative petition filed in the CA, being an
inappropriate mode of appeal, should have been dismissed outright by the CA.
WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision and August 16, 2005 resolution of the Court of Appeals
in CA-G.R. SP No. 81940 directing the Regional Trial Court of Quezon City, Branch 93 to proceed with the trial of the petition for
confirmation of arbitral award is AFFIRMED.
Costs against petitioner.
SO ORDERED.
SECOND DIVISION

[G.R. No. 161957. February 28, 2005]

JORGE GONZALES and PANEL OF ARBITRATORS, petitioners, vs. CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and
AUSTRALASIAN PHILIPPINES MINING INC., respondents.
DECISION
TINGA, J.:
Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the Addendum Area of Influence in Didipio, in the
provinces of Quirino and Nueva Vizcaya, entered into a co-production, joint venture and/or production-sharing letter-agreement
designated as the May 14, 1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd. Under the agreement, petitioner, as
claimowner, granted to Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive right to explore and survey the mining claims
for a period of thirty-six (36) months within which the latter could decide to take an operating agreement on the mining claims
and/or develop, operate, mine and otherwise exploit the mining claims and market any and all minerals that may be derived
therefrom.

On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the same into the February 28, 1989
Agreement whereby the exploration of the mining claims was extended for another period of three years.
On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc., Inmex Ltd., and Aumex Philippines, Inc.
signed a document designated as the Addendum to the May 14, 1987 Letter of Intent and February 28, 1989 Agreement with Express
[1]
Adhesion Thereto (hereafter, the Addendum Contract). Under the Addendum Contract, Arimco Mining Corporation would apply to
the Government of the Philippines for permission to mine the claims as the Governments contractor under a Financial and
[2]
Technical Assistance Agreement(FTAA). On 20 June 1994, Arimco Mining Corporation obtained the FTAA and carried out work
under the FTAA.
[3]

Respondents executed the Operating and Financial Accommodation Contract (between Climax-Arimco Mining Corporation
and Climax Mining Ltd., as first parties, and Australasian Philippines Mining Inc., as second party) dated 23 December 1996
[4]
and Assignment, Accession Agreement (between Climax-Arimco Mining Corporation and Australasian Philippines Mining Inc.)
dated 3 December 1996. Respondent Climax Mining Corporation (Climax) and respondent Australasian Philippines Mining Inc.
[5]
(APMI) entered into a Memorandum of Agreement dated 1 June 1991 whereby the former transferred its FTAA to the latter.
On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region II, Mines and Geosciences Bureau of the
Department of Environment and Natural Resources, against respondents Climax-Arimco Mining Corporation (Climax-Arimco),
[6]
[7]
Climax, and APMI, a Complaint seeking the declaration of nullity or termination of the Addendum Contract,the FTAA,
the Operating and Financial Accommodation Contract, the Assignment, Accession Agreement, and the Memorandum of
Agreement. Petitioner Gonzales prayed for an unspecified amount of actual and exemplary damages plus attorneys fees and for the
issuance of a temporary restraining order and/or writ of preliminary injunction to restrain or enjoin respondents from further
implementing the questioned agreements. He sought said releifs on the grounds of FRAUD, OPPRESSION and/or VIOLATION of
Section 2, Article XII of the CONSTITUTION perpetrated by these foreign RESPONDENTS, conspiring and confederating with one
[8]
another and with each other.
On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for lack of jurisdiction. Petitioner moved for
reconsideration and this was granted on 18 October 2001, the Panel believing that the case involved a dispute involving rights to
mining areas and a dispute involving surface owners, occupants and claim owners/concessionaires. According to the Panel,
although the issue raised in the Complaint appeared to be purely civil in nature and should be within the jurisdiction of the regular
courts, a ruling on the validity of the assailed contracts would result to the grant or denial of mining rights over the properties;
therefore, the question on the validity of the contract amounts to a mining conflict or dispute. Hence, the Panel granted the Motion
for Reconsideration with regard to the issues of nullity, termination, withdrawal or damages, but with regard to the constitutionality
[9]
of the Addendum Agreement and FTAA, it held that it had no jurisdiction.
Respondents filed their motion for reconsideration but this was denied on 25 June 2002. The Panel of Arbitrators maintained
that there was a mining dispute between the parties since the subject matter of the Complaint arose from contracts between the
[10]
parties which involve the exploration and exploitation of minerals over the disputed area.
Respondents assailed the orders of the Panel of Arbitrators via a petition for certiorari before the Court of Appeals.
On 30 July 2003, the Court of Appeals granted the petition, declaring that the Panel of Arbitrators did not have jurisdiction over
[11]
the complaint filed by petitioner. The jurisdiction of the Panel of Arbitrators, said the Court of Appeals, is limited only to the
resolution of mining disputes, defined as those which raise a question of fact or matter requiring the technical knowledge and
experience of mining authorities. It was found that the complaint alleged fraud, oppression and violation of the Constitution, which
called for the interpretation and application of laws, and did not involve any mining dispute. The Court of Appeals also observed
that there were no averments relating to particular acts constituting fraud and oppression. It added that since the Addendum
Contract was executed in 1991, the action to annul it should have been brought not later than 1995, as the prescriptive period for an
[12]
action for annulment is four years from the time of the discovery of the fraud. When petitioner filed his complaint before the
Panel in 1999, his action had already prescribed. Also, the Court of Appeals noted that fraud and duress only make a contract
[13]
voidable, not inexistent, hence the contract remains valid until annulled. The Court of Appeals was of the opinion that the
petition should have been settled through arbitration under Republic Act No. 876 (The Arbitration Law) as stated in Clause 19.1 of
the Addendum Contract. The Court of Appeals therefore declared as invalid the orders dated 18 October 2001 and 25 June 2002
issued by the Panel of Arbitrators. On 28 January 2004, the Court of Appeals denied petitioners motion for reconsideration for lack
[14]
of merit.
Petitioner filed on 22 March 2004 this Petition for Review on Certiorari Under Rule 45 assailing the decision and resolution of
the Court of Appeals. Petitioner raises the following issues:
A.
PROCEDURAL GROUND

THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY DISMISSED RESPONDENTS PETITION A QUO FOR FAILURE TO
COMPLY WITH PROCEDURAL REQUIREMENTS.
i.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT
DISMISS THE PETITION A QUO DESPITE RESPONDENTS FAILURE TO COMPLY WITH THE RULES ON DISCLOSURE IN THE
VERIFICATION AND CERTIFICATION PORTION OF THEIR PETITION A QUO.
ii.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT
DISMISS THE PETITION A QUO FILED BY RESPONDENT CLIMAX DESPITE THE LACK OF THE REQUISITE AUTHORITY TO FILE THE
PETITION A QUO.
B.
SUBSTANTIVE GROUND
THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE PETITION A QUO FILED BY RESPONDENTS AND IN DENYING MOTION
FOR RECONSIDERATION FILED BY PETITIONER FOR UTTER LACK OF BASIS IN FACT AND IN LAW.
i.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD
THAT PETITIONER CEDED HIS CLAIMS OVER THE MINERAL DEPOSITS LOCATED WITHIN THE ADDENDUM AREA OF INFLUENCE.
ii.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD
THAT THE PANEL OF ARBITRATORS IS BEREFT OF JURISDICTION OVER THE SUBJECT MATTER OF CASE NO. 058.
iii.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD
THAT THE COMPLAINT FILED BY THE PETITIONER FAILED TO ALLEGE ULTIMATE FACTS OR PARTICULARS OF FRAUD.
iv.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD
THAT PETITIONER AND RESPONDENTS SHOULD SUBMIT TO ARBITRATION UNDER R.A. 876.
v.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD
THAT THE ACTION TO DECLARE THE NULLITY OF THE ADDENDUM CONTRACT, FTAA, OFAC AND AAAA ON THE GROUND OF FRAUD
HAS PRESCRIBED.
The issues for resolution in this petition for review are:
(a)
Whether there was forum-shopping on the part of respondents for their failure to disclose to this Court their filing of
a Petition to Compel for Arbitration before the Regional Trial Court of Makati City, Branch 148, which is currently pending.
(b)
Whether counsel for respondent Climax had authority to file the petition for certiorari before the Court of Appeals
considering that the signor of the petition for certioraris Verification and Certification of Non-forum Shopping was not authorized
to sign the same in behalf of respondent Climax.

(c)
Whether the complaint filed by petitioner raises a mining dispute over which the Panel of Arbitrators has jurisdiction,
or a judicial question which should properly be brought before the regular courts.
(d)

Whether the dispute between the parties should be brought for arbitration under Rep. Act No. 876.

Let us deal first with procedural matters.

Petitioner claims that respondents are guilty of forum-shopping for failing to disclose before this Court that they had filed
a Petition to Compel for Arbitration before the RTC of Makati City. However, it cannot be determined from petitioners mere
allegations in the Petition that the Petition to Compel for Arbitration instituted by respondent Climax-Arimco, involves related causes
of action and the grant of the same or substantially the same reliefs as those involved in the instant case. Petitioner did not attach
copies of the Petition to Compel for Arbitration or any order or resolution of the RTC of Makati City related to that case.
Furthermore, it can be gleaned from the nature of the two actions that the issues in the case before the RTC of Makati City and
in the petition for certiorari before the Court of Appeals are different. A petition for certiorari raises the issue of whether or not
there was grave abuse of discretion, while the Petition to Compel for Arbitration seeks the implementation of the arbitration clause
in the agreement between the parties.
Petitioner next alleges that there was no authority granted by respondent Climax to the law firm of Sycip Salazar Hernandez &
Gatmaitan to file the petition before the Court of Appeals. There is allegedly no Secretarys Certificate from respondent Climax
attached to the petition. The Verification and Certification only contains a statement made by one Marianne M. Manzanas that she
is also the authorized representative of *respondent Climax+ without presenting further proof of such authority. Hence, it is
argued that as to respondent Climax, the petition filed before the Court of Appeals is an unauthorized act and the assailed orders of
the Panel of Arbitrators have become final.
Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to submit, together with the petition, a sworn
certification of non-forum shopping, and failure to comply with this requirement is sufficient ground for dismissal of the
petition. The requirement that petitioner should sign the certificate of non-forum shopping applies even to corporations, the Rules
of Court making no distinction between natural and juridical persons. The signatory in the case of the corporation should be a duly
[15]
authorized director or officer of the corporation who has knowledge of the matter being certified. If, as in this case, the
petitioner is a corporation, a board resolution authorizing a corporate officer to execute the certification against forum-shopping is
[16]
necessary. A certification not signed by a duly authorized person renders the petition subject to dismissal.
On this point, we have to agree with petitioner. There appears to be no subsequent compliance with the requirement to
attach a board resolution authorizing the signor Marianne M. Manzanas to file the petition in behalf of respondent Climax.
[17]
Respondent also failed to refute this in its Comment. However, this latter issue becomes irrelevant in the light of our decision to
deny this petition for review for lack of jurisdiction by the Panel of Arbitrators over the complaint filed by petitioner, as will be
discussed below.
We now come to the meat of the case which revolves mainly around the question of jurisdiction by the Panel of
Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint for declaration of nullity and/or termination of the
subject contracts on the ground of fraud, oppression and violation of the Constitution? This issue may be distilled into the more
basic question of whether the Complaint raises a mining dispute or a judicial question.
A judicial question is a question that is proper for determination by the courts, as opposed to a moot question or one properly
[18]
decided by the executive or legislative branch. A judicial question is raised when the determination of the question involves the
exercise of a judicial function; that is, the question involves the determination of what the law is and what the legal rights of the
[19]
parties are with respect to the matter in controversy.
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral agreements, FTAAs, or permits,
[20]
and (c) surface owners, occupants and claimholders/concessionaires. Under Republic Act No. 7942 (otherwise known as the
Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original jurisdiction to hear and decide these mining
[21]
disputes. The Court of Appeals, in its questioned decision, correctly stated that the Panels jurisdiction is limited only to those
[22]
mining disputes which raise questions of fact or matters requiring the application of technological knowledge and experience.
[23]

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the adjudication of mining
[24]
[25]
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.

The Complaint charged respondents with disregarding and ignoring the provisions of the Addendum Contract, violating the
purpose and spirit of the May 14, 1987 Letter of Intent andFebruary 28, 1989 Agreement, and acting in a fraudulent and oppressive
[26]
manner against petitioner and practicing fraud and deception against the Government. Petitioner alleged in hisComplaint that
under the original agreements (the May 14, 1987 Letter of Intent and February 28, 1989 Agreement) respondent Climax-Arimco had
committed to complete the Bankable Feasibility Study by 28 February 1992, but the same was not accomplished. Instead,
respondent Climax-Arimco, through false and insidious representations and machinations by alleging technical and financial
capacity, induced petitioner to enter into the Addendum Contract and the FTAA in order to repeatedly extend the option period
within which to conduct the feasibility study. In essence, petitioner alleges that respondents, conspiring and confederating with one
another, misrepresented under the Addendum Contract and FTAA that respondent Climax-Arimco possessed financial and technical
capacity to put the project into commercial production, when in truth it had no such qualification whatsoever to do so. By so doing,
[27]
respondents have allegedly caused damage not only to petitioner but also to the Republic of the Philippines.
It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed by petitioner. The basic issue in
petitioners Complaint is the presence of fraud or misrepresentation allegedly attendant to the execution of the Addendum
Contract and the other contracts emanating from it, such that the contracts are rendered invalid and not binding upon the
parties. It avers that petitioner was misled by respondents into agreeing to the Addendum Contract. This constitutes fraud which
vitiated petitioners consent, and under Article 1390 of the Civil Code, is one of the grounds for the annulment of a voidable
contract. Voidable or annullable contracts, before they are set aside, are existent, valid, and binding, and are effective and
[28]
[29]
obligatory between the parties. They can be ratified.
Petitioner insists that the Complaint is actually one for the declaration of nullity of void contracts. He argues that respondents,
by their lack of financial and technical competence to carry out the mining project, do not qualify to enter into a co-production, joint
venture or production sharing agreement with the Government, in circumvention of and in patent violation of the spirit and purpose
[30]
of the Constitution, particularly Section 2, Article XII thereof. Petitioner relies on the Civil Code for support:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
....
(7) Those expressly prohibited or declared void by law.
....
Petitioner asserts that for circumventing and being in patent violation of the Constitution, the Addendum Contract, the FTAA and the
other contracts are void contracts. As such, they do not produce any effect and cannot be ratified.
However, whether the case involves void or voidable contracts is still a judicial question. It may, in some instances, involve
questions of fact especially with regard to the determination of the circumstances of the execution of the contracts. But the
resolution of the validity or voidness of the contracts remains a legal or judicial question as it requires the exercise of judicial
function. It requires the ascertainment of what laws are applicable to the dispute, the interpretation and application of those laws,
and the rendering of a judgment based thereon. Clearly, the dispute is not a mining conflict. It is essentially judicial. The complaint
was not merely for the determination of rights under the mining contracts since the very validity of those contracts is put in issue.
The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute involving claimholders or
concessionaires. The main question raised was the validity of theAddendum Contract, the FTAA and the subsequent contracts. The
question as to the rights of petitioner or respondents to the mining area pursuant to these contracts, as well as the question of
whether or not petitioner had ceded his mining claims in favor of respondents by way of execution of the questioned contracts, is
merely corollary to the main issue, and may not be resolved without first determining the main issue.
The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the dispute should involve
FTAAs. The Complaint is not exclusively within the jurisdiction of the Panel of Arbitrators just because, or for as long as, the dispute
involves an FTAA. The Complaint raised the issue of the constitutionality of the FTAA, which is definitely a judicial question. The
question of constitutionality is exclusively within the jurisdiction of the courts to resolve as this would clearly involve the exercise of
judicial power. The Panel of Arbitrators does not have jurisdiction over such an issue since it does not involve the application of
technical knowledge and expertise relating to mining. This the Panel of Arbitrators has even conceded in its Orders dated 18
[31]
October 2001 and 25 June 2002. At this juncture, it is worthy of note that in a case, which was resolved only on 1 December
2004, this Court upheld the validity of the FTAA entered into by the Republic of the Philippines and WMC (Philippines), Inc. and
[32]
constitutionality of Rep. Act No. 7942 and DENR Administrative Order 96-40. In fact, the Court took the case on an original

petition, recognizing the exceptional character of the situation and the paramount public interest involved, as well as the necessity
for a ruling to put an end to the uncertainties plaguing the mining industry and the affected communities as a result of doubts case
upon the constitutionality and validity of the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity of
[33]
suits.
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.
Petitioner also disagrees with the Court of Appeals ruling that the case should be brought for arbitration under Rep. Act 876,
pursuant to the arbitration clause in the Addendum Contract which states that *a+ll disputes arising out of or in connection with the
Contract, which cannot be settled amicably among the Parties, shall finally be settled under R.A. 876. He points out that
respondents Climax and APMI are not parties to the Addendum Contract and are thus not bound by the arbitration clause in said
contract.
We agree that the case should not be brought under the ambit of the Arbitration Law, but for a different reason. The question
of validity of the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration clause
itself. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking inconsistent positions. As previously discussed, the complaint should have been
filed before the regular courts as it involved issues which are judicial in nature.
WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under Rule 45 is DENIED. The Orders dated 18
October 2001 and 25 June 2002 of the Panel of Arbitrators are SET ASIDE. Costs against petitioner Jorge Gonzales.
SO ORDERED.
G.R. No. 161957

January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING INC.,Respondents.
x--------------------------------------------------------------------------------- x
G.R. No. 167994

January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the REGIONAL TRIAL COURT of MAKATI CITY, and
CLIMAX-ARIMCO MINING CORPORATION, Respondents.
RESOLUTION
TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into by the parties. In G.R. No.
1
161957, the Court in its Decision of 28 February 2005 denied the Rule 45 petition of petitioner Jorge Gonzales (Gonzales). It held
that the DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment of the Addendum Contract on grounds
of fraud and violation of the Constitution and that the action should have been brought before the regular courts as it involved
2
judicial issues. Both parties filed separate motions for reconsideration. Gonzales avers in his Motion for Reconsideration that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of jurisdiction, reiterating its argument that the case involves a
mining dispute that properly falls within the ambit of the Panels authority. Gonzales adds that the Court failed to rule on other
issues he raised relating to the sufficiency of his complaint before the DENR Panel of Arbitrators and the timeliness of its filing.

Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration and/or Clarification seeking
reconsideration of that part of the Decision holding that the case should not be brought for arbitration under Republic Act (R.A.) No.
4
5
6
876, also known as the Arbitration Law. Respondents, citing American jurisprudence and the UNCITRAL Model Law, argue that the
arbitration clause in the Addendum Contract should be treated as an agreement independent of the other terms of the contract,
and that a claimed rescission of the main contract does not avoid the duty to arbitrate. Respondents add that Gonzaless argument
relating to the alleged invalidity of the Addendum Contract still has to be proven and adjudicated on in a proper proceeding; that is,
an action separate from the motion to compel arbitration. Pending judgment in such separate action, the Addendum Contract
remains valid and binding and so does the arbitration clause therein. Respondents add that the holding in the Decision that "the
case should not be brought under the ambit of the Arbitration Law" appears to be premised on Gonzaless having "impugn*ed+ the
existence or validity" of the addendum contract. If so, it supposedly conveys the idea that Gonzaless unilateral repudiation of the
contract or mere allegation of its invalidity is all it takes to avoid arbitration. Hence, respondents submit that the courts holding that
"the case should not be brought under the ambit of the Arbitration Law" be understood or clarified as operative only where the
challenge to the arbitration agreement has been sustained by final judgment.
Both parties were required to file their respective comments to the other partys motion for
7
8
9
reconsideration/clarification. Respondents filed their Comment on 17 August 2005, while Gonzales filed his only on 25 July 2006.
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions for reconsideration in G.R. No.
10
161957 were pending, wherein Gonzales challenged the orders of the Regional Trial Court (RTC) requiring him to proceed with the
arbitration proceedings as sought by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the recommendation of the Assistant Division
Clerk of Court since the cases are rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to compel arbitration filed by
respondent Climax-Arimco before the RTC of Makati City on 31 March 2000 while the complaint for the nullification of the
Addendum Contract was pending before the DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a
11
Demand for Arbitration pursuant to Clause 19.1 of the Addendum Contract and also in accordance with Sec. 5 of R.A. No. 876. The
petition for arbitration was subsequently filed and Climax-Arimco sought an order to compel the parties to arbitrate pursuant to the
said arbitration clause. The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the RTC of Makati City, with
Judge Herminio I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the application to
compel arbitration for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On 15 May 2000, he filed an Answer
12
with Counterclaim, questioning the validity of the Addendum Contract containing the arbitration clause. Gonzales alleged that the
Addendum Contract containing the arbitration clause is void in view of Climax-Arimcos acts of fraud, oppression and violation of the
Constitution. Thus, the arbitration clause, Clause 19.1, contained in the Addendum Contract is also null and void ab initio and legally
inexistent.1awphi1.net
On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss moot and academic in view of the filing of his
13
Answer with Counterclaim.
14

On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial. This the RTC denied on 16 June 2000, holding that the
15
petition for arbitration is a special proceeding that is summary in nature. However, on 7 July 2000, the RTC granted Gonzaless
motion for reconsideration of the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it being of the view that
16
Gonzales had raised in his answer the issue of the making of the arbitration agreement.
Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC denied the same in its 24 July 2000
order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not possessing the cold neutrality of an
17
impartial judge." On 5 August 2000, Judge Benito issued an Order granting the Motion to Inhibit and ordered the re-raffling of the
18
petition for arbitration. The case was raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch 148.
19

On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000 Order. Climax-Arimco argued that R.A.
No. 876 does not authorize a pre-trial or trial for a motion to compel arbitration but directs the court to hear the motion summarily
and resolve it within ten days from hearing. Judge Pimentel granted the motion and directed the parties to arbitration. On 13

February 2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed with arbitration proceedings and
20
appointing retired CA Justice Jorge Coquia as sole arbitrator.
Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7 March 2005.

21

Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March 2005 of Judge Pimentel. Gonzales
contends that public respondent Judge Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed
with arbitration despite the proper, valid, and timely raised argument in his Answer with Counterclaim that the Addendum Contract,
containing the arbitration clause, is null and void. Gonzales has also sought a temporary restraining order to prevent the
enforcement of the assailed orders directing the parties to arbitrate, and to direct Judge Pimentel to hold a pre-trial conference and
the necessary hearings on the determination of the nullity of the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in
such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail
upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure
to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms
of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the
finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder,
the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with
the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten (10) days after such
motions, petitions, or applications have been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution Act of 2004:"
Sec. 24. Referral to Arbitration.A court before which an action is brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later than the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of
being performed.
According to Gonzales, the above-quoted provisions of law outline the procedure to be followed in petitions to compel arbitration,
which the RTC did not follow. Thus, referral of the parties to arbitration by Judge Pimentel despite the timely and properly raised
issue of nullity of the Addendum Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A. No. 9285 mandate that
any issue as to the nullity, inoperativeness, or incapability of performance of the arbitration clause/agreement raised by one of the
parties to the alleged arbitration agreement must be determined by the court prior to referring them to arbitration. They require
that the trial court first determine or resolve the issue of nullity, and there is no other venue for this determination other than a pretrial and hearing on the issue by the trial court which has jurisdiction over the case. Gonzales adds that the assailed 13 February
2001 Order also violated his right to procedural due process when the trial court erroneously ruled on the existence of the
arbitration agreement despite the absence of a hearing for the presentation of evidence on the nullity of the Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A.
No. 876:
Sec. 29. Appeals.An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an
award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon such an appeal,
including the judgment thereon shall be governed by the Rules of Court in so far as they are applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is available only where there is no appeal or
any plain, speedy, and adequate remedy in the ordinary course of law against the challenged orders or acts. Climax-Arimco then
points out that R.A. No. 876 provides for an appeal from such orders, which, under the Rules of Court, must be filed within 15 days
from notice of the final order or resolution appealed from or of the denial of the motion for reconsideration filed in due time.

Gonzales has not denied that the relevant 15-day period for an appeal had elapsed long before he filed this petition for certiorari. He
cannot use the special civil action of certiorari as a remedy for a lost appeal.
Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers on the trial court only a limited
and special jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the parties have a written contract to arbitrate, and
22
(b) if the defendant has failed to comply with that contract. Respondent cites La Naval Drug Corporation v. Court of Appeals, which
holds that in a proceeding to compel arbitration, "*t+he arbitration law explicitly confines the courts authority only to pass upon the
issue of whether there is or there is no agreement in writing providing for arbitration," and "[i]n the affirmative, the statute ordains
that the court shall issue an order summarily directing the parties to proceed with the arbitration in accordance with the terms
23
thereof." Climax-Arimco argues that R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and that
the court presented with an application to compel arbitration may order arbitration or dismiss the same, depending solely on its
finding as to those two limited issues. If either of these matters is disputed, the court is required to conduct a summary hearing on
it. Gonzaless proposition contradicts both the trial courts limited jurisdiction and the summary nature of the proceeding itself.
Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum Contract also is not a ground to deny effect
to the arbitration clause in the Contract. The arbitration agreement is separate and severable from the contract evidencing the
parties commercial or economic transaction, it stresses. Hence, the alleged defect or failure of the main contract is not a ground to
deny enforcement of the parties arbitration agreement. Even the party who has repudiated the main contract is not prevented from
enforcing its arbitration provision. R.A. No. 876 itself treats the arbitration clause or agreement as a contract separate from the
commercial, economic or other transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2 thereof, considers the
arbitration stipulation an independent contract in its own right whose enforcement may be prevented only on grounds which legally
make the arbitration agreement itself revocable, thus:
Sec. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the submission and which may be the subject of an action, or the
parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any
contract.
xxxx
The grounds Gonzales invokes for the revocation of the Addendum Contractfraud and oppression in the execution thereofare
also not grounds for the revocation of the arbitration clause in the Contract, Climax-Arimco notes. Such grounds may only be raised
by way of defense in the arbitration itself and cannot be used to frustrate or delay the conduct of arbitration proceedings. Instead,
these should be raised in a separate action for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A. No. 876 should not be confused
with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel arbitration where the courts
authority is limited to resolving the issue of whether there is or there is no agreement in writing providing for arbitration, while Sec.
24 of R.A. No. 9285 refers to an ordinary action which covers a matter that appears to be arbitrable or subject to arbitration under
the arbitration agreement. In the latter case, the statute is clear that the court, instead of trying the case, may, on request of either
or both parties, refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or
incapable of being performed. Arbitration may even be ordered in the same suit brought upon a matter covered by an arbitration
agreement even without waiting for the outcome of the issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL
24
Model Law states that where a court before which an action is brought in a matter which is subject of an arbitration agreement
refers the parties to arbitration, the arbitral proceedings may proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the proceeding to compel arbitration
under R.A. No. 876, to order the parties to arbitrate even though the defendant therein has raised the twin issues of validity and
nullity of the Addendum Contract and, consequently, of the arbitration clause therein as well. The resolution of both ClimaxArimcos Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzaless Petition for Certiorari in G.R. No.
167994 essentially turns on whether the question of validity of the Addendum Contract bears upon the applicability or enforceability
of the arbitration clause contained therein. The two pending matters shall thus be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It deserves to be dismissed on
procedural grounds, as it was filed in lieu of appeal which is the prescribed remedy and at that far beyond the reglementary period.
It is elementary in remedial law that the use of an erroneous mode of appeal is cause for dismissal of the petition for certiorari and it

has been repeatedly stressed that a petition for certiorari is not a substitute for a lost appeal. As its nature, a petition for certiorari
25
lies only where there is "no appeal," and "no plain, speedy and adequate remedy in the ordinary course of law." The Arbitration
Law specifically provides for an appeal by certiorari, i.e., a petition for review under certiorari under Rule 45 of the Rules of Court
26
that raises pure questions of law. There is no merit to Gonzaless argument that the use of the permissive term "may" in Sec. 29,
27
R.A. No. 876 in the filing of appeals does not prohibit nor discount the filing of a petition for certiorari under Rule 65. Proper
interpretation of the aforesaid provision of law shows that the term "may" refers only to the filing of an appeal, not to the mode of
review to be employed. Indeed, the use of "may" merely reiterates the principle that the right to appeal is not part of due process of
law but is a mere statutory privilege to be exercised only in the manner and in accordance with law.
28

Neither can BF Corporation v. Court of Appeals cited by Gonzales support his theory. Gonzales argues that said case recognized
and allowed a petition for certiorari under Rule 65 "appealing the order of the Regional Trial Court disregarding the arbitration
29
agreement as an acceptable remedy." The BF Corporation case had its origins in a complaint for collection of sum of money filed by
therein petitioner BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings alleging that the
construction agreement or the Articles of Agreement between the parties contained a clause requiring prior resort to arbitration
before judicial intervention. The trial court found that an arbitration clause was incorporated in the Conditions of Contract appended
to and deemed an integral part of the Articles of Agreement. Still, the trial court denied the motion to suspend proceedings upon a
finding that the Conditions of Contract were not duly executed and signed by the parties. The trial court also found that SPI had
failed to file any written notice of demand for arbitration within the period specified in the arbitration clause. The trial court denied
SPI's motion for reconsideration and ordered it to file its responsive pleading. Instead of filing an answer, SPI filed a petition for
certiorari under Rule 65, which the Court of Appeals, favorably acted upon. In a petition for review before this Court, BF Corporation
alleged, among others, that the Court of Appeals should have dismissed the petition for certiorari since the order of the trial court
denying the motion to suspend proceedings "is a resolution of an incident on the merits" and upon the continuation of the
proceedings, the trial court would eventually render a decision on the merits, which decision could then be elevated to a higher
30
court "in an ordinary appeal."
The Court did not uphold BF Corporations argument. The issue raised before the Court was whether SPI had taken the proper mode
of appeal before the Court of Appeals. The question before the Court of Appeals was whether the trial court had prematurely
assumed jurisdiction over the controversy. The question of jurisdiction in turn depended on the question of existence of the
arbitration clause which is one of fact. While on its face the question of existence of the arbitration clause is a question of fact that is
not proper in a petition for certiorari, yet since the determination of the question obliged the Court of Appeals as it did to interpret
the contract documents in accordance with R.A. No. 876 and existing jurisprudence, the question is likewise a question of law which
31
may be properly taken cognizance of in a petition for certiorari under Rule 65, so the Court held.
The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F. Corporation led to the conclusion that
in order that the question of jurisdiction may be resolved, the appellate court had to deal first with a question of law which could be
addressed in a certiorari proceeding. In the present case, Gonzaless petition raises a question of law, but not a question of
jurisdiction. Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to
proceed with arbitration and appointed a sole arbitrator after making the determination that there was indeed an arbitration
agreement. It has been held that as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the
exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment reviewable by a timely
32
appeal and not assailable by a special civil action of certiorari. Even if we overlook the employment of the wrong remedy in the
broader interests of justice, the petition would nevertheless be dismissed for failure of Gonzalez to show grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. The Civil Code is
33
explicit on the matter. R.A. No. 876 also expressly authorizes arbitration of domestic disputes. Foreign arbitration, as a system of
settling commercial disputes of an international character, was likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration
34
agreements between parties of different nationalities within a contracting state. The enactment of R.A. No. 9285 on 2 April 2004
further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.
Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrators decision. Necessarily, a
contract is required for arbitration to take place and to be binding. R.A. No. 876 recognizes the contractual nature of the arbitration
agreement, thus:
Sec. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the submission and which may be the subject of an action, or the
parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such

submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any
contract.
Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue between the parties.
A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction approve a petition for permission to submit such controversy to
arbitration made by the general guardian or guardian ad litem of the infant or of the incompetent. [Emphasis added.]
35

Thus, we held in Manila Electric Co. v. Pasay Transportation Co. that a submission to arbitration is a contract. A clause in a contract
36
providing that all matters in dispute between the parties shall be referred to arbitration is a contract, and in Del Monte
37
Corporation-USA v. Court of Appeals that "[t]he provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the
38
contracting parties and produce effect as between them, their assigns and heirs."
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration clauses or agreements. It
provides:
Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in
such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail
upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure
to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms
of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the
finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder,
the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with
the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten days after such motions,
petitions, or applications have been heard by it. [Emphasis added.]
This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate. The jurisdiction of the courts
in relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings therein was expounded upon in La Naval Drug
39
Corporation v. Court of Appeals. There it was held that R.A. No. 876 explicitly confines the court's authority only to the
determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute ordains
that the court shall issue an order "summarily directing the parties to proceed with the arbitration in accordance with the terms
40
thereof." If the court, upon the other hand, finds that no such agreement exists, "the proceeding shall be dismissed." The cited
41
case also stressed that the proceedings are summary in nature. The same thrust was made in the earlier case of Mindanao
42
Portland Cement Corp. v. McDonough Construction Co. of Florida which held, thus:
Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the court a
quo rightly ordered the parties to proceed to arbitration in accordance with the terms of their agreement (Sec. 6, Republic Act 876).
Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is
43
not to resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or not. x x x x
Implicit in the summary nature of the judicial proceedings is the separable or independent character of the arbitration clause or
44
agreement. This was highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co. and Del Monte Corporation-USA v. Court of
45
Appeals.
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
46
automatically terminate when the contract of which it is 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
47
invalid, the arbitration clause/agreement still remains valid and enforceable.
The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL
48
Arbitration Rules.
49

The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood & Conklin Manufacturing Co. In
that case, Prima Paint and Flood and Conklin (F & C) entered into a consulting agreement whereby F & C undertook to act as
consultant to Prima Paint for six years, sold to Prima Paint a list of its customers and promised not to sell paint to these customers
during the same period. The consulting agreement contained an arbitration clause. Prima Paint did not make payments as provided
in the consulting agreement, contending that F & C had fraudulently misrepresented that it was solvent and able for perform its
contract when in fact it was not and had even intended to file for bankruptcy after executing the consultancy agreement. Thus, F & C
served Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court for rescission of the consulting agreement on the
ground of fraudulent misrepresentation and asked for the issuance of an order enjoining F & C from proceeding with arbitration. F &
C moved to stay the suit pending arbitration. The trial court granted F & Cs motion, and the U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paints argument that it had been fraudulently induced by F & C to sign the consulting
agreement and held that no court should address this argument. Relying on Sec. 4 of the Federal Arbitration Actwhich provides
that "if a party [claims to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he court shall hear the parties, and
upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court
shall make an order directing the parties to proceed to arbitration x x x. If the making of the arbitration agreement or the failure,
neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof"the U.S. High Court held
that the court should not order the parties to arbitrate if the making of the arbitration agreement is in issue. The parties should be
ordered to arbitration if, and only if, they have contracted to submit to arbitration. Prima Paint was not entitled to trial on the
question of whether an arbitration agreement was made because its allegations of fraudulent inducement were not directed to the
50
arbitration clause itself, but only to the consulting agreement which contained the arbitration agreement. Prima Paint held that
"arbitration clauses are separable from the contracts in which they are embedded, and that where no claim is made that fraud was
directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the
51
contract itself was induced by fraud."
There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with grave abuse of discretion in
ordering the parties to proceed with arbitration. Gonzaless argument that the Addendum Contract is null and void and, therefore
the arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is
limited only to the resolution of the question of whether the arbitration agreement exists. Second, the separability of the arbitration
clause from the Addendum Contract means that validity or invalidity of the Addendum Contract will not affect the enforceability of
the agreement to arbitrate. Thus, Gonzaless petition for certiorari should be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision
dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the agreement to
submit to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a partys
mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as
well as jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be
brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the
case should have been brought before the regular courts involving as it did judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the motion, Gonzales raises the same
question of jurisdiction, more particularly that the complaint for nullification of the Addendum Contract pertained to the DENR
Panel of Arbitrators, not the regular courts. He insists that the subject of his complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and Technical Assistance Agreement (FTAA) between the parties, and it also involves
claimowners. He adds that the Court failed to rule on other issues he raised, such as whether he had ceded his claims over the
mineral deposits located within the Addendum Area of Influence; whether the complaint filed before the DENR Panel of Arbitrators
alleged ultimate facts of fraud; and whether the action to declare the nullity of the Addendum Contract on the ground of fraud has
prescribed.1avvphi1.net

These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which were resolved against him in the
Decision of 28 February 2005. Gonzales does not raise any new argument that would sway the Court even a bit to alter its holding
that the complaint filed before the DENR Panel of Arbitrators involves judicial issues which should properly be resolved by the
regular courts. He alleged fraud or misrepresentation in the execution of the Addendum Contract which is a ground for the
annulment of a voidable contract. Clearly, such allegations entail legal questions which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum Area of Influence is a factual
question which is not proper for determination before this Court. At all events, moreover, the question is irrelevant to the issue of
jurisdiction of the DENR Panel of Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a factual finding in its
Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002, that Gonzales had, "through the various
agreements, assigned his interest over the mineral claims all in favor of [Climax-Arimco]" as well as that without the complainant
52
[Gonzales] assigning his interest over the mineral claims in favor of [Climax-Arimco], there would be no FTAA to speak of." This
finding was affirmed by the Court of Appeals in its Decision dated 30 July 2003 resolving the petition for certiorari filed by Climax53
Arimco in regard to the 18 October 2001 Order of the DENR Panel.
The Court of Appeals likewise found that Gonzaless complaint alleged fraud but did not provide any particulars to substantiate it.
The complaint repeatedly mentioned fraud, oppression, violation of the Constitution and similar conclusions but nowhere did it give
54
any ultimate facts or particulars relative to the allegations.
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the circumstances constituting fraud must be
stated with particularity. This is to enable the opposing party to controvert the particular facts allegedly constituting the same.
Perusal of the complaint indeed shows that it failed to state with particularity the ultimate facts and circumstances constituting the
alleged fraud. It does not state what particulars about Climax-Arimcos financial or technical capability were misrepresented, or how
the misrepresentation was done. Incorporated in the body of the complaint are verbatim reproductions of the contracts,
correspondence and government issuances that reportedly explain the allegations of fraud and misrepresentation, but these are, at
best, evidentiary matters that should not be included in the pleading.
As to the issue of prescription, Gonzaless claims of fraud and misrepresentation attending the execution of the Addendum Contract
55
are grounds for the annulment of a voidable contract under the Civil Code. Under Art. 1391 of the Code, an action for annulment
shall be brought within four years, in the case of fraud, beginning from the time of the discovery of the same. However, the time of
the discovery of the alleged fraud is not clear from the allegations of Gonzaless complaint. That being the situation coupled with the
fact that this Court is not a trier of facts, any ruling on the issue of prescription would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal effectively renders superfluous formal
action on the Motion for Partial Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH FINALITY.
SO ORDERED.
G.R. No. 198075

September 4, 2013

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

vs.
MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.
DECISION
PEREZ, J.:
1

This case is an appeal from the Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865.
The facts:
The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered owner of a parcel of land
3
located at Km. 16, South Superhighway, Paraaque City (subject land). Within the subject land are buildings and other
4
improvements dedicated to the business of FKI.
5

In 1975, FKI bequeathed the subject land (exclusive of the improvements thereon) in favor of herein respondent Makati Rotary Club
6
7
Foundation, Incorporated by way of a conditional donation. The respondent accepted the donation with all of its conditions. On 26
8
May1975, FKI and the respondent executed a Deed of Donation evidencing their consensus.
The Lease and the Amended Deed of Donation
One of the conditions of the donation required the respondent to lease the subject land back to FKI under terms specified in their
9
Deed of Donation. With the respondents acceptance of the donation, a lease agreement between FKI and the respondent was,
therefore, effectively incorporated in the Deed of Donation.
Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as follows:
10

1. The period of the lease is for twenty-five (25) years, or until the 25th of May 2000;
2. The amount of rent to be paid by FKI for the first twenty-five (25) years is P40,126.00 per annum .

11

The Deed of Donation also stipulated that the lease over the subject property is renewable for another period of twenty-five (25)
12
years " upon mutual agreement" of FKI and the respondent. In which case, the amount of rent shall be determined in accordance
with item 2(g) of the Deed of Donation, viz:
g. The rental for the second 25 years shall be the subject of mutual agreement and in case of disagreement the matter shall be
referred to a Board of three Arbitrators appointed and with powers in accordance with the Arbitration Law of the Philippines,
Republic Act 878, whose function shall be to decide the current fair market value of the land excluding the improvements, provided,
that, any increase in the fair market value of the land shall not exceed twenty five percent (25%) of the original value of the land
donated as stated in paragraph 2(c) of this Deed. The rental for the second 25 years shall not exceed three percent (3%) of the fair
13
market value of the land excluding the improvements as determined by the Board of Arbitrators.
14

In October 1976, FKI and the respondent executed an Amended Deed of Donation that reiterated the provisions of the Deed of
Donation , including those relating to the lease of the subject land.
Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of Donation , FKI was able to
continue in its possession and use of the subject land.
2000 Lease Contract
Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation was set to expire, or on 23 May
15
2000, FKI and respondent executed another contract of lease ( 2000 Lease Contract ) covering the subject land. In this 2000 Lease
Contract, FKI and respondent agreed on a new five-year lease to take effect on the 26th of May 2000, with annual rents ranging
16
from P4,000,000 for the first year up to P4,900,000 for the fifth year. The 2000 Lease Contract also contained an arbitration clause
enforceable in the event the parties come to disagreement about the" interpretation, application and execution" of the lease, viz :
19. Governing Law The provisions of this 2000 Lease Contract shall be governed, interpreted and construed in all aspects in
accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this 2000 Lease Contract shall be submitted to a board of
three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the majority of the
17
arbitrators shall be binding upon FKI and respondent. (Emphasis supplied)
2005 Lease Contract
After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for another five (5) years. This new lease
18
19
(2005 Lease Contract ) required FKI to pay a fixed annual rent of P4,200,000. In addition to paying the fixed rent, however, the

20

2005 Lease Contract also obligated FKI to make a yearly " donation " of money to the respondent. Such donations ranged
21
from P3,000,000 for the first year up to P3,900,000for the fifth year. Notably, the 2005 Lease Contract contained an arbitration
clause similar to that in the 2000 Lease Contract, to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall be governed, interpreted and construed in all aspects in
accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be submitted to a board of
three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the majority of the
22
arbitrators shall be binding upon FKI and respondent. (Emphasis supplied)
The Assignment and Petitioners Refusal to Pay
23

From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease Contract. But in June of 2008, FKI sold
24
all its rights and properties relative to its business in favor of herein petitioner Koppel, Incorporated. On 29 August 2008, FKI and
25
petitioner executed an Assignment and Assumption of Lease and Donation wherein FKI, with the conformity of the respondent,
formally assigned all of its interests and obligations under the Amended Deed of Donation and the 2005 Lease Contract in favor of
petitioner.
The following year, petitioner discontinued the payment of the rent and " donation " under the 2005 Lease Contract.
Petitioners refusal to pay such rent and "donation " emanated from its belief that the rental stipulations of the 2005 Lease Contract,
and even of the 2000 Lease Contract, cannot be given effect because they violated one of the" material conditions " of the donation
26
of the subject land, as stated in the Deed of Donation and Amended Deed of Donation.
According to petitioner, the Deed of Donation and Amended Deed of Donation actually established not only one but two (2) lease
agreements between FKI and respondent, i.e. , one lease for the first twenty-five (25)years or from 1975 to 2000, and another lease
for the next twenty-five (25)years thereafter or from 2000 to 2025. 27 Both leases are material conditions of the donation of the
subject land.
Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease was not fixed in the Deed of
Donation and Amended Deed of Donation , both deeds nevertheless prescribed rules and limitations by which the same may be
determined. Such rules and limitations ought to be observed in any succeeding lease agreements between petitioner and
28
respondent for they are, in themselves, material conditions of the donation of the subject land.
In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation that supposedly limits the
amount of rent for the lease over the second twenty-five (25) years to only " three percent (3%) of the fair market value of the
29
subject land excluding the improvements.
For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract cannot be enforced as they are
clearly, in view of their exorbitant exactions, in violation of the aforementioned threshold in item 2(g) of the Deed of Donation and
Amended Deed of Donation . Consequently, petitioner insists that the amount of rent it has to pay thereon is and must still be
30
governed by the limitations prescribed in the Deed of Donation and Amended Deed of Donation.
The Demand Letters
31

On 1 June 2009, respondent sent a letter (First Demand Letter) to petitioner notifying the latter of its default " per Section 12 of
the 2005 Lease Contract " and demanding for the settlement of the rent and " donation " due for the year 2009. Respondent, in the
32
same letter, further intimated of canceling the 2005 Lease Contract should petitioner fail to settle the said obligations. Petitioner
33
received the First Demand Letter on2 June 2009.
34

On 22 September 2009, petitioner sent a reply to respondent expressing its disagreement over the rental stipulations of the 2005
Lease Contract calling them " severely disproportionate," "unconscionable" and "in clear violation to the nominal rentals
mandated by the Amended Deed of Donation." In lieu of the amount demanded by the respondent, which purportedly totaled
35
to P8,394,000.00, exclusive of interests, petitioner offered to pay onlyP80,502.79, in accordance with the rental provisions of the
36
37
Deed of Donation and Amended Deed of Donation. Respondent refused this offer.

38

On 25 September 2009, respondent sent another letter (Second Demand Letter) to petitioner, reiterating its demand for the
payment of the obligations already due under the 2005 Lease Contract. The Second Demand Letter also contained a demand for
petitioner to " immediately vacate the leased premises " should it fail to pay such obligations within seven (7) days from its receipt
39
of the letter. The respondent warned of taking " legal steps " in the event that petitioner failed to comply with any of the said
40
41
demands. Petitioner received the Second Demand Letter on 26September 2009.
Petitioner refused to comply with the demands of the respondent. Instead, on 30 September 2009, petitioner filed with the Regional
42
Trial Court (RTC) of Paraaque City a complaint for the rescission or cancellation of the Deed of Donation and Amended Deed of
Donation against the respondent. This case is currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 090346.
The Ejectment Suit
43

On 5 October 2009, respondent filed an unlawful detainer case against the petitioner before the Metropolitan Trial Court (MeTC)
of Paraaque City. The ejectment case was raffled to Branch 77 and was docketed as Civil Case No. 2009-307.
44

On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim. In it, petitioner reiterated its objection over the
rental stipulations of the 2005 Lease Contract for being violative of the material conditions of the Deed of Donation and Amended
45
Deed of Donation. In addition to the foregoing, however, petitioner also interposed the following defenses:
1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer case in view of the insufficiency
46
of respondents demand. The First Demand Letter did not contain an actual demand to vacate the premises and,
47
therefore, the refusal to comply there with does not give rise to an action for unlawful detainer.
2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same until the disagreement between
48
the parties is first referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract.
3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would not lie as the 2005 Lease
49
Contract is void abinitio. The stipulation in the 2005 Lease Contract requiring petitioner to give yearly " donations " to
respondent is a simulation, for they are, in fact, parts of the rent. 50 Such grants were only denominated as " donations " in
the contract so that the respondentanon-stock and non-profit corporationcould evade payment of the taxes otherwise
51
due thereon.
In due course, petitioner and respondent both submitted their position papers, together with their other documentary
52
evidence. Remarkably, however, respondent failed to submit the Second Demand Letter as part of its documentary evidence.
Rulings of the MeTC, RTC and Court of Appeals
53

On 27 April 2010, the MeTC rendered judgment in favor of the petitioner. While the MeTC refused to dismiss the action on the
ground that the dispute is subject to arbitration, it nonetheless sided with the petitioner with respect to the issues regarding the
54
insufficiency of the respondents demand and the nullity of the 2005 Lease Contract. The MeTC thus disposed:
WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to costs.
SO ORDERED.

55

The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to Branch 274 of the RTC of Paraaque City and
was docketed as Civil Case No. 10-0255.
56

On 29 October 2010, the RTC reversed the MeTC and ordered the eviction of the petitioner from the subject land:
WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan Trial Court, Branch 77, Paraaque City, is
hereby reversed, judgment is thus rendered in favor of the plaintiff-appellant and against the defendant-appellee, and ordering the
latter
(1) to vacate the lease[d] premises made subject of the case and to restore the possession thereof to the plaintiff-appellant;

(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two Thousand Four Hundred Thirty Six
Pesos (P9,362,436.00), penalties and net of 5% withholding tax, for the lease period from May 25, 2009 to May 25, 2010
and such monthly rental as will accrue during the pendency of this case;
(3) to pay attorneys fees in the sum of P100,000.00 plus appearance fee of P3,000.00;
(4) and costs of suit.
As to the existing improvements belonging to the defendant-appellee, as these were built in good faith, the provisions of Art. 1678of
the Civil Code shall apply.
SO ORDERED.

57

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

1. The respondent had adequately complied with the requirement of demand as a jurisdictional precursor to an unlawful
58
detainer action. The First Demand Letter, in substance, contains a demand for petitioner to vacate when it mentioned
59
that it was a notice " per Section12 of the 2005 Lease Contract." Moreover, the issue of sufficiency of the respondents
demand ought to have been laid to rest by the Second Demand Letter which, though not submitted in evidence, was
60
nonetheless admitted by petitioner as containing a" demand to eject " in its Answer with Compulsory Counterclaim.
2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same time, impugn
61
such contracts validity. Even assuming that it can, petitioner still did not file a formal application before the MeTC so as to
62
render such arbitration clause operational. At any rate, the MeTC would not be precluded from exercising its jurisdiction
63
over an action for unlawful detainer, over which, it has exclusive original jurisdiction.
3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not able to adduce any evidence to
64
support its allegation that the same is void. There was, in this case, no evidence that respondent is guilty of any tax
65
evasion.
Aggrieved, the petitioner appealed to the Court of Appeals.
66

On 19 August 2011, the Court of Appeals affirmed the decision of the RTC:
WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court of Paraaque City, Branch 274, in Civil Case
No. 10-0255 is AFFIRMED.
xxxx
SO ORDERED.

67

Hence, this appeal.

68

On 5 September 2011, this Court granted petitioners prayer for the issuance of a Temporary Restraining Order staying the
immediate implementation of the decisions adverse to it.
OUR RULING
Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in overlooking the significance of the
arbitration clause incorporated in the 2005 Lease Contract . As the Court sees it, that is a fatal mistake.
For this reason, We grant the petition.
Present Dispute is Arbitrable Under the
Arbitration Clause of the 2005 Lease
Agreement Contract

Going back to the records of this case, it is discernable that the dispute between the petitioner and respondent emanates from the
rental stipulations of the 2005 Lease Contract. The respondent insists upon the enforce ability and validity of such stipulations,
whereas, petitioner, in substance, repudiates them. It is from petitioners apparent breach of the 2005 Lease Contract that
respondent filed the instant unlawful detainer action.
One cannot escape the conclusion that, under the foregoing premises, the dispute between the petitioner and respondent arose
from the application or execution of the 2005 Lease Contract . Undoubtedly, such kinds of dispute are covered by the arbitration
clause of the 2005 Lease Contract to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall be governed, interpreted and construed in all aspects in
accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be submitted to a board of
three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the majority of the
69
arbitrators shall be binding upon FKI and respondent. (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the " interpretation, application or
70
execution " of the 2005 Lease Contract ought to be submitted to arbitration. To the mind of this Court, such stipulation is clear and
is comprehensive enough so as to include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract
including the one that presently besets petitioner and respondent.
The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain legal effects. However, before
discussing what these legal effects are, We shall first deal with the challenges posed against the application of such arbitration
clause.
Challenges Against the Application of the
Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as well as the MeTC, RTC and the
Court of Appeals, vouched for the non-application of the same in the instant case. A plethora of arguments was hurled in favor of
bypassing arbitration. We now address them.
At different points in the proceedings of this case, the following arguments were offered against the application of the arbitration
clause of the 2005 Lease Contract:
1. The disagreement between the petitioner and respondent is non-arbitrable as it will inevitably touch upon the issue of
71
the validity of the 2005 Lease Contract. It was submitted that one of the reasons offered by the petitioner in justifying its
failure to pay under the 2005 Lease Contract was the nullity of such contract for being contrary to law and public
72
73
policy. The Supreme Court, in Gonzales v. Climax Mining, Ltd., held that " the validity of contract cannot be subject of
arbitration proceedings " as such questions are " legal in nature and require the application and interpretation of laws and
74
jurisprudence which is necessarily a judicial function ."
2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same time, impugn
75
such contracts validity.
3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005 Lease Contract , petitioner
76
still did not file a formal application before the MeTC so as to render such arbitration clause operational. Section 24 of
Republic Act No. 9285 requires the party seeking arbitration to first file a " request " or an application therefor with the
77
court not later than the preliminary conference.
78

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR) proceedings before the RTC. Hence, a
79
further referral of the dispute to arbitration would only be circuitous. Moreover, an ejectment case, in view of its
summary nature, already fulfills the prime purpose of arbitration, i.e. , to provide parties in conflict with an expedient
80
81
method for the resolution of their dispute. Arbitration then would no longer be necessary in this case.
None of the arguments have any merit.

First. As highlighted in the previous discussion, the disagreement between the petitioner and respondent falls within the allencompassing terms of the arbitration clause of the 2005 Lease Contract. While it may be conceded that in the arbitration of such
disagreement, the validity of the 2005 Lease Contract, or at least, of such contracts rental stipulations would have to be
determined, the same would not render such disagreement non-arbitrable. The quotation from Gonzales that was used to justify the
contrary position was taken out of context. A rereading of Gonzales would fix its relevance to this case.
In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and Geosciences Bureau (PA-MGB)
seeking the nullification of a Financial Technical Assistance Agreement and other mining related agreements entered into by private
82
parties.
83

Grounds invoked for the nullification of such agreements include fraud and unconstitutionality. The pivotal issue that confronted
the Court then was whether the PA-MGB has jurisdiction over that particular arbitration complaint. Stated otherwise, the question
was whether the complaint for arbitration raises arbitrable issues that the PA-MGB can take cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any jurisdiction to take cognizance of the
complaint for arbitration, this Court pointed out to the provisions of R.A. No. 7942, or the Mining Act of 1995, which granted the PAMGB with exclusive original jurisdiction only over mining disputes, i.e., disputes involving " rights to mining areas," "mineral
agreements or permits," and " surface owners, occupants, claim holders or concessionaires" requiring the technical knowledge and
84
experience of mining authorities in order to be resolved. Accordingly, since the complaint for arbitration in Gonzales did not raise
mining disputes as contemplated under R.A. No. 7942 but only issues relating to the validity of certain mining related agreements,
85
this Court held that such complaint could not be arbitrated before the PA-MGB. It is in this context that we made the
pronouncement now in discussion:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of
the contract between them, which needs the interpretation and the application of that particular knowledge and expertise
possessed by members of that Panel. It is not proper when one of the parties repudiates the existence or validity of such contract or
agreement on the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts
of law. These questions are legal in nature and require the application and interpretation of laws and jurisprudence which is
86
necessarily a judicial function. (Emphasis supplied)
The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground that the issue raised therein,
i.e. , the validity of contracts, is per se non-arbitrable. The real consideration behind the ruling was the limitation that was placed by
R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral body . Gonzales rejected the complaint for arbitration because the
issue raised therein is not a mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that such issue is
rendered non-arbitrable before the PA-MGB. As stated beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only
87
to mining disputes.
Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines, Inc. v. San Fernando Regal
88
Trading, Inc. In Cargill , this Court answered the question of whether issues involving the rescission of a contract are arbitrable. The
respondent in Cargill argued against arbitrability, also citing therein Gonzales . After dissecting Gonzales , this Court ruled in favor of
89
arbitrability. Thus, We held:
Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded, the CA's decision
declining referral of the parties' dispute to arbitration is still correct. It claims that its complaint in the RTC presents the issue of
whether under the facts alleged, it is entitled to rescind the contract with damages; and that issue constitutes a judicial question or
one that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding. Respondent cites our
ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint for declaration of nullity/or
termination of the subject contracts on the grounds of fraud and oppression attendant to the execution of the addendum contract
and the other contracts emanating from it, and that the complaint should have been filed with the regular courts as it involved
issues which are judicial in nature.
90

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument. (Emphasis ours)
Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the fact that it assails the
91
validity of such contract. This is due to the doctrine of separability.

92

Under the doctrine of separability, an arbitration agreement is considered as independent of the main contract. Being a separate
contract in itself, the arbitration agreement may thus be invoked regardless of the possible nullity or invalidity of the main
93
contract.
Once again instructive is Cargill, wherein this Court held that, as a further consequence of the doctrine of separability, even the very
94
party who repudiates the main contract may invoke its arbitration clause.
Third . The operation of the arbitration clause in this case is not at all defeated by the failure of the petitioner to file a formal
"request" or application therefor with the MeTC. We find that the filing of a "request" pursuant to Section 24 of R.A. No. 9285 is not
the sole means by which an arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
SEC. 24. Referral to Arbitration . - A court before which an action is brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later that the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of
being performed. [Emphasis ours; italics original]
The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or the Special
Rules of Court on Alternative Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the arbitration agreement, whether contained in
an arbitration clause or in a submission agreement, may request the court to refer the parties to arbitration in accordance with such
agreement.
Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is filed . - The request for referral
shall be made not later than the pre-trial conference. After the pre-trial conference, the court will only act upon the request for
referral if it is made with the agreement of all parties to the case.
(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed but the parties subsequently
enter into an arbitration agreement, they may request the court to refer their dispute to arbitration at any time during the
proceedings.
Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall state that the dispute is covered
by an arbitration agreement.
A part from other submissions, the movant shall attach to his motion an authentic copy of the arbitration agreement.
The request shall contain a notice of hearing addressed to all parties specifying the date and time when it would be heard. The party
making the request shall serve it upon the respondent to give him the opportunity to file a comment or opposition as provided in
the immediately succeeding Rule before the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a pending action filed in violation of the
arbitration agreement x x x may request the court to refer the parties to arbitration in accordance with such agreement."
In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A. No. 9285, the Special ADR Rules clearly did
not intend to limit the invocation of an arbitration agreement in a pending suit solely via such "request." After all, non-compliance
with an arbitration agreement is a valid defense to any offending suit and, as such, may even be raised in an answer as provided in
95
our ordinary rules of procedure.
In this case, it is conceded that petitioner was not able to file a separate " request " of arbitration before the MeTC. However, it is
equally conceded that the petitioner, as early as in its Answer with Counterclaim ,had already apprised the MeTC of the existence of
96
97
the arbitration clause in the 2005 Lease Contract and, more significantly, of its desire to have the same enforced in this case. This
act of petitioner is enough valid invocation of his right to arbitrate. Fourth . The fact that the petitioner and respondent already

under went through JDR proceedings before the RTC, will not make the subsequent conduct of arbitration between the parties
unnecessary or circuitous. The JDR system is substantially different from arbitration proceedings.
The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation which entails the submission of a
dispute before a " JDR judge " who shall merely " facilitate settlement " between the parties in conflict or make a " non-binding
98
evaluation or assessment of the chances of each partys case." Thus in JDR, the JDR judge lacks the authority to render a resolution
of the dispute that is binding upon the parties in conflict. In arbitration, on the other hand, the dispute is submitted to an
arbitrator/s a neutral third person or a group of thereof who shall have the authority to render a resolution binding upon the
99
parties.
Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the subsequent conduct of arbitration a
mere surplusage. The failure of the parties in conflict to reach an amicable settlement before the JDR may, in fact, be supplemented
by their resort to arbitration where a binding resolution to the dispute could finally be achieved. This situation precisely finds
application to the case at bench.
Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of the arbitration clause of
the 2005 Lease Contract . Notwithstanding the summary nature of ejectment cases, arbitration still remains relevant as it aims not
only to afford the parties an expeditious method of resolving their dispute.
A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and foremost, a product of party
100
autonomy or the freedom of the parties to " make their own arrangements to resolve their own disputes." Arbitration agreements
manifest not only the desire of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not more
so, the parties mutual aspiration to achieve such resolution outside of judicial auspices, in a more informal and less antagonistic
environment under the terms of their choosing. Needless to state, this critical feature can never be satisfied in an ejectment case no
matter how summary it may be.
Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease Agreement in this case, We shall
now proceed with the discussion of its legal effects.
Legal Effect of the Application of the
Arbitration Clause
Since there really are no legal impediments to the application of the arbitration clause of the 2005 Contract of Lease in this case, We
find that the instant unlawful detainer action was instituted in violation of such clause. The Law, therefore, should have governed
the fate of the parties and this suit:
R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising out of an agreement providing
for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with
the terms of the agreement: Provided, That the applicant for the stay is not in default in proceeding with such arbitration.[Emphasis
supplied]
R.A. No. 9285
Section 24. Referral to Arbitration. - A court before which an action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not later that the pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void, in operative or
incapable of being performed. [Emphasis supplied]
101

It is clear that under the law, the instant unlawful detainer action should have been stayed; the petitioner and the respondent
should have been referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract . The MeTC, however, did not
do so in violation of the lawwhich violation was, in turn, affirmed by the RTC and Court of Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all proceedings it undertook in the
ejectment case after the filing by petitioner of its Answer with Counterclaim the point when the petitioner and the respondent
should have been referred to arbitration. This case must, therefore, be remanded to the MeTC and be suspended at said point.
Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause of the 2005 Lease
Contract.
This Court is not unaware of the apparent harshness of the Decision that it is about to make. Nonetheless, this Court must make the
102
same if only to stress the point that, in our jurisdiction, bona fide arbitration agreements are recognized as valid; and that
103
104
laws, rules and regulations do exist protecting and ensuring their enforcement as a matter of state policy. Gone should be the
105
days when courts treat otherwise valid arbitration agreements with disdain and hostility, if not outright " jealousy," and then get
away with it. Courts should instead learn to treat alternative means of dispute resolution as effective partners in the administration
106
of justice and, in the case of arbitration agreements, to afford them judicial restraint. Today, this Court only performs its part in
upholding a once disregarded state policy.
Civil Case No. CV 09-0346
107

This Court notes that, on 30 September 2009, petitioner filed with the RTC of Paraaque City, a complaint for the rescission or
cancellation of the Deed of Donation and Amended Deed of Donation against the respondent. The case is currently pending before
Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.
This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may involve matters that are rightfully
arbitrable per the arbitration clause of the 2005 Lease Contract. However, since the records of Civil Case No. CV 09-0346 are not
before this Court, We can never know with true certainty and only speculate. In this light, let a copy of this Decision be also served
to Branch 257of the RTC of Paraaque for its consideration and, possible, application to Civil Case No. CV 09-0346.
WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby render a Decision:
1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch 77, of Paraaque City in relation
to Civil Case No. 2009-307 after the filing by petitioner of its Answer with Counterclaim ;
2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by petitioner of its Answer with
Counterclaim;
3. SETTING ASIDE the following:
a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865,
b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of Paraaque City in Civil Case No. 100255,
c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of Paraaque City in Civil Case No.
2009-307; and
4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration clause of the 2005 Lease
Contract, repeatedly included in the 2000 Lease Contract and in the 1976 Amended Deed of Donation.
Let a copy of this Decision be served to Branch 257 of the RTC of Paraaque for its consideration and, possible, application to Civil
Case No. CV 09-0346.
No costs.
SO ORDERED.

THIRD DIVISION

METROPOLITAN CEBU WATER DISTRICT,

G.R. No. 172438

Petitioner,
Present:

- versus VELASCO, JR., J., Chairperson,

PERALTA,
MACTAN ROCK INDUSTRIES,
INC.,
Respondent.

MENDOZA,
*

REYES, and
PERLAS-BERNABE, JJ.

Promulgated:

July 4, 2012
x ---------------------------------------------------------------------------------------- x
DECISION
MENDOZA, J.:
[1]

This is a petition for review on certiorari under Rule 45 assailing the February 20, 2006 Decision and the March 30,
[2]
2006 Resolution of the Court of Appeals (CA) in CAG.R. CEB SP. No. 00623.

THE FACTS
Petitioner Metropolitan Cebu Water District (MCWD) is a government-owned and controlled corporation (GOCC) created
[3]
pursuant to Presidential Decree (PD) No. 198, as amended, with its principal office address at the MCWD Building, Magallanes
[4]
corner Lapu-Lapu Streets, Cebu City. It is mandated to supply water within its service area in the cities of Cebu, Talisay, Mandaue,
[5]
and Lapu-Lapu and the municipalities of Compostela, Liloan, Consolacion, and Cordova in the Province of Cebu.
nd

Respondent Metro Rock Industries, Inc. (MRII) is a domestic corporation with principal office address at the 2 Level of the
[6]
Waterfront Cebu Hotel and Casino, Lahug,Cebu City.

[7]

On May 19, 1997, MCWD entered into a Water Supply Contract (the Contract) with MRII wherein it was agreed that the
latter would supply MCWD with potable water, in accordance with the World Health Organization (WHO) standard or the Philippine
[8]
national standard, with a minimum guaranteed annual volume.
[9]

On March 15, 2004, MRII filed a Complaint against MCWD with the Construction Industry Arbitration
[10]
Commission (CIAC), citing the arbitration clause (Clause 18) of the Contract. The case was docketed as CIAC Case No. 12-2004. In
the said complaint, MRII sought the reformation of Clause 17 of the Contract, or the Price Escalation/De-Escalation Clause, in order
to include Capital Cost Recovery in the price escalation formula, and to have such revised formula applied from 1996 when the
bidding was conducted, instead of from the first day when MRII started selling water to MCWD. It also sought the payment of the
unpaid price escalation/adjustment, and the payment of unpaid variation/extra work order and interest/cost of money up
[11]
to December 31, 2003.
[12]

On May 7, 2002, MCWD filed its Answer dated April 27, 2004, which included a motion to dismiss the complaint on the
ground that the CIAC had no jurisdiction over the case, as the Contract was not one for construction or infrastructure.
[13]

The CIAC thereafter issued an order denying MCWDs motion to dismiss, and calling the parties to a preliminary
[14]
conference for the review and signing of the Terms of Reference.
[15]

MCWD, thus, filed a petition for certiorari under Rule 65 with the CA, questioning the jurisdiction of the CIAC. The
petition was docketed as CA-G.R. SP. No. 85579(First Petition).
Meanwhile, the CIAC proceeded with the preliminary conference scheduled on June 10 and July 22, 2004 which MWCD
opted not to attend. MRII and the CIAC both signed the Terms of Reference. Pursuant to the Terms of Reference and the CIAC
[16]
Order dated July 22, 2004, MRII submitted its documentary evidence and affidavits of its witnesses.

On August 27, 2004, MRII submitted its Formal Offer of Evidence and its memorandum of arguments in the form of a
proposed/draft decision. MCWD did not attend the hearings. It did not submit evidence other than those annexed to its Answer.
[17]
Neither did it file a formal offer of evidence, or a memorandum of legal arguments.
Decision of the CIAC
The CIAC promulgated its Decision

[18]

on April 14, 2005, the dispositive portion of which reads:

WHEREFORE[,] premises considered, judgment is hereby rendered as follows:

1.

Ordering the reformation of Clause 17 of the Water Supply Contract to read:

17[.] Price Escalation and/or De-Escalation shall be based on the parametric formula:
17.1

Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate - Base Power Rate x 30% of base selling price of water
Base Power Rate
17.2

Consumer Price Index (CPI) Adjustment/Operating Cost Adjustment:

Current CPI Base CPI x 40% of base selling price of water

Base CPI
17.3

Capital Cost Recovery Adjustment:

Current Peso to
Base Peso to US$
US$ Exchange Rate Exchange Rate x 30% of base selling price of water
Base Peso to US $ Exchange Rate
Price escalation shall be reckoned from January 1999 when the water was first delivered by
Mactan Rock Industries, Inc. to the MCWD facilities in Mactan. The base CPI, base US$ Exchange

Rate and the Base Power Rate shall be the prevailing rate in January 1999, while the Base Selling
Price of water shall mean the 1996 rate per cubic meter of water as provided for in the Water
Supply Contract.
2.

Ordering Respondent Metropolitan Cebu Water District to pay Claimant, Mactan Rock
Industries, Inc[.] under the reformed Clause 17 of the Water Supply Contract, the net amount
of Php12,126,296.70 plus legal interest of six percent (6%) per annum from the (sic) March 15,
2004, the date of filling (sic) of the case with the Construction Industry Arbitration Commission,
the rate increased to twelve percent (12%) per annum from the date the herein Decision have
(sic) become final and executory until the foregoing amounts shall have been fully paid[.]

3.

Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water District shall share
equally the cost of arbitration.
[19]

SO ORDERED.

Decision of the CA in CA-G.R. SP No. 85579 - Petition for certiorari under Rule
65 with the Court of Appeals questioning the jurisdiction of the CIAC
[20]

Meanwhile, on October 28, 2005, the CA in its decision in the First Petition upheld the jurisdiction of the CIAC over the
case. The CA held that when parties agree to settle their disputes arising from or connected with construction contracts, the CIAC
[21]
[22]
acquires primary jurisdiction. Citing Philrock Inc. v. Construction Industry Arbitration Commission, the CA stated that the CIAC
may resolve not only the merits of such controversies, but may also award damages, interest, attorneys fees, and expenses of
[23]
litigation, when appropriate.

Second, the CA held that the claims in question fall under the jurisdiction of the CIAC. Thus:
Xxx Section 4 of Executive Order No. 1008, otherwise known as the Construction Industry Arbitration Law
delineates CIACs jurisdiction as original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines, whether the disputes arise before or
after the completion of the contract, or after abandonment thereof. Moreover, Section 5 (k) of Republic Act No.
9184 otherwise known as [the] Government Procurement Reform Act expressly defines infrastructure project as
including water supply*,+ construction, rehabilitation*,+ demolition, repair, restoration and maintenance.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that
covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of
arbitration. It is to be highlighted that the dispute in the case at bar arose from the parties incongruent positions
with regard to clause 17 of the Water Supply Contract[,] specifically the price escalation/adjustment. The instant
case involves technical discrepancies that are better left to an arbitral body that has expertise in those areas.
Nevertheless, in any event, the inclusion of an arbitration clause in a contract does not ipso facto divest the courts
of jurisdiction to pass upon the findings of arbitral bodies, because the awards are still judicially reviewable under
[24]
certain conditions. (Citations omitted.)
MCWDs motion for reconsideration of the decision in the First Petition was still pending when it filed the petition for
[25]
review under Rule 43 (Second Petition)appealing the decision of the CIAC. The motion for reconsideration was eventually denied
[26]
[27]
in a Resolution dated May 3, 2006. MCWD did not appeal from the denial of the motion. It, thus, became final and executory.

Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition for review under
Rule 43 appealing the decision of the CIAC
Aggrieved by the CIAC Decision, MCWD filed a petition for review under Rule 43 with the CA which was docketed as CA-G.R.
CEB SP. No. 00623.

The CA, however, dismissed the petition in its Decision dated February 20, 2006. The Court therein stated that the issue of
th
jurisdiction had already been resolved by the 18 Division in the First Petition, where the CA upheld the jurisdiction of the CIAC over
Arbitration Case No. 12-2004.
Citing jurisprudence, the CA also ruled that there being an arbitration clause in the Contract, the action for reformation of
contract instituted by MRII in this case fell squarely within the jurisdiction of the CIAC, not the courts. In relation to this, the CA
noted that the present rule is that courts will look with favor upon amicable agreements to settle disputes through arbitration, and
will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. MCWD being a signatory and a party to
[28]
the Water Supply Contract, it cannot escape its obligation under the arbitration clause.
The CA also held that the CIAC did not err in finding that the Water Supply Contract is clear on the matter of the reckoning
period for the computation of the escalation cost from January 9, 1999, or the first day of delivery of water. Moreover, the CA found
that the CIAC did not err in ruling that the contract be reformed to include Capital Cost Recovery in the parametric formula for price
escalation. Neither did it err in holding that the Capital Cost Recovery shall be 30% of the Base Selling Price of water as a
consequence of the reformation of Clause 17.
Finally, the CA stressed that factual findings of administrative agencies which are deemed to have acquired expertise in
matters within their respective jurisdictions are generally accorded not only respect but even finality when supported by substantial
[29]
evidence.
MCWD filed a motion for reconsideration but it was denied in the CA Resolution dated March 30, 2006.
Thus, this petition.
ISSUES
MCWD raises the following issues in its petition for review:
MAY THE CONSTRUCTION INDUSTRY [ARBITRATION] COMMISSION EXERCISE JURISDICTION OVER DISPUTES
ARISING FROM A WATER SUPPLY CONTRACT?
MAY A PARTY, WHO IS A SIGNATORY TO THE WATER SUPPLY CONTRACT[,] IN EFFECT SUBMITTING ITSELF TO
THE JURISDICTION OF THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, QUESTION THE
JURISDICTION OF [THE] CIAC?
DOES THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION HAVE THE (SIC) JURISDICTION OVER A
COMPLAINT PRAYING FOR A REFORMATION OF A WATER SUPPLY CONTRACT?
MAY THE COURT OF APPEALS REFUSE TO RENDER A [SIC] JUDGMENT ON AN ISSUE BECAUSE THIS HAS BEEN
ALREADY SETTLED IN A DECISION RENDERED BY ANOTHER DIVISION OF THE COURT OF APPEALS IN A PETITION
FOR CERTIORARI, EVEN IF THE SAID DECISION HAS NOT YET BEEN (SIC) FINAL DUE TO A TIMELY FILING OF A
[30]
MOTION FOR RECONSIDERATION?

RULING OF THE COURT

Creation of the CIAC
The Construction Industry Arbitration Commission (CIAC) was created in 1985 under Executive Order (E.O.) No. 1008
(Creating an Arbitration Machinery for the Philippine Construction Industry), in recognition of the need to establish an arbitral
machinery that would expeditiously settle construction industry disputes. The prompt resolution of problems arising from, or
connected to, the construction industry was considered necessary and vital for the fulfillment of national development goals, as the
construction industry provided employment to a large segment of the national labor force, and was a leading contributor to the
[31]
gross national product.
Under Section 4 of E.O. No. 1008, the CIACs jurisdiction was specifically delineated as follows:

SECTION 4. Jurisdiction - The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines, whether the
disputes arise before or after the completion of the contract, or after the abandonment or breach thereof. These
disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual provisions;
amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of
employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of thePhilippines. (Underscoring supplied)
[32]

The jurisdiction of the CIAC as a quasi-judicial body is confined to construction disputes, that is, those arising from, or
connected to, contracts involving all on-site works on buildings or altering structures from land clearance through completion
[33]
including excavation, erection and assembly and installation of components and equipment. The CIAC has jurisdiction over all
[34]
such disputes whether the dispute arises before or after the completion of the contract.
Whether the CIAC has jurisdiction over the dispute
As earlier stated, following the denial of its motion to dismiss by CIAC, MCWD filed the First Petition with the CA, which
decided in favor of MRII and upheld the jurisdiction of the CIAC.
Not being in conformity, MCWD filed a motion for reconsideration.
While the said motion was pending with the CA, MCWD filed the Second Petition with the same court. Eventually, the motion
was denied, and MCWD never appealed the case. Thus, the decision of the CA in the First Petition became final and executory.

The question now is whether such final and executory decision is binding such that courts are generally precluded from
passing judgment on the issue of jurisdiction in the present petition.
The Court finds in the affirmative.
This Court has held time and again that a final and executory judgment, no matter how erroneous, cannot be changed, even
by this Court. Nothing is more settled in law than that once a judgment attains finality, it thereby becomes immutable and
unalterable. It may no longer be modified in any respect, even if such modification is meant to correct what is perceived to be an
erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or
[35]
by the highest court of the land.
In its Decision in the First Petition, the CA affirmed the arbitral bodys finding in CIAC Case No. 12-2004 that the case was
within its jurisdiction. Such decision having become final, it is beyond the jurisdiction of this Court, or any court or body, for that
matter, to review or modify, even supposing for the sake of argument, that it is indeed erroneous.
Also, the parties apparently characterized the Contract as one involving construction, as its arbitration clause specifically
refers disputes, controversies or claims arising out of or relating to the Contract or the breach, termination or validity thereof, if the
same cannot be settled amicably, to an arbitration tribunal, in accordance with E.O. No. 1008, or the Construction Industry
Arbitration Law:

V. DISPUTES AND JURISDICTION:

18. Any dispute, controversy or claim arising out of or relating to this contract or the breach, termination
or invalidity thereof, if the same cannot be settled amicably, may be submitted for arbitration to an Arbitration
Tribunal in accordance with Executive Order No. 1008 dated 4 February 1985, otherwise known as the
Construction Industry Arbitration Law and the place of arbitration shall be the City of Cebu, Philippines, otherwise
said dispute or controversy arising out of the contract or breach thereof shall be submitted to the court of law
[36]
having jurisdiction thereof in the city where MCWD is located.
Had the parties been of the mutual understanding that the Contract was not of construction, they could have instead
referred the matter to arbitration citing Republic Act(R.A.) No. 876, or The Arbitration Law. Having been passed into law in 1953, the
said statute was already in existence at the time the contract was entered into, and could have been applied to arbitration
proceedings other than those specifically within the arbitral jurisdiction of the CIAC.
Whether the CA erred in refusing to render judgment on the issue
of jurisdiction
___________
th

On a related matter, MWCD also raises the issue of whether the 19 Division of the CA, Cebu City, erred in refusing to
render judgment on the issue of jurisdiction raised in the Second Petition on the ground that it had already been settled by the
th
th
18 Division in its decision in the First Petition, even if the 18 Division decision had not yet become final due to a timely filing of a
motion for reconsideration.
The Court rules in the negative.
th

The 19 Division was correct in refusing to render judgment on the issue of jurisdiction as, at that time, the issue was still
pending before another division of the CA.
Litis pendentia is predicated on the principle that a party should not be allowed to vex another more than once regarding
the same subject matter and for the same cause of action. It is founded on the public policy that the same subject matter should not
be the subject of controversy in courts more than once, in order that possible conflicting judgments may be avoided for the sake of
[37]
the stability of the rights and status of persons, and also to avoid the costs and expenses incident to numerous suits.
With the two petitions then pending before the CA, all the elements of litis pendentia were present, that is, identity of the
parties in the two actions, substantial identity in the causes of action and in the reliefs sought by the parties, and identity between
the two actions such that any judgment that may be rendered in one case, regardless of which party is successful, would amount
[38]
to res judicata in the other.
In both cases, MCWD was the petitioner and MRII, the respondent. Although they differ in form, in essence, the two cases
involved a common issue, that is, MCWDs challenge to the jurisdiction of the CIAC over the arbitration proceedings arising from the
Water Supply Contract between the petitioner and respondent.
To determine whether there is identity of the rights asserted and reliefs prayed for, grounded on the same facts and bases,
the following tests may be utilized: (1) whether the same evidence would support and sustain both the first and the second causes
of action, also known as the same evidence test; or (2) whether the defenses in one case may be used to substantiate the
[39]
complaint in the other. Also fundamental is the test of determining whether the cause of action in the second case existed at the
[40]
time of the filing of the first case.
[41]

In the First Petition, MCWD argued that the CIACs issuance of its Order dated May 28, 2004 was tainted with grave
abuse of discretion amounting to excess or lack of jurisdiction. Thus, MCWD stated in its prayer:
WHEREFORE, in light of the premises laid down, petitioner most respectfully prays:
1. Upon the filing of this Petition, a Writ of Preliminary Injunction or restraining order be issued
forthwith, enjoining the respondent from proceeding with the hearing of the case until further
orders from the Honorable Court of Appeals;
2. After consideration, petitioner also prays that the Order dated May 28, 2004, denying
petitioners motion to dismiss be declared without force and effect;

3. Petitioner also prays that the Construction Industry Arbitration Commission be barred from
hearing the case filed by Mactan Rock Industries, Inc., private respondent herein.
Other measures of relief, which are just and equitable under the foregoing premise are also prayed for.

[42]

The Second Petition, on the other hand, raised the following issues:
a.
Whether or not the Arbitral Tribunal of CIAC gravely erred in taking and exercising jurisdiction over
the complaint filed by the respondent;
b.
Contract;

Whether or not the Arbitral Tribunal of CIAC gravely erred in reforming Clause 17 of the

c.
Whether or not the same tribunal gravely committed an error in considering Capital Cost
Recovery Adjustment in awarding in favor of the complainant, when the same is extraneous to the provisions of
[43]
the contract;
Thus, it prayed:
WHEREFORE, PREMISES CONSIDERED, it is most respectfully prayed of the Honorable Court that a
Judgment be issued reversing the findings of the Arbitral Tribunal of the Construction Industry Arbitration
Commission in its Decision dated April 14, 2005, as far as the order of reformation of the water supply contract
and in granting the monetary award.
It is further prayed that the decision rendered by the Arbitral Tribunal be declared invalid for want of
jurisdiction to arbitrate and to order the reformation of the water supply contract;
It is also prayed that the decision awarding money to the respondent be strike (sic) down as erroneous
and without legal basis for lack of jurisdiction by the Arbitral Tribunal, which rendered the Decision.
It is also prayed that a Temporary Restraining Order and a Writ of Preliminary Injunction be issued at the
outset, ordering the stay of execution pending the resolution of the issues raised in the Petition.
Other measures of relief, which are just and equitable, are also prayed for.

[44]

In both cases, the parties also necessarily relied on the same laws and arguments in support of their respective positions on
the matter of jurisdiction.
In the First Petition, in support of its argument, that the CIAC had no jurisdiction to arbitrate the causes of action raised by
MRII, MCWD cited the portions of the Contract on the obligations of the water supplier, E.O. No. 1008 (specifically Section 4 on
jurisdiction), the Rules of Procedure Governing Construction Arbitration (Section 1, Article III). It also alleged that in issuing the order
denying its motion to dismiss, the CIAC misread the provisions of LOI No. 1186 and R.A. No. 9184 on the definition of an
[45]
infrastructure project.
MRII, however, opined that the CIAC had jurisdiction over the complaint and, therefore, correctly denied petitioners
motion to dismiss. MRII argued that certiorari was not a proper remedy in case of denial of a motion to dismiss and that the claims
fell squarely under CIACs original and exclusive jurisdiction. MRII, in support of its position, cited Section 1 of LOI No. 1186 and
Section 5(k) of R.A. No. 9184. MRII further proposed that, as shown by MCWDs pro-forma Water Supply Contract, Specifications,
Invitation to Submit Proposal, Pre-Bid Conference minutes, Addendum No. 1, and MRIIs Technical and Financial Proposals, the
[46]
undertaking contemplated by the parties is one of infrastructure and of works, rather than one of supply or mere services.
In the Second Petition, in support of the issue of jurisdiction, MCWD again relied on Section 4 of E.O. No. 1008 and Section
1, Article III of the Rules of Procedure Governing Construction Arbitration. It also brought to fore the alleged faulty conclusion of
[47]
MRII that a water supply contract is subsumed under the definition of an infrastructure project under LOI 1186.

In its Comment, MRII reiterated and adopted its arguments before the CIAC, and insisted that the undertaking
contemplated by the parties was one of infrastructure and of works, as distinguished from mere supply from off-the-shelf or from
[48]
mere services. Section 1 of LOI No. 1186, to define infrastructure and Section 5(k) of R.A. No. 9184 to include water supply,
were again cited. In support of its arguments, MRII cited anew MCWDs pro-forma Water Supply Contract, Specifications (in its
Invitation to Submit Proposal), pronouncements at the Pre-Bid Conference, Addendum No. 1, and MRIIs Technical and Financial
Proposals. MRII further extensively reproduced the content of the joint affidavit of Messrs. Antonio P. Tompar and Lito R. Maderazo,
[49]
MRIIs President/CEO and Financial Manager, respectively.
Given that the same arguments were raised on the matter of CIAC jurisdiction, the parties thus relied on substantially the
same evidence in both petitions. MCWD annexed to both petitions copies of the Water Supply Contract, the complaint filed by MRII
with the CIAC, and its Answer to the said complaint. On the other hand, MRII presented Addendum No. 1 to the Water Supply
Contract and its Technical and Financial Proposals.
Moreover, the first cause of action in the Second Petition, that is, the CIACs having assumed jurisdiction, allegedly
unlawfully, over the dispute arising from the Water Supply Contract, obviously existed at the time the First Petition was filed, as the
latter case dealt with the jurisdiction of the CIAC over the complaint filed.
Finally, any judgment that may be rendered in the First Petition on the matter of whether the CIAC has jurisdiction over the
arbitration proceedings, regardless of which party was successful, would amount to res judicata in the Second Petition, insofar as the
issue of jurisdiction is concerned. In fact, what MCWD should have done was to appeal to the Court after the denial of its motion for
reconsideration in the First Petition. For not having done so, the decision therein became final and, therefore, immutable.
th

Thus, following the above discussion, the 19 Division was correct in refusing to render judgment on the issue of
jurisdiction in the Second Petition.
Whether the CIAC had jurisdiction to order the reformation of the
Water Supply Contract
[50]

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law. It cannot be fixed by
[51]
the will of the parties to the dispute, nor can it be expanded or diminished by stipulation or agreement.
The text of Section 4 of
E.O. No. 1008 is broad enough to cover any dispute arising from, or connected with, construction contracts, whether these involve
mere contractual money claims or execution of the works. This jurisdiction cannot be altered by stipulations restricting the nature of
[52]
construction disputes, appointing another arbitral body, or making that bodys decision final and binding.
Thus, unless specifically excluded, all incidents and matters relating to construction contracts are deemed to be within the
jurisdiction of the CIAC. Based on the previously cited provision outlining the CIACs jurisdiction, it is clear that with regard to
contracts over which it has jurisdiction, the only matters that have been excluded by law are disputes arising from employeremployee relationships, which continue to be governed by the Labor Code of the Philippines. Moreover, this is consistent with the
policy against split jurisdiction.
[53]

In fact, in National Irrigation Administration v. Court of Appeals, it was held that the CIAC had jurisdiction over the
dispute, and not the contract. Therefore, even if the contract preceded the existence of the CIAC, since the dispute arose when the
CIAC had already been constituted, the arbitral board was exercising current, and not retroactive, jurisdiction. In the same case, it
was held that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not
be precluded from electing to submit their dispute to the CIAC because this right has been vested upon each party by law.
This is consistent with the principle that when an administrative agency or body is conferred quasi-judicial functions, all
controversies relating to the subject matter pertaining to its specialization are deemed to be included within its jurisdiction since the
[54]
law does not sanction a split of jurisdiction, as stated in Pea v. Government Service Insurance System.
In Pea, the Court held that although the complaint for specific performance, annulment of mortgage, and damages filed by
the petitioner against the respondent included title to, possession of, or interest in, real estate, it was well within the jurisdiction of
the Housing and Land Use Regulatory Board (HLURB), a quasi-judicial body, as it involved a claim against the subdivision developer,
Queens Row Subdivision, Inc., as well as the Government Service Insurance System (GSIS).
[55]

This case was later cited in Badillo v. Court of Appeals, where the Court concluded that the HLURB had jurisdiction over
complaints for annulment of title. The Court also held that courts will not determine a controversy where the issues for resolution
demand the exercise of sound administrative discretion, such as that of the HLURB, the sole regulatory body for housing and land

development. It was further pointed out that the extent to which an administrative agency may exercise its powers depends on the
provisions of the statute creating such agency.
[56]
The ponencia further quoted from C.T. Torres Enterprises, Inc. v. Hibionada:
The argument that only courts of justice can adjudicate claims resoluble under the provisions of the Civil Code
is out of step with the fast-changing times. There are hundreds of administrative bodies now performing this
function by virtue of a valid authorization from the legislature. This quasi-judicial function, as it is called, is
exercised by them as an incident of the principal power entrusted to them of regulating certain activities falling
under their particular expertise.
In the Solid Homes case for example the Court affirmed the competence of the Housing and Land Use
Regulatory Board to award damages although this is an essentially judicial power exercisable ordinarily only by the
courts of justice. This departure from the traditional allocation of governmental powers is justified by expediency,
or the need of the government to respond swiftly and competently to the pressing problems of the modern world.
[57]

In Bagunu v. Spouses Aggabao, the Court ruled that the RTC must defer the exercise of its jurisdiction on related issues
involving the same subject matter properly within its jurisdiction, such as the distinct cause of action for reformation of contracts
involving the same property, since the DENR assumed jurisdiction over the lot in question, pursuant to its mandate.
[58]

In National Housing Authority v. First United Constructors Corporation, the Court held that there was no basis for the
exclusion of claims for business losses from the jurisdiction of the CIAC because E.O. No. 1008 excludes from the coverage of the
law only those disputes arising from employer-employee relationships which are covered by the Labor Code, conveying an intention
[59]
to encompass a broad range of arbitrable issues within the jurisdiction of CIAC. Section 4 provides that (t)he jurisdiction of the
CIAC may include but is not limited to x x x, underscoring the expansive character of the CIACs jurisdiction. Very clearly, the CIAC
has jurisdiction over a broad range of issues and claims arising from construction disputes, including but not limited to claims for
unrealized profits and opportunity or business losses. What E.O. No. 1008 emphatically excludes is only disputes arising from
[60]
employer-employee relationships.
Where the law does not delineate, neither should we. Neither the provisions of the Civil Code on reformation of contracts
nor the law creating the CIAC exclude the reformation of contracts from its jurisdiction. Jurisprudence further dictates that the grant
of jurisdiction over related and incidental matters is implied by law. Therefore, because the CIAC has been held to have jurisdiction
over the Contract, it follows that it has jurisdiction to order the reformation of the Contract as well.
Whether MCWD can
arbitration proceedings

validly

refuse

to

participate

in

the

In light of the finality of the CA decision on the matter of jurisdiction, the only remaining issue to be disposed of is whether
the CIAC could proceed with the case even if the MCWD refused to participate in the arbitration proceedings.
The Court rules in the affirmative. Though one party can refuse to participate in the arbitration proceedings,
this cannot prevent the CIAC from proceeding with the case and issuing an award in favor of one of the parties.
Section 4.2 of the Revised Rules of Procedure Governing Construction Arbitration (CIAC Rules) specifically provides that
where the jurisdiction of the CIAC is properly invoked by the filing of a Request for Arbitration in accordance with CIAC Rules, the
failure of a respondent to appear, which amounts to refusal to arbitrate, will not stay the proceedings, notwithstanding the absence
of the respondent or the lack of participation of such party. In such cases, the CIAC is mandated to appoint the arbitrator/s in
accordance with the Rules, and the arbitration proceedings shall continue. The award shall then be made after receiving the
evidence of the claimant.
In such a case, all is not lost for the party who did not participate. Even after failing to appear, a respondent is still given the
opportunity, under the CIAC Rules, to have the proceedings reopened and be allowed to present evidence, although with the
qualification that this is done before an award is issued:
4.2.1 In the event that, before award, the Respondent who had not earlier questioned the jurisdiction of
the Tribunal, appears and offers to present his evidence, the Arbitral Tribunal may, for reasons that justifies (sic)
the failure to appear, reopen the proceedings, require him to file his answer with or without counterclaims, pay
the fees, where required under these Rules, and allow him to present his evidence, with limited right to cross
examine witnesses already in the discretion of the Tribunal. Evidence already admitted shall remain. The Tribunal

shall decide the effect of such controverting evidence presented by the Respondent on evidence already admitted
prior to such belated appearance.

Thus, under the CIAC Rules, even without the participation of one of the parties in the proceedings, the CIAC is still required
[61]
to proceed with the hearing of the construction dispute.
This Court has held that the CIAC has jurisdiction over a dispute arising from a construction contract even though only one
[62]
[63]
of the parties requested for arbitration. In fact, in Philrock, Inc. v. Construction Industry Arbitration Commission, the Court held
that the CIAC retained jurisdiction even if both parties had withdrawn their consent to arbitrate.
In
this
case,
there
being
a
valid
arbitration
clause
mutually
stipulated
by the parties, they are both contractually bound to settle their dispute
through arbitration before the CIAC. MCWD refused to participate, but this should not affect the authority of the CIAC to conduct
the proceedings, and, thereafter, issue an arbitral award.
Now, with the CIAC decision being questioned by MCWD, the Court takes a cursory reading of the said decision. It reveals
that the conclusions arrived at by CIAC are supported by facts and the law. Article 1359 of the Civil Code states that when there has
been a meeting of the minds of the parties to a contract, but their true intention is not expressed in the instrument purporting to
embody the agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation
of the instrument to the end that such true intention may be expressed. The CIAC, in this case, found that the parametric formula
for price escalation reflected in the Water Supply Contract involved two items: Power Rate Price Adjustment (30% of the base selling
price of water) and Consumer Price Index Adjustment (40% of the base selling price of water). The remaining 30% of the selling price
of water, which should have been for Capital Cost Recovery, was inadvertently left out in this parametric formula. Thus, the Contract
should be reformed accordingly to reflect the intention of the parties to include in the price escalation formula the Capital Cost
Recovery Adjustment. These conclusions were affirmed by the CA in the assailed decision of February 20, 2006.
As noted by MCWD in its reply, however, the dispositive portion of the CIAC decision reforming the price escalation formula
is inconsistent with what was stated in the body of the decision. The formula contained in the body of the decision is as follows:
PRICE ADJUSTMENT COMPUTATION
Based on Reformed Clause 17 of the Water Supply Contract
1.

Power Cost Adjustment:

xxx

Current Power Rate Base Power Rate x 30% of Base Selling Price of water
Base Power Rate
xxx
2.

Operating Cost Adjustment - Local

xxx
Current CPI Base CPI x 30% of 40% of Base Selling Price of Water
Base CPI
xxx
3.

Operating Cost Adjustment Foreign

xxx
Current Forex Base Forex x 70% of 40% of Base Selling Price of Water
Base Forex

xxx
4.

Capital Cost Adjustment Local

xxx
Current CPI Base CPI x 30% of 30% of Base Selling Price of Water
Base CPI
xxx
5.

Capital Cost Adjustment Foreign

xxx
Current Forex Base Forex x 70% of 30% of Base Selling Price of Water
Base Forex
xxx

[64]

The dispositive portion of the decision, however, reads:

WHEREFORE[,] premises considered, judgment is hereby rendered as follows:
1.

Ordering the reformation of Clause 17 of the Water Supply Contract to read:

17[.] Price Escalation and/or De-Escalation shall be based on the parametric formula:
17.1

Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate Base Power Rate x 30% of Base Selling Price of water
Base Power Rate
17.2

Consumer Price Index (CPI) Adjustment/Operatiing (sic) Cost Adjustment:

Current CPI Base CPI x 40% of Base Selling Price of Water

Base CPI
17.3

Capital Cost Recovery Adjustment:

Current Peso to
Base Peso to US$
US$ Exchange Rate Exchange Rate x 30% of base selling price of water
Base Peso to US $ Exchange Rate

The general rule is that where there is a conflict between the fallo, or the dispositive part, and the body of the decision or
order, the fallo prevails on the theory that the fallois the final order and becomes the subject of execution, while the body of the
decision merely contains the reasons or conclusions of the court ordering nothing. However, where one can clearly and
unquestionably conclude from the body of the decision that there was a mistake in the dispositive portion, the body of the decision
[65]
will prevail.
Following the reasoning of the CIAC in this case, there are three components to price adjustment: (1) Power Cost
Adjustment (30% of the base selling price of water); (2) Operating Cost Adjustment (40% of the base selling price of water); and (3)
Capital Cost Adjustment (30% of the base selling price of water).
In turn, the second componentOperating Cost Adjustmentis computed based on Local Operating Cost Adjustment
(30%), and Foreign Operating Cost Adjustment (70%).

Capital Cost Adjustment, on the other hand, is composed of Local Capital Cost Adjustment (30%), and Foreign Capital Cost
Adjustment (70%).
This is consistent with the formula set forth in the body of the CIAC decision. If the formula in the dispositive portion were
to be followed, Operating Cost Adjustment would be computed with the Local Operating Cost Adjustment representing the entire
40% of the base selling price of water instead of just 30% of the Operating Cost Adjustment. Moreover, if the Capital Cost Recovery
Adjustment were to be computed based solely on Foreign Capital Cost Recovery Adjustment, it would represent the entire 30% of
the base selling price of water, and not just 70% of the Capital Cost Recovery Adjustment. The omission of the marked portions of
the formula as stated in the body of the CIAC decision represents substantial changes to the formula for price escalation. It is thus
clear that the formula as stated in the body of the decision should govern.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in C.A.-G.R. CEB SP. No. 00623
are AFFIRMED with the modification that the formula for the computation of the Capital Cost Recovery Adjustment in the fallo of
the CIAC decision should be amended to read as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1.

Ordering the reformation of Clause 17 of the Water Supply Contract to read:

17. Price Escalation and/or De-Escalation shall be based on the parametric formula:
17.1.

Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate - Base Power Rate x 30% of base selling price of water
Base Power Rate
17.2 Consumer Price Index (CPI) Adjustment/Operating Cost Adjustment:
Current CPI Base CPI x 30% of 40% of base selling price of water
Base CPI
17.3

Capital Cost Recovery Adjustment:

Current Peso to
Base Peso to US$
US$ Exchange Rate Exchange Rate x 70% of 30% of base selling price of water
Base Peso to US $ Exchange Rate
Price escalation shall be reckoned from January 1999 when the water was first delivered by
Mactan Rock Industries, Inc. to the MCWD facilities in Mactan. The base CPI, base US$ Exchange Rate
and the Base Power Rate shall be the prevailing rate in January 1999, while the Base Selling Price of
water shall mean the 1996 rate per cubic meter of water as provided for in the Water Supply
Contract.
2.

Ordering Respondent Metropolitan Cebu Water District to pay Claimant, Mactan Rock Industries, Inc.
under the reformed Clause 17 of the Water Supply Contract, the net amount
of Php12,126,296.70 plus legal interest of six percent (6%) per annum from March 15, 2004, the date
of filing of the case with the Construction Industry Arbitration Commission, and twelve percent (12%)
per annum from the date this Decision becomes final and executory, until the foregoing amounts
shall have been fully paid.

3.

Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water District shall share the cost of
arbitration equally.

SO ORDERED.

SECOND DIVISION

NATIONAL HOUSING AUTHORITY,

Petitioner,

G.R. No. 176535

Present:
- versus -

FIRST
CORPORATION,

CARPIO, J.,
Chairperson,
BRION,
PERALTA,*
BERSAMIN,** and
PEREZ, JJ.
UNITED CONSTRUCTORS
Promulgated:

Respondent.
September 7, 2011
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

PEREZ, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court filed by petitioner
[1]
National Housing Authority (NHA), seeking to reverse and set aside the 1 August 2006 Decision of the Court of Appeals (CA) and its
[2]
Resolution dated 31 January 2007 in CA-G.R. SP No. 81635.
In the questioned Decision, the appellate court affirmed with modification the Decision promulgated on 7 January
[3]
[4]
2004 by the Construction Industry Arbitration Commission (CIAC), thru a three member Arbitral Tribunal in CIAC Case No. 142003 entitled First United Constructors Corporation v. National Housing Authority, that granted an arbitral award in favor of
respondent First United Constructors Corporation (FUCC); and in its assailed Resolution, refused to reconsider its Decision.
The Facts
[5]

[6]

[7]

From the Petition, the Comment thereon of respondent, petitioners Reply, and their respective
[8]
[9]
[10]
[11]
Annexes, particularly the Complaint of respondent, petitioners Answer and the Joint Stipulations of the parties
[12]
incorporated as Admitted Facts in the Supplemental Terms of Reference, all filed with the CIAC, and from the CA Decision and the
CIAC Decision, the Court gathers the following relevant facts and antecedents:
Respondent FUCC was the contractor of Phase I of the Freedom Valley Resettlement Project (the FVR Project or the Project)
[13]
of petitioner NHA.
The FVR Project was a proposed resettlement site for informal settlers of Metro Manila. Conceived in May 1996, it was the
subject of a Memorandum of Agreement entered into by and among the Housing & Urban Development Coordinating Council
(HUDCC), the Department of Environment & Natural Resources (DENR), the Metro Manila Development Authority (MMDA) and the
[14]
Marilaque Commission.
The FVR Project sits on a 750-hectare property reserved as a resettlement site for the landless and homeless residents of
Metro Manila under Presidential Proclamation No. 799 dated 3 June 1996, situated in Sitio Boso-Boso, Brgy. San
[15]
Jose, Antipolo City.

Phase I of the FVR Project called for the development of an area of roughly 300 hectares of the resettlement site into 7,500
[16]
home lots of 60 to 80 square meters per lot in three (3) residential Clusters, namely: Cluster 1, Cluster 2 and Cluster 3.
FUCC won the public bidding for the works contract of the FVR Project conducted by NHA on 26 February 1998 with a bid
[17]
price of P568,595,780.00.
The work consisted principally of bulk earthworks and the construction of roads, drainage, water supply and sewerage
[18]
systems, slope protection and bridge structures, as well as survey works, titling of the lots and other off-site works.
On 2 March 1998, NHA issued a Notice of Award

[19]

for Phase I of the FVR Project to FUCC.

On 10 March 1998, NHA and FUCC entered into a Contract for Land Development of Freedom Valley Resettlement Project,
[20]
Phase I, Sitio Boso-Boso, Bgy. San Jose, Antipolo, Rizal (the Contract) that covered the terms of the agreement between the
parties for the works contract of Phase I of the FVR Project.
The work duration stipulated in the Contract was three hundred sixty five (365) days. The contract amount was the bid
[21]
price of FUCC, or P568,595,780.00.
FUCC commenced actual contract works on 16 March 1998. Counting 365 days, the original contract expiration date was
[22]
15 March 1999.
Unfortunately, the FVR Project suffered various work suspensions and delays, so much so that the project was not
[23]
completed on 15 March 1999. There were also changes in the scope of work that necessitated the issuance of variation orders,
[24]
[25]
specifically Variation Order No. 1, and Variation Order No. 2, which delayed the completion of the project further.
Variation Order No. 1 reduced the number of home lots to be generated, from 7,500 under the original development plan
to only 4,980. Variation Order No. 2 further reduced that number to 4,032. These changes in the scope of work resulted in the
[26]
reduction of the contract price from the original P568,595,780.00 to P488,393,466.98.
Because of the delays engendered by the suspension orders and the changes in the scope of the contract works, NHA
[27]
granted time extensions to FUCC, to wit: an additional 279 calendar days under Time Extension No. 1; another extension of 200
[28]
calendar days in conjunction with the issuance of Variation Order No. 2; and finally, 200 more calendar days under Resumption
[29]
Order No. 2.
All told, a total of 679 calendar days were added to the original work duration stipulated in the Contract. From 15
[30]
March 1999, the contract completion date was moved, initially, to 19 December 1999, and finally, to 11 November 2001.
In the course of the contract works, FUCC submitted five (5) Progress Billings, all of which were paid by NHA, to wit:
[31]
[32]
Progress Billing No. 1 in the amount ofP52,707,464.21, for the period 16 March to 30 June 1998; Progress Billing No. 2 in the
[33]
amount of P14,343,039.55, for the period 1 July to 31 December 1998; Progress Billing No. 3 in the amount of P47,329,827.89, for
[34]
the period 1 January to 15 October 1999; Progress Billing No. 4 in the amount of P114,494,481.30, for the period 16 October 1999
[35]
to 31 January 2001; and Progress Billing No. 5 in the amount of P42,333,109.23, for the period 31 January to 30 June 2001.
The FVR Project was never completed as envisioned and planned because NHA abandoned the original concept of the
[36]
Project. In a Resolution passed on 25 September 2001, the Board of Directors of NHA reclassified the FVR Project from a
[37]
resettlement site of informal settlers into a mixed-market site and services type of project, and terminated the Contract.
In a letter dated 17 October 2001,

[38]

NHA formally advised FUCC of the termination of the Contract.

NHA terminated the Contract under the Contractor Not at Fault clause of the General Conditions of the Contract.

[39]

At the time the Contract was terminated, FUCC had various claims pending with NHA in connection with the FVR Project.
It appears that over a period of almost five (5) years, FUCC pleaded and negotiated with various NHA officials for the
[40]
payment of these claims but its pleas fell on deaf ears.
[41]

This impelled FUCC to pursue its claims before the CIAC pursuant to Article XVII of the Contract by filing a
[42]
Complaint against NHA on 17 July 2003. The case was docketed as CIAC Case No.14-2003 entitled First United Constructors
Corporation vs. National Housing Authority.

In its Complaint, FUCC prayed thus:

WHEREFORE, it is respectfully prayed that after proper arbitration proceedings, claimant be adjudged
entitled to the payment of its claims, as follows:
1)
2)

Payment for Accomplished Works Not Yet Billed in the amount of P9,672,784.98;
Payment for the Cost of Materials, Equipment, Facilities, etc. Included for the Project in the amount
of P4,801,992.82;

3)

Payment for Price Escalation in the amount of P27,794,126.25;

4)

Payment for Price Adjustment in the amount of P14,768,770.22;

5)

Payment for Disengagement Costs in the amount of P83,242,365.73;

6)

Payment for Idle Equipment in the amount of P142,780,800.00;

7)

Payment for Interest on Idle Equipment in the amount of P44,262,048.00;

8)

Payment for Attorneys Fees equivalent to Ten Percent (10%) of the total of the foregoing claims; and

9)

Payment of Twelve Percent (12%) interest on the total arbitration award from the date of
promulgation of judgment until fully paid.
Other reliefs just and equitable are likewise prayed for.

[43]

The CIAC appointed a 3-member Arbitral Tribunal (CIAC Arbitral Tribunal) to adjudicate FUCCs claims.
[44]

NHA initially filed a Motion to Dismiss, claiming that FUCC had failed to exhaust all administrative remedies, which was
opposed by FUCC. In an Order dated 8 September 2003, the CIAC Arbitral Tribunal denied the motion and ordered NHA to file its
[45]
answer to FUCCs Complaint.
[46]

In its Answer, NHA raised the following defenses, viz: FUCC had no right of action since its recourse to arbitration was
premature; there was no actual suspension of contract works notwithstanding the suspension orders issued by NHA; the Contract
was not unilaterally terminated by NHA; FUCCs Progress Billing No. 6 should only be for the amount of P6,496,926.29; FUCCs claim
for Price Escalation for Progress Billings Nos. 1 to 5 came too late in the day, and that the amount that should be paid is
onlyP26,297,951.62 and payable only after FUCC procured the required surety bond; and the claims for Payment for Cost of
Materials, Equipment and Facilities, Disengagement Cost, Cost of Idle Equipment and interests thereon, are non-arbitrable
issues. By way of counter-claim, NHA prayed that it be allowed to recover from FUCC the amount of P38 Million, which represents
the remaining balance or unliquidated portion of the P85.2 Million that NHA had advanced to FUCC at the start of the FVR Project.
The issues having been joined, the CIAC Arbitral Tribunal called the parties to a Preliminary Conference. The parties
[47]
[48]
subsequently agreed upon a Terms of Reference and a Supplemental Terms of Reference to guide the CIAC Arbitral Tribunal in
the arbitration process and in the resolution of the case. The parties also submitted to the CIAC Arbitral Tribunal their Joint
[49]
[50]
Stipulations, which were incorporated in the Supplemental Terms of Reference as Admitted Facts.
Under the Terms of Reference and the Supplemental Terms of Reference, the CIAC Arbitral Tribunal was called upon to
resolve the following issues to determine the validity of FUCCs claims against NHA, to wit:
1.

Did Claimant exhaust all administrative remedies before filing this arbitration case?
1.1
Is claimants recourse to arbitration premature?

2.

Is claimant entitled to its claims for:

2.1

payment for accomplished works not yet billed (Progress Billing No. 6)? If so, how much?

2.1.1 Is the submission by the Claimant of the files and folders covering the unpaid claims of the
planters/farmers necessary for the processing of its claim for accomplished works not yet billed
(Progress Billing No. 6)?
2.2

payment for cost of materials, equipment, pro-rated cost of facilities constructed for the project,
etc.? If so, how much?
2.2.1 Whether or not these claims are arbitrable or not [sic]

2.3

Price Escalation? If so, how much?

2.4

Price Adjustment? If so, how much?

2.5

Disengagement Costs? If so, how much?

2.5.1 Whether or not this claim is arbitrable or not [sic]

2.6

Idle Equipment? If so, how much?

2.6.1 Whether or not this claim is arbitrable or not [sic]
2.6.2 Was there actual or physical suspension of the
suspension orders?

2.7

works for the period covered by the

Interest on Idle Equipment? If so, how much?

3.

Is Respondent entitled to the recoupment of the remaining portion of the advance payment made for the
Project?

4.

Are the parties entitled to their respective claims for interest on the total arbitration amount that would be
adjudged in their own favor?
4.1

If so at what rate and from what period?

5.

Who between the parties is liable for the cost of arbitration?

6.

Whether or not the termination of the Contract is unilateral

6.1

Whether or not the Claimant opposed, contested or protested the termination

7.

Who caused the alleged delays in the processing or payment of Claimant FUCCs claims, if any?

8.

Did Claimant FUCC procure a Payment Guarantee Bond (Surety Bond) from either the GSIS or any bona fide
private surety company?

9.

Was the procurement by Claimant FUCC of the Payment Guarantee Bond (Surety Bond) a condition for the
[51]
payment of its claims for Progress Billing No. 6 and Price Escalation for Progress Billing Nos. 1 to 5?

To prove its claims, FUCC presented one witness in the person of Engr. Ben S. Dumaliang (Engr. Dumaliang), the Project
[52]
Director of FUCC for the FVR Project, and submitted his Affidavit in Question-and-Answer Form dated 4 November 2003, which
[53]
served as the witness direct testimony. On the basis of said affidavit, Engr. Dumaliang was cross-examined by NHAs counsel.

FUCC adopted and marked Annexes A to GGGGGG of its Complaint as Exhibits A to GGGGGG and submitted the
same as part of its documentary evidence. FUCC likewise marked the documents attached to the Affidavit in Question-and-Answer
Form of Engr. Dumaliang as Exhibits HHHHHH to RRRRRR and likewise submitted the same as part of its documentary
[54]
evidence. FUCC thereafter rested its case.

To prove its defenses and counter-claim, NHA likewise presented only one witness in the person of Engr. Mariano E. Raner
[55]
III (Engr. Raner), the Special Project Director of the FVR Project, and submitted his Affidavit dated 2 December 2003 in lieu of his
[56]
direct testimony. Engr. Raner was cross-examined by FUCCs counsel on the basis of said Affidavit.
NHA marked 21 pieces of documentary evidence and submitted the same as Exhibits 1 to 21,

[57]

and thereafter rested

its case.
[58]

On 7 January 2004, the CIAC Arbitral Tribunal promulgated its Decision (CIAC Decision) containing findings and rulings on
substantially all of the issues presented by the parties, and rendering an award in favor of FUCC, as follows:

AWARD
WHEREFORE, on the basis of the foregoing findings and rulings, an award is hereby rendered in favor of
Claimant, FIRST UNITED CONSTRUCTORS CORPORATION, and against the Respondent, NATIONAL HOUSING
AUTHORITY ordering the latter to pay the former the total of the following amounts, less the amount for
recoupment of the balance of the advance payment including the interest viz;
1)

Php 7,384,534.22 representing payment for Billing No. 6;

2)

Php

3)

P4,677,680.00 representing payment for cost of materials, equipment, facilities;

4)

P415,993.13 representing interest of No. 3 above;

5)

P26,297,951.62 representing payment for Price Escalation of PB Nos. 1-5;

6)

P1,863,191.86 representing interest of No. 5 above;

7)

P14,768,770.22 representing payment for Price Adjustment of PB Nos. 5 & 6;

8)

P1,847,512.46 representing interest of No. 7 above;

9)

P65,842,309.72 representing payment for Disengagement Costs;

989,325.27 representing interest of No. 1 above;

10) P7,468,141.43 representing interest of No. 9 above;

11) P131,948,674.56 representing payment of Idle Equipment;
12) P36,634,736.09 representing interest of No. 11 above.
P300,138,820.59 gross total award in favor of Claimant
13)P * * * * * * * * representing12% interest of the gross total award of P300,138,820.59, from the date of
promulgation of this decision, and until it is fully paid.
Note: * * * * * * * *is to be determined upon execution of judgment.
Award to Respondents counter-claim:
1)

P37,951,201.14 representing the recoupment of the balance of Advance payment made to the Claimant.

2)

P455,414.41 representing interest of No. 1 above.

P38,406,615.55 balance of recoupment plus interest.

Net Award to be paid by Respondent to the Claimant;

P300,138,820.59 Gross Award of Claimants Claims
Less P 38,406,615.55 Balance of recoupment plus interest
P261,732,205.04 Net Award to be paid by Respondent to Claimant.
Finally, the Respondent is hereby ordered to pay Claimant, one-half of the cost of arbitration in the amount
of P768,219.76, as its share in the arbitration cost, which was advanced by the Claimant during the pendency of
[59]
this case.

On 30 January 2004, NHA appealed the CIAC Decision to the Court of Appeals by filing a Petition for Review Under Rule 43
[60]
[61]
(With Prayer for Restraining Order & Injunctive Writ), which was docketed thereat as CA-G.R. SP No. 81635.
NHAs prayer for a Temporary Restraining Order (TRO) to prevent the execution of the CIAC Decision was granted by the
[62]
Court of Appeals in a Resolution dated 14 April 2004.
Upon the lapse of the TRO, NHA filed an Urgent Motion for Early Resolution of its application for the issuance of a Writ of
[63]
Preliminary Injunction, which was similarly granted by the Court of Appeals in a Resolution dated 8 July 2004. The Writ of
Preliminary Injunction issued by the appellate court enjoined respondent and the agency a quo from executing the disputed
[64]
decision during the pendency of *the+ petition or until further order of the Court.
On 26 February 2004, or prior to the issuance of the TRO, the CIAC issued in favor of FUCC a Writ of Execution of the arbitral
award. Accordingly, Mr. Cristobal Florendo, Sheriff IV of the Office of the Clerk of Court and Ex-Officio Sheriff of the Regional Trial
Court in Quezon City, who was appointed as the Implementing Sheriff, issued and served Notices of Garnishment on the Land Bank
of the Philippines (Land Bank), the Development Bank of the Philippines (DBP), the Philippine National Bank (PNB), the Veterans
Bank of the Philippines (Veterans Bank), the Bureau of Treasury, and on the Government Security and Insurance Service Savings
[65]
Bank. The Implementing Sheriff later served Orders of Delivery of Money on the Land Bank, DBP, and the Bureau of Treasury.
Petitioner filed a Motion to Lift Garnishment and for the Issuance of Writ of Preliminary Mandatory Injunction on the
ground that the service of the Notices of Garnishment violated the Resolution dated 14 April 2004 (directing the issuance of a TRO)
and the Resolution dated 8 July 2004 (granting the issuance of a Writ of Preliminary Injunction) to enjoin the execution of the
[66]
arbitral award. This motion was denied by the Court of Appeals in a Resolution dated 13 December 2004.
Petitioner subsequently filed a Very Urgent Motion to Lift Writ of Garnishment citing essentially the same grounds as the
[67]
previous motion.
Instead of merely acting upon the Very Urgent Motion to Lift Writ of Garnishment, the Court of Appeals resolved the main
[68]
[69]
petition and promulgated the Decision dated 1 August 2006 that affirmed with modification the CIAC Decision.
The appellate
[70]
court denied petitioners Very Urgent Motion to Lift Writ of Garnishment permanently and lifted the Writ of Preliminary
Injunction it had earlier issued. The decretal portion of the CA Decision reads, thus:
WHEREFORE, under the premises, we hereby dispose of this case as follows:
1.

The following portions of the arbitral award are hereby AFFIRMED, thus:

WHEREFORE, on the basis of the foregoing findings and rulings, an award is hereby rendered in
favor of Claimant, FIRST UNITED CONSTRUCTORS CORPORATION, and against the Respondent,
NATIONAL HOUSING AUTHORITY ordering the latter to pay the former the total of the following
amounts, less the amount for recoupment of the balance of the advance payment including the
interest, viz:
1) P7,384,534.22 representing payment for Billing No. 6;
2) P989,325.27 representing interest (on) No. 1 above;
3) P4,667,680.00 representing payment for cost of materials, equipment, facilities;
4) P415,993.00 representing interest (on) No. 3 above;
5) P26,297,951.62 representing payment for Price Escalation of PB Nos. 1-5;
6) P1,863,191.86 representing interest (on) No. 5 above;
7) P14,768,770.22 representing payment for Price Adjustment of PB Nos. 5 & 6;
8) P1,847,512.46 representing interest (on) No. 7 above;
9) P131,948,674.56 representing payment for Idle Equipment; and
10) P36,634,736.09 representing interest on No. 11 above
xx

xx

xx

Award to Respondents (herein petitioners) counter-claim:

1)

P37,951,201.14

representing the recoupment

of the balance of advance

payment made to the

claimant
2) P455,414.41
representing interest on No.1
above
________________
P38,406,615.55 balance of recoupment
plus interest
xx

xx

xx

Finally, the Respondent (herein petitioner) is hereby ordered to pay to Claimant

(herein respondent) one-half of the cost of arbitration the amount of P768,219.76, as its share
in the arbitration cost, which was advanced by the claimant during the pendency of this case.
2.
Determination of the correct amount to be paid by petitioner as disengagement costs and the
interest due thereon is hereby REMANDED to the CIAC.
3.
Computation of the total award in favor of respondent and the 12% interest due thereon is
also REMANDED to the CIAC, with instruction that said 12% interest be computed from finality of this decision.
4.
Computation of the net award which petitioner must pay respondent by deducting the gross total
award for petitioner from the gross total award for petitioner [sic] from the gross total award with interest for
respondent is also REMANDED to the CIAC.
Accordingly, with the foregoing disposition, the Writ of Preliminary Injunction earlier issued against
respondent herein is hereby LIFTED.
[71]

On 17 August 2006, the CIAC submitted its Compliance

[72]
computed arbitral award in favor of FUCC.

to the remand orders of the Court of Appeals, showing the re[73]

On 24 August 2006, NHA filed an Omnibus Motion dated 22 August 2006 that incorporated its Motion for
Reconsideration of the CA Decision dated 1 August 2006 and its Motion to Require the CIAC to Explain and to Hold in Abeyance the
Re-Computation of Award.
FUCC, on the other hand, filed a Motion to Act on the Compliance submitted by the CIAC, while the Land Bank filed an
Urgent Manifestation/ Motion for Clarification for the appellate court to determine whether the bank could legally release the
[74]
frozen funds of NHA.
The Court of Appeals directed the parties to file their respective comment to the cross-motions and to the manifestation of
[75]
Land Bank, and thereafter considered the issues submitted for resolution.
[76]

On 31 January 2007, the Court of Appeals issued a Resolution denying petitioners Omnibus Motion that included its
Motion for Reconsideration of the CA Decision dated 1 August 2006. The appellate court did not act on the Compliance submitted
by the CIAC and on petitioners Motion to Require the CIAC to Explain and to Hold in Abeyance the Re-Computation of Award. With
respect to the Urgent Manifestation/Motion for Clarification of Land Bank, the appellate court directed Land Bank to forthwith
release to respondent the garnished fund of petitioner not exceeding P147,894,629.24 in partial satisfaction of *the+ Courts decision
[77]
dated 1 August 2006.
The dispositive portion of the Resolution reads thus:
WHEREFORE, for lack of merit, petitioners Omnibus Motion is DENIED. Respondents Motion to Act on
the Compliance submitted by CIAC Ex Abundante Cautelam and petitioners Urgent Motion for Issuance of
Temporary Restraining or Preliminary Injunctive Writ are merely NOTED.
With respect to its Urgent Manifestation/ Motion for Clarification, the Land Bank of the Philippines
is DIRECTED to forthwith release to respondent the garnished fund of petitioner not exceeding P147,894,629.24 in
partial satisfaction of this Courts decision dated August 1, 2006, upon filing of a good and sufficient bond by
respondent in the sum of P150,000,000.00 to answer for the restitution of the former amount and reparation of
[78]
damages to petitioner should said decision be reversed, whether totally or partially.

Undaunted, NHA filed the present Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court. Petitioner
prays that this Court reverse and set aside the CA Decision dated 1 August 2006 and the Resolution dated 31 January 2007 claiming,
in the main, that in promulgating the questioned Decision and Resolution, the Court of Appeals allegedly egregiously overlooked,
ignored or disregarded many discernible, indisputable facts or circumstances of weight and significance that would allegedly have
[79]
logically altered the result of the case had they been judiciously considered.
The Issues
According to petitioner, instead of those alleged indisputable facts or circumstances, the appellate courts findings were
premised merely on manifestly wrong presumptions, surmises, mistaken or improbable inferences and misapprehension of
[80]
facts.
Specifically, petitioner claims that the Court of Appeals committed a grave and substantial error of judgment:
I
WHEN IT AFFIRMED THE AWARD FOR PROGRESS BILLING NO. 6 AND PRICE ESCALATION FOR
PROGRESS BILLING NOS. 1 TO 5 DESPITE THE INDISPUTABLE OR ADMITTED FACT THAT
RESPONDENT FUCC DID NOT POST ANY PERFORMANCE BOND, WHICH IS DECIDEDLY A
CONDITION PRECEDENT FOR THE PAYMENT OF THESE CLAIMS.
II
WHEN IT AFFIRMED THE AWARD FOR PROGRESS BILLING NO. 6 IN THE AMOUNT
OF P7,384,534.22 DESPITE THE MANIFEST OR CLEAR FACT THAT RESPONDENT FUCCS CLAIM
FOR SAID BILLING WAS ONLY P6,496,926.29.
III
WHEN IT AFFIRMED THE AWARD FOR COST OF MATERIALS, EQUIPMENT AND FACILITIES IN THE
AMOUNT OFP4,677,680.00 AND DISENGAGEMENT COST ON THE BASIS OF AN OBVIOUSLY
ILLOGICAL AND ERRONEOUS INTERPRETATION OF EXHIBIT 19.
IV
WHEN IT AFFIRMED THE AWARD FOR IDLE EQUIPMENT IN THE AMOUNT OF P131,948,674.56
NOTWITHSTANDING THE CLEAR AND PATENT FACT THAT RESPONDENT FUCCS EQUIPMENT
NEVER WENT IDLE.
V
WHEN IT AFFIRMED THE AWARD FOR COST OF MATERIALS, EQUIPMENT AND FACILITIES,
DISENGAGEMENT COST AND IDLE EQUIPMENT DESPITE THE CLEAR OR MANIFEST FACT THAT
THESE CLAIMS WERE NON-ARBITRABLE AT THE TIME THE COMPLAINT WAS FILED ON 17 JULY
2003.
VI
WHEN IT RULED THAT RESPONDENT FUCC DID NOT CONSENT TO THE TERMINATION OF THE
PROJECT NOTWITHSTANDING THE GLARING FACT THAT RESPONDENT FUCC DID NOT PROTEST
THE TERMINATION AND HAD EVEN STOPPED IMPLEMENTING THE WORKS ON ITS OWN
[81]
VOLITION EVEN BEFORE ITS RECEIPT OF THE NOTICE OF TERMINATION.
The Ruling of the Court

We deny the petition for lack merit.

I.

Re: Payment Guarantee Bond as Condition Precedent for Payment of Progress Billing
No. 6 and Price Escalation for Progress BillingsNos. 1 to 5

Petitioner questions the award for Progress Billing No. 6 in the amount of P7,384,534.22 and for Price Escalation for
Progress Billings Nos. 1 to 5 in the amount ofP26,297,951.62.
In sustaining these items of award granted by the CIAC to FUCC, the Court of Appeals ratiocinated as follows:

Petitioners sole objection to the award of P7,384,534.22 as payment for Progress Billing No. 6
and P26,297,951.62 as payment of price escalation for Progress Billing Nos. 1-5 is that these claims did not become
ripe for adjudication for failure of respondent to fulfill a condition sine qua non, which is the filing of a payment
guarantee bond. Without this bond, respondent had no right of action against petitioner at the time of filing of the
complaint in arbitration. x x x
Without question, the filing of a bond is a condition for the payment of the foregoing claims of
respondent. We do not accept the reasoning of the CIAC that this requirement was rendered moot and academic
by its granting of said claim; that sort of reasoning begs the question. However, we agree with CIAC that
respondents omission to file bond was excusable. On October 4, 2002, respondent proposed an arrangement
under which it would submit its bond only when petitioner is about to release the check but that petitioner will
hold on to it until respondents bond is received and verified. Respondent was prompted to make this request in
view of its unfavorable cash flow position, a dire situation it found itself in when the project was pre-terminated. x
x x As found by CIAC, petitioner never responded to this request, giving rise to the presumption that it had not
denied it. x x x. This presumption holds considering that, even at this stage, petitioner never explained its inaction.
Thus, we sustain the award of P7,384,534.22 as payment for Progress Billing No. 6 and P26,297,951.62 as
payment of price escalation for Progress Billing Nos. 1-5. However, consistent with the provisions of the Contract,
[82]
we require the latter to post the requisite bond in the manner arranged by respondent with petitioner.

Petitioner assails what it sees as a flip-flopping of the Court of Appeals, i.e. for ruling in one breath that (w)ithout
question, the filing of a bond is a condition for the payment of the foregoing claims of respondent, but pronouncing in another that
we agree with CIAC that respondents omission to file bond was excusable, only to qualify in the third breath that consistent with
the provisions of the Contract, we require the latter to post the requisite bond in the manner arranged by respondent with
[83]
petitioner, and asserts that the posting of the bond is a government requirement that cannot be excused under both the law and
[84]
the Contract (citing Articles VII and VIII thereof), and is simply indispensable. In fact, according to petitioner, it is a condition
precedent for the payment of FUCCs claims for Progress Billing No. 6 and for Price Escalation for Progress Billings Nos. 1 to 5. And
since FUCC allegedly failed to comply with this condition precedent, it had no existing or accrued cause of action to compel NHA to
[85]
pay the two (2) claims.
Respondent counters that the Payment Guarantee Bond was required by NHA at the inception of the Project as a condition
[86]
for the release of the advance payment to FUCC in the amount P85.2 Million, and not as a requirement for the processing or
[87]
release of FUCCs Progress Billings; that the Payment Guarantee Bond expired without the entire advance payment being
recouped by NHA because of the many work suspensions and delays suffered by the FVR Project; and that FUCC tried to renew the
[88]
bond but the GSIS refused because the Contract for the FVR Project had already been terminated as of 16 October 2001.
It is
respondents submission that since its inability to submit a renewed Payment Guarantee Bond from the GSIS was NHAs very own
act of terminating the Contract, NHA cannot use the same as reason not to process and pay FUCCs claims for Progress Billing No. 6
[89]
and for Price Escalation for Progress Billing Nos. 1 to 5.
We have meticulously examined the record vis--vis the submissions of the parties and find no reason to disturb the ruling
of the Court of Appeals.
The record shows that at the start of the FVR Project, FUCC received from NHA an advance payment for mobilization in the
[90]
amount of P85.2 Million, or fifteen percent (15%) of the contract cost.
There is no dispute that this advance payment was to be
recouped by NHA from FUCC by taking partial amounts from the progress payments to FUCC. There is likewise no dispute that to
secure the recoupment of this advance payment, NHA required FUCC to post a Payment Guarantee Bond in the amount of P85.2
[91]
Million issued by GSIS prior to the release of the advance payment.
It appears that before NHA could recoup from FUCC the entire advance payment, the Payment Guarantee Bond
[92]
expired. This, at a time when NHA had yet to recover some P38 Million out of the P85.2 Million advance payment.
FUCC tried to renew and pay for the extension of the bond but GSIS refused because the Contract for the FVR Project had
[93]
already been terminated as of 16 October 2001.
Because of the inability of FUCC to submit a renewed Payment Guarantee Bond from GSIS, NHA refused to process and pay
[94]
FUCCs claims for Progress Billing No. 6 and for Price Escalation for Progress Billings Nos. 1 to 5.

[95]

[96]

In two letters, one dated 23 May 2002, the other dated 6 June 2002, both addressed to the NHA General Manager,
FUCC appealed for help in the payment of these claims and proposed to procure an alternative surety bond from a private surety
[97]
firm accredited by the Insurance Commission to secure the balance of the advance payment still to be recouped by NHA.
[98]

As both letters drew no response from NHA, FUCC wrote a third letter dated 13 June 2002 reiterating its proposal to
submit a bond from a private surety company instead of a renewed Payment Guarantee Bond from the GSIS. It wrote thus:
The unexpected termination of the contract has already caused untold injury to the contractor. May we
request NHA not to add insult to the injury by allowing the private surety bond and by subsequently releasing our
[99]
claim for price escalation.
[100]

NHA finally replied

and acceded to FUCCs proposal provided that the private surety company was among the top five
[101]
(5) firms as endorsed by the Insurance Commission.
[102]

FUCC immediately wrote back

and provided NHA with a list of the top five non-life insurance companies as endorsed by
the Insurance Commission, and sought approval to procure a surety bond from any one of the firms, but preferably from Malayan
[103]
Insurance Company, Inc.
The foregoing evidence of record indisputably establish that FUCC made the offer to submit a surety bond from a private
surety company instead of a renewed Payment Guarantee Bond issued by the GSIS just so NHA would process and pay FUCCs claims
for Progress Billing No. 6 and for Price Escalation for Progress Billing Nos. 1 to 5. This offer was contained in three (3) successive
[104]
[105]
[106]
letters: the first dated 23 May 2002,
the second dated 6 June 2002,
and the third dated 13 June 2002.
[107]

When NHA acceded to FUCCs proposal in the letter dated 24 June 2002,
it accepted FUCCs offer but qualified its
acceptance by imposing the condition that the surety firm be among the top five surety firms as endorsed by the Insurance
[108]
Commission. This qualified acceptance constituted a counter-offer
which FUCC immediately accepted by way of the letter dated
[109]
3 July 2002.
In that letter, FUCC submitted to NHA the names of the top five surety companies from where it intended to obtain
the surety bond. Thus, a perfected agreement was reached between the parties, to wit: that FUCC would submit a surety bond
from one of the top five private surety companies to secure the balance of the advance payment still to be recouped by NHA, while
NHA would process and pay FUCCs claims for Progress Billing No. 6 and for Price Escalation for Progress Billing Nos. 1 to 5. There
[110]
was a perfected agreement because the contractual elements of consent, object certain and cause had concurred.
The evidence on record further show that the parties subsequently reconciled their computations and agreed on the
[111]
amount of P26,297,951.62 as payment for Price Escalation for Progress Billing Nos. 1 to 5.
In fact, in the letter dated 2 October
[112]
2002,
NHA advised FUCC that it would proceed with the processing of the escalation payment subject to the submission *of+ the
[113]
Surety Bond covering the balance for the recoupment of the advanced payment for mobilization.
In response, FUCC wrote NHA
[114]
a letter dated 4 October 2002
requesting that it be allowed to submit the surety bond immediately before *the+ release by NHA
of the check for the price escalation, with the understanding that until the bond is released and verified, NHA will hold the check,
[115]
owing to the unfavorable cash flow position of the project brought about by the untimely termination of the contract.
Since
[116]
NHA did not respond to FUCCs request nor object thereto, respondent assumed that NHA had tacitly accepted the same, a
stance supported by the CIAC and affirmed by the Court of Appeals in this wise:
As found by CIAC, petitioner never responded to this request, giving rise to the presumption that it had
not denied it. x x x This presumption holds considering that, even at this stage, petitioner never explained its
[117]
inaction.

Indeed, petitioner has not explained its inaction even in the instant petition. It merely posits that its silence cannot give
[118]
rise to the presumption that it had accepted the counter-proposal of FUCC
(referring to the request contained in the letter of
[119]
FUCC dated 4 October 2002),
which it claims to be a counter-proposal to the counter-proposal of petitioner NHA (referring to
[120]
the letter dated 24 June 2002).
But this stance is untenable. As discussed above, the letter of NHA dated 24 June 2002, containing a qualified acceptance
of FUCCs offer to submit a surety bond from a private surety company, constituted a counter-offer or a counter-proposal, if you
[121]
will, which was already accepted by FUCC in the letter dated 3 July 2002.
Thus, when FUCC wrote NHA the letter dated 4
[122]
October 2002,
there was no more counter-proposal on the table to speak of. FUCC wrote that letter in response to the letter
[123]
of NHA dated 2 October 2002
to make a reasonable request on a mere matter of procedure: that it be allowed to submit the

surety bond only when the check payment for its claim for price escalation is about to be released, with the understanding that NHA
will hold on to the check until it had received and verified the surety bond.
The intended purpose of the surety bond is self-evident: to ensure that NHA would be able to recover the unrecouped
balance of the advance payment in the still substantial sum of P38 Million. Understandably, NHA wanted the surety bond posted
before releasing further payments to FUCC. Clearly, therefore, for as long as the surety bond was to be posted and properly verified
before any check payment to FUCC could be released, the bond would have served its purpose. This was precisely the arrangement
[124]
sought by FUCC. Thus, NHA had no reason to refuse FUCCs request contained in the letter dated 4 October 2002,
which is
presumably the reason why it remained silent and gave no response, giving rise to the correct presumption that it had tacitly agreed
to FUCCs request.
Based on the foregoing disquisition, the Court cannot subscribe to the asseveration of petitioner that FUCC had no existing
or accrued cause of action to compel NHA to pay its claims for payment of Progress Billing No. 6 and for Price Escalation for Progress
Billing Nos. 1 to 5 at the time it filed its Complaint since FUCC allegedly failed to comply with a condition precedent or sine qua
[125]
non for the payment of said claims the posting of the Payment Guarantee (or Performance) Bond.
Cause of action is defined as an act or omission by which a party violates the right of another. A complaint is deemed to
have stated a cause of action provided it has indicated the following: (1) the legal right of the plaintiff, (2) the correlative obligation
[126]
of the defendant, and (3) the act or the omission of the defendant in violation of the said legal right.
Respondent had the right to be paid its claim for Price Escalation for Progress Billing Nos. 1 to 5 after NHA recognized the
validity of the claim and reconciled its computations with FUCC on the correct amount of price escalation to be paid. In fact, NHA
had expressed readiness to process the payment of the claim. As regards Progress Billing No. 6, petitioner similarly recognized the
validity of this claim. Indeed, petitioner does not contest the right of private respondent to be paid Progress Billing No. 6. What it
contests is merely the amount thereof, insisting that FUCC is only entitled to an award of P6,496,926.29 as against the amount
[127]
of P7,384,534.22 awarded by the CIAC.
Petitioners subsequent refusal to process and pay these claims despite FUCCs willingness to submit a surety bond to
secure the balance of the advance payment still to be recouped by NHA as the parties had agreed upon which bond would be
submitted when the check payment for the claim is about to be released, clearly constitutes a violation by NHA of FUCCs right to be
paid these acknowledged and recognized claims. Thus, respondent had an accrued cause of action against petitioner for these claims
at the time it filed its Complaint, the constitutive elements of which are clearly set forth therein.
There is nothing to support petitioners stance that the posting of the Payment Guarantee (or Performance) Bond is
decidedly a condition precedent or sine qua non for the payment of FUCCs claims for Progress Billing No. 6 and for Price Escalation
[128]
for Progress Billing Nos. 1 to 5.
The Court notes, upon a close examination of the Contract, that there is no provision therein that
requires FUCC to post a Payment Guarantee Bond as an indispensable condition for the recognition of the validity of its claim for
price escalation or for the processing and payment of its progress billings. Nor does the Contract refer to any other document from
where such a condition may be inferred.
The source of FUCCs obligation to post a surety bond as a substitute for the GSIS-issued Payment Guarantee Bond is not
the Contract but the subsequent agreement between the parties, to wit: that FUCC would submit a surety bond from one of the top
five private surety companies to secure the balance of the advance payment still to be recouped by NHA, while NHA would process
and pay FUCCs claims for Progress Billing No. 6 and for Price Escalation for Progress Billing Nos. 1 to 5. And the timing of the posting
[129]
of the bond was, as requested by FUCC in the letter dated 4 October 2002,
tacitly agreed to by NHA: that FUCC would post the
requisite bond only when the check payments for its acknowledged claims are about to be released, with the understanding that
NHA will hold on to the checks until it had received and verified the surety bond.
Petitioners reference to Article VII and VIII of the Contract to support its allegation that (t)he procurement or posting of a
Payment Guarantee (or Performance) Bond is a government requirement that cannot be excused under both law and
[130]
Contract
is misplaced. Article VII refers to the Performance Bond in the amount of P28,429,789.00 posted by FUCC to guarantee
[131]
the faithful performance of its scope of work,
which is decidedly different from the Payment Guarantee Bond in the amount
of P85.2 Million which NHA required FUCC to procure from GSIS and to post prior to the release of the advance payment in the
amount of P85.2 Million. A reading of Article VIII entitled CONTRACTORS ALL RISKS INSURANCE, on the other hand, readily reveals
that it has no relation at all to the Payment Guarantee Bond required by NHA to cover the recoupment of the advance payment to
[132]
FUCC.

It appears that petitioner pounced upon, and took out of context, the Court of Appeals ruling that (w)ithout question, the
filing of a bond is a condition for the payment of the foregoing claims of respondent to argue that since FUCC failed to comply with
a condition precedent or sine qua non for the payment of said claims, FUCC had no cause of action against NHA at the time it filed
the Complaint. Read in the proper context, the payment spoken of in the CA Decision actually pertains to the physical act of
releasing the check payments of FUCCs claims for Progress Billing No. 6 and for Price Escalation for Progress Billings Nos. 1 to 5.
The word payment is a noun that is used in two (2) general senses: as money paid, i.e. an amount of money that is paid
[133]
or due to be paid; or as the act of paying, i.e.the act of paying money, or fact of being paid.
In the case at bar, the word
payment was obviously used by the Court of Appeals in the sense of the act of paying, or more exactly, with respect to the
mechanical act of releasing the check payments for FUCCs claims for Progress Billing No. 6 and for Price Escalation for Progress
Billing Nos. 1 to 5. The Court of Appeals decreed that NHA may release the payment (meaning, the checks processed by NHA for
[134]
FUCCs claims) provided FUCC would post the requisite bond in the manner arranged by respondent with petitioner.
The evidence on record indubitably show that even as FUCC was ready to post the requisite bond in the manner agreed
upon by the parties, NHA still refused to process and pay FUCCs claims for Progress Billing No. 6 and for Price Escalation for Progress
Billing Nos. 1 to 5. In fine, and for emphasis, FUCC had an accrued cause of action to compel NHA to pay these claims at the time it
filed its Complaint.
II. Re: Amount of FUCCs Claim for Progress Billing No. 6
Petitioner ascribes grave error to the Court of Appeals for affirming the award made by CIAC for Progress Billing No. 6 in the
amount of P7,384,534.22 when FUCCs claim for said billing was allegedly only P6,496,926.29.
Anent this alleged error by the appellate court, it appears that FUCC originally submitted to NHA an Abstract of Physical
Accomplishment in support of Progress Billing No. 6, showing that its physical accomplishments during the period 1 July 2001 to 21
[135]
[136]
November 2001, amounted to P6,496,926.29.
However, what FUCC attached to its Complaint
was a different Abstract of
[137]
Physical Accomplishment showing that its accomplished works under Progress Billing No. 6 totalled P7,384,534.22.
According to petitioner, (i)f ever *it+ is legally liable to pay respondent FUCC for Progress Billing No. 6, it should pay only
[138]
the amount of P6,496,926.29, and notP7,384,534.22,
as the Abstract of Physical Accomplishments marked and offered as
Exhibit 15 was submitted by FUCC itself, through its then authorized representative, Engineer Edgardo S. De la Cruz, who had
[139]
affixed his conformity thereon, to support its claim for payments for the said accomplishments.
Petitioner also cites the direct
testimony of its sole witness, Engr. Raner, to the effect that (t)he only Abstract of Physical Accomplishment for Progress Billing No.
6 that was signed by FUCC and NHA is Exhibit 15, in which the amount agreed by both parties was P6,496,926.29. According to
Engr. Raner, (t)he alleged new Abstract of Physical Accomplishment for Progress Billing No. 6 could only be a fabricated
[140]
document.
The Court notes that a perusal of the Abstract of Physical Accomplishments offered in evidence by FUCC as Exhibit IIII
reveals that it was also signed by both parties, just like the Abstract of Physical Accomplishments offered in evidence by NHA as
Exhibit 15. In his testimony, FUCCs sole witness, Engr. Dumaliang, explained that many Abstracts for Physical Accomplishments
were caused to be prepared by NHA with different reduced amounts reflected thereon, which explains the apparently oscillating
[141]
figures for Progress Billing No. 6. Engr. Dumaliang admitted that FUCC might have indeed also signed Exhibit 15.
In short, FUCC
does not disown Exhibit 15. It is FUCCs stance that both Exhibit IIII and Exhibit 15 are duly executed documents but Exhibit
IIII, which it alleges was submitted later, supersedes Exhibit 15 and contains the correct amount of FUCCs accomplished works
[142]
under Progress Billing No. 6.
These conflicting claims between the parties as to the correct amount that petitioner is legally liable to pay respondent
for Progress Billing No. 6 was resolved by the CIAC in favor of FUCC. The CIAC found that the amount of P7,384,534.22 governs
over the claim of NHA in its Exhibit 15 for the amount of P6,496,926.29. According to the CIAC, both Exhibit IIII and Exhibit 15
were signed by the representatives of FUCC and NHA. However, below the signatures in Exhibit 15 are handwritten notations
saying that such document is not final but conditional. The pertinent portion of the CIAC Decision reads thus:
The Arbitral Tribunal finds the abstract of Physical Accomplishment for Progress Billing No. 6 in Exhibit
IIII submitted by FUCC in the amount of P7,384,534.22 governs over the claim of NHA in its Exhibit 15 for the
amount of P6,496,926.29 (see Stipulated Facts No. 25.1.2).
The Arbitral Tribunals finding is based on the signature by a representative of FUCC in Exhibit IIII
together with that of NHA representative (Mr. Borlagdan, Head Tech. Staff of FVRP), while in Exhibit 15 the

signatures of both the NHA and FUCC representatives had handwritten notations below their respective
signatures, both signifying that such document is not final but conditional. Exhibit 15 therefore is not controlling
[143]
because of the signatures therein with handwritten conditions signifying further claims.

As this finding of fact by the CIAC was affirmed by the Court of Appeals, and it being apparent that the CIAC arrived at said
finding after a thorough consideration of the evidence presented by both parties, the same may no longer be reviewed by this Court.
The all too-familiar rule is that the Court will not, in a petition for review on certiorari, entertain matters factual in nature, save for
the most compelling and cogent reasons, like when such factual findings were drawn from a vacuum or arbitrarily reached, or are
grounded entirely on speculation or conjectures, are conflicting or are premised on the supposed evidence and contradicted by the
[144]
evidence on record or when the inference made is manifestly mistaken or absurd.
This conclusion is made more compelling by
[145]
the fact that the CIAC is a quasi-judicial body whose jurisdiction is confined to construction disputes.
Indeed, settled is the rule
that findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is
[146]
confined to specific matters, are generally accorded not only respect, but finality when affirmed by the Court of Appeals.
III.

Re: Award for Cost of Materials, Equipment and Facilities

Petitioner questions the propriety of the award for Cost of Materials, Equipment and Facilities in the amount
of P4,677,680.00.
This award has two components: (1) an award in the amount of P132,470.00 representing the cost of materials delivered by
FUCC to the project site but were not utilized due to the termination of the Contract; and (2) an award in the amount
of P4,545,182.82 representing the pro-rated cost of the facilities constructed by FUCC to support field operations for the FVR
[147]
Project.
[148]

Central to the resolution of the question raised by petitioner is Exhibit 19,

an NHA Internal Routing Slip dated 17
November 1997 transmitted by the Manager of the Southern Luzon and Bicol (SLB) Region to the Chairman of NHAs PBAC, which
reads as follows:
INTERNAL ROUTING SLIP
SUBJECT: MINIMUM REQUIRED OWNED EQUIPMENT AND KEY STAFF
RE: LAND DEVELOPMENT OF FREEDOM VALLEY
RESETTLEMENT PROJECT (PHASE 1), SITIO BOSO-BOSO, BGY.
SAN JOSE, ANTIPOLO, RIZAL
___________________________________________________________________
FOR/TO
:
FROM :
DATE
:
SIGNATURE
___________________________________________________________________
The Chairman : The Manager : 17 November :
PBAC
:
SLB :
1997
: NEOFITO A. HERNANDEZ
___________________________________________________________________

Submitted herewith is a listing of the minimum required owned equipment and key staff for the Land
Development of Freedom Valley Resettlement Project (Phase I) located at Sitio Boso-Boso, Bgy.San Jose, Antipolo,
Rizal.
A.

EQUIPMENT
1.
2.
3.
4.
5.
6.
7.
8.

NO. OF EQUIPMENTS

Tractors,crawler-type with dozer

Loaders, crawler-type
Grader, motorized
Road Roller, vibratory, smooth drum
Plate Compactor, vibratory
Backhoe, hydraulic, crawler-mounted
Slipform Concrete Paver
Wet-mix Concrete Batching Plant

6
3
6
6
3
6
1
1

9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.

Concrete Vibrator
Dump Trucks
Air compressor, portable
Pneumatic Breakers, hand held
Water Pump
Generator Sets, 500 KVA, total
Welding Machines
Water Trucks
Chain Saw
Concrete Cutter
Concrete Mixer, one bagger
Service Vehicles
Cranes
Transit Mixers
Total Stations

6
8
1
2
3
1
2
3
2
1
1
4
4
4
1
_____________

TOTAL
B.

KEY STAFF
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.

75
NO. OF MANPOWER

Project Manager
Project Engineers
Field Engineers
Sanitary Engineer
Electrical Engineer
Mechanical Engineer
Geodetic Engineer
Architects
Draftsmen
Foremen
Administrative Officer
Finance Officer
Liaison Officer
Purchasing Officer
Warehouseman
Clerk Typist
Drivers
Heavy Equipment Operators
Utilitymen
Heavy Equipment Mechanics
Instrument Men
Survey Aides

1
3
10
1
1
1
1
2
2
6
1
1
1
1
1
1
4
25
2
4
3
9
_____________

TOTAL

81

According to the Court of Appeals, this Internal Memo shows that NHA itself determined the minimum equipment and key
staff to be mobilized for the project, and since the project was pre-terminated, respondent is justified in seeking recovery of a
portion of the costs already incurred. Thus:
x x x. Petitioners own Exh.19 shows that it determined the minimum equipment and key staff to be
mobilized for the project x x x. It is implicit in these requirements that the infrastructure to house such equipment
and personnel (including NHA personnel) and facilitate their mobilization within the project site were also expected
to be provided by respondent. Hence, when respondent invested into such infrastructure, it did so with the
expectation to recover such costs at the end of the project. As the project was pre-terminated, respondent is
[149]
justified in seeking recovery of a portion of the costs already incurred.

The appellate court thus affirmed the award made by the CIAC to FUCC in the amount of P4,545,182.82 representing the
pro-rated cost of the facilities constructed by FUCC to support its field operations for the FVR Project (i.e.; the second component

under the award for Cost of Materials, Equipment and Facilities, and for Disengagement Costs). The appellate court also affirmed
the award in the amount of P132,470.00 representing cost of materials delivered by FUCC to the project site but were not utilized
due to the termination of the Contract (i.e.; the first component under the award for Cost of Materials, Equipment and Facilities, and
for Disengagement Costs), upon the finding that NHA was solely to be blamed for the lack of inventory of the unutilized
[150]
materials.
Petitioner disputes the holding of the Court of Appeals and maintains in the instant petition that it is not legally liable to pay
FUCC for Cost of Materials, Equipment and Facilities, and for Disengagement Costs because NHA could not have dictated upon FUCC
what equipment and key staff to mobilize in the FVR Project, as it was FUCC, logically being the contractor, which determined the
[151]
kind and number of equipment that should be deployed for the Project.
According to petitioner, Exhibit 19 was transmitted by
the Manager of the SLB Region to the PBAC Chairman in preparation for the public bidding of the FVR Project. The SLB Manager
listed the minimum required equipment and key staff that a participating contractor should own (as contradistinguished from
mobilize) to insure that no fly-by-night or puny contractor would participate in the bidding, as (t)he capability of the contractor
[152]
to build the Project is known by the equipment he owns.
In short, it is petitioners submission that Exhibit 19 was not meant to dictate and could not have dictated the kind
and number of equipment and key staff that FUCC should mobilize and/or actually mobilized for the FVR Project. It was issued by
the Manager of the SLB Region to the PBAC Chairman merely to serve as a checklist on the minimum required number of equipment
and key staff that a would-be contractor for the Project should own. Petitioner claims that there is a whale of difference between
owning and mobilizing, and that this difference completely escaped the Court of Appeals when it scrutinized Exhibit
[153]
19.
Since NHA had allegedly nothing to do with the deployment of FUCCs equipment and machineries for the FVR Project, it
should not be made accountable for the dire consequences, if any, of FUCCs business decision or judgment in procuring,
[154]
maintaining, constructing or dismantling these equipment and facilities, etc.
Petitioners arguments fail to persuade. The Court subscribes to the view expressed by private respondent that in a
government infrastructure project, the department or agency that owns the project dictates not only what facilities, equipment and
key technical staff the contractor should mobilize, it dictates as well the financial resources the contractor should muster for the
project, the bonds, guarantees and sureties it should put up, the plans, specifications, schedule, and the manner by which it should
[155]
prosecute the contract works, how it should bill for completed works, how it should document and claim variation orders, etc.
Indeed, this appears to be so in the case of the FVR Project. The very Contract entered into by the parties (which appears
to be a standard form contract with the blank spaces appropriately filled up) specifies the duration of the contract works and the
[156]
bonds, guarantees and sureties to be put up by FUCC,
and expressly states that, among other documents, the following shall
form part of the Contract, to wit: plans, specifications, certificate of availability of funds, concurrence of lending institutions, duly
[157]
approved program of work and cost estimates, PERT/CPM or equivalent schedule of work, etc.,
all of which demonstrate that
NHA, as the owner of the FVR Project, had full control over its implementation. This would certainly have included dictating or
imposing, as it were, the minimum equipment and key staff that had to be mobilized by FUCC to undertake the contract
works. Otherwise, NHA would have been remiss in its duty to ensure that the Project would be implemented properly and the
[158]
peoples money spent wisely. Indeed, there are rules and guidelines for the implementation of government contracts
that
procuring entities must follow to promote transparency and ensure that all contracts are performed strictly according to
[159]
specifications.
Be that as it may, even if Exhibit 19 was indeed issued merely to serve as a checklist on the minimum required number of
equipment and key staff that a would-be contractor for the FVR Project should own, the document indubitably establishes that FUCC
which was awarded the Contract for the Project could not have but assembled and mobilized a huge complement of men,
materials and equipment to be able to undertake the FVR Project consisting, at the very least, of the equipment and key staff listed
in said Exhibit 19, which were the minimum required by NHA. Whether FUCC owned the equipment or merely rented them
does not alter the fact that it had to provide the infrastructure to house such equipment and key personnel within the project site to
support its field operations. FUCC undoubtedly poured in money to put up such infrastructure, with the expectation that it would be
able to recover the costs thereof at the end of the Project. Thus, when the FVR Project was terminated due to no fault of FUCC,
[160]
respondent was eminently justified in seeking recovery of a portion of the costs already incurred
for such infrastructure, as
correctly held by the Court of Appeals.
The Court notes that in ruling as it did, the Court of Appeals merely affirmed the finding of the CIAC that (w)hen the whole
amount of the contract for facilities is not paid due to the termination of said contract which is caused not at contractors fault, the
[161]
Contractor should be paid the pro-rated balance having prepared the facilities for the whole project.
The Court further notes
that the amount of this award for the pro-rated cost of the facilities constructed by FUCC to support its field operations for the FVR
Project P4,545,182.82; as well as the amount of the award for the cost of the unutilized materials delivered by FUCC to the project

site P132,470.00, were not plucked out of thin of air. They were meticulously derived by the CIAC based on the evidence submitted
to the Arbitral Tribunal, as is readily apparent from the following pertinent portion of the CIAC Decision:
The work item in the contract for facilities had the corresponding amount. When the whole amount of the
contract for facilities is not paid due to the termination of said contract which is caused not at contractors
fault, the Contractor should be paid the pro-rated balance having prepared the facilities for the whole
project. These are consequences made in good faith and for usage in the project.
The construction facilities to support field operations are mandatory and necessary in the implementation
of the project where the contract usually provides in a form of mobilization at the project start, and those needed
during the full operation stage, e.g. laboratory, etc., and demobilization at the close of the project.
In the claim of FUCC, it included the Land Development of Heavy Equipment Yard, Office and Model
Houses, Container Vans, Warehouse, Barracks, Shops, Working Areas, Water Supply and Electrical Works. This
involves the total amount of P12,297,722.46.
The FUCC is asking the pro-rated amount of this P12,297,722.46 computed as follows:
Balance of Works, divided by the cost of the whole works, multiplied by the cost of facilities, thus;
P568,595,780.00 less P358,445,341.30 x P12,296,722.46
P568,595,780.00
This will result to P4,545,182.82 which the Arbitral Tribunal supports as the valid claim of FUCC for
component b) of its claim, or for facilities.
For the two components a) and b) for materials and facilities, NHA should pay FUCC the total
of P132,498.00 plus P4,545,182.82 or the total of P4,677,680.00 and not P4,801,992.82 as previously claimed by
[162]
FUCC.
It must be pointed out that nowhere in the instant petition does petitioner contest the foregoing formula and the figures
used by the CIAC or the amounts of the awards derived therefrom. Petitioner merely proffers the argument that NHA had nothing
to do with the deployment of equipment and machineries and, hence, should not be made accountable for the consequences of
FUCCs business judgment or decisions as regards their procurement, mobilization or maintenance. But both the CIAC and the Court
of Appeals have spoken. And the CIACs factual finding that FUCC ought to be paid the total amount of P4,677,680.00 for the Cost
of Materials, Equipment and Facilities remains uncontested. This factual finding, which was affirmed by the Court of Appeals, must
be accorded respect and finality by this Court, consistent with the settled rule that findings of fact of administrative agencies and
quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded
[163]
not only respect, but finality when affirmed by the Court of Appeals.
IV.

Re: Award for Idle Equipment

Petitioner asseverates that the award for Idle Equipment in the amount of P131,948,674.56 is not legally owing to FUCC
and will unjustly enrich FUCC at the expense of petitioner NHA because no perdition *was+ suffered by respondent FUCC from idle
[164]
equipment, as there was allegedly no actual or physical suspension of the contract works that occurred.
Verily, the determination of whether or not FUCC is entitled to an award for Idle Equipment hinges on a factual issue:
whether or not there was actual or physical suspension of the contract works at the FVR Project.
The CIAC Arbitral Tribunal found that there was such actual or physical suspension of the contract works a finding not
disturbed by the Court of Appeals. This Court could very well just simply say that there is no cause to review, must less overturn this
finding of fact, invoking the established rule that in petitions for review on certiorari, this Court is limited to reviewing only errors of
law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record, or the assailed judgment
[165]
is based on a misapprehension of facts.
But considering that the award for Idle Equipment involves a substantial sum P131,948,674.56 and if only to ascertain
that the factual findings of the CIAC are indeed not devoid of support by the evidence on record, the Court shall examine at length
the nature of this award and the bases of the findings of the CIAC Arbitral Tribunal and the judgment of the Court of Appeals.

First, it must be emphasized that FUCCs claim for Idle Equipment is limited to the period from 10 June 1998, when NHA
issued Partial Suspension Order No. 1, up to 15 March 1999, the original expiration date of the Contract. This time frame is clearly
[166]
defined in FUCCs Complaint.
The same time frame is also acknowledged by the CIAC as the period circumscribed by FUCCs
[167]
claim for Idle Equipment.
To support its claim for Idle Equipment, FUCC attached to its Complaint a Summary (marked and offered in evidence as
Exhibit QQQQQ) showing the equipment that were rendered idle and unproductive during the period 10 June 1998 to 15 March
1999, the duration of their idleness, their rates per hour, and the cost of idleness per kind of equipment. The cost of idle equipment
[168]
added up to a total of P142,780,800.00.
In its Answer, NHA sought to defeat FUCCs claim by interposing the defense that there is no basis for the award of Idle
Equipment because there was no actual or physical suspension of the contract works as shown allegedly by the Abstracts of Physical
[169]
Accomplishment for Progress Billings Nos. 1, 2, 3, 4 and 5 of FUCC.
During the presentation of evidence, FUCCs sole witness, Engr. Ben S. Dumaliang testified that Partial Suspension Order No.
1was never lifted because NHA was not able to fully address the farmers/planters demands and/or contain their resistance; and
that although Partial Suspension Order No. 1 mentions only the suspension of works at Cluster 2, it effectively stopped all contract
works in both Clusters 1 and 2, allowing FUCC to prosecute the FVR Project only in Cluster 3. According to Engr. Dumaliang, he saw
with [his] own two eyes in [his] thrice a week visits to the project site that there was practically no contract works going on in
[170]
Clusters 1 and 2.
Thus:
Q : The parties have stipulated that all works at Cluster 2 were suspended effective 10 June 1998 due to the
continued resistance of farmers/planters and other residents within the area to the FVR Project, under Partial
Suspension Order No. 1. When was this suspension lifted?
A : It was never lifted because the NHA was never able to fully address the demands and/or contain the
resistance of the farmers/planters and other residents within the area.
Q:

What contract works were affected by this suspension?

A : Although Partial Suspension Order No. 1 only mentions the suspension of works at Cluster 2, it effectively
stopped all contract works in both Clusters 1 and 2, allowing FUCC to prosecute the FVR Project only in Cluster 3.
Q : According to the NHA, even with the issuance of Partial Suspension Order No. 1, there was no actual or
physical suspension of the contract works, particularly in Clusters 2 and 3. What can you say about this?
A : That is not true. There was actual suspension of contract works in Clusters 1 and 2. I know this of my own
personal knowledge being the Project Director of FUCC for the FVR Project. As I said earlier, FUCC was able to
prosecute the project only in Cluster 3. I saw with my own two eyes in my thrice a week visits to the project site
that there was no [sic] practically no contract works going on in Clusters 1 and 2.
Q : But FUCC collected from and was paid the amount of P52.2 M for works done during the period supposedly
covered by Partial Suspension Order No. 1. According to the NHA, this shows that there was no actual or physical
suspension of the works. What can you say about this claim?
A : This P52.2 M was payment made by NHA to FUCC under Progress Billing No. 1 for works actually
accomplished during the period 16 March up to 30 June 1998. Partial Suspension Order No. 1 became effective
only on 10 June 1998. By that time, FUCC had been working for almost three (3) months and had accomplished a
lot. Hence, the fact that it was paid P52.2M under Progress Billing No. 1 does not prove that there was no actual or
[171]
physical suspension of the contract works because of Partial Suspension Order No. 1.
NHAs sole witness, Engr. Mariano E. Raner III, on the other hand, testified that Partial Suspension Order No. 1 was lifted on
[172]
13 June 1999.
Engr. Raner reiterated NHAs stance that there was no actual or physical suspension of the contract works as
[173]
shown by the Abstracts of Physical Accomplishment submitted by FUCC in support of its Progress Billings Nos. 1, 2, 3 and 4.
The CIAC Arbitral Tribunal found for FUCC and in the Decision dated 7 January 2004 rendered an award for Idle Equipment
in the amount of P131,948,674.56.

The CIAC Arbitral Tribunal debunked NHAs proposition that the Abstracts of Physical Accomplishments and the payments
made to FUCC under the Progress Billings show that there was no actual or physical suspension of the contract works by pointing
out: (1) that the work accomplishments under Progress Billing No. 1 were done during the first three (3) months of the Contract (i.e.
from 16 March 1998 up to June 1998) or before the issuance of Partial Suspension Order No. 1 on 10 June 1998; (2) that the work
items covered by Progress Billing No. 2 were mostly for slope protection, which were also partially done before the issuance
of Partial Suspension Order No. 1; and (3) that the accomplishments under Progress Billing No. 3 also consisted of slope protection
and other items of work that did not involve the use of the equipment that went idle. The CIAC Arbitral Tribunal also gave credence
to the testimony of Engr. Dumaliang that he saw with his own eyes that there was no equipment activity for the period 10 June 1998
[174]
to 15 March 1999.
The pertinent portions of the CIAC Decision dated 7 January 2004 are reproduced hereunder as follows:
NHA on the other hand contested the claim for payment of Idle Equipment with the principal reason that there
was no actual or physical suspension of the contract works during the Partial Suspension Order No.1, which was
proven by the payments of Progress Billings Nos. 1, 2, 3, 4, and 5, showing the items of works done in the Abstract
of Accomplishment, supporting the said Billings. x x x
In the Affidavit of the NHAs lone witness, Mr. Raner III, it stated that the alleged 25 February 1999 meeting was a
blatant lie, because there was never a meeting on such date, more so that there was no agreement to pay the
Idle Equipment claims. This allegations of the lone witness for NHA had been addressed and countered in the
various letters that were never denied by the various officials of NHA who received the letters without any
question, x x x except by the lone witness who only call it a blatant lie during the pendency of this case.
Upon perusal of the records in this case, it showed that in Admitted Fact No. 21, the period[s] for each billings [sic],
are as follows;
Billing No. 1 16 March 1998 to 30 June 1998
Billing No. 2 01 July 1998 to 31 December 1998
Billing No. 3 01 January 1999 to 15 October 1999
Billing No. 4 16 October 1999 to 31 January 2001
Billing No. 5 31 January 2001 to 31 June 2001
Gleaned from this data, only Billings [sic] Nos. 1, 2, and 3 are affected in the claims for payment of Idle
Equipment. However, in Billing No. 1, the period from 16 March 1998 to June 1998 is not affected in the claim for
payment of Idle Equipments. Likewise, in Billing No. 3, the period from 15 March 1999 (original contract expiry date)
to 15 October 1999 is also not affected in the claim for payment of Idle Equipment. This is because the claims for
payment of Idle Equipment is from 10 June 1998 to 15 March 1999.

It was alleged by NHAs lone witness, that there were works in Billings *sic+ Nos. 1 to 5 described in the Abstract of
Accomplishments attached therein, showing activities during the Partial Suspension period of 10 June 1998 to 15
March 1999.
This allegation of NHA was countered by the lone witness of FUCC that the Billing No. 1 were [sic] accomplishments
for the first three years of the contract, done long before the issuance of Partial Suspension order No. 1. And that
Billing No. 2 were [sic] composed of work items for slope protections, also partially done before the issuance of
Partial Suspension No. 1. For Billing No. 3, the accomplishments, as records will bear, are mostly slope protections
and other work items not involving the use of equipments.
Further, the lone witness for the FUCC testified categorically that he had visited the project thrice a week for the
whole contract duration, and saw from [sic] his own eyes that there was no equipment activity for the period 10 June
1998 to 15 March 1999.
The above facts had been addressed in sufficient details regarding the issue as to whether there was actual or
physical suspension of works for the period covered by the Partial Work Suspension Order No. 1. To discuss activities
[175]
within the other Suspension Orders is immaterial to the issue.

After ruling that there was actual or physical suspension of contract works in the FVR Project that left idle the large
complement of hardware, machinery, tools and equipment mobilized by FUCC, the CIAC Arbitral Tribunal then proceeded to derive
the value of the award for Idle Equipment in this wise:
It is noted that the period from 10 June 1998 when Suspension Order No. 1 was in effect, to 15 March
1999 when the original contract expired, is 278 days that FUCC claimed for payment of the Idle Equipment.
In the claim of payment for Idle Equipment for the 278 day period, FUCC listed 12-Bulldozers, 6-Backhoes,
2-Payloaders, 3-Graders, 3-Roadrollers, 4-Dump Trucks, 1-Water Truck, 1-Conc. Batching Plant, and 3-Transit
Mixers, all working at the average of 2.224 hours per day for 278 days. The respective modified ACEL rates in
Exhibit TTTTT was *sic+ applied for the corresponding equipment, such that the total claims amounted
[176]
to P142,780,800.00 (Exhibit QQQQQ).
x

Perusal of the records in this case showed that the listed equipment and number of units in the claim for
payment of Idle Equipment, are far below the Minimum Required Owned Equipment x x x, as listed during the
bidding, except that of the Bulldozers. Instead of only six (6) bulldozers required, the claim for payment of Idle
Equipment had twelve (12) bulldozers (see Exhibit 19).
The Arbitral Tribunal concluded that the claim for payment of Idle Equipment by FUCC is meritorious,
except the 12 bulldozers which should be reduced to 6 bulldozers in the computations of the payment. This is
because the increase of bulldozers from 6 to 12 is a business discretion of FUCC, decided at the start of the project,
which does not bind the Owner, especially that it resulted to non-use for almost one year.
The corresponding amount for the excess six bulldozers to be deducted is equal to 6 bulldozers multiplied
by 298 days and by the rental rate of P2920.00 per hour, further multiplied by 2.224 hours per day will result
to P10,832,125.44. This should be deducted from the claimed total of P142,780,800.00 and will result
[177]
to P131,948,674.56.

It cannot be gainsaid that the CIAC Arbitral Tribunal sifted through the evidence presented by both parties before making
the finding of fact that there was actual or physical suspension of the contract works that rendered the huge complement of FUCCs
machineries and equipment idle and unproductive during the period 10 June 1998 up to 15 March 1999. Further, the CIAC Arbitral
Tribunal painstakingly scrutinized the documents submitted by FUCC to support its claim for Idle Equipment before arriving at the
amount of P131,948,674.56 as its award for Idle Equipment, which is less than FUCCs claim of P142,780,800.00. Clearly, the factual
findings of the CIAC are based on substantial evidence on record, which are referred to in the CIAC Decision.
For example, the CIAC refers to the testimony of FUCCs sole witness, Engr. Dumaliang, to support its finding that the
physical accomplishments subject of Progress Billing No. 1 were actually done during the first 3 months of the works contract (from
[178]
March to June 1998), or before the issuance of Partial Suspension Order No. 1 on 10 June 1998,
which testimony is unrebutted.
Reference is also made to the following testimony of Engr. Dumaliang, which is similarly unrebutted, pertaining to the
physical accomplishments under Progress Billing Nos. 2 and 3, which belies the stance of NHA that there was no actual or physical
suspension of the contract works, to wit:
Q: Again, the NHA claims that even with the issuance of Suspension Order No. 1 due to the CDO issued by the
DENR, no actual or physical suspension of works was implemented. In fact, according to the NHA, FUCC collected
and was paid P16.1 M under Progress Billing No. 2 for the period 01 July to 31 December 1998 and P57 M under
Progress Billing No. 3 for the period 01 January to 15 October 1999, or during the supposed period of the
suspension order. What is your reaction to this?
A:
For a period of almost one year, or from 31 July 1998 up to 15 June 1999, all of the contract works were
actually and physically suspended because of Suspension Order No. 1. However, FUCC was allowed to do
mitigating slope protection and drainage works in Cluster 3. The amount of P16.1 M paid to FUCC under Progress
Billing No. 2 was payment for: (1) works accomplished before the suspension which were not paid under Progress
Billing No. 1; and (2) for slope protection and drainage works which were allowed by the CDO issued by the DENR.
Upon the other hand, the amount of P57 M paid to FUCC under Progress Billing No. 3 was payment for: (1) slope
excavation and drainage works done before the suspension but which were not paid because the covering

variation order (Variation Order No.1) had not yet been issued then; and (2) for slope protection works, consisting
of gabions and riprap, which were necessary to prevent further damage to the project while the suspension was in
effect. Verily, these payments do not prove that there was no actual or physical suspension of the contract works
[179]
because of Suspension Order No. 1.
It thus comes as no surprise that the Court of Appeals affirmed the award of the CIAC for Idle Equipment in its Decision
[180]
dated 1 August 2006,
where the appellate court additionally pointed out that petitioner had in fact acknowledged its liability to
FUCC for standby cost. Thus:

Petitioner further disclaims liability for the amount of P131,948,674.56 awarded to respondent as
payment for idle equipment. It argues that there is nothing in the contract or in PD 1594 and its implementing
rules which allows such award.
We are inclined, however, to agree with respondent that petitioner had acknowledged its liability for
standby cost. Its officer-in-charge Engr. Raner wrote in his 8 June 1999 Memorandum regarding the fact-finding
being conducted by the Office of Ombudsman, thus:
There is another compelling reason for the expeditious resumption of the works. The contractor
is claiming compensation for the large fleet of equipment, plant and facilities rendered idle and
unproductive due to suspension. The contractor has billed us some P142 M for the period June 1998 to
March 1999.
This claim is of course subject to evaluation of its merits, but under the General Conditions of the
contract, the contractor may be entitled to such compensation. x x x
Engr. Raner affirmed the foregoing statement when he testified on 9 December 2003.

[181]

xxx

The Court notes that Engr. Raner did affirm the recommendation contained in his Compliance Report to the
[182]
Ombudsman
when he testified on cross-examination during the hearing before the CIAC Arbitral Tribunal held on 9 December
2003. Thus:
ATTY. ALMADRO:
You recall, Mr. Witness, that the Ombudsman fact-finding report focused on the fact that there was a
delay in the project and that the Ombudsman wanted it immediately [resumed] because the FVR Project was a
funded project of the government and the Ombudsman felt that every day of delay was causing so much cost to
the government and reflecting a poor administration of a project and in your report, one of your
recommendations was, in fact, to make sure that works would actually resume immediately, is that correct?
ENGR. RANER III:
Yes.
ATTY. ALMADRO:
In fact, in Item 1 again of this report, there is a paragraph here and I would like to quote for the record,
there is another compelling reason for the expeditious resumption of the works. The contractor is claiming
compensation for the large fleet of equipment, plant and facilities rendered idle unproductive due to
suspension. The contractor has billed us P142 M for the period June 1998 to March 1999. This claim is of course
subject to evaluation of its merits, but under the general conditions of the contract, the contractor may be entitled
to such compensation. So you were well aware that there was a claim amounting to P142 Million as of June 1999
in connection with the idle equipment of the contractor?
ENGR. RANER III:
The claim that was expressed, we were informed at that time verbally.

ATTY. ALMADRO:
So you became aware at that time that is why it is your sentiments
ENGR. RANER III:
Yes.
ATTY. ALMADRO:
And you stated here that the contractor may be entitled to such compensation, at that time you felt there
was a basis for this claim.
ENGR. RANER III:
Yes. At that time, I felt there was a need to address the claim but as far as my level of position in the
project is concerned, my authority is but to recommend. If there will be recommendations that Ill be submitting,
[183]
of course, that will be subject to evaluation by management.
[184]

Citing the case of Public Estates Authority vs. Elpidio Uy, et al.,
where this Court affirmed the disputed arbitral award of
CIAC (a portion of which was for payment of the standby or idle time of equipment), the Court of Appeals sustained the award for
Idle Equipment and held that payment for standby time due to prolonged work suspension is legally tenable.
This Court cannot but agree with the holding of the Court of Appeals. More so because the CIAC which carefully
considered the conflicting claims of the parties and painstakingly scrutinized both the oral and documentary evidence of record
possesses the required expertise in the field of construction arbitration, as we had pointed out in the cited case of Elpidio Uy. In
that case, as in this case, we find no ground to disturb the arbitral award of the CIAC. Settled is the rule that findings of fact of
administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific
[185]
matters, are generally accorded not only respect, but finality when affirmed by the Court of Appeals.
Whatever questions there
may be regarding the legality of an award for standby time or Idle Equipment is put to rest by the case of Elpidio Uy.
In the instant petition, NHA reiterates and insists that FUCC does not deserve an award for Idle Equipment because FUCC
was actually and continuously performing contract works on the FVR Project from 16 March 1999 to 21 November 2001; that its
[186]
equipment never went idle; and that it was paid for its contract works during this period.
As heretofore shown, this stance of NHA was found to be untenable by the CIAC Arbitral Tribunal whose factual findings
were affirmed by the Court of Appeals. Further, the argument that FUCC continuously performed contract works on the FVR Project
from 16 March 1998 to 21 November 2001 so that its equipment never went idle is flawed because FUCCs claim for Idle Equipment
is circumscribed within the period from 10 June 1998 to 15 March 1999 only. Quite obviously, works performed before 16 March
1998 and after 15 March 1999 are of no moment and are totally irrelevant to FUCCs claim for Idle Equipment.
Petitioner dwells at length on the Batching Plant of FUCC to show that FUCCs machineries and equipment never went
[187]
idle.
But this is woefully misplaced because, and this bears repeating: FUCCs claim for Idle Equipment is only for the period 10
June 1998, when the contract works were first suspended by Partial Suspension Order No. 1, up to 15 March 1999, the original
expiry date of the Contract, and not from 16 March 1998 to 21 November 2001, as petitioner adamantly insists in the present
petition. Therefore, and as correctly pointed out by respondent, even if FUCC had in fact used its machinery and equipment after 15
March 1999 for other endeavors, it would not in any way affect the validity of FUCCs claim for Idle Equipment.
V. Re: Whether or Not Claims for Cost of Materials, Equipment and Facilities,
Disengagement Costs and Idle Equipment are Arbitrable by the CIAC
The CIAC granted an award to FUCC for Disengagement Costs in the total amount of P65,842,309.72. This award has 3
components, to wit:
(1) Foregone Equipment Rental
(2) Extended Overhead Costs
(3) Foregone Income

P34,216,692.90
10,541,872.27
21,083,744.55
________________________

[188]

TOTAL

P65,842,309.72

Foregone Equipment Rental was derived by the CIAC by multiplying the equipment hours and rate of rental per hour, and
further multiplying by the number of equipment for each respective type of equipment mobilized by FUCC for FVR Project, as
[189]
presented in Exhibit NNNNN.
The equipment hours is an estimate of the number of hours each of the equipment would still be
used to construct the remaining works of the Project had the Contract not been terminated. Thus, the reckoning point of Foregone
Equipment Rental is the date of termination of the Contract, or as of 17 October 2001. For had the Contract not been terminated,
FUCC would have used the equipment listed in Exhibit NNNNN to complete the Project and would have been paid therefor. Gone
therefore was that payment which should have been income for FUCC.
As explained by respondent, Foregone Equipment Rental is different from the award for Idle Equipment, which pertains to
the recovery of the huge loss incurred by FUCC when a large part of its complement of machinery and equipment were rendered
idle during the period from 10 June 1998, when the contract works were first suspended, up to 15 March 1999, the original expiry
date of the contract. The two items of award Idle Equipment and Foregone Equipment Rental are not only of different natures,
[190]
their reckoning periods are not the same. Hence, they cannot overlap.
FUCC sought to be paid P47,400,000.00 for Foregone Equipment Rental, but after assessment and appraisal, the CIAC
[191]
Arbitral Tribunal awarded only the amount ofP34,216,692.90 for this claim.
With regard to Extended Overhead Costs, the CIAC awarded to FUCC the amount of P10,541,872.27, which it derived by
multiplying the value of the remaining contract works for the FVR Project (which the CIAC determined to be P210,837,445.49) by 5%,
[192]
the standard rate of overhead used in the industry. Thus: P210,837,445.49 x .05 =P10,541,872.27.
Extended Overhead Costs cover costs and expenses for manpower, utilities, and other similar services or resources that
were already committed, delivered, paid for or expended for the totality of the FVR Project, but which can no longer be recovered
[193]
because of the termination of the Contract.
It is different from the Cost of Facilities and Equipment, which pertains to the
prorated cost of the facilities FUCC constructed to support the field operations for the entire FVR Project (i.e.; the heavy equipment
yard, office and model houses, container vans/warehouses, shops, kitchen and other working areas, etc.) that it also expected to
[194]
recover at the end of the project, but which similarly can no longer be recovered because of the termination of the Contract.
For the award of Foregone Income, the CIAC multiplied the value of the remaining contract works (P210,837,445.49) by
10%, instead of using the usual rate of profit in the industry, which is 12% for contracts not exceeding P100,000,000.00. The CIAC
justified the applied 10% rate of profit since it is also an industry practice that a lesser percentage of profit is allowed for bigger
[195]
projects. Under the circumstances this is fair enough. Thus: P210,837,445.49 x .10 = P21,083,744.55.
Foregone Income
[196]
represents the profit that FUCC would still have earned had the FVR Project been completed now gone.
In the Decision dated 1 August 2006, the Court of Appeals affirmed the CIACs award for Foregone Income, but remanded
[197]
to the CIAC for re-computation the awards for Foregone Equipment Rental and Extended Overhead Costs.
It remanded the
award for Foregone Equipment Rental because it is not shown how CIAC or respondent arrived at the correct number of hours each
type of equipment is still subject to rent. Also, the appellate court wanted to make sure that the period subject to Foregone
[198]
Equipment Rental already excluded the period subject to standby cost
or, in short, that the award for Idle Equipment and the
award for Foregone Equipment Rental did not overlap.
[199]

In the Compliance dated 17 August 2006,

the CIAC emphasized that NHA never disputed FUCCs claim for Foregone
[200]
Equipment Rental
and disclosed that (i)n preparation of the CIACs decision, the members of the arbitral tribunal lengthily
deliberated the disengagement issue, more importantly in the correct number of hours each type of equipment which [sic] is still
subject to rental, and the possibility of overlapping the dates of the rental claimed for idle period with the claim for the period in the
[201]
foregone equipment rental.
According to the CIAC, it was well noted at the outset, that the claim for rental of idle equipment
for the period 10 June 1998 to 15 March 1999 x x x could never overlap with the claim for foregone rental of equipment in the claim
for disengagement costs, which period will be reckoned starting from the date of contract termination x x x until the project should
[202]
have been completed, if not terminated.
The CIAC then proceeded to show exactly how it computed and arrived
atP34,216,692.90 as the correct amount of the award for Foregone Equipment Rental.

As regards the award for Extended Overhead Costs, the Court of Appeals ordered a remand for itemization and recomputation to guard against a possible double claim, referring to cost of facilities and equipment which, according to the
[203]
appellate court, does not seem to be any different from respondents claim for extended overhead costs.
[204]

In the Compliance dated 17 August 2006,

the CIAC explained that (i)n the construction industry practice, overhead cost
[205]
is 5% of the project cost.
Since the final contract amount for the FVR Project was P488,393,466.98 and the amount already paid
by NHA to FUCC was P271,207,922.18, then the balance of the contract works still to be done to complete the Project at the time of
termination, according to the CIAC, was P217,185,544.80. Therefore, the Extended Overhead Costs should be 5%
[206]
ofP217,185,544.80, or P10,859,274.24,
which is slightly different from the original figure of P10,541,872.27, owing to the recomputed value of the remaining contract works, which became P217,185,544.80 instead of P210,837,445.49.
The Court of Appeals did not order the remand and re-computation of the third component, Foregone Income, but since
the value of the remaining contract works was re-computed by CIAC to be P217,185,544.80 instead of P210,837,445.49, then
Foregone Income, which was derived by the CIAC by multiplying the value of the remaining contract works by 10%, should
be: P217,185,544.80 x .10 = P21,718,554.48.
In this regard, we note that the CIAC as pointed out by respondent indeed committed a glaring typographical error in
[207]
the Compliance dated 17 August 2006 when it wrote that the award for Foregone Income is P25,300,493.46.
This is a wrong
figure. The correct figure for Foregone Income should be P21,718,554.48.
Therefore, as re-computed by the CIAC pursuant to the remand orders contained in the Decision of the Court of Appeals
dated 1 August 2006, and taking note that the correct figure for Foregone Income is P21,718,554.48, not P25,300,493.46, the total
amount of the award to FUCC for Disengagement Costs is P66,794,521.62, itemized as follows:
(4) Foregone Equipment Rental
P34,216,692.90
(5) Extended Overhead Costs
10,859,274.24
(6) Foregone Income
21,718,554.48
________________________
TOTAL
P66,794,521.62

The record shows that after the CIAC submitted its Compliance on 17 August 2006, NHA filed an Omnibus Motion dated 22
[208]
August 2006
that incorporated its Motion for Reconsideration of the Decision dated 1 August 2006, and its Motion to Require the
CIAC to Explain and to Hold in Abeyance the Re-Computation of Award.
The Court examined the record and notes that petitioner had not, either in its petition with the Court of Appeals, or in the
Omnibus Motion, or in the instant petition, assailed the correctness of the amounts of the award for the three components of the
Disengagement Costs derived by CIAC. As the CIAC itself emphasized, NHA never disputed FUCCs claim for Foregone Equipment
Rental and the amount of award thus reached by the CIAC.
What petitioner questioned before the Court of Appeals in its Omnibus Motion was merely the legal basis of the award
for Disengagement Costs, reiterating the argument that NHA could not have dictated what equipment and key staff to mobilize for
[209]
the FVR Project, as it was FUCC alone which determined the kind and number of equipment to be deployed for the Project.
But
[210]
the Omnibus Motion was denied by the Court of Appeals in the Resolution dated 31 January 2007.
This Court, therefore, finds no cogent reason to disturb the total amount of the award for Disengagement Costs derived and
re-computed by the CIAC, as summarized and shown above.
The Court is aware that in the Resolution dated 31 January 2007, the Court of Appeals did not act upon the Compliance
submitted by the CIAC on 17 August 2006 as it was made by only two arbitrators. According to the Court of Appeals, it cannot be
considered an award of the Arbitral Tribunal, citing Section 16.2 of the Revised Rules of Procedure Governing Construction
[211]
Arbitration (the Revised CIAC Rules), in relation to Section 10.4 thereof.
We do not agree with the Court of Appeals in this regard. The Compliance is not an award, let alone the Final award
spoken of in Section 16.2 of the Revised CIAC Rules. The CIAC Arbitral Tribunal already rendered a Final award in the Decision
dated 7 January 2004. The Compliance merely clarifies and presents a re-computation of some items of the Final award. It does
not alter or supersede the Final award nor purport to be a new award. Further, Section 10.4 of the Revised CIAC Rules states that
in case any Arbitrator should resign, etc., the CIAC may, within five days from the occurrence of a vacancy x x x, appoint a
substitute(s) to be chosen. The use of the permissive may, rather than the mandatory shall indicates that the appointment of a

third member of the CIAC Arbitral Tribunal is not indispensable for the tribunal to discharge its functions. The records show that a
vacancy in the Arbitral Tribunal occurred with the demise of Lauro M. Cruz. Nothing in the Revised CIAC Rules prevents the
remaining two members who constitute a majority from complying with the remand orders of the Court of Appeals. The Court
thus gives imprimatur and deems as approved the Compliance submitted by the CIAC. We find that it sufficiently complies with the
remand orders contained in the CA Decision dated 1 August 2006 and presents a correct method of computation of the arbitral
award.
In the present petition, the sole issue presented by petitioner against the award for Disengagement Costs is that
Disengagement Costs, like the Cost of Materials, Equipment and Facilities, and Idle Equipment are business losses which were nonarbitrable under the CIAC Rules of Procedure Governing Construction Arbitration, which was in place at the time FUCC filed its
Complaint on 17 July 2003. According to petitioner, the Court of Appeals gravely erred when it sustained the CIAC (which ruled that
there is no basis to exclude claims for business losses), and held in the Decision dated 1 August 2006 as follows:
We agree with CIAC. In fact, we need not indulge in hair-splitting anymore. In Gammon Philippines, Inc.
versus Metro Rail Transit (G.R. No. 144792, January 31, 2006), the Supreme Court held that there is no basis for
the exclusion of claims for business losses from the jurisdiction of CIAC. It explained:
Relevantly, while the above-quoted provision of the Rules of Procedure Governing Construction
Arbitration lists as non-arbitrable issues claims for opportunity/business losses and attorneys fees, this
provision was not carried over to the Revised Rules of Procedure Governing Construction Arbitration
which was approved on November 19, 2005. Such omission is not without good reason. EO 1008 itself
excludes from the coverage of the law only those disputes arising from employer-employee relationships
which are covered by the Labor Code, conveying an intention to encompass a broad range of arbitrable
issues within the jurisdiction of CIAC. (Emphasis added)
Moreover, as pointed out by respondent, the second paragraph of Sec. 2 allows claims for unrealized
expected profits and those arising from the rescission or termination of a contract. x x x (pp. 1576-1577, Rollo)
Certainly, the claims sought to be satisfied in this case arose from the early termination of the Contract which
deprived respondent of the prospect to make profit out of the investment it had already poured into the
venture. It makes sense that respondent should be allowed to recover what opportunity it may have lost,
[212]
especially when it was not to blame for the aborted contract.
We need not belabor this issue any further. As the appellate court correctly points out, we have already categorically ruled
[213]
in Gammon Philippines, Inc. vs. Metro Rail Transit,
that there is no basis for the exclusion of claims for business losses from the
jurisdiction of CIAC because Executive Order No. 1008 (EO 1008), the law that created the CIAC, excludes from the coverage of the
law only those disputes arising from employer-employee relationships which are covered by the Labor Code, conveying an intention
to encompass a broad range of arbitrable issues within the jurisdiction of CIAC.
The nature and bases of the awards for Disengagement Costs consisting of three components, namely: Foregone
Equipment Rental, Extended Overhead Costs and Foregone Income; and the awards for Cost of Materials, Equipment and Facilities,
and Idle Equipment have been discussed at length. They are either business or opportunity losses or foregone profits that resulted
from, or are the necessary consequences of, the termination of the Contract. They arose from and are inextricably linked to the
construction dispute between NHA and FUCC that was the subject of arbitration proceedings before the CIAC. We find and so hold
that they are arbitrable claims within the ambit of Section 4 of EO 1008, which defines the jurisdiction of the CIAC. Thus:
SECTION 4. Jurisdiction.The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines, whether the
disputes arises [sic] before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual provisions;
amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of
employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.

Section 4 provides that (t)he jurisdiction of the CIAC may include but is not limited to x x x, underscoring the expansive
character of the CIACs jurisdiction. Very clearly, the CIAC has jurisdiction over a broad range of issues and claims arising from
construction disputes, including but not limited to claims for unrealized profits and opportunity or business losses. What EO 1008
emphatically excludes is only disputes arising from employer-employee relationships.
Section 2, Article IV of the previous CIAC Rules of Procedure Governing Construction Arbitration cited by petitioner, which
[214]
purports to exclude claims for business losses,
contravenes EO 1008 and is a patent nullity; it is void ab initio. In legal
contemplation, that section of the previous CIAC Rules never acquired force and effect and cannot be applied to this case. What
applies is Section 2.1 of the Revised Rules of Procedures Governing Construction Arbitration that was promulgated on 19 November
2005. Indeed, and as pointed out by the Court of Appeals in the Resolution dated 31 January 2007, CIAC Resolution No. 02-2006
(Defining the Coverage of the Revised Rules of Procedure Governing Construction Arbitration) states that the Revised Rules shall
[215]
be applicable to all pending cases upon its effectivity on 15 December 2005 and all cases which are to be filed thereafter.
This
case was filed on 17 July 2003 and was pending as of 15 December 2005.
But even granting for the moment that Section 2, Article IV of the previous CIAC Rules is a valid provision that may be
applied to the case at bar, still the CIAC was eminently correct in ruling that under the first paragraph of Section 2, Article IV, only
opportunity/business losses in addition to liquidated damages are not arbitrable. When the opportunity/ business losses are
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sought independently of liquidated damages, as in the instant case, they are perforce arbitrable.
This ruling of the CIAC was
upheld by the Court of Appeals in the Decision dated 1 August 2006. The Court sees no reason to hold otherwise.

VI.

Re: Whether or Not the Termination of Contract for FVR Project was Unilateral
Was the termination of the Contract for the FVR Project a unilateral act of NHA?
Without doubt, said the Court of Appeals, thusly:
This brings us to the next assigned error. Petitioner insists that it should not be made to bear all the
consequence of the termination of the project for respondent consented to it. It gave its tacit consent by not
protesting the termination. x x x Moreover, even if it were true that the termination was unilateral on the part of
petitioner, the latter is excused from any liability because the termination was due to reasons beyond its control. x
x x.
Such argument is futile. Respondent could not have consented, tacitly or otherwise, to the termination of
the project because that decision was made entirely by petitioners board of directors. Its September 25, 2001
Resolution No. 4450, reclassifying the project into a mixed-market site and services project, is clear evidence that
respondent had no participation whatsoever in the formulation of the decision. Without doubt, the termination of
the project was unilateral.
It was also due to factors well within the control of petitioner. While geological or geophysical conditions
in the project site rendered work difficult, the Mines and Geosciences Bureau (MGB) investigated landslides in the
area merely for revision of the design plan of the project. x x x Petitioner, however, did not act on this
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recommendation despite repeated requests by respondent.

We find no cogent reason to disturb this finding of the Court of Appeals. The evidence on record plainly reveals that the
decision to terminate the Contract and to redraft the FVR Project as a mixed-use development under a joint venture scheme with
interested parties was made by NHAs Board of Directors alone. There is no showing and petitioner does not allege that FUCCs
consent was sought by the Board of Directors directly or indirectly, through responsible officers of NHA, before Resolution No.
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4450
was passed. Neither is there any showing and petitioner does not allege that NHA made formal representations with
FUCC to negotiate the termination of the Contract for the FVR Project.
What the records reveal, according to the CIAC, is that (i)n a letter dated 16 October 2001, a Memorandum by the OIC of
the FVR Project, recommended for the termination of the Contract. The approval of this Memorandum was recommended by
Neofito A. Hernandez, NHA Manager for Southern Luzon/Bicol, and was approved by Edgardo D. Pamintuan, NHA General Manager
(Exhibit 1). The following day, 17 October 2001, the NHA General Manager advised FUCC of the termination of the Contract, citing
among others that FUCC should x x x immediately stop the ongoing works and avoid further expenses including the provision of
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vehicles and other services for the NHA Project Team.

The foregoing findings of the CIAC support the stance of respondent that NHA unilaterally terminated the Contract; that
FUCC was presented with a fait accompli, and there was nothing more that it could do to stop the unilateral termination of the
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Contract.
Moreover, as aptly held by the Court of Appeals, the termination was due to factors well within the control of
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petitioner.
Hence, NHA cannot invoke Clause 3.04.06 of the General Conditions of the Contract, which provides that (t)he
Authority may terminate the Contract upon (10) days written notice to the Contractor, if it is found that reasons beyond the control
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of either the Authority or Contractor make it impossible or against the Authoritys interest to complete the work.
Petitioner argues in the instant petition that (t)he geological or geographical make up of the Project site is one reason that
made it physically difficult if not impossible to pursue the FVR Project, and that (i)t was precisely for this reason that the
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Project was re-classified from a resettlement to a mixed-used *sic+ project.
But as correctly observed by respondent, NHA, as Project owner, was supposed to have known the geological or
geographical make-up and the potential hazards of the project site, and should have taken these into account in the original
development plan for the FVR Project. It appears that NHA failed to conduct a complete feasibility study and comprehensive
technical evaluation of the FVR Project before embarking thereon. Thus, it had to suspend the project and revise the development
plans in the middle of the contract works to avert a tragedy, in light of the findings of the MGB, and eventually had to abandon the
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project.
Further, while petitioner now claims that the geological or geographical make up of the Project site made it physically
difficult if not impossible to pursue the FVR Project, which reason is allegedly beyond its control, this reason was never
articulated in the letter dated 17 October 2001. In that letter, the NHA General Manager simply advised FUCC of the termination of
the Contract and directed that FUCC should immediately stop the ongoing works and avoid further expenses.
It would appear to the Court that this pretended reason was belatedly and purposely foisted to place the termination
within the ambit of the cited Clause 3.04.06. But not only is the reason unavailing, it is utterly misplaced because the letter dated 17
October 2001 does not comply with the 10 day written notice to the contractor required by the very Clause 3.04.06 that petitioner
invokes. This letter-notice of NHA imposes an immediate termination with its stern admonition that FUCC should immediately stop
the ongoing works and avoid further expenses including the provision of vehicles and other services for the NHA Project Team.
In Home Development Mutual Fund vs. Court of Appeals, G.R. No. 118972, 3 April 1998, the Court held that requirements
of contracts as to notice as to the time of giving, form, and manner of service thereof must be strictly observed because in an
obligation where a period is designated, it is presumed to have been established for the benefit of both the contracting
parties. Thus:
The law mandates that Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
Did petitioners comply with their contractual obligation in good faith, when they served the requisite
written notice to private respondents nine (9) days after the expiration of the Agreement? The answer to this
crucial question is in the negative.
The second clause of the contractual provision in dispute is to the effect that written notice of
termination should be served at least thirty (30) days in advance. As a rule, the method of terminating a contract is
primarily determined by the stipulation of the parties. Thus, the requirements of contracts as to notice - as to
the time of giving, form, and manner of service thereof - must be strictly observed because in an obligation where
a period is designated, it is presumed to have been established for the benefit of both the contracting parties.
Thus, the unilateral termination of the contract in question by the herein petitioners is violative of the principle of
mutuality of contracts ordained in Art. 1308 of the New Civil Code. (Emphasis supplied)
Indeed, even if NHA is permitted to invoke Clause 3.04.06 of the General Conditions of the Contract, its own failure to
comply with the notice requirement thereof being violative of the principle of mutuality of contracts resulted in the unilateral
termination of the Contract.
In any case, and quite importantly, NHA failed to present evidence to buttress its stance that the termination of the
Contract was due to factors beyond its control as to justify the application of Clause 3.04.06. On the contrary, the fact that the NHA
Board resolved to redraft the FVR Project as a mixed-use development under a joint venture scheme with interested parties shows
that NHA had other options at hand and could have chosen to negotiate with FUCC to amend the Contract instead of deciding to

terminate the same. The conclusion is ineluctable: the termination of the Contract was well within the control of NHA, as correctly
held by the Court of Appeals.
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Petitioner posits that the letter of FUCC to NHA dated 27 August 2001
reveals that FUCC explicitly, if not expressly,
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welcomed or accepted the termination of the FVR Project with alacrity.
The letter reads thus:
May we formally inform you that we have refrained from implementing the works under our FVR contract
pursuant to your instructions that our contract will be terminated and that project costs should now be contained.
We were advised that NHA has found FVR to be unsuitable for squatter settlement owing to its unfavorable
geology and terrain. It is therefore being redrafted for mixed-use development on a joint venture scheme.
This was conveyed to us by the Office of the General Manager and the same was confirmed by the SLB
Manager and the FVR Officer-in-Charge.
Indeed, several prospective parties have inspected the site for a possible joint venture engagement with
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National Housing Authority.
The Court does not agree. We believe that the letter cannot be read in isolation but should be understood in relation to the
situation of the parties and juxtaposed against the contemporaneous events then affecting the FVR Project. The records show that
at the time the letter was sent, FUCC had pending claims against NHA. It had a pending claim for payment of Idle Equipment in the
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[229]
amount of P142,780,800.00,
and a pending claim for payment of Price Adjustment in the amount of P15 Million.
According to respondent, NHA wanted FUCC to resume the contract works for the FVR Project full blast but FUCC refused
citing as reason NHAs failure to settle its pending claims, particularly its claim for Price Adjustment. During this time, talk was rife
that NHA would terminate the contract and redraft the FVR Project as a mixed-use development under a joint venture with
interested parties. In late August 2001, FUCC was verbally instructed to refrain from implementing the contract works as the
termination of the Contract was imminent. It was at this point that FUCC wrote the letter dated 27 August 2001 advising NHA that it
had refrained from implementing the contract works pursuant to your instructions that our contract will be terminated and that
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project costs should now be contained.
Respondent explains that it wrote the letter to put on record an added justification for its earlier refusal to resume the
contract works full blast. Since there was already a verbal instruction to refrain from implementing the contract works as the
termination of the Contract was purportedly imminent, it simply did not make sense for FUCC to be spending more for the FVR
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Project which would only end up as an added claim against NHA, with no clear prospects of being immediately paid.
Viewed in this light, i.e.: that FUCC indeed had pending claims with NHA for the payment of substantial amounts that had
remained unpaid despite repeated follow-ups, FUCCs immediately stopping the contract works even before its receipt of the
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Notice of Termination
as petitioner puts it does not show tacit consent on the part of FUCC to the termination of the
Contract.
VII.

Re: Errors in Computation

In its Comment, respondent pointed out that errors were committed by the CIAC when it complied with the remand orders
of the Court of Appeals in the Decision dated 1 August 2006. One such error, as earlier noted, is the amount of the award for
Foregone Income. Instead of the correct amount of P21,718,554.48, what appears in the Compliance is the wrong figure
of P25,300,493.46. This error appears to be purely typographical.
Respondent identified another error: an error of omission relating to the computation of interest on the other items of
award granted to FUCC. The Compliance shows that the CIAC Arbitral Tribunal correctly re-computed the 6% interest on Foregone
Equipment Rental using as reckoning dates: (1) 9 January 2002, the date of demand by FUCC against NHA for the claim, as the
beginning date; and (2) 1 August 2006, or the day of the promulgation of the Decision of the Court of Appeals, as the final date, as
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this was the day the final arbitral award in favour of FUCC became executory.
But the CIAC Arbitral Tribunal inadvertently omitted to re-compute the 6% interest on each of the other awards using the
same final date of 1 August 2006. We refer specifically to: (1) the 6% interest on the award for Progress Billing No. 6; (2) the 6%
interest on the award for Cost of Materials, Equipment, Facilities, etc.; (3) the 6% interest on the award for Price Escalation; 4) the
6% interest on the award for Price Adjustment; and (5) the 6% interest on the award for Idle Equipment.

As reflected in the CIAC Decision dated 7 January 2004, the 6% interest on each of these awards was reckoned by the CIAC
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from the date of demand up to 1 December 2003 only.
In light of the CA Decision dated 1 August 2006, the CIAC should have recomputed the 6% interest on each of these awards from the date of demand up to 1 August 2006. In short, the CIAC inadvertently
omitted to account for the 6% interest accruing from an additional period of 973 days (i.e.; there are 973 days from 1 December
2003 up to 1 August 2006) for each of these awards.
[235]

The Court takes judicial notice that Mathematics is an exact science.

As the aforesaid error of omission is susceptible of
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correction using a straightforward mathematical formula already laid down by the CIAC in its Decision,
which formula has never
been questioned by petitioner, and considering further that petitioner has not interposed any objection to the proposition of
respondent that the oversight committed by the CIAC in the Compliance ought to be corrected, the Court shall no longer remand
this case to the CIAC for re-computation but shall proceed to re-compute the same. Needless to state, such a remand would not
serve any useful purpose but will only delay the final disposition of this case.
Based on the mathematical formula already laid down by the CIAC:
(1) the 6% interest on the award for Progress Billing No. 6 is re-computed as follows:
815 + 973 x P7,384,534.22
365

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x .06 = P2,170,446.11

(2) the 6% interest on the award for Cost of Materials, Equipment, Facilities, etc. is re-computed as follows:
541+ 973 x P4,677,680.00 x .06
365

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= P1,164,165.62

(3) the 6% interest on the award for Price Escalation is re-computed as follows:

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431+ 973 x P26,297,951.62 x .06 = P6,069,423.14

365
(4) the 6% interest on the award for Price Adjustment is re-computed as follows:

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761 + 973 x P14,768,770.22 x .06 = P4,209,706.45

365
(5) the 6% interest on the award for Idle Equipment is re-computed as follows
1689 + 973 x
365

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P131,948,674.56 x .06 = P57,739,293.97

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals dated 1 August 2006, which
upheld with modification the Decision of the Construction Industry Arbitration Commission in CIAC Case No. 14-2003, and the
Resolution dated 31 January 2007, as modified with the pronouncement that the Compliance submitted by the CIAC on 17 August
2006 is deemed approved, are AFFIRMED. The final arbitral award in favour of FUCC as re-computed and corrected in accordance
with the remand orders of the Court of Appeals, to summarized hereunder, to wit:
(1) Award for Progress Billing No. 6, P7,384,534.22;
(2) 6% Interest on Award for Progress Billing No. 6, P2,170,446.11;
(3)

Award for Cost of Materials, Equipment, Facilities, etc. P4,677,680.00;

(4)

6% Interest on Award for Cost of Materials, Equipment, Facilities, etc., P1,164,165.62;

(5) Award for Price Escalation, P26,297,951.62;

(6) 6% Interest on Award for Price Escalation, P6,069,423.14;

(7) Award for Price Adjustment, P14,768,770.22;
(8) 6 % Interest on Award for Price Adjustment, P4,209,706.45;
(9) Award for Idle Equipment, P131,948,674.56;
(10)

6% Interest on Award for Idle Equipment, P57,739,293.97;

(11)

Award for Disengagement Costs, P70,376,467.60;

(12)

6% Interest on Award for Foregone Equipment Rental, P19,238,797.99

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With costs against petitioner.

SO ORDERED.

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