Professional Documents
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THIRD DIVISION [G.R. No. 141833. March 26, 2003] arbitrable the issue of whether respondents take-over of some
work items had been intended to be a termination of the original
contract under Letter K of the Subcontract. It ruled likewise on
LM POWER ENGINEERING CORPORATION, petitioner,
two other issues: whether petitioner was liable under the
vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,
warranty clause of the Agreement, and whether it should
INC., respondent.
reimburse respondent for the work the latter had taken over. [15]
PANGANIBAN, J.:
Hence, this Petition.[16]
[Petitioner] shall adhere strictly to the schedule [Respondent shall open the letters of credit for the
related to the WORK and complete the WORK within importation of equipment and materials listed in
the period set forth in Annex C hereof. NO time Annex E hereof after the drawings, brochures, and
extension shall be granted by [respondent] to other technical data of each items in the list have
[petitioner] unless a corresponding time extension is been formally approved by [the Ministry of Public
granted by [the Ministry of Public Works and Works and Highways]. However, petitioner will still be
Highways] to the CONSORTIUM.[20] fully responsible for all imported materials and
equipment.
Because of the delay, respondent alleges that it took over
some of the work contracted to petitioner, pursuant to the All expenses incurred by [respondent], both in foreign
following provision in the Agreement: and local currencies in connection with the opening
of the letters of credit shall be deducted from the
Contract Prices.
K. TERMINATION OF AGREEMENT
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[Respondent] has the right to terminate and/or take
over this Agreement for any of the following causes:
N. OTHER CONDITIONS
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6. If despite previous warnings by [respondent],
[petitioner] does not execute the WORK in 2. All customs duties, import duties, contractors
accordance with this Agreement, or persistently taxes, income taxes, and other taxes that may be
or flagrantly neglects to carry out [its] required by any government agencies in connection
obligations under this Agreement.[21] with this Agreement shall be for the sole account of
[petitioner].[23]
Supposedly, as a result of the take-over, respondent
incurred expenses in excess of the contracted price. It sought to Being an inexpensive, speedy and amicable method of
set off those expenses against the amount claimed by petitioner settling disputes,[24] arbitration -- along with mediation,
for the work the latter accomplished, pursuant to the following conciliation and negotiation -- is encouraged by the Supreme
provision: Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the commercial
kind.[25] It is thus regarded as the wave of the future in
If the total direct and indirect cost of completing the remaining
international civil and commercial disputes. [26] Brushing aside a
part of the WORK exceed the sum which would have been
contractual agreement calling for arbitration between the
payable to [petitioner] had it completed the WORK, the amount
parties would be a step backward.[27]
of such excess [may be] claimed by [respondent] from either of
the following:
Consistent with the above-mentioned policy of
encouraging alternative dispute resolution methods, courts
1. Any amount due [petitioner] from [respondent] at the time of
should liberally construe arbitration clauses. Provided such
the termination of this Agreement.[22]
clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be granted. [28] Any
The issue as to the correct amount of petitioners advances doubt should be resolved in favor of arbitration.[29]
and billable accomplishments involves an evaluation of the
manner in which the parties completed the work, the extent to
Second Issue:
which they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the
computation of foreign and local costs of materials, foreign and Prior Request for Arbitration
local advances, retention fees and letters of credit, and taxes
and duties as set forth in the Agreement. These data can be According to petitioner, assuming arguendo that the
gathered from a review of the Agreement, pertinent portions of dispute is arbitrable, the failure to file a formal request for
which are reproduced hereunder: arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring
C. CONTRACT PRICE AND TERMS OF PAYMENT jurisdiction over the question. To bolster its position, petitioner
even cites our ruling in Tesco Services Incorporated v. Vera.
[30]
We are not persuaded.
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4. Ordering the defendant to pay arbitration costs. (d) Ordering the defendant to pay the herein
plaintiffs/applicants/movants the sum of P1,705,410.22 as
This Decision is FINAL and EXECUTORY. arbitration costs.
We do not agree.
Accordingly, Section 20 of R.A. 876 provides:
Section 29 of Republic Act No. 876,[28] provides that:
SEC. 20. Form and contents of award. The award must be made
x x x An appeal may be taken from an order made in a in writing and signed and acknowledged by a majority of the
proceeding under this Act, or from a judgment entered arbitrators, if more than one; and by the sole arbitrator, if there
upon an award through certiorari proceedings, but such is only one. Each party shall be furnished with a copy of the
appeals shall be limited to question of law. x x x. award. The arbitrators in their award may grant any remedy or
relief which they deem just and equitable and within the scope
of the agreement of the parties, which shall include, but not be
The aforequoted provision, however, does not preclude a
limited to, the specific performance of a contract.
party aggrieved by the arbitral award from resorting to the
extraordinary remedy of certiorariunder Rule 65 of the Rules of
Court where, as in this case, the Regional Trial Court to which xxx
the award was submitted for confirmation has acted without
jurisdiction, or with grave abuse of discretion and there is no
The arbitrators shall have the power to decide only those
appeal, nor any plain, speedy remedy in the course of law.
matters which have been submitted to them. The terms of the
Thus, Section 1 of Rule 65 provides: award shall be confined to such disputes.(Underscoring ours).
In the instant case, the respondent court erred in (a) The award was procured by corruption, fraud, or other undue
dismissing the special civil action for certiorari, it being from the means; or
pleadings and the evidence that the trial court lacked
jurisdiction and/or committed grave abuse of discretion in taking
(b) That there was evident partiality or corruption in arbitrators
cognizance of private respondent motion to confirm the arbitral
or any of them; or
award and, worse, in confirming said award which is grossly and
patently not in accord with the arbitration agreement, as will be
hereinafter demonstrated. (c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing
IV to hear evidence pertinent and material to the controversy; that
The nature and limits of the Arbitrators powers. one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing
As a rule, the award of an arbitrator cannot be set aside for such disqualifications or any other misbehavior by which the
mere errors of judgment either as to the law or as to the facts. rights of any party have been materially prejudiced; or
[29]
Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts (d) That the arbitrators exceeded their powers, or so imperfectly
determined by the arbitrators.[30] They will not review the executed them, that a mutual, final and definite award upon the
findings of law and fact contained in an award, and will not subject matter submitted to them was not made. (Underscoring
undertake to substitute their judgment for that of the ours).
arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. [31] Errors of law and
fact, or an erroneous decision of matters submitted to the xxx.
judgment of the arbitrators, are insufficient to invalidate an Section 25 which enumerates the grounds for modifying
award fairly and honestly made. [32] Judicial review of an the award provides:
arbitration is, thus, more limited than judicial review of a trial.[33]
Nonetheless, the arbitrators awards is not absolute and SEC. 25. Grounds for modifying or correcting award In anyone of
without exceptions. The arbitrators cannot resolve issues the following cases, the court must make an order modifying or
beyond the scope of the submission agreement. [34] The parties correcting the award, upon the application of any party to the
to such an agreement are bound by the arbitrators award only controversy which was arbitrated:
to the extent and in the manner prescribed by the contract and
only if the award is rendered in conformity thereto. [35] Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for (a) Where there was an evident miscalculation of figures, or an
vacating, rescinding or modifying an arbitration award. Where evident mistake in the description of any person, thing or
the conditions described in Articles 2038, [36] 2039[37] and property referred to in the award; or
2040[38] of the Civil Code applicable to compromises and
arbitration are attendant, the arbitration award may also be (b) Where the arbitrators have awarded upon a matter not
annulled. submitted to them, not affecting the merits of the decision upon
the matter submitted; or
In Chung Fu Industries (Phils.) vs. Court of Appeals, [39] we
held:
(c) Where the award is imperfect in a matter of form not
affecting the merits of the controversy, and if it had been a
x x x. It is stated explicitly under Art. 2044 of the Civil Code that commissioners report, the defect could have been amended or
the finality of the arbitrators awards is not absolute and without disregarded by the court.
exceptions. Where the conditions described in Articles 2038,
2039, and 2040 applicable to both compromises and arbitration
are obtaining, the arbitrators' award may be annulled or x x x.
8
Finally, it should be stressed that while a court is precluded A : Yes.
from overturning an award for errors in determination of factual
issues, nevertheless, if an examination of the record reveals no xxx
support whatever for the arbitrators determinations, their award
must be vacated.[40] In the same manner, an award must be Which brings me to my last point in this separate opinion. Was
vacated if it was made in manifest disregard of the law.[41] PNB and DBP absolutely unjustified in foreclosing the
mortgages?
Against the backdrop of the foregoing provisions and
principles, we find that the arbitrators came out with an award
in excess of their powers and palpably devoid of factual and In this connection, it can readily be seen and it cannot quite be
legal basis. denied that MMIC accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of this. When MMIC
V adopted a restructuring program for its loan, it only meant that
There was no financial structuring program; foreclosure of mortgage was fully justified. these loans were already due and unpaid. If these loans were
restructurable because they were already due and unpaid, they
The point need not be belabored that PNB and DBP had the are likewise forecloseable. The option is with the PNB-DBP on
legitimate right to foreclose of the mortgages of MMIC whose what steps to take.
obligations were past due. The foreclosure was not a wrongful
act of the banks and, therefore, could not be the basis of any The mere fact that MMIC adopted the FRP does not mean that
award of damages. There was no financial restructuring DBP-PNB lost the option to foreclose. Neither does it mean that
agreement to speak of that could have constituted an the FRP is legally binding and implementable. It must be pointed
impediment to the exercise of the banks right to foreclose. that said FRP will, in effect, supersede the existing and past due
loans of MMIC with PNB-DBP. It will become the new loan
As correctly stated by Mr. Jose C. Sison, a member of the agreement between the lenders and the borrowers. As in all
Arbitration Committee who wrote a separate opinion: other contracts, there must therefore be a meeting of minds of
the parties; the PNB and DBP must have to validly adopt and
1. The various loans and advances made by DBP and PNB to ratify such FRP before they can be bound by it; before it can be
MMIC have become overdue and remain unpaid. The fact that a implemented. In this case, not an iota of proof has been
FRP was drawn up is enough to establish that MMIC has not presented by the PLAINTIFFS showing that PNB and DBP ratified
been complying with the terms of the loan and adopted the FRP. PLAINTIFFS simply relied on a legal
agreement. Restructuring simply connotes that the obligations doctrine of promissory estoppel to support its allegation in this
are past due that is why it is restructurable; regard.[42]
2. When MMIC thru its board and the stockholders agreed and Moreover, PNB and DBP had to initiate foreclosure
adopted the FRP, it only means that MMIC had been informed or proceedings as mandated by P.D. No. 385, which took effect on
notified that its obligations were past due and that foreclosure is January 31, 1974. The decree requires government financial
forthcoming; institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding
obligations. The pertinent provisions of said decree read as
3. At that stage, MMIC also knew that PNB-DBP had the option of follows:
either approving the FRP or proceeding with the
foreclosure. Cabarrus, who filed this case supposedly in behalf of
MMIC should have insisted on the FRP. Yet Cabarrus himself SEC. 1. It shall be mandatory for government financial
opposed the FRP; institutions, after the lapse of sixty (60) days from the issuance
of this Decree to foreclose the collaterals and/or securities for
any loan, credit, accommodations, and/or guarantees granted
4. So when PNB-DBP proceeded with the foreclosure, it was done by them whenever the arrearages on such account, including
without bad faith but with honest and sincere belief that accrued interest and other charges, amount to at least twenty
foreclosure was the only alternative; a decision further explained percent (20%) of the total outstanding obligations, including
by Dr. Placido Mapa who testified that foreclosure was, in the interest and other charges, as appearing in the books of account
judgment of PNB, the best move to save MMIC itself. and/or related records of the financial institutions
concerned. This shall be without prejudice to the exercise by the
Q : Now in this portion of Exh. L which was marked as Exh. L- government financial institutions of such rights and/or remedies
1, and we adopted as Exh. 37-A for the respondent, available to them under their respective contracts with their
may I know from you, Dr. Mapa what you meant by that debtor, including the right to foreclosure on loans, credits,
the decision to foreclose was neither precipitate nor accommodations and/or guarantees on which the arrearages are
arbitrary? less than twenty percent (20%).
A : Because the revenue that they were counting on to make Private respondents thesis that the foreclosure proceedings
the rehabilitation plan possible, was not anymore were null and void because of lack of publication in the
expected to be forthcoming because it will result in a newspaper is nothing more than a mere unsubstantiated
short fall compared to the prices that were actually allegation not borne out by the evidence. In any case, a
taking place in the market. disputable presumption exists in favor of petitioner that official
duty has been regularly performed and ordinary course of
Q : And I supposed that was you were referring to when you business has been followed.[43]
stated that the production targets and assumed prices
of MMICs products, among other projections, used in VI
the financial reorganization program that will make it Not only was the foreclosure rightfully exercised by the
viable were not met nor expected to be met? PNB and DBP, but also, from the facts of the case, the
9
arbitrators in making the award went beyond the arbitration was not a party to the derivative suit; and (c) in awarding moral
agreement. damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.
In their complaint filed before the trial court, private
respondent Cabarrus, et al. prayed for judgment in their favor:
The Arbitration Committee went beyond its mandate and
thus acted in excess of its powers when it ruled on the validity
1. Declaring the foreclosure effected by the defendants DBP and of, and gave effect to, the proposed FRP.
PNB on the assets of MMIC null and void and directing said
defendants to restore the foreclosed assets to the possession of In submitting the case to arbitration, the parties had
MMIC, to render an accounting of their use and/or operation of mutually agreed to limit the issue to the validity of the
said assets and to indemnify MMIC for the loss occasioned by its foreclosure and to transform the reliefs prayed for therein into
dispossession or the deterioration thereof; pure money claims.
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a
It is perplexing how the Arbitration Committee can in one
party to the derivative suit.
breath rule that the case before it is a derivative suit, in which
the aggrieved party or the real party in interest is supposedly
the MMIC, and at the same time award moral damages to an
Civil Code No. 9900 filed before the RTC being a derivative individual stockholder, to wit:
suit, MMIC should have been impleaded as a party. It was not
joined as a party plaintiff or party defendant at any stage of the WHEREFORE, premises considered, judgment is hereby
proceedings. As it is, the award of damages to MMIC, which was rendered:
not a party before the Arbitration Committee, is a complete
nullity.
xxx.
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the stockholder
filing suit for the corporations behalf is only nominal party. The 3. Ordering the defendant to pay to the plaintiff, Jesus S.
corporation should be included as a party in the suit. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
An individual stockholder is permitted to institute a derivative escrow agreement that would supersede it, pursuant to
suit on behalf of the corporation wherein he holds stock in order paragraph (9), Compromise and Arbitration Agreement, as and
to protect or vindicate corporate rights, whenever the officials of for moral damages; x x x[60]
the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the corporation The majority decision of the Arbitration Committee sought
as the real party in interest. x x x.[56] to justify its award of moral damages to Jesus S. Cabarrus, Sr. by
pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc.
It is a condition sine qua non that the corporation be (IEI), of which Cabarrus is the majority stockholder. It then
impleaded as a party because- acknowledge that Cabarrus had already recovered said assets in
the RTC, but that he won no more than actual damages. While
x x x. Not only is the corporation an indispensible party, but it is the Committee cannot possibly speak for the RTC, there is no
also the present rule that it must be served with process. The doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
reason given is that the judgment must be made binding upon account of that specific foreclosure, damages the Committee
the corporation and in order that the corporation may get the believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded
benefit of the suit and may not bring a subsequent suit against in this proceeding.[61]
the same defendants for the same cause of action. In other Cabarrus cause of action for the seizure of the assets
words the corporations must be joined as party because it is its belonging to IEI, of which he is the majority stockholder, having
cause of action that is being litigated and because judgment been ventilated in a complaint he previously filed with the RTC,
must be a res ajudicata against it.[57] from which he obtained actual damages, he was barred res
judicata from filing a similar case in another court, this time
The reasons given for not allowing direct individual suit asking for moral damages which he failed to get from the earlier
are: case.[62] Worse, private respondents violated the rule against
non-forum shopping.
(1) x x x the universally recognized doctrine that a stockholder It is a basic postulate that s corporation has a personality
in a corporation has no title legal or equitable to the corporate separate and distinct from its stockholders. [63] The properties
property; that both of these are in the corporation itself for the foreclosed belonged to MMIC, not to its stockholders. Hence, if
benefit of the stockholders. In other words, to allow wrong was committed in the foreclosure, it was done against the
shareholders to sue separately would conflict with the separate corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot
corporate entity principle; directly claim those damages for himself that would result in the
appropriation by, and the distribution to, him part of the
(2) x x x that the prior rights of the creditors may be corporations assets before the dissolution of the corporation and
prejudiced. Thus, our Supreme Court held in the case the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters not submitted to
11
it.Moreover, said cause of action had already been decided in a there is no showing that the case at bar constitutes an
separate case. It is thus quite patent that the arbitration exception. Nevertheless, we gave due course to the petition to
committee exceeded the authority granted to it by the parties enable the Court to reiterate and clarify the jurisdictional
Compromise and Arbitration Agreement by awarding moral boundaries between Labor Arbiters and Voluntary Arbitrator or
damages to Jesus S. Cabarrus, Sr. Panel of Voluntary Arbitrators over money claims, and to render
Atty. Sison, in his separate opinion, likewise expressed substantial and speedy justice to subject aged stevedore retiree
befuddlement to the award of moral damages to Jesus S. who first presented his claim for retirement benefit in April 1991,
Cabarrus, Sr.: or seven years ago.
It is clear and it cannot be disputed therefore that based on Labor law practitioners and all lawyers, for that
these stipulated issues, the parties themselves have agreed that matter, should be fully conversant with the requirements for the
the basic ingredient of the causes of action in this case is the institution of certiorari proceedings under Rule 65 of the Revised
wrong committed on the corporation (MMIC) for the alleged Rules of Court. For instance, it is necessary that a Motion for
illegal foreclosure of its assets. By agreeing to this Reconsideration of the Decision of the National Labor Relations
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that Commission must first be resorted to. The ruling in Corazon
the cause of action pertains only to the corporation (MMIC) and Jamer v. National Labor Relations Commission, G.R. No. 112630,
that they are filing this for and in behalf of MMIC. September 5, 1997, comes to the fore and should be well
understood and observed. An ordinary allegation ... and there is
Perforce this has to be so because it is the basic rule in no appeal, nor any plain, speedy, and adequate remedy in the
Corporation Law that the shareholders have no title, legal or ordinary course of law (Rule 65, Sec. 1, Revised Rules of Court)
equitable to the property which is owned by the corporation (13 is not a foolproof substitute for a Motion for Reconsideration,
Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons absence of which can be fatal to a Petition
vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated for Certiorari. Petitioner cannot and should not rely on the
that a stockholder is not the co-owner of corporate liberality of the Court simply because he is a working man.
property. Since the property or assets foreclosed belongs [sic] to
MMIC, the wrong committed, if any, is done against the
corporation. There is therefore no direct injury or direct violation In the Jamer case, this court said:
of the rights of Cabarrus et al. There is no way, legal or
equitable, by which Cabarrus et al. could recover damages in ... This premature action of petitioners constitutes a fatal
their personal capacities even assuming or just because the
infirmity as ruled in a long line of decisions, most recently is the
foreclosure is improper or invalid. The Compromise and
case of Building Care Corporation v. National Labor Relations
Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent Commission
from the award of moral damages to Cabarrus.[64]
The filing of such motion is intended to afford public respondent
From the foregoing discussions, it is evident that, not only an opportunity to correct any actual or fancied error attributed
did the arbitration committee exceed its powers or so to it by way of a re-examination of the legal and factual aspects
imperfectly execute them, but also, its findings and conclusions of the case. Petitioners inaction or negligence under the
are palpably devoid of any factual basis and in manifest circumstances is tantamount to a deprivation of the right and
disregard of the law. opportunity of the respondent commission to cleanse itself of an
error unwittingly committed or to vindicate itself of an act
We do not find it necessary to remand this case to the RTC unfairly imputed...
for appropriate action. The pleadings and memoranda filed with
this Court, as well as in the Court of Appeals, raised and
extensively discussed the issues on the merits. Such being the Likewise, a motion for reconsideration is an adequate remedy;
case, there is sufficient basis for us to resolve the controversy hence certiorari proceedings, as in this case, will not prosper.
between the parties anchored on the records and the pleadings
before us.[65]
As stated in the Decision of the Labor Arbiter in NLRC-NCR-
WHEREFORE, the Decision of the Court of Appeals dated Case No. 00-03-0201-93, dated January 19, 1994, the facts of
July 17, 1995, as well as the Orders of the Regional Trial Court of this case are undisputed. The Labor Arbiter reported, thus:
Makati, Branch 62, dated November 28, 1994 and January 19,
1995, is hereby REVERSED and SET ASIDE, and the decision of
Complainant, in his position paper (Record, pages 11 to
the Arbitration Committee is hereby VACATED.
14) states that he was hired sometime in July 1980 as a
SO ORDERED stevedore continuously until he was advised in April 1991 to
retire from service considering that he already reached 65 years
old (sic); that accordingly, he did apply for retirement and was
THIRD DIVISION[G.R. No. 121227. August 17, 1998]
paid P3,156.39 for retirement pay... (Rollo, pp. 15, 26-27, 58-
59).
VICENTE SAN JOSE, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and OCEAN TERMINAL
Decision of the Labor Arbiter in NLRC-NCR-Case No. 00-03-
SERVICES, INC., respondents.
02101-93, January 9, 1994 (Rollo, pp. 15017, at pp. 16-17).
PURISIMA, J.:
The Labor Arbiter decided the case solely on the merits of
the complaint. Nowhere in the Decision is made mention of or
Before the Court is a Petition for Certiorari seeking to annul reference to the issue of jurisdiction of the Labor Arbiter (Rollo,
a Decision of the National Labor Relations Commission dated pp. 15-17). But the issue of jurisdiction is the bedrock of the
April 20, 1995 in NLRC-NCR-CA-No. 00671-94 which reversed, on Petition because, as earlier intimated, the Decision of the
jurisdictional ground, a Decision of the Labor Arbiter dated National Labor Relations Commission, hereinbelow quoted,
January 19, 1994 in NLRC-NCR Case No. 00-03-02101-93 a case reversed the Labor Arbiters Decision on the issue of
for a money claim - underpayment of retirement jurisdiction. Reads subject Decision of the Labor Arbiter:
benefit. Records do not show that petitioner presented a Motion
for Reconsideration of subject Decision of the National Labor
Respondents, in their Reply to complainants position paper,
Relations Commission, which motion is, generally required
allege (Record, pages 18 to 21) that complainants latest basic
before the filing of Petition for Certiorari.
salary was P120.34 per day; that he only worked on rotation
basis and not seven days a week due to numerous stevedores
While the rule prescribing the requisite motion for who can not all be given assignments at the same time; that all
reconsideration is not absolute and recognizes some exceptions, stevedores only for paid every time they were assigned or
12
actually performed stevedoring; that the computation used in xxx The company agrees that in case of casual employees
arriving at the amount of P3,156.30 was the same computation and/or workers who work on rotation basis the criterion for
applied to the other stevedores; that the use of divisor 303 is determining their retirement pay shall be 303 rotation calls or
not applicable because complainant performed stevedoring job work days as equivalent to one (1) year and shall be paid their
only on call, so while he was connected with the company for retirement pay equivalent to one half (1/2) month for every year
the past 11 years, he did not actually render 11 years of service; of service.
that the burden of proving that complainants latest salary
was P200.00 rests upon him; that he already voluntarily signed xxx
a waiver of quitclaim; that if indeed respondent took advantage
of his illiteracy into signing his quitclaim, he would have
immediately filed this complaint but nay, for it took him Since the instant case arises from interpretation or
two (2) years to do so. implementation of a collective bargaining agreement, the Labor
Arbiter should have dismissed it for lack of jurisdiction in
accordance with Article 217 (c) of the Labor Code, which
The issue therefore is whether or not complainant is entitled to reads: (Underscoring supplied)
the claimed differential of separation pay.
xxx
We cannot sustain a computation of length of service based on
the ECC contribution records. Likewise, the allegation that
complainant rendered service for only five days a month for the (c) Cases arising from the interpretation or implementation of
past 11 years is statistically improbable, aside from the fact that collective bargaining agreement and those arising from the
the best evidence thereof are complainants daily time records interpretation or enforcement of company procedure/policies
which respondent are (sic) duty bound to keep and make shall be disposed of by the Labor Arbiter by referring the same
available anytime in case of this. to the grievance machinery and voluntary arbitrator as may be
provided in said agreements.
Whether or not complainant worked on rotation basis is a I. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS
burden which lies upon the employer. The presumption is that DISCRETION IN GIVING DUE COURSE TO THE APPEAL
the normal working period is eight (8)hours a day and DESPITE THE FACT 4 (SIC) THAT IT WAS FILED OUT OF
six (6) days a week, or 26 days a month, unless proven TIME AND THERE IS NO SHOWING THAT A SURETY BOND
otherwise. WAS POSTED.
Also, the burden of proving the amount of salaries paid to II. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS
employees rests upon the employer not on the employee. It can DISCRETION N SETTING ASIDE THE DECISION OF XXX
be easily proven by payrolls, vouchers, etc. which the employers DATED 19 JANUARY 1994 AND DISMISSING THE CASE ON
are likewise duty bound to keep and present. There being non, THE GROUND OF LACK OF JURISDICTION WHEN THE
we have to sustain complainants assertion that his latest salary ISSUE DOES NOT INVOLVE ANY PROVISION OF THE
rate was P200 a day or P5,200 a month. Therefore, his COLLECTIVE BARGAINING AGREEMENT. (Rollo, pp. 7-8)
retrenchment pay differential is P25,443.70 broken down as
follows: The Manifestation and Motion (In Lieu of Comment) sent in
on December 6, 1995 by the Office of the Solicitor General
P200 x 26 days = P5,200 x 11 years support the second issue, re: jurisdiction raised by the Petitioner
(Rollo, pp. 26-33, at pp. 38-32).
2
Labor Arbiter Decision
3. The original and exclusive jurisdiction of Labor Arbiters As shown in the above contextual and wholistic analysis of
is qualified by an exception as indicated in the Articles 217, 261, and 262 of the Labor Code, the National Labor
introductory sentence of Article 217 (a), to wit: Relations Commission correctly ruled that the Labor Arbiter had
no jurisdiction to hear and decide petitioners money-
claim underpayment of retirement benefits, as the
Art. 217. Jurisdiction of Labor Arbiters ... (a) Except as otherwise
controversy between the parties involved an issue arising from
provided under this Code the Labor Arbiter shall have original
the interpretation or implementation of a provision of the
and exclusive jurisdiction to hear and decide ... the following
collective bargaining agreement. The Voluntary Arbitrator or
cases involving all workers...
Panel of Voluntary Arbitrators has original and exclusive
jurisdiction over the controversy under Article 261 of the Labor
The phrase Except as otherwise provided under this Code Code, and not the Labor Arbiter.
refers to the following exceptions:
On or about July 31, 1990, private respondents were The argument is unmeritorious. The law in point is Article
served a Memorandum from petitioner Angel G. Roa, Vice- 217 (a) of the Labor Code. It is elementary that this law is
President and Manager of SMCs Business Logistics Division deemed written into the CBA. In fact, the law speaks in plain and
(BLD), to the effect that they had to be seperated from the unambiguous terms that termination disputes, together with
service effective October 31, 1990 on the ground of redundancy unfair labor practices, are matters falling under the original and
or excesss personnel. Respondent union, in behalf of private exclusive jurisdiction of the Labor Arbiter, to wit:
respondents, opposed the intended dismissal and asked for a
dialogue with management. Article 217. Jurisdiction of Labor Arbiters and the Commission -
(a) Except as otherwise provided under this Code, the Labor
Accordingly, a series of dialogues were held between Arbiters shall have original and exclusive jurisdiction to hear and
petitioners and private respondents. Even before the conclusion decide x x x the following cases involving all workers, whether
of said dialogues, the aforesaid petitioner Angel Roa issued agricultural or non-agricultural:
another Memorandum on October 1, 1990 informing private
respondents that they would be dismissed from work effective
16
(1) Unfair labor practice cases: ART. 217(c). Cases arising from the interpretation or
implementation of collective bargaining agreements and those
arising from the interpretation or enforcement of company
(2) Termination disputes;
personnel policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and voluntary
x x x x x x x x x. arbitration as may be provided in said agreements. (As
amended by R.A. 6715).
The sole exception to the above rule can be found under Article
262 of the same Code, which provides: Petitioners theorize that since respondents questioned the
discharges, the main question for resolution is whether SMC had
Aricle 262. Jurisdiction over other labor disputes - The voluntary the management right or prerogative to effect the discharges on
arbitrator or panel of voluntary arbitrators, upon agreement of the ground of redundancy, and this necessarily calls for the
the parties, shall also hear and decide all other labor disputes interpretation or implementation of Article III (Job Security) in
including unfair labor practices and bargaining deadlocks. (As relation to Article IV (Grievance Machinery)of the CBA.[4]
added by R.A. 6715)
Petitioners theory does not hold water. There is no
We subjected the records of this case, particularly the CBA, to connection whatsoever between SMCs management prerogative
meticulous scrutiny and we find no agreement between SMC to effect the discharges and the interpretation or
and the respondent union that would state in unequivocal implementation of Articles III and IV of the CBA. The only
language that petitioners and the respondent union conform to relevant provision under Article III that may need interpretation
the submission of termination disputes and unfair labor or implementation is Section 2 which was cited herein. However,
practices to voluntary arbitration. Section 1, Article V of the as patiently pointed out by this court, said provision does not
CBA, cited by the herein petitioners, certainly does not provide come into play considering that the union never exercised its
so. Hence, consistent with the general rule under Article 217 (a) right to seek reconsideration of the discharges effected by the
of the Labor Code, the Labor Arbiter properly has jurisdiction company. It would have been different had the union sought
over the complaint filed by the respondent union on February reconsideration. Such recourse under Section 2 would have
25, 1991 for illegal dismissal and unfair labor practice. been treated as a grievance under Article IV (Grievance
Machinery) of the CBA, thus calling for the possible
interpretation or implementation of the entire provision on
Petitioners point however to Section 2, Article III of the Grievance Machinery as agreed upon by the parties. This was
CBA, under the heading Job Security, to show that the dispute is not the case however. The union brought the termination
a proper subject of the grievance procedure, viz: dispute directly to the Labor Arbiter rendering Articles III and IV
of the CBA inapplicable for the resolution of this case.
x x x The UNION, however, shall have the right to seek
reconsideration of any discharge, lay-off or disciplinary action, The discharges, petitioners also contend, call for the
and such requests for reconsideration shall be considered a interpretation or enforcement of company personnel policies,
dispute or grievance to be dealt with in accordance with the particulary SMCs personnel policies on lay-offs arising from
procedure outlined in Article IV hereof [on Grievance Machinery] redundacy, and so, they may be considered grievable and
x x x[3] (Emphasis ours) arbitrable by virtue of Article 2 17(c). Not necessarily
so. Company personnel policies are guiding principles stated in
Petitioners allege that respondent union requested management broad, long-range terms that express the philosophy or beliefs
for a reconsideration and review of the companys decision to of an organizations top authority regarding personnel
terminate the employment of the union members. By this act, matters. They deal with matters affecting efficiency and well-
petitioners argue, respondent union recognized that the being of employees and include, among others, the procedure in
questioned dismissal is a grievable dispute by virtue of Section the administration of wages, benefits, promotions, transfer and
2, Article III of the CBA. This allegation was strongly denied by other personnel movements which are usually not spelled out in
the respondent union. In a Memorandum filed for the public the collective agreement. The usual source of grievances,
respondent NLRC, the Solicitor General supported the position of however, is the rules and regulations governing disciplinary
the respondent union that it did not seek reconsideration from actions.[5] Judging therefrom, the questioned discharges due to
the SMC management in regard to the dismissal of the alleged redundancy can hardly be cosidered company personnel
employees. policies and therefore need not directly be subject to the
grievance machinery nor to voluntary arbitration.
Petitioners fail miserably to prove that, indeed, the
respondent union requested for a reconsideration or review of Third. Petitioners would like to persuade us that
the management decision to dismiss the private respondents. A respondents ULP claims are merely conclusory and cannot serve
punctilious examination of the records indubitably reveals that to vest jurisdiction to the Labor Arbiters. Petitioners argue with
at no time did the respondent union exercise its right to seek passion: How was the discharges (sic) right to self-organization
reconsideration of the companys move to terminate the restrained by their termination? Respondent did not show..
employment of the union members, which request for There is no allegation of the existence of anti-union animus or of
reconsideration would have triggered the application of Section the ultimate facts showing how the discharges affected the
2, Article III of the CBA, thus resulting in the treatment of the rights to self-organization of individual respondents. [6] In short,
dispute as a grievance to be dealt with in accordance with the petitioners maintain that respondents complaint does not allege
Grievance Machinery laid down in Article IV of, the CBA. Stated a genuine case for ULP.
differently, the filing of a request. for reconsideration by the
respondent union, which is the condition sine qua non to The Court is not convinced.
categorize the termination dispute and the ULP complaint as a
grievable dispute, was decidedly absent in the case at
bench. Hence, the respondent union acted well within their The complaint alleges that:
rights in filing their complaint for illegal dismissal and ULP
directly with the Labor Arbiter under Article 217 (a) of the Labor 5. Individual complainants are bona fide officers and members
Code. of complainant Ilaw at Buklod ng Manggagawa (IBM). They are
active and militant in the affairs and activities of the union.
Second. Petitioners insist that involved in the controversy
is the interpretation and implementation of the CBA which is xxx xxx xxx
grievable and arbitrable by law under Article 217(c) of the Labor
Code, viz:
17
23. The dismissal or lock-out from work of the individual redundancy. The important fact is that in all of these cases,
complainants clearly constitutes an act of unfair labor practices including the one at bar, all of the dismissed employees were
in the light of the fact that the work being performed by the officers and members of their respective unions, and their
individual complainants are being contracted out by the employers failed to give a satisfactory explanation as to why
respondent company, and, therefore, deprives individual this group of employees was singled out.
complainants of their right to work and it constitutes a criminal
violation of existing laws. It may be the case that employees other than union
members may have been terminated also by petitioner SMC on
xxx xxx xxx account of its redundancy program. If that is true, the
discharges may really be for a bona fide authorized cause under
Article 283[11] of the Labor Code. On the other hand, it is also
25. The acts of the respondent company in economically
possible that such may only be a clever scheme of the petitioner
coercing employees to accept payment of seperation and/or
company to camouflage its real intention of discriminating
retirement benefits, pending final resolution of the labor
against union members particularly the private respondents. In
disputes between the parties constitute acts of unfair labor
any case, these matters will be best ventilated in a hearing
practice in the light of the fact that there is undue interference,
before the Labor Arbiter.
restraint, and coercion of employees in the exercise of their right
to self-organization and collective bargaining.[7]
It is for the above reason that we cannot hold the
petitioners guilty of the ULP charge. This will be the task of the
Short of pre-empting the proceedings before the Labor
Labor Arbiter. We however find that based on the cicumstances
Arbiter, the above complaint, makes Out a genuine case for ULP.
surrounding this case and settled jurisprudence on the subject,
the complaint filed by the private respondents on
In Manila Pencil Co. v. CIR,[8] This Court had occasion to February 25, 1991 alleges facts sufficient to costitute a bona
observe that even where business conditions justified a lay-off of fide case of ULP, and therefore properly cognizable by the Labor
employees, unfair labor practices were committed in the form of Arbiter under Article 2 17(a) of the Labor Code. This is
discriminatory dismissal where only unionists were permanently consistent with the rule that jurisdictioin over the subject matter
dismissed. This was despite the valid excuse given by the Manila is determined by the allegations of the complaint. [12]
Pencil Company that the dismissal of the employees was due to
the reduction of the companys dollar allocations for importation
Finally, petitioners try to impress on this Court the strong
and that both union members and non-union members were
State policy on the promotion of voluntary modes of settlement
laid-off. The Court, thru Justice Makalintal, rebuffed the
of labor disputes crafted in the Constitution and the Labor Code
petitioner Company and said:
which dictate the submission of the CBA dispute to grievance
and arbitration.[13]
x x x The explanation, however, does not by any means account
for the permanent dismissal of five of the unionists, where it
In this regard, the response of the Solicitor General is apt:
does not appear that non-unionists were similarly dismissed.
Complying, petitioner submitted on May 16, 1995 her 4. SERVICE INCENTIVE LEAVES
Answer[4] to the memorandum.
On October 18, 1995, the voluntary arbitrator rendered an Petitioners Motion for Reconsideration [12] of the Court of
Award[8] in favor of petitioner, the dispositive portion of which Appeals Decision having been denied by Resolution [13] of
reads: February 26, 1999, the present petition was filed which raises
the following issues:
However, considering the impracticality of reinstatement 2. Whether or not respondents are guilty of estoppel.[14]
because of proven strained relation between the parties,
respondents, instead shall pay complainant the amount of FOUR Petitioner, citing Article 262 of the Labor Code of the
HUNDRED ELEVEN THOUSAND ONE HUNDRED TWENTY SIX Philippines, as amended which reads:
PESOS & SEVENTY-SIX CENTAVOS (P411,126.76) itemized as
follows:
ARTICLE 262. JURISDICTION OVER OTHER LABOR DISPUTES. The
Voluntary Arbitrator or panel of Voluntary
In summary, the total award is hereunder itemized: Arbitrators, upon agreement of the parties, shall hear and
decide all other labor disputes including unfair labor
1. SEPARATION PAY (P14,600.00 practices and bargaining deadlocks. (Emphasis and
underscoring supplied),
As the voluntary arbitrator had jurisdiction over the parties WHEREFORE, in view of the foregoing, this Voluntary Arbitrator
controversy, discussion of the second issue is no longer finds the claims of the complainants meritorious and so hold
necessary. that:
WHEREFORE, the Court of Appeals Decision of October a. the 214 complainants, as listed in the Annex A, shall be
30, 1998 is hereby SET ASIDE and the voluntary arbitration considered regular employees of the respondents six (6) months
Award of October 18, 1995 is hereby REINSTATED. from the first day of service at CLAS;
DECISION
d. an interest of twelve (12) percent per annum or one (1)
percent per month shall be imposed to the award from the date
QUISUMBING, J.: of promulgation until fully paid if only to speed up the payment
of these long over due CBA benefits deprived of the complaining
This petition for review on certiorari seeks to annul and set workers.
aside the decision[1] of the Court of Appeals promulgated on July
6, 1999 and its Order denying petitioners motion for Accordingly, all separation and/or retirement benefits shall be
reconsideration in CA-G.R. SP No. 44341. construed from the date of regularization aforementioned
subject only to the appropriate government laws and other
The relevant facts as substantially recited by the Court of social legislation.
Appeals in its decision are as follows:
SO ORDERED.[3]
Petitioner LUDO & LUYM CORPORATION (LUDO for brevity)
is a domestic corporation engaged in the manufacture of coconut In due time, LUDO filed a motion for reconsideration, which
oil, corn starch, glucose and related products. It operates a was denied. On appeal, the Court of Appeals affirmed in toto the
manufacturing plant located at Tupas Street, Cebu City and a decision of the Voluntary Arbitrator, thus:
wharf where raw materials and finished products are shipped
out.
WHEREFORE, finding no reversible error committed by
respondent voluntary arbitrator, the instant petition is hereby
In the course of its business operations, LUDO engaged the DISMISSED.
arrastre services of Cresencio Lu Arrastre Services (CLAS) for the
loading and unloading of its finished products at the
SO ORDERED.[4]
wharf. Accordingly, several arrastre workers were deployed by
CLAS to perform the services needed by LUDO.
Hence this petition. Before us, petitioner raises the
following issues:
These arrastre workers were subsequently hired, on
different dates, as regular rank-and-file employees of LUDO
every time the latter needed additional manpower services. Said I
employees thereafter joined respondent union, the LUDO
Employees Union (LEU), which acted as the exclusive bargaining WHETHER OR NOT BENEFITS CONSISTING OF SALARY
agent of the rank-and-file employees. INCREASES, VACATION LEAVE AND SICK LEAVE BENEFITS FOR
THE YEARS 1977 TO 1987 ARE ALREADY BARRED BY
On April 13, 1992, respondent union entered into a PRESCRIPTION WHEN PRIVATE RESPONDENTS FILED THEIR CASE
collective bargaining agreement with LUDO which provides IN JANUARY 1995;
certain benefits to the employees, the amount of which vary
20
II The Commission, its Regional Offices and the Regional Directors
of the Department of Labor and Employment shall not entertain
disputes, grievances or matters under the exclusive and original
WHETHER OR NOT A VOLUNTARY ARBITRATOR CAN AWARD
jurisdiction of the Voluntary Arbitrator or panel of Voluntary
BENEFITS NOT CLAIMED IN THE SUBMISSION AGREEMENT. [5]
Arbitrators and shall immediately dispose and refer the same to
the Grievance Machinery or Voluntary Arbitration provided in the
Petitioner contends that the appellate court gravely erred Collective Bargaining Agreement.
when it upheld the award of benefits which were beyond the
terms of submission agreement. Petitioner asserts that the
Art. 262. Jurisdiction over other labor disputes. The
arbitrator must confine its adjudication to those issues
Voluntary Arbitrator or panel of Voluntary Arbitrators, upon
submitted by the parties for arbitration, which in this case is the
agreement of the parties, shall also hear and decide all other
sole issue of the date of regularization of the workers.Hence, the
labor disputes including unfair labor practices and bargaining
award of benefits by the arbitrator was done in excess of
deadlocks.
jurisdiction.[6]
In one case, the Supreme Court stressed that xxx the Voluntary
4. Claims for actual, moral, exemplary and other forms of Arbitrator had plenary jurisdiction and authority to interpret the
damages arising from the employer-employee relations; agreement to arbitrate and to determine the scope of his own
authority subject only, in a proper case, to the certiorari
xxx jurisdiction of this Court. The Arbitrator, as already indicated,
viewed his authority as embracing not merely the determination
of the abstract question of whether or not a performance bonus
Art. 261. Jurisdiction of Voluntary Arbitrators or panel of
was to be granted but also, in the affirmative case, the amount
Voluntary Arbitrators. The Voluntary Arbitrator or panel of
thereof.
Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
from the interpretation or implementation of the Collective By the same token, the issue of regularization should be viewed
Bargaining Agreement and those arising from the interpretation as two-tiered issue. While the submission agreement mentioned
or enforcement of company personnel policies referred to in the only the determination of the date or regularization, law and
immediately preceding article. Accordingly, violations of a jurisprudence give the voluntary arbitrator enough leeway of
Collective Bargaining Agreement, except those which are gross authority as well as adequate prerogative to accomplish the
in character, shall no longer be treated as unfair labor practice reason for which the law on voluntary arbitration was created
and shall be resolved as grievances under the Collective speedy labor justice. It bears stressing that the underlying
Bargaining Agreement. For purposes of this article, gross reason why this case arose is to settle, once and for all, the
violations of Collective Bargaining Agreement shall mean ultimate question of whether respondent employees are entitled
flagrant and/or malicious refusal to comply with the economic to higher benefits. To require them to file another action for
provisions of such agreement. payment of such benefits would certainly undermine labor
proceedings and contravene the constitutional mandate
providing full protection to labor.[14]
21
As regards petitioners contention that the money claim in BELLOSILLO, J.:
this case is barred by prescription, we hold that this contention
is without merit. So is petitioners stance that the benefits CELESTINO VIVERO, in this petition for review, seeks the
claimed by the respondents, i.e., sick leave, vacation leave and reversal of the Decision of the Court of Appeals of 26 May 1999
13th-month pay, had already prescribed, considering the three- setting aside the Decision of the National Labor Relations
year period for the institution of monetary claims. [15] Such Commission of 28 May 1998 as well as its Resolution of 23 July
determination is a question of fact which must be ascertained 1998 denying his motion for its reconsideration, and reinstating
based on the evidence, both oral and documentary, presented the decision of the Labor Arbiter of 21 January 1997.
by the parties before the Voluntary Arbitrator. In this case, the
Voluntary Arbitrator found that prescription has not as yet set in
to bar the respondents claims for the monetary benefits Petitioner Vivero, a licensed seaman, is a member of the
awarded to them. Basic is the rule that findings of fact of Associated Marine Officers and Seamen's Union of the
administrative and quasi-judicial bodies, which have acquired Philippines (AMOSUP). The Collective Bargaining Agreement
expertise because their jurisdiction is confined to specific entered into by AMOSUP and private respondents provides,
matters, are generally accorded not only great respect but even among others -
finality.[16] Here, the Voluntary Arbitrator received the evidence
of the parties first-hand. No compelling reason has been shown ARTICLE XII
for us to diverge from the findings of the Voluntary Arbitrator,
especially since the appellate court affirmed his findings, that it
GRIEVANCE PROCEDURE
took some time for respondent employees to ventilate their
claims because of the repeated assurances made by the
petitioner that it would review the company records and xxxx
determine therefrom the validity of the claims, without
expressing a categorical denial of their claims. As elucidated by Sec. 3. A dispute or grievance arising in connection with the
the Voluntary Arbitrator: terms and provisions of this Agreement shall be adjusted in
accordance with the following procedure:
The respondents had raised prescription as defense. The
controlling law, as ruled by the High Court, is: 1. Any seaman who feels that he has been unjustly treated or
even subjected to an unfair consideration shall endeavor to
The cause of action accrues until the party obligated refuses xxx have said grievance adjusted by the designated representative
to comply with his duty. Being warded off by promises, the of the unlicensed department abroad the vessel in the following
workers not having decided to assert [their] right[s], [their] manner:
causes of action had not accrued (Citation omitted.)
A. Presentation of the complaint to his immediate superior.
Since the parties had continued their negotiations even after the
matter was raised before the Grievance Procedure and the B. Appeal to the head of the department in which the seaman
voluntary arbitration, the respondents had not refused to involved shall be employed.
comply with their duty. They just wanted the complainants to
present some proofs. The complainants cause of action had not
therefore accrued yet. Besides, in the earlier voluntary C. Appeal directly to the Master.
arbitration case aforementioned involving exactly the same
issue and employees similarly situated as the complainants, the Sec. 4. If the grievance cannnot be resolved under the provision
same defense was raised and dismissed by Honorable Thelma of Section 3, the decision of the Master shall govern at sea x x x
Jordan, Voluntary Arbitrator. x in foreign ports and until the vessel arrives at a port where the
Master shall refer such dispute to either the COMPANY or the
In fact, the respondents promised to correct their length of UNION in order to resolve such dispute. It is understood,
service and grant them the back CBA benefits if the however, if the dispute could not be resolved then both parties
complainants can prove they are entitled rendered the former in shall avail of the grievance procedure.
estoppel, barring them from raising the defense of laches or
prescription. To hold otherwise amounts to rewarding the Sec. 5. In furtherance of the foregoing principle, there is hereby
respondents for their duplicitous representation and abet them created a GRIEVANCE COMMITTEE to be composed of two
in a dishonest scheme against their workers.[17] COMPANY REPRESENTATIVES to be designated by the COMPANY
and two LABOR REPRESENTATIVES to be designated by the
Indeed, as the Court of Appeals concluded, under the UNION.
equitable principle of estoppel, it will be the height of injustice if
we will brush aside the employees claims on a mere Sec. 6. Any grievance, dispute or misunderstanding concerning
technicality, especially when it is petitioners own action that any ruling, practice, wages or working conditions in the
prevented them from interposing the claims within the COMPANY, or any breach of the Employment Contract, or any
prescribed period. dispute arising from the meaning or the application of the
provision of this Agreement or a claim of violation thereof or any
WHEREFORE, the petition is DENIED. The appealed complaint that any such crewmembers may have against the
decision of the Court of Appeals in CA-G.R. SP No. 44341 and the COMPANY, as well as complaint which the COMPANY may have
resolution denying petitioners motion for reconsideration, against such crewmembers shall be brought to the attention of
are AFFIRMED. Costs against petitioner. the GRIEVANCE COMMITTEE before either party takes any
action, legal or otherwise.
SO ORDERED.
Sec. 7. The COMMITTEE shall resolve any dispute within seven
(7) days from and after the same is submitted to it for resolution
SECOND DIVISION[G.R. No. 138938. October 24, 2000] and if the same cannot be settled by the COMMITTEE or if the
COMMITTEE fails to act on the dispute within the 7-day period
CELESTINO VIVIERO, petitioner, vs. COURT OF APPEALS, herein provided, the same shall be referred to a VOLUNTARY
HAMMONIA MARINE SERVICES, and HANSEATIC ARBITRATION COMMITTEE.
SHIPPING CO., LTD. respondents.
An "impartial arbitrator" will be appointed by mutual choice and
DECISION consent of the UNION and the COMPANY who shall hear and
22
decide the dispute or issue presented to him and his decision file his Complaint originally with POEA, then the Labor Arbiter to
shall be final and unappealable x x x x[1] whom the case was transferred would have to take cognizance
of the case.[7]
As found by the Labor Arbiter -
The NLRC then remanded the case to the Labor Arbiter for
further proceedings. On 3 July 1998 respondents filed a Motion
Complainant was hired by respondent as Chief Officer of the
for Reconsideration which was denied by the NLRC on 23 July
vessel "M.V. Sunny Prince" on 10 June 1994 under the terms and
1998.
conditions, to wit:
On grounds of very poor performance and conduct, refusal to On the other hand, petitioner argued -
perform his job, refusal to report to the Captain or the vessels
Engineers or cooperate with other ship officers about the (A)s strongly suggested by its very title, referral of cases of this
problem in cleaning the cargo holds or of the shipping pump and nature to the Voluntary Arbitration Committee is voluntary in
his dismal relations with the Captain of the vessel, complainant nature.Otherwise, the committee would not have been called
was repatriated on 15 July 1994. Voluntary Arbitration Committee but rather, a Compulsory
Arbitration Committee. Moreover, if the referral of cases of
On 01 August 1994, complainant filed a complaint for illegal similar nature to the Voluntary Arbitration Committee would be
dismissal at Associated Marine Officers and Seamans Union of deemed mandatory by virtue of the provisions in the CBA, the
the Philippines (AMOSUP) of which complainant was a [NLRC] would then be effectively deprived of its jurisdiction to
member. Pursuant to Article XII of the Collective Bargaining try, hear and decide termination disputes, as provided for under
Agreement, grievance proceedings were conducted; however, Article 217 of the Labor Code. Lastly, [respondents] ought to be
parties failed to reach and settle the dispute amicably, thus, on deemed to have waived their right to question the procedure
28 November 1994, complainant filed [a] complaint with the followed by [petitioner], considering that they have already filed
Philippine Overseas Employment Administration (POEA). [2] their Position Paper beforebelatedly filing a Motion to Dismiss x x
x x [9]
The law in force at the time petitioner filed his Complaint with
the POEA was EO No. 247.[3] But the Court of Appeals ruled in favor of private
respondents. It held that the CBA "is the law between the
parties and compliance therewith is mandated by the express
While the case was pending before the POEA, private
policy of the law."[10] Hence, petitioner should have followed the
respondents filed a Motion to Dismiss on the ground that the
provision in the CBA requiring the submission of the dispute to
POEA had no jurisdiction over the case considering petitioner
the Voluntary Arbitration Committee once the Grievance
Vivero's failure to refer it to a Voluntary Arbitration Committee in
Committee failed to settle the controversy.[11] According to the
accordance with the CBA between the parties. Upon the
Court of Appeals, the parties did not have the choice to
enactment of RA 8042, the Migrant Workers and Overseas
"volunteer" to refer the dispute to the Voluntary Arbitrator or a
Filipinos Act of 1995, the case was transferred to the
Panel of Arbitrators when there was already an agreement
Adjudication Branch of the National Labor Relations Commission.
requiring them to do so. "Voluntary Arbitration" means that it is
binding because of a prior agreement or contract, while
On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr., on "Compulsory Arbitration" is when the law declares the dispute
the basis of the pleadings and documents available on record, subject to arbitration, regardless of the consent or desire of the
rendered a decision dismissing the Complaint for want of parties.[12]
jurisdiction.[4] According to the Labor Arbiter, since the CBA of
the parties provided for the referral to a Voluntary Arbitration
The Court of Appeals further held that the Labor Code itself
Committee should the Grievance Committee fail to settle the
enumerates the original and exclusive jurisdiction of the
dispute, and considering the mandate of Art. 261 of the Labor
Voluntary Arbitrator or Panel of Voluntary Arbitrators, and
Code on the original and exclusive jurisdiction of Voluntary
prohibits the NLRC and the Regional Directors of the Department
Arbitrators, the Labor Arbiter clearly had no jurisdiction over the
of Labor and Employment (DOLE) from entertaining cases falling
case.[5]
under the same.[13] Thus, the fact that private respondents filed
their Position Paper first before filing their Motion to
Petitioner (complainant before the Labor Arbiter) appealed Dismiss was immaterial and did not operate to confer
the dismissal of his petition to the NLRC. On 28 May 1998 the jurisdiction upon the Labor Arbiter, following the well-settled
NLRC set aside the decision of the Labor Arbiter on the ground rule that jurisdiction is determined by law and not by consent or
that the record was clear that petitioner had exhausted his agreement of the parties or by estoppel.[14]
remedy by submitting his case to the Grievance Committee of
AMOSUP. Considering however that he could not obtain any
Finally, the appellate court ruled that a case falling under
settlement he had to ventilate his case before the proper
the jurisdiction of the Labor Arbiter as provided under Art. 217 of
forum, i.e., the Philippine Overseas Employment Administration.
[6] the Labor Code may be lodged instead with a Voluntary
The NLRC further held that the contested portion in the CBA
Arbitrator because the law prefers, or gives primacy, to
providing for the intercession of a Voluntary Arbitrator was not
voluntary arbitration instead of compulsory arbitration.
binding upon petitioner since both petitioner and private [15]
Consequently, the contention that the NLRC would be
respondents had to agree voluntarily to submit the case before
deprived of its jurisdiction to try, hear and decide termination
a Voluntary Arbitrator or Panel of Voluntary Arbitrators. This
disputes under Art. 217 of the Labor Code, should the instant
would entail expenses as the Voluntary Arbitrator chosen by the
dispute be referred to the Voluntary Arbitration Committee, is
parties had to be paid. Inasmuch however as petitioner chose to
23
clearly bereft of merit.[16] Besides, the Voluntary Arbitrator, any violation of Article 264 of this Code, including questions
whether acting solely or in a panel, enjoys in law the status of a involving the legality of strikes and lockouts; and, (6) Except
quasi-judicial agency independent of, and apart from, the NLRC claims for Employees Compensation, Social Security, Medicare
since his decisions are not appealable to the latter.[17] and maternity benefits, all other claims arising from employer-
employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand
Celestino Vivero, in his petition for review assailing the
pesos (P5,000.00) regardless of whether accompanied with a
Decision of the Court of Appeals, alleges that the appellate court
claim for reinstatement.
committed grave abuse of discretion in holding that a Voluntary
Arbitrator or Panel of Voluntary Arbitrators, and not the
Adjudication Branch of the NLRC, has jurisdiction over his (b) The Commission shall have exclusive appellate jurisdiction
complaint for illegal dismissal. He claims that his complaintfor over all cases decided by Labor Arbiters.
illegal dismissal was undeniably a termination dispute and did
not, in any way, involve an "interpretation or implementation of (c) Cases arising from the interpretation of collective bargaining
collective bargaining agreement" or "interpretation" or agreements and those arising from the interpretation or
"enforcement" of company personnel policies.Thus, it should fall enforcement of company personnel policies shall be disposed of
within the original and exclusive jurisdiction of the NLRC and its by the Labor Arbiter by referring the same to the grievance
Labor Arbiter, and not with a Voluntary Arbitrator, in accordance machinery and voluntary arbitration as may be provided in said
with Art. 217 of the Labor Code. agreements (emphasis supplied).
Private respondents, on the other hand, allege that the However, any or all of these cases may, by agreement of
case is clearly one "involving the the parties, be submitted to a Voluntary Arbitrator or Panel of
proper interpretation and implementation of the Grievance Voluntary Arbitrators for adjudication. Articles 261 and 262 of
Procedure found in the Collective Bargaining Agreement (CBA) the Labor Code provide -
between the parties"[18]because of petitioners allegation in his
claim/assistance request form submitted to the Union, to wit:
Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of
Voluntary Arbitrators. - The Voluntary Arbitrator or panel of
NATURE OF COMPLAINT Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
3. Illegal Dismissal - Reason: (1) That in this case it was the from the interpretation or implementation of the Collective
master of M.V. SUNNY PRINCE Capt. Andersen who created the Bargaining Agreement and those arising from the interpretation
trouble with physical injury and stating false allegation; (2) That or enforcement of company personnel policies referred to in the
there was no proper procedure of grievance; (3) No proper immediately preceding article. Accordingly, violations of a
notice of dismissal. Collective Bargaining Agreement, except those which are gross
in character, shall no longer be treated as unfair labor practice
and shall be resolved as grievances under the Collective
Is there a Notice of dismissal? _x_ Yes or ____ No
Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean
What date? 11 July 1994 flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.
Is there a Grievance Procedure observed? ____ Yes or _x_ No[19]
The Commission, its Regional Offices and the Regional Directors
Private respondents further allege that the fact that of the Department of Labor and Employment shall not entertain
petitioner sought the assistance of his Union evidently shows disputes, grievances or matters under the exclusive and original
that he himself was convinced that his Complaint was within the jurisdiction of the Voluntary Arbitrator or panel of Voluntary
ambit of the jurisdiction of the grievance machinery and Arbitrators and shall immediately dispose and refer the same to
subsequently by a Panel of Voluntary Arbitrators as provided for the Grievance Machinery or Voluntary Arbitration provided in the
in their CBA, and as explicitly mandated by Art. 261 of the Labor Collective Bargaining Agreement.
Code.[20]
Art. 262. Jurisdiction Over Other Labor Disputes. - The Voluntary
Thus, the issue is whether the NLRC is deprived of Arbitrator or panel of Voluntary Arbitrators, upon agreement of
jurisdiction over illegal dismissal cases whenever a CBA provides the parties, shall also hear and decide all other labor disputes
for grievance machinery and voluntary arbitration including unfair labor practices and bargaining deadlocks
proceedings. Or, phrased in another way, does the dismissal of (emphasis supplied).
an employee constitute a "grievance between the parties," as
defined under the provisions of the CBA, and consequently, Private respondents attempt to justify the conferment of
within the exclusive original jurisdiction of the Voluntary jurisdiction over the case on the Voluntary Arbitrator on the
Arbitrators, thereby rendering the NLRC without jurisdiction to ground that the issue involves the proper interpretation and
decide the case? implementation of the Grievance Procedure found in the
CBA. They point out that when petitioner sought the assistance
On the original and exclusive jurisdiction of Labor Arbiters, of his Union to avail of the grievance machinery, he in effect
Art. 217 of the Labor Code provides - submitted himself to the procedure set forth in the CBA
regarding submission of unresolved grievances to a Voluntary
Arbitrator.
Art. 217. Jurisdiction of Labor Arbiters and the Commission.
- (a) Except as otherwise provided under this Code, the Labor
Arbiters shall have original and exclusive jurisdiction to hear and The argument is untenable. The case is primarily a
decide within thirty (30) calendar days after the submission of termination dispute. It is clear from the claim/assistance request
the case by the parties for decision without extension, even in form submitted by petitioner to AMOSUP that he was
the absence of stenographic notes, the following cases involving challenging the legality of his dismissal for lack of cause and
all workers, whether agricultural or non-agricultural: (1) Unfair lack of due process. The issue of whether there was proper
labor practice cases; (2) Termination disputes; (3) If interpretation and implementation of the CBA provisions comes
accompanied with a claim for reinstatement, those cases that into play only because the grievance procedure provided for in
workers may file involving wages, rates of pay, hours of work the CBA was not observed after he sought his Unions assistance
and other terms and conditions of employment; (4) Claims for in contesting his termination. Thus, the question to be resolved
actual, moral, exemplary and other forms of damages arising necessarily springs from the primary issue of whether there was
from the employer-employee relations; (5) Cases arising from a valid termination; without this, then there would be no reason
24
to invoke the need to interpret and implement the CBA legal conferment. In the same manner, petitioner cannot
provisions properly. arrogate into the powers of Voluntary Arbitrators the original
and exclusive jurisdiction of Labor Arbiters over unfair labor
practices, termination disputes, and claims for damages, in the
In San Miguel Corp. v. National Labor Relations
absence of an express agreement between the parties in order
Commission[21] this Court held that the phrase "all other labor
for Art. 262 of the Labor Code to apply in the case at bar. In
disputes" may include termination disputes provided that the
other words, the Court of Appeals is correct in holding that
agreement between the Union and the Company states "in
Voluntary Arbitration is mandatory in character if there is a
unequivocal language that [the parties] conform to the
specific agreement between the parties to that effect. It must be
submission of termination disputes and unfair labor practices to
stressed however that, in the case at bar, the use of the word
voluntary arbitration."[22] Ergo, it is not sufficient to merely say
"may" shows the intention of the parties to reserve the right of
that parties to the CBA agree on the principle that "all disputes"
recourse to Labor Arbiters.
should first be submitted to a Voluntary Arbitrator. There is a
need for an express stipulation in the CBA that illegal
termination disputes should be resolved by a Voluntary The CBA clarifies the proper procedure to be followed in
Arbitrator or Panel of Voluntary Arbitrators, since the same fall situations where the parties expressly stipulate to submit
within a special class of disputes that are generally within the termination disputes to the jurisdiction of a Voluntary Arbitrator
exclusive original jurisdiction of Labor Arbiters by express or Panel of Voluntary Arbitrators. For when the parties have
provision of law. Absent such express stipulation, the phrase "all validly agreed on a procedure for resolving grievances and to
disputes" should be construed as limited to the areas of conflict submit a dispute to voluntary arbitration then that procedure
traditionally within the jurisdiction of Voluntary Arbitrators, i.e., should be strictly observed. Non-compliance therewith cannot
disputes relating to contract-interpretation, contract- be excused, as petitioner suggests, by the fact that he is not
implementation, or interpretation or enforcement of company well-versed with the "fine prints" of the CBA. It was his
personnel policies. Illegal termination disputes - not falling responsibility to find out, through his Union, what the provisions
within any of these categories - should then be considered as a of the CBA were and how they could affect his rights. As
special area of interest governed by a specific provision of law. provided in Art. 241, par. (p), of the Labor Code -
In this case, however, while the parties did agree to make (p) It shall be the duty of any labor organization and its officers
termination disputes the proper subject of voluntary arbitration, to inform its members on the provisions of its constitution and
such submission remains discretionary upon the parties. A by-laws, collective bargaining agreement, the prevailing labor
perusal of the CBA provisions shows that Sec. 6, Art. XII relations system and all their rights and obligations under
(Grievance Procedure) of the CBA is the general agreement of existing labor laws.
the parties to refer grievances, disputes or misunderstandings
to a grievance committee, and henceforth, to a voluntary In fact, any violation of the rights and conditions of union
arbitration committee. The requirement of specificity is fulfilled membership is a "ground for cancellation of union registration or
by Art. XVII (Job Security) where the parties agreed - expulsion of officer from office, whichever is appropriate. At
least thirty percent (30%) of all the members of a union or any
Sec. 1. Promotion, demotion, suspension, dismissal or member or members especially concerned may report such
disciplinary action of the seaman shall be left to the discretion of violation to the Bureau [of Labor Relations] x x x x" [29]
the Master, upon consultation with the Company and notification
to the Union. This notwithstanding, any and all disciplinary It may be observed that under Policy Instruction No. 56 of
action taken on board the vessel shall be provided for in the Secretary of Labor, dated 6 April 1993, "Clarifying the
Appendix B of this Agreement x x x x [23] Jurisdiction Between Voluntary Arbitrators and Labor Arbiters
Over Termination Cases and Providing Guidelines for the
Sec. 4. x x x x Transfer, lay-off or discipline of seamen for Referral of Said Cases Originally Filed with the NLRC to the
incompetence, inefficiency, neglect of work, bad behavior, NCMB," termination cases arising in or resulting from the
perpetration of crime, drunkenness, insubordination, desertion, interpretation and implementation of collective bargaining
violation of x x x regulations of any port touched by the agreements and interpretation and enforcement of company
Companys vessel/s and other just and proper causes shall be at personnel policies which were initially processed at the various
Masters discretion x x x in the high seas or foreign ports. The steps of the plant-level Grievance Procedures under the parties'
Master shall refer the case/dispute upon reaching port and if not collective bargaining agreements fall within the original and
satisfactorily settled, the case/dispute may be referred to the exclusive jurisdiction of the voluntary arbitrator pursuant to Art.
grievance machinery or procedure hereinafter provided 217 (c) and Art. 261 of the Labor Code; and, if filed before the
(emphasis supplied).[24] Labor Arbiter, these cases shall be dismissed by the Labor
Arbiter for lack of jurisdiction and referred to the concerned
NCMB Regional Branch for appropriate action towards an
The use of the word "may" shows the intention of the
expeditious selection by the parties of a Voluntary Arbitrator or
parties to reserve the right to submit the illegal termination
Panel of Arbitrators based on the procedures agreed upon in the
dispute to the jurisdiction of the Labor Arbiter, rather than to a
CBA.
Voluntary Arbitrator. Petitioner validly exercised his option to
submit his case to a Labor Arbiter when he filed
his Complaint before the proper government agency. As earlier stated, the instant case is a termination dispute
falling under the original and exclusive jurisdiction of the Labor
Arbiter, and does not specifically involve the application,
Private respondents invoke Navarro III v.
implementation or enforcement of company personnel policies
Damasco[25] wherein the Court held that "it is the policy of the
contemplated in Policy Instruction No. 56. Consequently, Policy
state to promote voluntary arbitration as a mode of
Instruction No. 56 does not apply in the case at bar. In any case,
settling disputes."[26] It should be noted, however, that
private respondents never invoked the application of Policy
in Navarro III all the parties voluntarily submitted to the
Instruction No. 56 in their Position Papers, neither did they raise
jurisdiction of the Voluntary Arbitrator when they filed their
the question in their Motion to Dismiss which they filed nine (9)
respective position papers and submitted documentary
months after the filing of their Position Papers. At this late stage
evidence before him. Furthermore, they manifested during the
of the proceedings, it would not serve the ends of justice if this
initial conference that they were not questioning the authority of
case is referred back to a Voluntary Arbitrator considering that
the Voluntary Arbitrator.[27] In the case at bar, the dispute was
both the AMOSUP and private respondents have submitted to
never brought to a Voluntary Arbitrator for resolution; in fact,
the jurisdiction of the Labor Arbiter by filing their
petitioner precisely requested the Court to recognize the
respective Position Papers and ignoring the grievance procedure
jurisdiction of the Labor Arbiter over the case. The Court had
set forth in their CBA.
held in San Miguel Corp. v. NLRC[28] that neither officials nor
tribunals can assume jurisdiction in the absence of an express
25
After the grievance proceedings have failed to bring about voltage/pole who are team
a resolution, AMOSUP, as agent of petitioner, should have not exposed to the
informed him of his option to settle the case through voluntary risk
arbitration. Private respondents, on their part, should have
timely invoked the provision of their CBA requiring the referral of Collectors - no need for cash
their unresolved disputes to a Voluntary Arbitrator once it bond, no
became apparent that the grievance machinery failed to resolve need to reduce quota
it prior to the filing of the case before the proper tribunal. The and MAPL
private respondents should not have waited for nine (9) months
exclude confidential
from the filing of their Position Paper with the POEA before it CBU - include
employees
moved to dismiss the case purportedly for lack of jurisdiction. As
it is, private respondents are deemed to have waived their right maintenance of
Union security - closed shop
to question the procedure followed by petitioner, assuming that membership
they have the right to do so. Under their CBA, both Union and
respondent companies are responsible for selecting an impartial Contracting no need to consult
- consult first
out union
arbitrator or for convening an arbitration committee; [30] yet, it is
apparent that neither made a move towards this existing terms and
end. Consequently, petitioner should not be deprived of his All benefits - all terms
conditions
legitimate recourse because of the refusal of both Union and
respondent companies to follow the grievance procedure. Dec. 28, 1996-Dec. from Dec. 1,
Retroactivity -
27, 199(9) 1995
WHEREFORE, the Decision of the Court of Appeals is SET
ASIDE and the case is remanded to the Labor Arbiter to dispose Dissatisfied with the Decision, some alleged members of private
of the case with dispatch until terminated considering the undue respondent union (Union for brevity) filed a motion for
delay already incurred.SO ORDERED. intervention and a motion for reconsideration of the said
Decision. A separate intervention was likewise made by the
supervisor's union (FLAMES2) of petitioner corporation alleging
SPECIAL FIRST DIVISIONG.R. No. 127598 February 22,
that it has bona fide legal interest in the outcome of the
2000
case.3 The Court required the "proper parties" to file a comment
to the three motions for reconsideration but the Solicitor-
MANILA ELECTRIC COMPANY, petitioner, General asked that he be excused from filing the comment
vs. because the "petition filed in the instant case was granted" by
Hon. SECRETARY OF LABOR LEONARDO QUISUMBING and the Court.4 Consequently, petitioner filed its own consolidated
MERALCO EMPLOYEES and WORKERS ASSOCIATION comment. An "Appeal Seeking Immediate Reconsideration" was
(MEWA), respondent. also filed by the alleged newly elected president of the
Union.5 Other subsequent pleadings were filed by the parties
and intervenors.
YNARES-SANTIAGO, J.:
3. All money claims of workers, including those based on non- In Molave Motor Sales, Inc. v. Laron, 7 the petitioner was a
payment or underpayment of wages, overtime compensation, corporation engaged in the sale and repair of motor vehicles,
separation pay and other benefits provided by law or while private respondent was the sales Manager of petitioner.
appropriate agreement, except claims for employees' Petitioner had sued private respondent for non-payment of
compensation, social security, medicare and maternity accounts which had arisen from private respondent's own
benefits; purchases of vehicles and parts, repair jobs on cars personally
owned by him, and cash advances from the corporation. At the
4. Cases involving household services; and pre-trial in the lower court, private respondent raised the
question of lack of jurisdiction of the court, stating that because
petitioner's complaint arose out of the employer-employee
5. Cases arising from any violation of Article 265 of this; Code, relationship, it fell outside the jurisdiction of the court and
including questions involving the legality of strikes and consequently should be dismissed. Respondent Judge did
lockouts. dismiss the case, holding that the sum of money and damages
sued for by the employer arose from the employer-employee
(b) The Commission shall have exclusive appellate jurisdiction relationship and, hence, fell within the jurisdiction of the Labor
over all cases decided by Labor Arbiters. (Emphasis supplied) Arbiter and the NLRC. In reversing the order of dismissal and
requiring respondent Judge to take cognizance of the case
29
below, this Court, speaking through Mme. Justice Melencio- terms and conditions of employment, but rather in the
Herrera, said: application of the general civil law. Clearly, such claims fall
outside the area of competence or expertise ordinarily ascribed
to Labor Arbiters and the NLRC and the rationale for granting
Before the enactment of BP Blg. 227 on June 1, 1982,
jurisdiction over such claims to these agencies disappears.
Labor Arbiters, under paragraph 5 of Article 217 of the
Labor Code had jurisdiction over" all other cases arising
from employer-employee relation, unless, expressly Applying the foregoing to the instant case, the Court notes that
excluded by this Code." Even then, the principle followed the SMC Innovation Program was essentially an invitation from
by this Court was that, although a controversy is between petitioner Corporation to its employees to submit innovation
an employer and an employee, the Labor Arbiters have no proposals, and that petitioner Corporation undertook to grant
jurisdiction if the Labor Code is not involved. In Medina vs. cash awards to employees who accept such invitation and
Castro-Bartolome, 11 SCRA 597, 604, in negating whose innovation suggestions, in the judgment of the
jurisdiction of the Labor Arbiter, although the parties were Corporation's officials, satisfied the standards and requirements
an employer and two employees, Mr. Justice Abad Santos of the Innovation Program 10 and which, therefore, could be
stated: translated into some substantial benefit to the Corporation.
Such undertaking, though unilateral in origin, could nonetheless
ripen into an enforceable contractual (facio ut des) 11 obligation
The pivotal question to Our mind is whether or not the
on the part of petitioner Corporation under certain
Labor Code has any relevance to the reliefs sought by the
circumstances. Thus, whether or not an enforceable contract,
plaintiffs. For if the Labor Code has no relevance, any
albeit implied arid innominate, had arisen between petitioner
discussion concerning the statutes amending it and
Corporation and private respondent Vega in the circumstances
whether or not they have retroactive effect is unnecessary.
of this case, and if so, whether or not it had been breached, are
preeminently legal questions, questions not to be resolved by
It is obvious from the complaint that the plaintiffs have not referring to labor legislation and having nothing to do with
alleged any unfair labor practice. Theirs is a simple action wages or other terms and conditions of employment, but rather
for damages for tortious acts allegedly committed by the having recourse to our law on contracts.
defendants. Such being the case, the governing statute is
the Civil Code and not the Labor Code. It results that the
WEREFORE, the Petition for certiorari is GRANTED. The decision
orders under review are based on a wrong premise.
dated 4 September 1987 of public respondent National Labor
Relations Commission is SET ASIDE and the complaint in Case
And in Singapore Airlines Limited v. Pao, 122 SCRA 671, No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice to
677, the following was said: the right of private respondent Vega to file a suit before the
proper court, if he so desires. No pronouncement as to costs.SO
Stated differently, petitioner seeks protection under the ORDERED.
civil laws and claims no benefits under the Labor Code.
The primary relief sought is for liquidated damages for SECOND DIVISION February 13, 2008 G.R. No. 163101
breach of a contractual obligation. The other items
demanded are not labor benefits demanded by workers BENGUET CORPORATION, Petitioner,- versus - DEPARTMENT
generally taken cognizance of in labor disputes, such as OF ENVIRONMENT AND NATURAL RESOURCES-MINES
payment of wages, overtime compensation or separation ADJUDICATION BOARD and J.G. REALTY AND
pay. The items claimed are the natural consequences MINING CORPORATION,Respondents.
flowing from breach of an obligation, intrinsically a civil x----------------------------------------------------------------------------------------
dispute. -x
VELASCO, JR., J.:
In the case below, PLAINTIFF had sued for monies loaned The instant petition under Rule 65 of the Rules of Court seeks
to DEFENDANT, the cost of repair jobs made on his the annulment of the December 2, 2002 Decision [1]and March
personal cars, and for the purchase price of vehicles and 17, 2004 Resolution[2] of the Department of Environment and
parts sold to him. Those accounts have no relevance to Natural Resources-Mining Adjudication Board (DENR-MAB) in
the Labor Code. The cause of action was one under the MAB Case No. 0124-01 (Mines Administrative Case No. R-M-
civil laws, and it does not breach any provision of the 2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty
Labor Code or the contract of employment of DEFENDANT. and Mining Corporation (J.G. Realty). The December 2, 2002
Hence the civil courts, not the Labor Arbiters and the NLRC Decision upheld the March 19, 2001 Decision[3] of the MAB Panel
should have jurisdiction. 8 of Arbitrators (POA) which canceled the Royalty Agreement with
Option to Purchase (RAWOP) dated June 1, 1987[4] between
Benguet and J.G. Realty, and excluded Benguet from the joint
It seems worth noting that Medina v. Castro-Bartolome, referred Mineral Production Sharing Agreement (MPSA) application over
to in the above excerpt, involved a claim for damages by two (2) four mining claims. The March 17, 2004 Resolution denied
employees against the employer company and the General Benguets Motion for Reconsideration.
Manager thereof, arising from the use of slanderous language on
the occasion when the General Manager fired the two (2) The Facts
employees (the Plant General Manager and the Plant
Comptroller). The Court treated the claim for damages as "a On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP,
wherein J.G. Realty was acknowledged as the owner of four
simple action for damages for tortious acts" allegedly committed
mining claims respectively named as Bonito-I, Bonito-II, Bonito-
by private respondents, clearly if impliedly suggesting that the
III, and Bonito-IV, with a total area of 288.8656 hectares,
claim for damages did not necessarily arise out of or in situated in Barangay Luklukam, Sitio Bagong
connection with the employer-employee relationship. Singapore Bayan, Municipality of Jose Panganiban, Camarines Norte. The
Airlines Limited v. Pao, also cited in Molave, involved a claim parties also executed a Supplemental Agreement [5] dated June 1,
for liquidated damages not by a worker but by the employer 1987. The mining claims were covered by MPSA Application No.
company, unlike Medina. The important principle that runs APSA-V-0009 jointly filed by J.G. Realty as claimowner and
through these three (3) cases is that where the claim to the Benguet as operator.
principal relief sought 9 is to be resolved not by reference to the
Labor Code or other labor relations statute or a collective In the RAWOP, Benguet obligated itself to perfect the rights to
bargaining agreement but by the general civil law, the the mining claims and/or otherwise acquire the mining rights to
jurisdiction over the dispute belongs to the regular courts of the mineral claims. Within 24 months from the execution of the
justice and not to the Labor Arbiter and the NLRC. In such RAWOP, Benguet should also cause the examination of the
situations, resolution of the dispute requires expertise, not in mining claims for the purpose of determining whether or not
they are worth developing with reasonable probability of
labor management relations nor in wage structures and other
profitable production. Benguet undertook also to furnish J.G.
30
Realty with a report on the examination, within a reasonable Therefrom, Benguet filed a Notice of Appeal [11] with the MAB on
time after the completion of the examination. Moreover, also April 23, 2001, docketed as Mines Administrative Case No. R-M-
within the examination period, Benguet shall conduct all 2000-01. Thereafter, the MAB issued the assailed December 2,
necessary exploration in accordance with a prepared exploration 2002 Decision. Benguet then filed a Motion for Reconsideration
program. If it chooses to do so and before the expiration of the of the assailed Decision which was denied in the March 17,
examination period, Benguet may undertake to develop the 2004Resolution of the MAB. Hence, Benguet filed the instant
mining claims upon written notice to J.G. Realty. Benguet must petition.
then place the mining claims into commercial productive stage
within 24 months from the written notice. [6] It is also provided in The Issues
the RAWOP that if the mining claims were placed in commercial
production by Benguet, J.G. Realty should be entitled to a royalty
of five percent (5%) of net realizable value, and to royalty for 1. There was serious and palpable error
any production done by Benguet whether during the when the Honorable Board failed to rule that the
examination or development periods. contractual obligation of the parties to arbitrate under
the Royalty Agreement is mandatory.
Thus, on August 9, 1989, the Executive Vice-President of
Benguet, Antonio N. Tachuling, issued a letter informing J.G. 2. The Honorable Board exceeded its
Realty of its intention to develop the mining claims. However, on jurisdiction when it sustained the cancellation of the
February 9, 1999, J.G. Realty, through its President, Johnny L. Royalty Agreement for alleged breach of contract
Tan, then sent a letter to the President of Benguet informing the despite the absence of evidence.
latter that it was terminating the RAWOP on the following
grounds: 3. The Questioned Decision of the
Honorable Board in cancelling the RAWOP prejudice[d]
a. The fact that your company has failed to the substantial rights of Benguet under the contract to
perform the obligations set forth in the RAWOP, i.e., to the unjust enrichment of JG Realty.[12]
undertake development works within 2 years from the
execution of the Agreement;
Restated, the issues are: (1) Should the controversy have first
b. Violation of the Contract by allowing high been submitted to arbitration before the POA took cognizance of
graders to operate on our claim. the case?; (2) Was the cancellation of the RAWOP supported by
evidence?; and (3) Did the cancellation of the RAWOP amount to
c. No stipulation was provided with respect unjust enrichment of J.G. Realty at the expense of Benguet?
to the term limit of the RAWOP. The Courts Ruling
d. Non-payment of the royalties thereon as Before we dwell on the substantive issues, we find that
provided in the RAWOP.[7] the instant petition can be denied outright as Benguet resorted
to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942
In response, Benguets Manager for Legal Services, or the Philippine Mining Act of 1995 states, A petition for review
Reynaldo P. Mendoza, wrote J.G. Realty a letter dated March 8, by certiorari and question of law may be filed by the aggrieved
1999,[8] therein alleging that Benguet complied with its party with the Supreme Court within thirty (30) days from
obligations under the RAWOP by investing PhP 42.4 million to receipt of the order or decision of the [MAB].
rehabilitate the mines, and that the commercial operation was
hampered by the non-issuance of a Mines Temporary Permit by However, this Court has already invalidated such provision
the Mines and Geosciences Bureau (MGB) which must be in Carpio v. Sulu Resources Development Corp.,[13]ruling that a
considered as force majeure, entitling Benguet to an extension decision of the MAB must first be appealed to the Court of
of time to prosecute such permit. Benguet further claimed that Appeals (CA) under Rule 43 of the Rules of Court, before
the high graders mentioned by J.G. Realty were already recourse to this Court may be had. We held, thus:
operating prior to Benguets taking over of the premises, and
that J.G. Realty had the obligation of ejecting such small scale To summarize, there are sufficient legal
miners. Benguet also alleged that the nature of the mining footings authorizing a review of the MAB Decision
business made it difficult to specify a time limit for the RAWOP. under Rule 43 of the Rules of Court. First, Section 30 of
Benguet then argued that the royalties due to J.G. Realty were in Article VI of the 1987 Constitution, mandates that [n]o
fact in its office and ready to be picked up at any time. It law shall be passed increasing the appellate jurisdiction
appeared that, previously, the practice by J.G. Realty was to of the Supreme Court as provided in this Constitution
pick-up checks from Benguet representing such royalties. without its advice and consent. On the other hand,
However, starting August 1994, J.G. Realty allegedly refused to Section 79 of RA No. 7942 provides that decisions of
collect such checks from Benguet. Thus, Benguet posited that the MAB may be reviewed by this Court on a petition
there was no valid ground for the termination of the RAWOP. It for review by certiorari. This provision is obviously an
also reminded J.G. Realty that it should submit the disagreement expansion of the Courts appellate jurisdiction, an
to arbitration rather than unilaterally terminating the RAWOP. expansion to which this Court has not consented.
Indiscriminate enactment of legislation enlarging the
On June 7, 2000, J.G. Realty filed a Petition for appellate jurisdiction of this Court would unnecessarily
Declaration of Nullity/Cancellation of the RAWOP [9] with the burden it.
Legaspi City POA, Region V, docketed as DENR Case No. 2000- Second, when the Supreme Court, in the
01 and entitled J.G. Realty v. Benguet. exercise of its rule-making power, transfers to the CA
pending cases involving a review of a quasi-judicial
On March 19, 2001, the POA issued a Decision, [10] dwelling upon bodys decisions, such transfer relates only to
the issues of (1) whether the arbitrators had jurisdiction over the procedure; hence, it does not impair the substantive
case; and (2) whether Benguet violated the RAWOP justifying and vested rights of the parties. The aggrieved partys
the unilateral cancellation of the RAWOP by J.G. Realty. The right to appeal is preserved; what is changed is only
dispositive portion stated: the procedure by which the appeal is to be made or
decided. The parties still have a remedy and a
WHEREFORE, premises considered, the June competent tribunal to grant this remedy.
01, 1987 [RAWOP] and its Supplemental Agreement is
hereby declared cancelled and without effect. BENGUET Third, the Revised Rules of Civil Procedure
is hereby excluded from the joint MPSA Application over included Rule 43 to provide a uniform rule on appeals
the mineral claims denominated as BONITO-I, BONITO- from quasi-judicial agencies. Under the rule, appeals
II, BONITO-III and BONITO-IV. from their judgments and final orders are now required
to be brought to the CA on a verified petition for review.
SO ORDERED. A quasi-judicial agency or body has been defined as an
organ of government, other than a court or legislature,
which affects the rights of private parties through
either adjudication or rule-making. MAB falls under this
31
definition; hence, it is no different from the other quasi- Thus, Benguet argues that the POA should have first referred the
judicial bodies enumerated under Rule 43. Besides, the case to voluntary arbitration before taking cognizance of the
introductory words in Section 1 of Circular No. 1- case, citing Sec. 2 of RA 876 on persons and matters subject to
91among these agencies areindicate that the arbitration.
enumeration is not exclusive or conclusive and
acknowledge the existence of other quasi-judicial On the other hand, in denying such argument, the POA ruled
agencies which, though not expressly listed, should be that:
deemed included therein.
While the parties may establish such stipulations
Fourth, the Court realizes that under Batas clauses, terms and conditions as they may deem
Pambansa (BP) Blg. 129 as amended by RA No. 7902, convenient, the same must not be contrary to law and
factual controversies are usually involved in decisions public policy. At a glance, there is nothing wrong with
of quasi-judicial bodies; and the CA, which is likewise the terms and conditions of the agreement. But to state
tasked to resolve questions of fact, has more elbow that an aggrieved party cannot initiate an action
room to resolve them. By including questions of fact without going to arbitration would be tying ones hand
among the issues that may be raised in an appeal from even if there is a law which allows him to do so. [17]
quasi-judicial agencies to the CA, Section 3 of Revised
Administrative Circular No. 1-95 and Section 3 of Rule
43 explicitly expanded the list of such issues. The MAB, meanwhile, denied Benguets contention on the
ground of estoppel, stating:
According to Section 3 of Rule 43, [a]n appeal
under this Rule may be taken to the Court of Appeals Besides, by its own act, Benguet is already estopped in
within the period and in the manner herein provided questioning the jurisdiction of the Panel of Arbitrators
whether the appeal involves questions of fact, of law, to hear and decide the case. As pointed out in the
or mixed questions of fact and law. Hence, appeals appealed Decision, Benguet initiated and filed an
from quasi-judicial agencies even only on questions of Adverse Claim docketed as MAC-R-M-2000-02 over the
law may be brought to the CA. same mining claims without undergoing contractual
arbitration. In this particular case (MAC-R-M-2000-02)
Fifth, the judicial policy of observing the now subject of the appeal, Benguet is likewise in
hierarchy of courts dictates that direct resort from estoppel from questioning the competence of the Panel
administrative agencies to this Court will not be of Arbitrators to hear and decide in the summary
entertained, unless the redress desired cannot be proceedings J.G. Realtys petition, when Benguet itself
obtained from the appropriate lower tribunals, or unless did not merely move for the dismissal of the case but
exceptional and compelling circumstances justify also filed an Answer with counterclaim seeking
availment of a remedy falling within and calling for the affirmative reliefs from the Panel of Arbitrators.[18]
exercise of our primary jurisdiction.[14]
In this connection, it bears stressing that the The cancellation of the RAWOP by the POA was based
lower court has not lost its jurisdiction over the case. on two grounds: (1) Benguets failure to pay J.G. Realtys royalties
Section 7 of Republic Act No. 876 provides that for the mining claims; and (2) Benguets failure to seriously
proceedings therein have only been stayed. After the pursue MPSA Application No. APSA-V-0009 over the mining
special proceeding of arbitration has been pursued and claims.
completed, then the lower court may confirm the award As to the royalties, Benguet claims that the checks
made by the arbitrator.[22] representing payments for the royalties of J.G. Realty were
available for pick-up in its office and it is the latter which refused
to claim them. Benguet then thus concludes that it did not
J.G. Realtys contention, that prior resort to arbitration is violate the RAWOP for nonpayment of royalties. Further,
unavailing in the instant case because the POAs mandate is to Benguet reasons that J.G. Realty has the burden of proving that
arbitrate disputes involving mineral agreements, is misplaced. A the former did not pay such royalties following the principle that
distinction must be made between voluntary and compulsory the complainants must prove their affirmative allegations.
arbitration. In Ludo and Luym Corporation v. Saordino, the Court
had the occasion to distinguish between the two types of With regard to the failure to pursue the MPSA
arbitrations: application, Benguet claims that the lengthy time of approval of
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. the application is due to the failure of the MGB to approve it. In
NLRC, compulsory arbitration has been defined both as other words, Benguet argues that the approval of the application
the process of settlement of labor disputes by is solely in the hands of the MGB.
a government agency which has the authority to
investigate and to make an award which is binding Benguets arguments are bereft of merit.
on all the parties, and as a mode of arbitration where
the parties are compelled to accept the resolution of Sec. 14.05 of the RAWOP provides:
their dispute through arbitration by a third party. While
a voluntary arbitrator is not part of the 14.05 Bank Account
33
equity and good conscience. Article 22 of the Civil Code
OWNER shall maintain a bank account at ___________ or provides that [e]very person who through an act of
any other bank from time to time selected by OWNER performance by another, or any other means, acquires
with notice in writing to BENGUET where BENGUET or comes into possession of something at the expense
shall deposit to the OWNERs credit any and all of the latter without just or legal ground, shall return
advances and payments which may become due the the same to him. The principle of unjust enrichment
OWNER under this Agreement as well as the purchase under Article 22 requires two conditions: (1) that a
price herein agreed upon in the event that BENGUET person is benefited without a valid basis or justification,
shall exercise the option to purchase provided for in the and (2) that such benefit is derived at anothers
Agreement. Any and all deposits so made by expense or damage.
BENGUET shall be a full and complete
acquittance and release to [sic] BENGUET from There is no unjust enrichment when the
any further liability to the OWNER of the person who will benefit has a valid claim to such
amounts represented by such deposits. (Emphasis benefit.[28](Emphasis supplied.)
supplied.)
In the instant case, the obligation of Benguet to pay Petitioner HUTAMA-RSEA Joint Operations Incorporation and
royalties to J.G. Realty has been admitted and supported by the respondent Citra Metro Manila Tollways Corporation are
provisions of the RAWOP. Thus, the burden to prove such corporations organized and existing under Philippine laws.
obligation rests on Benguet. Petitioner is a sub-contractor engaged in engineering and
construction works. Respondent, on the other hand, is the
It should also be borne in mind that MPSA Application No. APSA- general contractor and operator of the South Metro Manila
V-0009 has been pending with the MGB for a considerable Skyway Project (Skyway Project).
length of time. Benguet, in the RAWOP, obligated itself to
perfect the rights to the mining claims and/or otherwise acquire
the mining rights to the mineral claims but failed to present any On 25 September 1996, petitioner and respondent entered into
evidence showing that it exerted efforts to speed up and have an Engineering Procurement Construction Contract (EPCC)
the application approved. In fact, Benguet never even alleged whereby petitioner would undertake the construction of Stage 1
that it continuously followed-up the application with the MGB of the Skyway Project, which stretched from the junction of
and that it was in constant communication with the government Buendia Avenue, Makati City, up to Bicutan Interchange, Taguig
agency for the expeditious resolution of the application. Such City. As consideration for petitioners undertaking, respondent
allegations would show that, indeed, Benguet was remiss in obliged itself under the EPCC to pay the former a total amount
prosecuting the MPSA application and clearly failed to comply of US$369,510,304.00.4
with its obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant During the construction of the Skyway Project, petitioner wrote
case respondent on several occasions requesting payment of the
formers interim billings, pursuant to the provisions of the EPCC.
Based on the foregoing discussion, the cancellation of the Respondent only partially paid the said interim billings, thus,
RAWOP was based on valid grounds and is, therefore, justified. prompting petitioner to demand that respondent pay the
The necessary implication of the cancellation is the cessation of outstanding balance thereon, but respondent still failed to do
Benguets right to prosecute MPSA Application No. APSA-V-0009 so.5
and to further develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development The Skyway Project was opened on 15 December 1999 for public
Corporation, we defined unjust enrichment, as follows: use, and toll fees were accordingly collected. After informing
respondent that the construction of the Skyway Project was
We have held that [t]here is unjust enrichment already complete, petitioner reiterated its demand that
when a person unjustly retains a benefit to the loss of respondent pay the outstanding balance on the interim billings,
another, or when a person retains money or property of as well as the "Early Completion Bonus" agreed upon in the
another against the fundamental principles of justice,
34
EPCC. Respondent refused to comply with petitioners CIAC.12 Respondents Urgent Motion was denied by the CIAC in
demands.6 its Order dated 6 December 2005.13
On 24 May 2004, petitioner, through counsel, sent a letter to Respondent filed a Motion for Reconsideration of the CIAC Order
respondent demanding payment of the following: (1) the dated 6 December 2005.14 The CIAC issued, on 12 December
outstanding balance on the interim billings; (2) the amount of 2005, an Order denying respondents Motion for
petitioners final billing; (3) early completion bonus; and (4) Reconsideration.15 It held that prior resort by the parties to DAB
interest charges on the delayed payment. Thereafter, petitioner was not a condition precedent for it to assume jurisdiction over
and respondent, through their respective officers and CIAC Case No. 17-2005. Aggrieved, respondent assailed the
representatives, held several meetings to discuss the possibility CIAC Order dated 12 December 2005 by filing a special civil
of amicably settling the dispute. Despite several meetings and action for certiorari and prohibition with the Court of
continuous negotiations, lasting for a period of almost one year, Appeals,16 docketed as CA-G.R. SP No. 92504.
petitioner and respondent failed to reach an amicable
settlement.7 On 23 May 2007, the Court of Appeals rendered its Decision in
CA-G.R. SP No. 92504, annulling the 12 December 2005 Order of
Petitioner finally filed with the Construction Industry Arbitration the CIAC, and enjoining the said Commission from proceeding
Commission (CIAC) a Request for Arbitration, seeking to enforce with CIAC Case No. 17-2005 until the dispute between petitioner
its money claims against respondent.8 Petitioners Request was and respondent had been referred to and decided by the DAB, to
docketed as CIAC Case No. 17-2005. be constituted by the parties pursuant to Clause 20.4 of the
EPCC. The appellate court, thus, found that the CIAC exceeded
its jurisdiction in taking cognizance of petitioners Request for
In its Answer ad cautelam with Motion to Dismiss, respondent
Arbitration in CIAC Case No. 17-2005 despite the latters failure
averred that the CIAC had no jurisdiction over CIAC Case No. 17-
to initially refer its dispute with respondent to the DAB, as
2005. Respondent argued that the filing by petitioner of said
directed by Clause 20.4 of the EPCC.
case was premature because a condition precedent, i.e., prior
referral by the parties of their dispute to the Dispute
Adjudication Board (DAB), required by Clause 20.4 of the EPCC, The dispositive portion of the 23 May 2007 Decision of the Court
had not been satisfied or complied with. Respondent asked the of Appeals reads:
CIAC to dismiss petitioners Request for Arbitration in CIAC Case
No. 17-2005 and to direct the parties to comply first with Clause WHEREFORE, the instant petition is GRANTED and the order of
20.4 of the EPCC.9 the Arbitration Tribunal of the Construction Industry Arbitration
Commission dated December 12, 2005 is hereby ANNULED and
After submission by the parties of the necessary pleadings on SET ASIDE and, instead, [CIAC, members of the Arbitral
the matter of jurisdiction, the CIAC issued on 30 August 2005, Tribunal,17 and herein petitioner], their agents or anybody acting
an Order in CIAC Case No. 17-2005, favoring petitioner. The CIAC in their behalf, are enjoined from further proceeding with CIAC
ruled that it had jurisdiction over CIAC Case No. 17-2005, and Case No. 17-2005, promulgating a decision therein, executing
that the determination of whether petitioner had complied with the same if one has already been promulgated or otherwise
Clause 20.4 of the EPCC was a factual issue that may be enforcing said order of December 12, 2005 until the dispute has
resolved during the trial. It then ordered respondent to file an been referred to and decided by the Dispute Adjudication Board
Answer to petitioners Request for Arbitration.10 to be constituted by the parties in accordance with Sub-Clause
20.4 of the Engineering Procurement Construction Contract
dated September 25, 1996.
After respondent and petitioner filed an Answer and a Reply,
respectively, in CIAC Case No. 17-2005, the CIAC conducted a
preliminary conference, wherein petitioner and respondent Petitioner filed a Motion for Reconsideration of the afore-
signed the "Terms of Reference" outlining the issues to be mentioned Decision but this was denied by the Court of Appeals
resolved, viz: in a Resolution dated 16 November 2007.
(1) Is prior resort to the DAB a precondition to Hence, petitioner filed the instant Petition for Review before us
submission of the dispute to arbitration considering raising the sole issue of whether CIAC has jurisdiction over CIAC
that the DAB was not constituted?; Case No. 17-2005.
(2) Is [herein petitioner] entitled to the balance of the Section 4 of Executive Order No. 1008 18 defines the jurisdiction
principal amount of the contract? If so, how much?; of CIAC, thus:
(3) Is [petitioner] entitled to the early compensation SECTION 4. Jurisdiction. - The CIAC shall have original and
bonus net of VAT due thereon? If so, how much?; exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction
in the Philippines, whether the disputes arises before or after
(4) Was there delay in the completion of the project? If
the completion of the contract, or after the abandonment or
so, is [herein respondent] entitled to its counterclaim
breach thereof. These disputes may involve government or
for liquidated damages?;
private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary
(5) Is [petitioner] entitled to payment of interest on the arbitration.
amounts of its claims for unpaid billings and early
completion bonus? If so, at what rate and for what
The jurisdiction of the CIAC may include but is not limited to
period?;
violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or
(6) Which of the parties is entitled to reimbursement of application of contractual provisions; amount of damages and
the arbitration costs incurred? 11 penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes
Respondent, however, subsequently filed an Urgent Motion in contract cost.
requesting that CIAC refrain from proceeding with the trial
proper of CIAC Case No. 17-2005 until it had resolved the issue Excluded from the coverage of this law are disputes arising from
of whether prior resort by the parties to DAB was a condition employer-employee relationships which shall continue to be
precedent to the submission of the dispute to covered by the Labor Code of the Philippines. (Emphasis ours.)
35
Further, Section 1, Article III of the CIAC Rules of Procedure contract arising out of their appointment; the parties
Governing Construction Arbitration19 (CIAC Rules), provides: shall indemnify the members against such claims.
SECTION 1. Submission to CIAC Jurisdiction. An arbitration The terms of the remuneration of the Dispute Adjudication
clause in a construction contract or a submission to arbitration Board, including the remuneration of each member and of any
of a construction dispute shall be deemed an agreement to specialist from whom the Dispute Adjudication Board may
submit an existing or future controversy to CIAC jurisdiction, require to seek advice, shall be mutually agreed upon by the
notwithstanding the reference to a different arbitration Employer, the Contractor and each member of the Dispute
institution or arbitral body in such contract or submission. When Adjudication Board when agreeing such terms of appointment.
a contract contains a clause for the submission of a future In the event of disagreement, the remuneration of each member
controversy to arbitration, it is not necessary for the parties to shall include reimbursement for reasonable expenses, a daily
enter into a submission agreement before the claimant may fee in accordance with the daily fee established from time to
invoke the jurisdiction of CIAC. time for arbitrators under the administrative and financial
regulations of the International Centre for Settlement of
Investment Disputes, and a retainer fee per calendar month
An arbitration agreement or a submission to arbitration shall be
equivalent to three times such daily fee.
in writing, but it need not be signed by the parties, as long as
the intent is clear that the parties agree to submit a present or
future controversy arising from a construction contract to The Employer and the Contractor shall each pay one-half of the
arbitration. Dispute Adjudication Boards remuneration in accordance with
its terms of remuneration. If, at any time, either party shall fail
to pay its due proportion of such remuneration, the other party
It may be in the form of exchange of letters sent by post or by
shall be entitled to make payment on his behalf and recover if
telefax, telexes, telegrams or any other modes of
from the party in default.
communication. (Emphasis ours.)
Unless the Contract has already been repudiated or terminated, 20.8 When the appointment of the Dispute Adjudication Board
the Contractor shall, in every case, continue to proceed with the and of any replacement has expired, any such dispute referred
Works with all due diligence, and the Contractor and the to in Sub-Clause 20.4 shall be finally settled by arbitration
Employer shall give effect forthwith to every decision of the pursuant to Sub-Clause 20.6. The provisions of Sub-Clauses 20.4
Dispute Adjudication Board, unless and until the same shall be and 20.5 shall not apply to any such reference. (Emphasis ours.)
revised, as hereinafter provided, in an amicable settlement or an
arbitral award.
Despite the presence of the afore-quoted arbitration clause in
the EPCC, it is respondents position, upheld by the Court of
If either party is dissatisfied with the Dispute Adjudication Appeals, that the CIAC still cannot assume jurisdiction over CIAC
Boards decision, then either party, on or before the twenty- Case No. 17-2005 (petitioners Request for Arbitration) because
eighth day after the day on which it received notice of such petitioner has not yet referred its dispute with respondent to the
decision, may notify the other party of its dissatisfaction. If the DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the
Dispute Adjudication Board fails to give notice of its decision on dispute to DAB is a condition precedent and an indispensable
or before the fifty-sixth day after the day on which it received requirement for the CIAC to acquire jurisdiction over CIAC Case
the reference, then either party, on or before the twenty-eighth No. 17-2005.21
day after the day on which the said period of fifty-six days has
expired, may notify the other party of its dissatisfaction. In
either event, such notice of dissatisfaction shall state that it is It is true that Clause 20.4 of the EPCC states that a dispute
given under this Sub-Clause, such notice shall set out the between petitioner and respondent as regards the EPCC shall be
matters in dispute and the reason(s) for dissatisfaction and, initially referred to the DAB for decision, and only when the
subject to Sub-Clauses 20.7 and 20.8, no arbitration in respect parties are dissatisfied with the decision of the DAB should
of such dispute may be commenced unless such notice is given. arbitration commence. This does not mean, however, that the
CIAC is barred from assuming jurisdiction over the dispute if
such clause was not complied with.
If the Dispute Adjudication Board has given notice of its decision
as to a matter in dispute to the Employer and the Contractor
and no notice of dissatisfaction has been given by either party Under Section 1, Article III of the CIAC Rules, an arbitration
on or before the twenty-eighth day after the day on which the clause in a construction contract shall be deemed as an
parties received the Dispute Adjudication Boards decision, then agreement to submit an existing or future controversy to CIAC
the Dispute Adjudication Boards decision shall become final and jurisdiction, "notwithstanding the reference to a different
binding upon the Employer and the Contractor. arbitration institution or arbitral body in such contract x x x."
Elementary is the rule that when laws or rules are clear, it is
incumbent on the court to apply them. When the law (or rule) is
20.5 Where notice of dissatisfaction has been given under Sub- unambiguous and unequivocal, application, not interpretation
Clause 20.4, the parties shall attempt to settle such dispute thereof, is imperative.22
amicably before the commencement of arbitration. Provided
that unless the parties agree otherwise, arbitration may be
commenced on or after the fifty-sixth day after the day on which Hence, the bare fact that the parties herein incorporated an
notice of dissatisfaction was given, even if no attempt at arbitration clause in the EPCC is sufficient to vest the CIAC with
amicable settlement has been made. jurisdiction over any construction controversy or claim between
the parties.23 The arbitration clause in the construction contract
ipso facto vested the CIAC with jurisdiction.24 This rule applies,
20.6 Any dispute in respect of which: regardless of whether the parties specifically choose another
forum or make reference to another arbitral body. 25 Since the
(a) the decision, if any, of the Dispute Adjudication jurisdiction of CIAC is conferred by law, it cannot be subjected to
Board has not become final and binding pursuant to any condition; nor can it be waived or diminished by the
Sub-Clause 20.4, and stipulation, act or omission of the parties, as long as the parties
agreed to submit their construction contract dispute to
arbitration, or if there is an arbitration clause in the construction
(b) amicable settlement has not been reached, shall be
contract.26 The parties will not be precluded from electing to
finally decided by international arbitration. The
submit their dispute to CIAC, because this right has been vested
arbitration rules under which the arbitration is
in each party by law.27
conducted, the institution to nominate the arbitrator(s)
or to administer the arbitration rules (unless named
therein), the number of arbitrators, and the language In China Chang Jiang Energy Corporation (Philippines) v. Rosal
and place of such arbitration shall be as set out in the Infrastructure Builders,28 we elucidated thus:
Appendix to Tender. The arbitrator(s) shall have full
power to open up, review and revise any decision of the What the law merely requires for a particular construction
Dispute Adjudication Board. contract to fall within the jurisdiction of CIAC is for the parties to
agree to submit the same to voluntary arbitration. Unlike in the
Neither party shall be limited, in the proceedings before such original version of Section 1, as applied in the Tesco case, the
arbitrator(s), to the evidence or arguments previously put before law does not mention that the parties should agree to submit
the Dispute Adjudication Board to obtain its decision. disputes arising from their agreement specifically to the CIAC for
the latter to acquire jurisdiction over such disputes. Rather, it is
plain and clear that as long as the parties agree to submit to
Arbitration may be commenced prior to or after completion of
voluntary arbitration, regardless of what forum they may
the Works. The obligations of the parties and the Dispute
choose, their agreement will fall within the jurisdiction of the
37
CIAC, such that, even if they specially choose another forum, the with, contracts entered into by the parties involved in
parties will not be precluded from electing to submit their construction in the Philippines.30
dispute before the CIAC because this right has been vested upon
each party by law, i.e., E.O. No. 1008. The dispute between petitioner and respondent has been
lingering for almost five years now. Despite numerous meetings
xxxx and negotiations between the parties, which took place prior to
petitioners filing with the CIAC of its Request for Arbitration, no
amicable settlement was reached. A ruling requiring the parties
Now that Section 1, Article III [CIAC Rules of Procedure
to still appoint a DAB, to which they should first refer their
Governing Construction Arbitration], as amended, is submitted
dispute before the same could be submitted to the CIAC, would
to test in the present petition, we rule to uphold its validity with
merely be circuitous and dilatory at this point. It would entail
full certainty. However, this should not be understood to mean
unnecessary delays and expenses on both parties, which
that the parties may no longer stipulate to submit their disputes
Executive Order No. 1008 precisely seeks to prevent. It would,
to a different forum or arbitral body. Parties may continue to
indeed, defeat the purpose for which the CIAC was created.
stipulate as regards their preferred forum in case of voluntary
arbitration, but in so doing, they may not divest the CIAC of
jurisdiction as provided by law. Under the elementary principle WHEREFORE, the Petition is hereby GRANTED. The Decision,
on the law on contracts that laws obtaining in a jurisdiction form dated 23 May 2007, and Resolution, dated 16 November 2007,
part of all agreements, when the law provides that the Board of the Court of Appeals in CA-G.R. SP No. 92504 are hereby
acquires jurisdiction when the parties to the contract agree to REVERSED and SET ASIDE. The instant case is hereby
submit the same to voluntary arbitration, the law in effect, REMANDED for further proceedings to the CIAC which is
automatically gives the parties an alternative forum before DIRECTED to resolve the same with dispatch.
whom they may submit their disputes. That alternative forum is
the CIAC. This, to the mind of the Court, is the real spirit of E.O. SO ORDERED.
No. 1008, as implemented by Section 1, Article III of the CIAC
Rules. (Emphases ours.)
FIRST DIVISION [G.R. No. 129169. November 17, 1999]
CIAC did not acquire jurisdiction over the dispute arising from
On 2 June 1997, NIA filed before us an original action
the sub-contract agreement between petitioner TESCO and
for certiorari and prohibition with urgent prayer for temporary
private respondent LAROSA. The records do not show that the
restraining order and writ of preliminary injunction, praying for
parties agreed to submit the disputes to arbitration by the CIAC
the annulment of the Resolutions of the Court of Appeals dated
xxxx. While both parties in the sub-contract had agreed to
28 June 1996 and 24 February 1997. In the said special civil
submit the matter to arbitration, this was only between
action, NIA merely reiterates the issues it raised before the
themselves, no request having been made by both with the
Court of Appeals. [12]
CIAC. Hence, as already stated, the CIAC, has no jurisdiction
over the dispute. xxxx. Nowhere in the said article (sub-
contract) does it mention the CIAC, much less, vest jurisdiction We take judicial notice that on 10 June 1997, CIAC
with the CIAC. rendered a decision in the main case in favor of HYDRO. [13] NIA
assailed the said decision with the Court of Appeals. In view of
the pendency of the present petitions before us the appellate
On 11 April 1995, the arbitral body issued an order [9] which
court issued a resolution dated 26 March 1998 holding in
deferred the determination of the motion to dismiss and
abeyance the resolution of the same until after the instant
resolved to proceed with the hearing of the case on the merits
petitions have been finally decided.[14]
as the grounds cited by NIA did not seem to be indubitable. NIA
filed a motion for reconsideration of the aforesaid Order. CIAC in
denying the motion for reconsideration ruled that it has At the outset, we note that the petition suffers from a
jurisdiction over the HYDROs claim over NIA pursuant to E.O procedural defect that warrants its outright dismissal. The
1008 and that the hearing should proceed as scheduled. [10] questioned resolutions of the Court of Appeals have already
become final and executory by reason of the failure of NIA to
appeal therefrom.Instead of filing this petition
On 26 May 1996, NIA filed with the Court of Appeals an
for certiorari under Rule 65 of the Rules of Court, NIA should
original action of certiorari and prohibition with prayer for
have filed a timely petition for review under Rule 45.
restraining order and/or injunction, seeking to annul the Orders
of the CIAC for having been issued without or in excess of
jurisdiction. In support of its petition NIA alleged that: There is no doubt that the Court of Appeals has jurisdiction
over the special civil action for certiorari under Rule 65 filed
before it by NIA. The original jurisdiction of the Court of Appeals
A
over special civil actions for certiorari is vested upon it under
Section 9(1) of B.P. 129. This jurisdiction is concurrent with the
RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO Supreme Court[15] and with the Regional Trial Court.[16]
HEAR AND TRY THIS DISPUTE BETWEEN THE HEREIN PARTIES AS
E.O. NO. 1008 HAD NO RETROACTIVE EFFECT.
Thus, since the Court of Appeals had jurisdiction over the
petition under Rule 65, any alleged errors committed by it in the
B exercise of its jurisdiction would be errors of judgment which are
reviewable by timely appeal and not by a special civil action
THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN of certiorari.[17] If the aggrieved party fails to do so within the
ACCORDANCE WITH GC NO. 25, ART. 2046 OF THE CIVIL CODE reglementary period, and the decision accordingly becomes final
AND R.A. NO. 876 THE GOVERNING LAWS AT THE TIME and executory, he cannot avail himself of the writ of certiorari,
CONTRACT WAS EXECUTED AND TERMINATED. his predicament being the effect of his deliberate inaction. [18]
II
WGCC denied PCIBs claim, it alleging that it accomplished
the project faithfully and in accordance with the specifications-
requirements of PCIB which accepted it after due inspection. It THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION TO
counterclaimed that PCIB was actually indebted to it for material THE GRAVE AND IRREPARABLE DAMAGE AND INJURY TO THE
cost adjustment since the cost of materials substantially PETITIONER AND FAILED OR UNLAWFULLY NEGLECTED TO DO AN
increased in the course of the construction of the project. ACT WHICH THE LAW ENJOINS IT TO DO WHEN IT REFUSED TO
ALLOW THE PETITIONERS ALTERNATIVE RELIEFS FOR REVIEW
AND/OR FOR CERTIORARI. (Underscoring supplied)
The CIAC, by Decision[1] of June 21, 1996, found that PCIB
was entitled to recover from WGCC the sum of P9,741,829.00
representing cost of repairs done by another contractor on the PCIBs counsel disclaims that Engineer Bong Nuno is his
project. On WGCCs counterclaim, finding that under the parties employee but submits anyway that he was not authorized to
contract, increase for labor and materials under certain receive the CIAC decision for him in his (counsels) capacity as,
conditions was allowed but that PCIB presented no strong, or at by his claim, the authorized representative of PCIB.
best, token opposition to the evidence presented by WGCC for
the escalated cost of materials, the CIAC awarded WGCC the The present petition fails.
amount of P5,777,157.84. The CIAC accordingly disposed as
follows:
In the petition for Certiorari and/or Partial Review of CIAC
Case No. 07-95[8] filed before the CA by PCIB, its counsel alleged,
inter alia, as follows, quoted verbatim:
41
Inasmuch as the undersigned counsel ha[s] not officially 1996, it was only on June 27 (sic), 1996 that [he] had actual
received its copy of the Decision sought to be reviewed knowledge of the content of the decision. (Emphasis
because the Arbitral Tribunal had such copy served only on supplied). PCIBs counsels latest position may not be entertained
[PCIB], the reglementary period should be reckoned from the given his glaring admission that copy of the CIAC decision was
date when the undersigned counsel actually acquired knowledge duly served on June 24 1996 on PCIB, a party to the case which,
thereof which was on 28 June 1996 when it filed [PCIBs] Motion as will now be discussed, CIAC Rules mandates should be the
for Partial Reconsideration.Accordingly, treated as a Petition for one to be notified of the text of the decision.
Review, pursuant to resolution No. 2-95, this petition is
seasonable. The CIAC Rules of Procedure does not contain a provision
similar to Section 2, Rule 13 of the Revised Rules of Court,
A copy of the Decision as served upon [PCIB] itself is attached reiterated in the 1997 Rules of Civil Procedure, which provides
marked as Annex A and made a part thereof.[9] (Underscoring that service to any party represented by counsel should be
supplied) made upon his counsel, unless service upon the party himself is
ordered by the court. Instead, Section 7, Article XV of the CIAC
Rules of Procedure provides:
The copy of the CIAC decision attached to PCIBs petition
before the CA is a computer print-out bearing
the originalsignatures of the Chairman and two members of Section 7. Notification of Award to Parties Once an award has
the Arbitral Tribunal.[10] When PCIB received that copy of the been made, provided that the costs of the arbitration have been
CIAC decision, the petition filed before the CA did not state. fully paid to the Secretariat by the parties or by one of them, the
Secretariat shall notify the parties of the text signed by the
Arbitrator or Arbitral Tribunal.
As earlier stated, WGCC filed before the CA a Motion to
Dismiss with Motion to Cite PCIB Counsel for Contempt, [11]on the
grounds that: Additional copies certified true by the Executive Director of the
Secretariat shall be made available, on request and at any time,
to the parties or their counsel but to no one else. (Emphasis
THE . . . PETITION HAS BEEN FILED BEYOND THE REGLEMENTARY
and underscoring supplied)
PERIOD OF FIFTEEN DAYS FROM PETITIONERS RECEIPT OF THE
ASSAILED DECISION.
From the immediately-quoted provision of the CIAC Rules,
it is the parties who are to be notified of the text of the CIAC
PETITIONERS COUNSEL IS GUILTY OF MISREPRESENTING FACTS IN
decision. This answers PCIBs counsels jarring complaint that he
A BLATANT ATTEMPT TO HIDE THE BELATED FILING OF THE . . .
was not officially served with a copy of the CIAC decision.
PETITION;
F.F. CRUZ & CO., INC., Petitioner,- versus - HR Subsequently, FFCCI, after it had evaluated the
CONSTRUCTION CORP., completed works of HRCC from September 26 to November 25,
Respondent. 2004, approved the payment of the gross amount
of P1,505,570.99 to HRCC. FFCCI deducted
REYES, J.: therefrom P150,557.10 for retention and P27,374.02 for
expanded withholding tax leaving a net payment
This is a petition for review on certiorari under Rule 45 of P1,327,639.87, which amount was paid to HRCC on March 11,
of the Rules of Court filed by petitioner F.F. Cruz & Co., Inc. 2005.[9]
(FFCCI) assailing the Decision[1] dated February 6, 2009 and
Resolution[2] dated April 13, 2009 issued by the Court of Appeals Meanwhile, HRCC sent FFCCI a letter [10] dated
(CA) in CA-G.R. SP No. 91860. December 13, 2004 demanding the payment of its progress
billings in the total amount of P7,340,046.09, plus interests,
within three days from receipt thereof. Subsequently, HRCC
completely halted the construction of the subcontracted project
The Antecedent Facts after taking its Christmas break on December 18, 2004.
Sometime in 2004, FFCCI entered into a contract with On March 7, 2005, HRCC, pursuant to the arbitration
the Department of Public Works and Highways (DPWH) for the clause in the Subcontract Agreement, filed with the Construction
construction of the Magsaysay Viaduct, known as the Lower Industry Arbitration Commission (CIAC) a Complaint [11] against
Agusan Development Project. On August 9, 2004, FFCCI, in turn, FFCCI praying for the payment of the following: (1) overdue
entered into a Subcontract Agreement [3] with HR Construction obligation in the reduced amount of P4,096,656.53 as of
Corporation (HRCC) for the supply of materials, labor, December 15, 2004 plus legal interest; (2) P1,500,000.00 as
equipment, tools and supervision for the construction of a attorneys fees; (3) P80,000.00 as acceptance fee and
portion of the said project called the East Bank Levee and Cut- representation expenses; and (4) costs of litigation.
Off Channel in accordance with the specifications of the main
contract. In its Answer,[12] FFCCI claimed that it no longer has any
liability on the Subcontract Agreement as the three payments it
The subcontract price agreed upon by the parties made to HRCC, which amounted to P3,472,521.86, already
amounted to P31,293,532.72. Pursuant to the Subcontract represented the amount due to the latter in view of the works
Agreement, HRCC would submit to FFCCI a monthly progress actually completed by HRCC as shown by the survey it
billing which the latter would then pay, subject to stipulated conducted jointly with the DPWH. FFCCI further asserted that
deductions, within 30 days from receipt thereof. the delay in the payment processing was primarily attributable
to HRCC inasmuch as it presented unverified work
The parties agreed that the requests of HRCC for accomplishments contrary to the stipulation in the Subcontract
payment should include progress accomplishment of its Agreement regarding requests for payment.
completed works as approved by FFCCI. Additionally, they
agreed to conduct a joint measurement of the completed works Likewise, FFCCI maintained that HRCC failed to comply
of HRCC together with the representative of DPWH and with the condition stated under the Subcontract Agreement for
consultants to arrive at a common quantity. the payment of the latters progress billings, i.e. joint
measurement of the completed works, and, hence, it was
Thereafter, HRCC commenced the construction of the justified in not paying the amount stated in HRCCs progress
works pursuant to the Subcontract Agreement. billings.
On September 17, 2004, HRCC submitted to FFCCI its On June 16, 2005, an Arbitral Tribunal was created
first progress billing in the amount of P2,029,081.59 covering composed of Engineer Ricardo B. San Juan, Joven B. Joaquin and
the construction works it completed from August 16 to Attorney Alfredo F. Tadiar, with the latter being appointed as the
September 15, 2004.[4] However, FFCCI asserted that the DPWH Chairman.
was then able to evaluate the completed works of HRCC only
until July 25, 2004. Thus, FFCCI only approved the gross amount In a Preliminary Conference held on July 5, 2005, the
of P423,502.88 for payment. Pursuant to the Subcontract parties defined the issues to be resolved in the proceedings
Agreement, FFCCI deducted from the said gross before the CIAC as follows:
amount P42,350.29 for retention and P7,700.05 for expanded
withholding tax leaving a net payment in the amount 1. What is the correct amount of [HRCCs] unpaid
of P373,452.54. This amount was paid by FFCCI to HRCC on progress billing?
December 3, 2004.[5]
2. Did [HRCC] comply with the conditions set forth in
FFCCI and the DPWH then jointly evaluated the subparagraph 4.3 of the Subcontract Agreement
completed works of HRCC for the period of July 26 to September for the submission, evaluation/processing and
25, 2004. FFCCI claimed that the gross amount due for the release of payment of its progress billings?
completed works during the said period was P2,008,837.52.
From the said gross amount due, FFCCI deducted 3. Did [HRCC] stop work on the project?
therefrom P200,883.75 for retention and P36,524.07 for
expanded withholding tax leaving amount of P1,771,429.45 as 3.1 If so, is the work stoppage justified?
the approved net payment for the said period. FFCCI paid this
amount on December 21, 2004.[6] 3.2 If so, what was the percentage and value
of [HRCCs] work accomplishment at the
On October 29, 2004, HRCC submitted to FFCCI its time it stopped work on the project?
second progress billing in the amount of P1,587,760.23 covering
its completed works from September 18 to 25, 2004. [7] FFCCI did 4. Who between the parties should bear the cost of
not pay the amount stated in the second progress billing, arbitration or in what proportion should it be
claiming that it had already paid HRCC for the completed works shared by the parties?[13]
for the period stated therein.
On even date, HRCC submitted its third progress billing Likewise, during the said Preliminary Conference, HRCC
in the amount of P2,569,543.57 for its completed works from further reduced the amount of overdue obligation it claimed
September 26 to October 25, 2004. [8] FFCCI did not immediately from FFCCI to P2,768,916.66. During the course of the
proceedings before the CIAC, HRCC further reduced the said
43
amount to P2,635,397.77 the exact difference between the total
amount of HRCCs progress billings (P6,107,919.63) and FFCCIs
total payments in favor of the latter (P3,472,521.86). Further, the CIAC ruled that FFCCI had already waived
its right under the Subcontract Agreement to require a joint
The CIAC Decision measurement of HRCCs completed works as a condition
precedent to the payment of the latters progress billings. Hence:
On September 6, 2005, after due proceedings, the CIAC
rendered a Decision[14] in favor of HRCC, the decretal portion of [FFCCI] admits that in all three instances
which reads: where it paid [HRCC] for its progress billings, it never
required compliance with the aforequoted contractual
WHEREFORE, judgment is hereby rendered in provision of a prior joint quantification. Such repeated
favor of the Claimant HR CONSTRUCTION omission may reasonably be construed as
CORPORATION and AWARD made on its monetary a waiver by [FFCCI] of its contractual right to require
claim against Respondent F.F. CRUZ & CO., INC., as compliance of said condition and it is now too late in
follows: the day to so impose it. Article 6 of the Civil Code
expressly provides that rights may be waived unless
[P]2,239,452.63 as the balance of its unpaid the waiver is contrary to law, public order, public
billings and policy, morals or good customs. The tribunal cannot
see any such violation in this case.
101,161.57 as reimbursement of the
arbitration costs. xxx
[P]2,340,614.20 Total due the Claimant [FFCCIs] omission to enforce the contractually
required condition of payment, has led [HRCC] to
Interest on the foregoing believe it to be true that indeed [FFCCI] has waived the
amount [P]2,239,452.63 shall be paid at the rate of condition of joint quantification and, therefore, [FFCCI]
6% per annum from the date of this Decision. After may not be permitted to falsify such resulting position.
[17]
finality of this Decision, interest at the rate of 12% per
annum shall be paid thereon until full payment of the
awarded amount shall have been made x x x.
Likewise, the CIAC held that FFCCIs non-payment of the
SO ORDERED.[15] progress billings submitted by HRCC gave the latter the right to
rescind the Subcontract Agreement and, accordingly, HRCCs
work stoppage was justified. It further opined that, in effect,
The CIAC held that the payment method adopted by FFCCI had ratified the right of HRCC to stop the construction
FFCCI is actually what is known as the back-to-back payment works as it did not file any counterclaim against HRCC for
scheme which was not agreed upon under the Subcontract liquidated damages arising therefrom.
Agreement. As such, the CIAC ruled that FFCCI could not impose
upon HRCC its valuation of the works completed by the latter. FFCCI then filed a petition for review with CA assailing
The CIAC gave credence to HRCCs valuation of its completed the foregoing disposition by the CIAC.
works as stated in its progress billings. Thus:
The CA Decision
During the trial, [FFCCIs] Aganon admitted
that [HRCCs] accomplishments are included in its own On February 6, 2009, the CA rendered the herein
billings to the DPWH together with a substantial mark- assailed Decision[18] denying the petition for review filed by
up to cover overhead costs and profit. He further FFCCI. The CA agreed with the CIAC that FFCCI had waived its
admitted that it is only when DPWH approves its right under the Subcontract Agreement to require a joint
(Respondents) billings covering [HRCCs] scope of work quantification of HRCCs completed works.
and pays for them, that [FFCCI] will in turn pay [HRCC]
for its billings on the sub-contracted works. The CA further held that the amount due to HRCC as
claimed by FFCCI could not be given credence since the same
On clarificatory questioning by the Tribunal, was based on a survey of the completed works conducted
[FFCCI] admitted that there is no back-to- without the participation of HRCC. Likewise, being the main
back provision in the sub-contract as basis for contractor, it ruled that it was the responsibility of FFCCI to
this sequential payment arrangement and, include HRCC in the joint measurement of the completed works.
therefore, [FFCCIs] imposition thereof by withholding Furthermore, the CA held that HRCC was justified in stopping its
payment to [HRCC] until it is first paid by the project construction works on the project as the failure of FFCCI to pay
owner on the Main Contract, clearly violates said sub- its progress billings gave the former the right to rescind the
contract. It [is] this unauthorized implementation of a Subcontract Agreement.
back-to-back payment scheme that is seen to be the
reason for [FFCCIs] non-payment of the third progress FFCCI sought a reconsideration[19] of the said February
billings. 6, 2009 Decision but it was denied by the CA in its
Resolution[20] dated April 13, 2009.
It is accordingly the holding of this Arbitral
Tribunal that [FFCCI] is not justified in withholding Issues
payment of [HRCCs] third progress billing for this
scheme that [HRCC] has not agreed to in the sub- In the instant petition, FFCCI submits the following
contract agreement x x x. issues for this Courts resolution:
xxx [I.]
The total retention money deducted by [FFCCI] x x x First, [d]oes the act of [FFCCI] in
from [HRCCs] three progress billings, amounts conducting a verification survey of [HRCCs] billings in
to [P]395,945.14 x x x. The retention money is part of the latters presence amount to a waiver of the right of
[HRCCs] progress billings and must, therefore, be [FFCCI] to verify and approve said billings? What, if any,
credited to this account. The two amounts (deductions is the legal significance of said act?
and net payments) total [P]3,868,467.00 x x x. This
represents the total gross payments that should be [II.]
credited and deducted from the total gross billings to
arrive at what has not been paid to the [HRCC]. This x x x Second, [d]oes the payment of [FFCCI] to
results in the amount [HRCC] based on the results of the above mentioned
of [P]2,239,452.63 ([P]6,107,919.63 - verification survey result in the former being obliged to
[P]3,868,467.00) as the correct balance of [HRCCs] accept whatever accomplishment was reported by the
unpaid billings.[16] latter?
44
Aware of the objective of voluntary arbitration
[III.] in the labor field, in the construction industry, and in
any other area for that matter, the Court will not assist
x x x Third, [d]oes the mere comparison of the one or the other or even both parties in any effort to
payments made by [FFCCI] with the contested progress subvert or defeat that objective for their private
billings of [HRCC] amount to an adjudication of the purposes. The Court will not review the factual findings
controversy between the parties? of an arbitral tribunal upon the artful allegation that
such body had "misapprehended the facts" and will not
[IV.] pass upon issues which are, at bottom, issues of fact,
no matter how cleverly disguised they might be as
x x x Fourth, [d]oes the failure of [FFCCI] to "legal questions." The parties here had recourse to
interpose a counterclaim against [HRCC] for liquidated arbitration and chose the arbitrators themselves; they
damages due to the latters work stoppage, amount to a must have had confidence in such arbitrators. x x
ratification of such work stoppage? x[25] (Citation omitted)
[V.]
Thus, in cases assailing the arbitral award rendered by
x x x Fifth, [d]id the [CA] disregard or overlook the CIAC, this Court may only pass upon questions of
significant and material facts which would affect the law. Factual findings of construction arbitrators are final and
result of the litigation?[21] conclusive and not reviewable by this Court on appeal. This rule,
however, admits of certain exceptions.
In sum, the crucial issues for this Courts resolution In Spouses David v. Construction Industry and Arbitration
are: first, what is the effect of FFCCIs non-compliance with the Commission,[26] we laid down the instances when this Court may
stipulation in the Subcontract Agreement requiring a joint pass upon the factual findings of the CIAC, thus:
quantification of the works completed by HRCC on the payment
of the progress billings submitted by the latter; and second, We reiterate the rule that factual findings of
whether there was a valid rescission of the Subcontract construction arbitrators are final and conclusive and
Agreement by HRCC. not reviewable by this Court on appeal, except when
the petitioner proves affirmatively that: (1) the award
The Courts Ruling was procured by corruption, fraud or other undue
means; (2) there was evident partiality or corruption of
The petition is not meritorious. the arbitrators or of any of them; (3) the arbitrators
were guilty of misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in refusing to
Procedural Issue: hear evidence pertinent and material to the
Finality and Conclusiveness of the CIACs Factual Findings controversy; (4) one or more of the arbitrators were
disqualified to act as such under section nine of
Before we delve into the substantial issues raised by FFCCI, we Republic Act No. 876 and willfully refrained from
shall first address the procedural issue raised by HRCC. disclosing such disqualifications or of any other
According to HRCC, the instant petition merely assails the misbehavior by which the rights of any party have been
factual findings of the CIAC as affirmed by the CA and, materially prejudiced; or (5) the arbitrators exceeded
accordingly, not proper subjects of an appeal under Rule 45 of their powers, or so imperfectly executed them, that a
the Rules of Court. It likewise pointed out that factual findings of mutual, final and definite award upon the subject
the CIAC, when affirmed by the CA, are final and conclusive matter submitted to them was not made. x x
upon this Court. x[27] (Citation omitted)
Executive Order (E.O.) No. 1008 [22] vests upon the CIAC original
and exclusive jurisdiction over disputes arising from, or A question of law arises when there is doubt as to what the law
connected with, contracts entered into by parties involved in is on a certain state of facts, while there is a question of fact
construction in the Philippines. Under Section 19 of E.O. No. when the doubt arises as to the truth or falsity of the alleged
1008, the arbitral award of CIAC "shall be final and inappealable facts. For a question to be one of law, the same must not involve
except on questions of law which shall be appealable to the an examination of the probative value of the evidence presented
Supreme Court."[23] by the litigants or any of them. The resolution of the issue must
rest solely on what the law provides on the given set of
In Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc., circumstances. Once it is clear that the issue invites a review of
[24]
we explained raison d etre for the rule on finality of the CIACs the evidence presented, the question posed is one of fact.[28]
arbitral award in this wise:
On the surface, the instant petition appears to merely
Voluntary arbitration involves the reference of raise factual questions as it mainly puts in issue the appropriate
a dispute to an impartial body, the members of which amount that is due to HRCC. However, a more thorough analysis
are chosen by the parties themselves, which parties of the issues raised by FFCCI would show that it actually asserts
freely consent in advance to abide by the arbitral questions of law.
award issued after proceedings where both parties had
the opportunity to be heard. The basic objective is to FFCCI primarily seeks from this Court a determination
provide a speedy and inexpensive method of settling of whether amount claimed by HRCC in its progress billing may
disputes by allowing the parties to avoid the be enforced against it in the absence of a joint measurement of
formalities, delay, expense and aggravation which the formers completed works. Otherwise stated, the main
commonly accompany ordinary litigation, especially question advanced by FFCCI is this: in the absence of the joint
litigation which goes through the entire hierarchy of measurement agreed upon in the Subcontract Agreement, how
courts. Executive Order No. 1008 created an arbitration will the completed works of HRCC be verified and the amount
facility to which the construction industry in due thereon be computed?
the Philippines can have recourse. The Executive Order
was enacted to encourage the early and expeditious The determination of the foregoing question entails an
settlement of disputes in the construction industry, a interpretation of the terms of the Subcontract Agreement vis--
public policy the implementation of which is necessary vis the respective rights of the parties herein. On this point, it
and important for the realization of national should be stressed that where an interpretation of the true
development goals. agreement between the parties is involved in an appeal, the
appeal is in effect an inquiry of the law between the parties, its
interpretation necessarily involves a question of law. [29]
45
a common/agreed quantity.[33] (Emphasis
Moreover, we are not called upon to examine the supplied)
probative value of the evidence presented before the CIAC.
Rather, what is actually sought from this Court is an
interpretation of the terms of the Subcontract Agreement as it Pursuant to the terms of payment agreed upon by the
relates to the dispute between the parties. parties, FFCCI obliged itself to pay the monthly progress billings
of HRCC within 30 days from receipt of the same. Additionally,
First Substantive Issue: Effect of Non-compliance with the monthly progress billings of HRCC should indicate the extent
the Joint Quantification Requirement on the of the works completed by it, the same being essential to the
Progress Billings of HRCC valuation of the amount that FFCCI would pay to HRCC.
Basically, the instant issue calls for a determination as to which The parties further agreed that the extent of HRCCs
of the parties respective valuation of accomplished works should completed works that would be indicated in the monthly
be given credence. FFCCI claims that its valuation should be progress billings should be determined through a joint
upheld since the same was the result of a measurement of the measurement conducted by FFCCI and HRCC together with the
completed works conducted by it and the DPWH. On the other representative of DPWH and the consultants.
hand, HRCC maintains that its valuation should be upheld on
account of FFCCIs failure to observe the joint measurement It is the responsibility of FFCCI to call for the joint
requirement in ascertaining the extent of its completed works. measurement of HRCCs completed works.
ENGR. AGANON:
Article 4 of the Subcontract Agreement, in part, contained the
following stipulations: Puwede ko po bang i-explain sandali lang po regarding
lang po doon sa quantification na iyon? Basically po as
ARTICLE 4 main contractor of DPWH, we are the ones who
[are] requesting for joint survey quantification
SUBCONTRACT PRICE with the owner, DPWH. Ngayon po, although wala sa
4.1 The total SUBCONTRACT Price shall be THIRTY ONE papel na nag-witness and [HRCC] still the same po,
MILLION nandoon din po sila during that time, kaya lang ho . . .
TWO HUNDRED NINETY THREE THOUSAND FIVE
HUNDRED THIRTY TWO PESOS & 72/100 ONLY MR. J. B. JOAQUIN:
([P]31,293,532.72) inclusive of Value Added
Tax x x x. Hindi pumirma?
4.3 Terms of Payment Hindi sila puwede pumirma kasi ho kami po ang
contractor ng DPWH hindi sila.[34] (Emphasis supplied)
FFCCI shall pay [HRCC] within thirty (30)
days upon receipt of the [HRCCs] Monthly
Progress Billingssubject to deductions due to FFCCI had waived its right to demand for a joint
ten percent (10%) retention, and any other sums measurement of HRCCs completed works under the
that may be due and recoverable by FFCCI from Subcontract Agreement.
[HRCC] under this SUBCONTRACT. In all cases,
however, two percent (2%) expanded
withholding tax on the [HRCCs] income will be The CIAC held that FFCCI, on account of its failure to demand
deducted from the monthly payments. the joint measurement of HRCCs completed works, had
effectively waived its right to ask for the conduct of the same as
Requests for the payment by the [HRCC] a condition sine qua non to HRCCs submission of its monthly
shall include progress accomplishment of progress billings.
completed works (unit of work accomplished x
unit cost) as approved by [FFCCI]. Cut-off We agree.
date of monthly billings shall be every 25 thof the
month and joint measurement shall be In People of the Philippines v. Donato,[35] this Court explained the
conducted with the DPWHs representative, doctrine of waiver in this wise:
Consultants, FFCCI and [HRCC] to arrive at
46
Waiver is defined as "a voluntary and FFCCI insist on the conduct of a joint measurement to verify the
intentional relinquishment or abandonment of a known extent of HRCCs completed works despite its receipt of the four
existing legal right, advantage, benefit, claim or monthly progress billings submitted by the latter.
privilege, which except for such waiver the party would
have enjoyed; the voluntary abandonment or FFCCI is already barred from contesting HRCCs valuation
surrender, by a capable person, of a right known by of the completed works having waived its right to
him to exist, with the intent that such right shall be demand the joint measurement requirement.
surrendered and such person forever deprived of its
benefit; or such conduct as warrants an inference
of the relinquishment of such right; or the In view of FFCCIs waiver of the joint measurement
intentional doing of an act inconsistent with requirement, the CA, essentially echoing the CIACs disposition,
claiming it." found that FFCCI is obliged to pay the amount claimed by HRCC
in its monthly progress billings. The CA reasoned thus:
As to what rights and privileges may be
waived, the authority is settled: Verily, the joint measurement that [FFCCI]
claims it conducted without the participation of [HRCC],
x x x the doctrine of waiver extends to rights to which [FFCCI] anchors its claim of full payment of its
and privileges of any character, and, since the obligations to [HRCC], cannot be applied, nor imposed,
word waiver covers every conceivable right, it on [HRCC]. In other words, [HRCC] cannot be made to
is the general rule that a person may accept a quantification of its works when the said
waive any matter which affects his quantification was made without its participation. As a
property, and any alienable right or consequence, [FFCCIs] claim of full payment cannot be
privilege of which he is the owner or upheld as this is a result of a quantification that was
which belongs to him or to which he is made contrary to the express provisions of the
legally entitled, whether secured by Subcontract Agreement.
contract, conferred with statute, or
guaranteed by constitution, provided such The Court is aware that by ruling so, [FFCCI]
rights and privileges rest in the would seem to be placed at a disadvantage because it
individual, are intended for his sole would result in [FFCCI] having to pay exactly what
benefit, do not infringe on the rights of [HRCC] was billing the former. If, on the other hand, the
others, and further provided the waiver Court were to rule otherwise[,] then [HRCC] would be
of the right or privilege is not forbidden the one at a disadvantage because it would be made to
by law, and does not contravene public accept payment that is less than what it was billing.
policy; and the principle is recognized that
everyone has a right to waive, and agree to Circumstances considered, however, the Court
waive, the advantage of a law or rule made deems it proper to rule in favor of [HRCC] because of
solely for the benefit and protection of the the explicit provision of the Subcontract Agreement
individual in his private capacity, if it can be that requires the participation of the latter in the joint
dispensed with and relinquished without measurement. If the Court were to rule otherwise, then
infringing on any public right, and without the Court would, in effect, be disregarding the explicit
detriment to the community at large. x x agreement of the parties in their contract. [43]
x[36] (Emphasis supplied and citations omitted)
The right of rescission is statutorily recognized in Although, generally, costs are adjudged against the
reciprocal obligations. Article 1191 of the Civil Code pertinently losing party, courts nevertheless have discretion, for special
reads: reasons, to decree otherwise.
Art. 1191. The power to rescind obligations is Here, considering that the work stoppage of HRCC is
implied in reciprocal ones, in case one of the obligors not justified, it is only fitting that both parties should share in
should not comply with what is incumbent upon him. the burden of the cost of arbitration equally. HRCC had a valid
reason to institute the complaint against FFCCI in view of the
The injured party may choose between the latters failure to pay the full amount of its monthly progress
fulfillment and the rescission of the obligation, with the billings. However, we disagree with the CIAC and the CA that
payment of damages in either case. He may also seek only FFCCI should shoulder the arbitration costs. The arbitration
rescission, even after he has chosen fulfillment, if the costs should be shared equally by FFCCI and HRCC in view of the
latter should become impossible. latters unjustified work stoppage.
The court shall decree the rescission claimed, WHEREFORE, in consideration of the foregoing
unless there be just cause authorizing the fixing of a disquisitions, the Decision dated February 6, 2009 and
period. Resolution dated April 13, 2009 of the Court of Appeals in CA-
G.R. SP No. 91860 are
This is understood to be without prejudice to hereby AFFIRMED with MODIFICATION that the arbitration
the rights of third persons who have acquired the thing, costs shall be shared equally by the parties herein.SO
in accordance with Articles 1385 and 1388 and the ORDERED.
Mortgage Law.
FIRST DIVISIONG.R. No. 141897 September 24, 2001
The rescission referred to in this article, more appropriately
referred to as resolution is on the breach of faith by the METRO CONSTRUCTION, INC., petitioner,
defendant which is violative of the reciprocity between the vs.
parties.[44] The right to rescind, however, may be waived, CHATHAM PROPERTIES, INC., respondent.
expressly or impliedly.[45]
DAVIDE, JR., C.J.:
While the right to rescind reciprocal obligations is implied, that
is, that such right need not be expressly provided in the
contract, nevertheless the contracting parties may waive the The core issue in this case is whether under existing law and
same.[46] rules the Court of Appeals can also review findings of facts of
the Construction Industry Arbitration Commission (CIAC).
Contrary to the respective dispositions of the CIAC and the CA,
we find that HRCC had no right to rescind the Subcontract
Respondent Chatham Properties, Inc. (CHATHAM) and petitioner
Agreement in the guise of a work stoppage, the latter having
Metro Construction, Inc. (MCI) entered into a contract for the
waived such right. Apropos is Article 11.2 of the Subcontract
construction of a multi-storey building known as the Chatham
Agreement, which reads:
House located at the corner of Herrera and Valero Streets,
Salcedo Village, Makati City, Metro Manila. In April 1998, MCI
11.2 Effects of Disputes and Continuing
sought to collect from CHATHAM a sum of money for unpaid
Obligations
progress billings and other charges and instituted a request for
adjudication of its claims with the CIAC. The case was docketed
Notwithstanding any dispute,
as CIAC Case No. 10-98. The arbitral tribunal was composed of
controversy, differences or arbitration
Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C.
proceedings relating directly or indirectly
Aquino as members.
to this SUBCONTRACT Agreement and
without prejudice to the eventual outcome
thereof, [HRCC] shall at all times proceed The preliminary conference before the CIAC started in June 1998
with the prompt performance of the and was concluded a month after with the signing of the Terms
Works in accordance with the directives of Reference (TOR) of the Case.1 The hearings immediately
of FFCCI and this SUBCONTRACT started with the presentation of MCI's witnesses, namely: Ms.
Agreement.[47] (Emphasis supplied) Ma. Suzette S. Nucum, Chief Accountant; Ms. Isabela Redito,
Office Engineer; Mr. John Romulo, Field Manager; and Dr. John Y.
Lai, President. CHATHAM's witnesses were: Engr. Ruperto
Hence, in spite of the existence of dispute or Kapunan III, Managing Director of RK Development and
controversy between the parties during the course of the Construction Co., Inc. (RKDCCI), which was the Construction
Subcontract Agreement, HRCC had agreed to continue the Manager firm hired by CHATHAM to oversee the construction
performance of its obligations pursuant to the Subcontract work of the Chatham House; Engr. Alex Bautista, Area Manager
Agreement. In view of the provision of the Subcontract of RKDCCI; Mr. Avelino M. Mercado, CHATHAM's Project Manager;
Agreement quoted above, HRCC is deemed to have effectively and Engr. Jose T. Infante.
waived its right to effect extrajudicial rescission of its contract
with FFCCI. Accordingly, HRCC, in the guise of rescinding the
In the meantime, the TOR was amended and finalized on 19
Subcontract Agreement, was not justified in implementing a
August 1998.2
work stoppage.
The costs of arbitration should be shared by the parties The facts, as admitted by the parties before the CIAC and
equally. incorporated in the original TOR, are as follows:
48
1. On 21 April 1994, the parties formally entered into 10. Whether or not CHATHAM is entitled to claim x x x
a . . . contract for the construction of the "Chatham actual damages? If so, to what extent and how much?
House" . . . for the contract price of price of
P50,000,000.00 inclusive of value-added tax, subject to
11. Whether or not CHATHAM is entitled to x x x
adjustments in accordance with Article 9 of the
additional counterclaims as follows:
contract. Construction of the project, however,
commenced on 15 April 1994 upon the release by
CHATHAM of the down payment 11.1. Core testing expenses and penalty for
concrete strength failure P3,630,587.38.
2. On 12 July 1994, a Supplemental Contract was
executed by and between the parties whereby 11.2. Expenses to rectify structural steel works
CHATHAM authorized MCI to procure in behalf of the for the foundation P1,331,139.74.
former materials, equipment, tools, fixtures,
refurbishing, furniture, and accessories necessary for
11.3. Cost of additional materials (concrete &
the completion of the project.
rebars) supplied by CPI P5,761,457.91.
A. AMOUNTS HELD CPI IS ENTITLED TO: C. NET AMOUNT DUE MCI (A minus B)
A.1. From the original contract: WHEREFORE, judgment is hereby rendered in favor of the
94.12% of P125,000,000.00 Claimant [MCI] directing Respondent [CHATHAM] to pay
Claimant [MCI] the net sum of SIXTEEN MILLION ONE
HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY
TWO & 91/100 (16,126,922.91) PESOS.
A.4 CHB Works The Arbitral Tribunal grossly erred in failing to indicate
specific reference to the evidence presented or to the
transcript of stenographic notes in arriving at its
questioned Decision, in violation of the cardinal rule
under Section 1, Rule 36 of the Revised Rules of Civil
A.5 Workers Bonus Procedure that a judgment must state clearly and
definitely the facts and the law on which it is based.
B.3. Penalties
In its decision of 30 September 1999, 9 the Court of Appeals
simplified the assigned errors into one core issue, namely, the
"propriety" of the CIAC's factual findings and conclusions. In
upholding the decision of the CIAC, the Court of Appeals
B.4. Cash Payments in Behalf of MCI confirmed the jurisprudential principle that absent any showing
of arbitrariness, the CIAC's findings as an administrative agency
and quasi judicial body should not only be accorded great
respect but also given the stamp of finality. However, the Court
Total Amount Due CPI of Appeals found exception in the CIAC's disquisition of Issue
No.9on the matter of liquidated damages.
MCI further asserts that, even assuming that the CIAC's findings 2. Cases not Covered. These rules shall not apply to
of facts are reviewable on appeal, the Court of Appeals gravely decisions and interlocutory orders of the National Labor
abused its discretion when it accepted "hook, line and sinker" Relations Commission or the Secretary of Labor and
CHATHAM's contention that MCI was in delay, and ignored Employment under the Labor Code of the Philippines,
competent, clear and substantial evidence that prove the the Central Board of Assessment Appeals, and other
contrary, and that CHATHAM is not entitled to liquidated quasi-judicial agencies from which no appeal to the
damages. courts is prescribed or allowed by statute.
For its part, CHATHAM avers that the evolution on the rules 3. Who may appeal and where to appeal. The appeal
governing appeals from judgments, decisions, resolutions, of a party affected by a final order, decision, or
orders or awards of the CIAC convincingly discloses that E.O. No. judgment of the Court of Tax Appeals or a quasi judicial
1008 has already been superseded. With the power of the agency shall be taken to the Court of Appeals within
Supreme Court to promulgate rules concerning the protection the period and in the manner herein provided, whether
and enforcement of constitutional rights, pleadings, practice, the appeal involves questions of fact or of law or mixed
and procedure in all courts, its issuances and amendments to questions of fact and law. From final judgments or
the Rules on Civil Procedure, not to mention R A. No. 7902, as decisions of the Court of Appeals, the aggrieved party
enacted by Congress, effectively modified E.O. No. 1008. may appeal by certiorari to the Supreme Court as
Accordingly, the judgments, awards, decisions, resolutions, provided in Rule 45 of the Rules of Court.
orders or awards of the CIAC are now appealable to the Court of
Appeals on questions of facts, mixed questions of facts and law,
Subsequently, on 23 February 1995, RA. No. 7902 was enacted.
and questions of law, and no longer with the Supreme Court on
It expanded the jurisdiction of the Court of Appeals and
exclusively questions of law. Further, the TOR cannot limit the
amended for that purpose Section 9 of B.P. Blg. 129, otherwise
expanded jurisdiction of the Court of Appeals based on the
known as the Judiciary Reorganization Act of 1980.20
latest rules. Thus, the Court of Appeals did not err in reviewing
the factual findings of the CIAC.
Section 9(3) thereof reads:
CHATHAM also contends that, even if the Court of Appeals can
only review questions of law, said court did not err in rendering SECTION 9. Jurisdiction. The Court of Appeals shall
the questioned decision as the conclusions therein, drawn as exercise:
they were from factual determinations, can be considered
questions of law. .
xxx xxx xxx
Then this Court issued Administrative Circular No. 1-95, 21 which It is clear that Circular No. 1-91 covers the CIAC. In the first
revised Circular No. 1-91. Relevant portions of the former reads place, it is a quasi judicial agency. A quasi-judicial agency or
as follows: body has been defined as an organ of government other than a
court and other than a legislature, which affects the rights of
private parties through either adjudication or rule-making. 22 The
1. Scope. These rules shall apply to appeals from
very definition of an administrative agency includes its being
judgments or final orders of the Court of Tax Appeals
vested with quasi judicial powers. The ever increasing variety of
and from awards, judgments, final orders or resolutions
powers and functions given to administrative agencies
of any quasi-judicial agency from which an appeal is
recognizes the need for the active intervention of administrative
authorized to be taken to the Court of Appeals or the
agencies in matters calling for technical knowledge and speed in
Supreme Court. Among these agencies are the
countless controversies which cannot possibly be handled by
Securities and Exchange Commission, Land
regular courts.23 The CIAC's primary function is that of a quasi-
Registration Authority, Social Security Commission,
judicial agency, which is to adjudicate claims and/or determine
Civil Aeronautics Board, Bureau of Patents, Trademarks
rights in accordance with procedures set forth in E.O. No. 1008.
and Technology Transfer, National Electrification
Administration, Energy Regulatory Board, National
Telecommunication Commission, Department of In the second place, the language of Section 1 of Circular No. 1-
Agrarian Reform under Republic Act No. 6657, 91 emphasizes the obvious inclusion of the CIAC even if it is not
Government Service Insurance System, Employees named in the enumeration of quasi-judicial agencies. The
Compensation Commission, Agricultural Inventions introductory words "[a] among these agencies are" preceding
Board, Insurance Commission, Philippine Atomic Energy the enumeration of specific quasi-judicial agencies only highlight
Commission, Board of Investments, and Construction the fact that the list is not exclusive or conclusive. Further, the
Industry Arbitration Commission. overture stresses and acknowledges the existence of other
quasi-judicial agencies not included in the enumeration but
should be deemed included. In addition, the CIAC is obviously
SECTION 2. Cases Not Covered. These rules shall not
excluded in the catalogue of cases not covered by the Circular
apply to judgments or final orders issued under the
and mentioned in Section 2 thereof for the reason that at the
Labor Code of the Philippines, Central Board of
time the Circular took effect, E.O. No. 1008 allows appeals to the
Assessment Appeals, and by other quasi-judicial
Supreme Court on questions of law.
agencies from which no appeal to the court is
prescribed or allowed.
In sum, under Circular No. 1-91, appeals from the arbitral
awards of the CIAC may be brought to the Court of Appeals, and
SECTION 3. Where to Appeal. An appeal under these
not to the Supreme Court alone. The grounds for the appeal are
rules may be taken to the Court of Appeals within the
likewise broadened to include appeals on questions of facts and
period and in the manner herein provided, whether the
appeals involving mixed questions of fact and law.
appeal involves questions of fact, of law, or mixed
questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final
orders or decisions of the CIAC is further fortified by the
Thereafter, this Court promulgated the 1997 Rules on Civil
amendments to B.P. Blg. 129, as introduced by RA. No. 7902.
Procedure. Sections 1, 2 and 3 of Rule 43 thereof provides:
With the amendments, the Court of Appeals is vested with
appellate jurisdiction over all final judgments, decisions,
SECTION 1. Scope. This Rule shall apply to appeals resolutions, orders or awards of Regional Trial Courts and quasi-
from judgments or final orders of the Court of Tax judicial agencies, instrumentalities, boards or commissions,
Appeals and from awards, judgments, final orders or except "those within the appellate jurisdiction of the Supreme
resolutions of or authorized by any quasi-judicial Court in accordance with the Constitution, the Labor Code of the
agency in the exercise of its quasi-judicial functions. Philippines under Presidential Decree No. 442, as amended, the
Among these agencies are the Civil Service provisions of this Act, and of subparagraph (1) of the third
Commission, Central Board of Assessment Appeals, paragraph and subparagraph (4) of the fourth paragraph of
Securities and Exchange Commission, Office of the Section 17 of the Judiciary Act of 1948."
President, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of
While, again, the CIAC was not specifically named in said
Patents, Trademarks and Technology Transfer, National
provision, its inclusion therein is irrefutable. The CIAC was not
Electrification Administration, Energy Regulatory Board,
expressly covered in the exclusion. Further, it is a quasi-judicial
National Telecommunications Commission, Department
agency or instrumentality. The decision in Luzon Development
of Agrarian Reform under Republic Act No. 6657,
Bank v. Luzon Development Bank Employees 24 sheds light on
Government Service Insurance System, Employees
the matter, thus:
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Assuming arguendo that the voluntary arbitrator or the
Industry Arbitration Commission, and voluntary panel of voluntary arbitrators may not strictly be
arbitrators authorized by law. considered as a quasi-judicial agency, board or
commission, still both he and the panel are
comprehended within the concept of a 'quasi-judicial
SECTION 2. Cases Not Covered. This Rule shall not
instrumentality.' It may even be stated that it was to
apply to judgments or final orders issued under the
meet the very situation presented by the quasi-judicial
Labor Code of the Philippines.
functions of the voluntary arbitrators here, as well as
the subsequent arbitrator/arbitral tribunal operating
SECTION 3. Were to Appeal. An appeal under this under the Construction Industry Arbitration
Rule may be taken to the Court of Appeals within the Commission, that the broader term 'instrumentalities'
period and in the manner herein provided, whether the was purposely included in [Section 9 of B.P. Blg. 129 as
appeal involves question of fact, of law, or mixed amended by RA. No. 7902].
questions of fact and law.
An instrumentality' is anything used as a means or
Through Circular No. 1-91, the Supreme Court intended to agency. Thus, the terms governmental 'agency' or
establish a uniform procedure for the review of the final orders 'instrumentality' are synonymous in the sense that
or decisions of the Court of Tax Appeals and other quasi judicial either of them is a means by which a government acts,
agencies provided that an appeal therefrom is then allowed or by which a certain government act or function is
under existing statutes to either the Court of Appeals or the performed. The word 'instrumentality,' with respect to a
Supreme Court. The Circular designated the Court of Appeals as state, contemplates an authority to which the state
56
delegates governmental power for the performance of The CIAC is certain that the evidence overwhelmingly tended to
a state function. prove that the manner by which CHATHAM took charge in the
procurement of materials, fielding of labor, control of MCI
engineers and the subcontracting of various phases of the work,
Any remaining doubt on the procedural mutation of the
constituted an implied takeover of the project. The CIAC then
provisions on appeal in E.O. No. 1008, vis-a-vis Circular No. 1-91
concludes that the cut-off date for delineating the fiscal
and R A. No. 7902, was completely removed with the issuance
liabilities of the parties is 23 May 1996 when CHATHAM
by the Supreme Court of Revised Administrative Circular No. 1-
evaluated MCI's work accomplishment at 94.12% and then
95 and the 1997 Rules of Civil Procedure. Both categorically
suspended all further progress payments to MCI. For these
include the CIAC in the enumeration of quasi-judicial agencies
reasons, the CIAC found it trifling to determine whether MCI was
comprehended therein. Section 3 of the former and Section 3,
in delay based on the Overall Schedule. However, the CIAC
Rule 43 of the latter, explicitly expand the issues that may be
discovered that MCI was in delay for 294 days in the concreting
raised in an appeal from quasi judicial agencies or
milestone and held the latter liable for liquidated damages in
instrumentalities to the Court of Appeals within the period and in
the amount of P3,062,498.78.
the manner therein provided. Indisputably, the review of the
CIAC award may involve either questions of fact, of law, or of
fact and law. The Court of Appeals made a contrary conclusion and declared
that MCI was in delay for 193 days based on the overall
schedule of completion of the project and should incur
In view of all the foregoing, we reject MCI's submission that
liquidated damages in the amount of P24,125,000.00.
Circular No. 1-91, B.P. Blg. 129, as amended by RA. 7902,
Revised Administrative Circular 1-95, and Rule 43 of the 1997
Rules of Civil Procedure failed to efficaciously modify the It is undisputed that the CIAC and the Court of Appeals found
provision on appeals in E.O. No. 1008. We further discard MCI's MCI liable for liquidated damages but on different premises.
claim that these amendments have the effect of merely Based on the CIAC's assessment, MCI's responsibility was
changing the forum for appeal from the Supreme Court to the anchored on its delay in the concreting milestone, while the
Court of Appeals. Court of Appeal's evaluation concentrated on MCI's delay in
completing the project based on the overall schedule of work.
The variance in the evaluation spells a staggering difference in
There is no controversy on the principle that the right to appeal
the party who should ultimately be held liable and the net
is statutory. However, the mode or manner by which this right
amount involved.
may be exercised is a question of procedure which may be
altered and modified provided that vested rights are not
impaired. The Supreme Court is bestowed by the Constitution A study of the final computation of the net amount due in both
with the power and prerogative, inter alia, to promulgate rules the final disquisition of the CIAC and the Court of Appeals shows
concerning pleadings, practice and procedure in all courts, as that all the other figures therein are constant, save for the
well as to review rules of procedure of special courts and quasi- amount of liquidated damages for which MCI should be
judicial bodies, which, however, shall remain in force until accountable. If this Court concurs with the CIAC's conclusions,
disapproved by the Supreme Court. 25 This power is MCI's responsibility for liquidated damages is, as already stated,
constitutionally enshrined to enhance the independence of the P3,062,498.78. Setting this off against CHATHAM's overall fiscal
26
Supreme Court. accountability would bring the latter's total liability to MCI to
P16,126,922.91. If the Court of Appeals is correct, MCI would be
held liable for a much higher P24,125,000 liquidated damages.
The right to appeal from judgments, awards, or final orders of
Setting this off against CHATHAM's monetary responsibilities,
the CIAC is granted in E.O. No. 1008. The procedure for the
MCI would still have to pay CHATHAM P4,935,578.31.
exercise or application of this right was initially outlined in E.O.
No. 1008. While R. A. No. 7902 and circulars subsequently
issued by the Supreme Court and its amendments to the 1997 After painstakingly combing through the voluminous records, we
Rules on Procedure effectively modified the manner by which affirm the findings of the CIAC. The evidence taken as a whole or
the right to appeal ought to be exercised, nothing in these in their totality reveals that there was an implied takeover by
changes impaired vested rights. The new rules do not take away CHATHAM on the completion of the project. The evidence that
the right to appeal allowed in E.O. No. 1008. They only prescribe appears to accentuate the Court of Appeals' decision ironically
a new procedure to enforce the right. 27 No litigant has a vested bolstered the CIAC's conclusion. The testimonies of Engr.
right in a particular remedy, which may be changed by Kapunan, Engr. Bautista, Dr. Lai, and the letter of Engr.
substitution without impairing vested rights; hence, he can have Ruiz,31acknowledging the "temporary takeover" by CHATHAM of
none in rules of procedure which relate to remedy."28 the project, underscore the palpable fact that there was indeed
a takeover. We confer particular credit to Dr. Lai's testimony that
as of 15 February 1995, MCI was relieved of full control of the
The foregoing discussion renders academic MCI's assertion on
construction operations, that it was relegated to a mere supplier
the binding effect of its stipulation with CHATHAM in the TOR
of labor, materials and equipment, and that the alleged interim
that the decision of the CIAC shall be final and non-appealable
takeover actually extended through the completion of the
except on questions of law. The agreement merely adopted
project. Even CHATHAM admits the takeover but sugarcoated
Section 19 of E.O. No. 1008, which, as shown above, had been
the same with words like "interim" did "charging the costs to
modified.
MCI." With these glaring admissions, we can even consider that
the takeover was not implied but blatant.
The TOR, any contract or agreement of the parties cannot
amend, modify, limit, restrict or circumscribe legal remedies or
Exhibits "4," "4-A," "4-C," "8A," "8," "4-D," '43," "3-I," "3-M," "3-
the jurisdiction of courts. Rules of procedure are matters of
N," "3-W-1," "3-X," "3-Y," "3-Z," "5,""5-A," "5-B," "5-C," "5-D," "5-
public order and interest and unless the rules themselves so
E," "5-F," "5-O," "C-7," "E-9," etc., 32 relied upon by the Court of
allow, they cannot be altered, changed or regulated by
Appeals when considered by themselves and singly, seemingly
agreements between or stipulations of the parties for their
and initially evince MCI's control over the project. However, they
singular convenience.29
eventually lose evidentiary puissance to support the Court of
Appeals' conclusion when reckoned against the totality of the
Having resolved the existence of the authority of the Court of evidence that CHATHAM took charge of the completion of the
Appeals to review the decisions, awards, or final orders of the project, particularly, the fact that CHATHAM suspended all
CIAC, the Court shall now determine whether the Court of progress billing payments to MCI. The continued presence and
Appeals erred in rendering the questioned decision participation of MCI in the project was, as found by the CIAC, a
of30 September 1999. matter of mutual benefit to and convenience of the parties.
Settled is the general rule that the findings of facts of the Court WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30
of Appeals are binding on us. There are recognized exceptions to September 1999 decision of the Court of Appeals in CA-G.R SP
the rule, such as when the findings are contrary to those of the No. 49429 is hereby PARTIALLY MODIFIED by setting aside the
trial court 30 as in this case. Hence, we have to take a closer order directing Metro Construction, Inc. to pay Chatham
reexamination of this case. Properties, Inc. the amount of P4,935,578.31. The arbitral award
of the Construction Industry Arbitration Commission in CIAC
57
Case 10-98, promulgated on 19 October 1998, directing was appointed by the CIAC as a common nominee of the two (2)
Chatham Properties, Inc. to pay Metro Construction, Inc. the sum parties. On the Chairman was a lawyer. After the arbitration
of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX THOUSAND proceeding, the Arbitral Tribunal rendered a unanimous Award
NINE HUNDRED TWENTY-TWO & 91/100 (P16,126,922.91) dated 13 November 1992, the dispositive portion of which reads
PESOS, is accordingly REINSTATED. as follows:
(5)
Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that
The public respondent committed serious error in law, if not matter, the Court will not assist one or the other or even both
grave abuse of discretion, when it found, in the May 13, 1993 parties in any effort to subvert or defeat that objective for their
Order, the petitioner "guilty of estoppel" although it is claimed private purposes. The Court will not review the factual findings
that the legal doctrine of estoppel does not apply with respect of an arbitral tribunal upon the artful allegation that such body
to the required written formalities in the issuance of change had "misapprehended the facts" and will not pass upon issues
order . . .; which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as "legal questions." The parties here
(6) had recourse to arbitration and chose the arbitrators
themselves; they must have had confidence in such arbitrators.
The Court will not, therefore, permit the parties to relitigate
The exceptional circumstances in Remalante vs. Tibe, 158
before it the issues of facts previously presented and argued
SCRA 138, where the Honorable Supreme Court may review
before the Arbitral Tribunal, save only where a very clear
findings of facts, are present in the instant case, namely; (a)
showing is made that, in reaching its factual conclusions, the
when the inference made is manifestly absurd, mistaken or
Arbitral Tribunal committed an error so egregious and hurtful to
impossible (Luna vs. Linatoc, 74 Phil. 15); (2) when there is
one party as to constitute a grave abuse of discretion resulting
grave abuse of discretion in the appreciation of facts (Buyco
in lack or loss of jurisdiction. 22 Prototypical examples would be
vs. People, 95 Phil. 253); (3) when the judgment is premised
factual conclusions of the Tribunal which resulted in deprivation
on a misapprehension of facts (De la Cruz v. Sosing, 94 Phil.
of one or the other party of a fair opportunity to present its
26 and Castillo vs. CA, 124 SCRA 808); (4) when the findings
position before the Arbitral Tribunal, and an award obtained
of fact are conflicting (Casica v. Villaseca, 101 Phil. 1205); (5)
through fraud or the corruption of arbitrators. 23 Any other, more
when the findings are contrary to the admissions of the
relaxed, rule would result in setting at naught the basic
parties (Evangelista v. Alto Surety, 103 Phil. 401), and
objective of a voluntary arbitration and would reduce arbitration
therefore, the findings of facts of the public respondent in the
to a largely inutile institution.
instant case may be reviewed by the Honorable Supreme
Court. 20 (Emphasis partly applied and partly in the original)
59
Examination of the Petition at bar reveals that it is essentially an Conditions of Contract forming part of the Contract Documents.
attempt to re-assert and re-litigate before this Court the detailed Petitioner Hi-Precision's argument is that a written Agreement
or itemized factual claims made before the Arbitral Tribunal dated 16 November 1990 with Steel Builders concerning the
under a general averment that the Arbitral Tribunal had take over of the project by Hi-Precision, constituted waiver on
"misapprehended the facts" submitted to it. In the present the part of the latter of its right to a 15-day notice of contract
Petition, too, Hi-Precision claims that the Arbitral Tribunal had termination. Whether or not that Agreement dated 16 November
committed grave abuse of discretion amounting to lack of 1990 (a document not submitted to this Court) is properly
jurisdiction in reaching its factual and legal conclusions. characterized as constituting waiver on the part of Steel
Builders, may be conceded to be prima facie a question of law;
but, if it is, and assuming arguendo that the Arbitral Tribunal had
The first "legal issue" submitted by the Petition is the claimed
erred in resolving it, that error clearly did not constitute a grave
misapplication by the Arbitral Tribunal of the first and second
abuse of discretion resulting in lack or loss of jurisdiction on the
paragraphs of Article 1911 of the Civil Code. 24 Article 1191
part of the Tribunal.
reads:
1. Actual Damages
3. Attorney's Fees 500,000.00
Advance Downpayment
[at] signing of Contract
which is subject to 40%
deduction every progress P38,231,927.32 30
billing (40% of Contract Price) P8,406,000.00
=============
Progress Billings 5,582,585.55
We consider that in asking this Court to go over each individual
Advances made to Lim Kim claim submitted by it and each individual countering claim
submitted by Steel Builders to the Arbitral Tribunal, petitioner Hi-
Precision is asking this Court to pass upon claims which are
a) prior to take-over 392,781.45
either clearly and directly factual in nature or require previous
b) after the take-over
determination of factual issues. This upon the one hand. Upon
the other hand, the Court considers that petitioner Hi-Precision
Civil Works 1,158,513.88 has failed to show any serious errors of law amounting to grave
Materials 4,213,318.72 abuse of discretion resulting in lack of jurisdiction on the part of
Labor 2,155,774.79 the Arbitral Tribunal, in either the methods employed or the
Equipment Rental 1,448,208.90 results reached by the Arbitral Tribunal, in disposing of the
detailed claims of the respective parties.
b. Due to Huey Commercial On June 18, 1998, respondent San Fernando Regala Trading, Inc.
used for HSCI Project 51,110.40 filed with the Regional Trial Court (RTC) of Makati City a
Complaint for Rescission of Contract with Damages [3] against
IC Additional construction expenses petitioner Cargill Philippines, Inc. In its Complaint, respondent
alleged that it was engaged in buying and selling of molasses
and petitioner was one of its various sources from whom it
a. Increases in prices since Oct. 5,272,096.81 purchased molasses. Respondent alleged that it entered into a
contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner
b. Cost of money of (a) 873,535.49
12,000 metric tons of Thailand origin cane blackstrap molasses
at the price of US$192 per metric ton; that the delivery of the
ID Installation of machinery molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of
Credit payable at sight, to be opened by September 15, 1996;
a. Foreign exchange loss 11,565,048.37 that sometime prior to September 15, 1996, the parties agreed
that instead of January/February 1997, the delivery would be
b. Cost of money (a) 2,871,987.01 made in April/May 1997 and that payment would be by an
Irrevocable Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with its
I[E] Raw Materials obligations under the contract, despite demands from
respondent, thus, the latter prayed for rescission of the contract
and payment of damages.
61
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend suspension of the proceedings warranted, since the Arbitration
Proceedings and To Refer Controversy to Voluntary Arbitration, Law contemplates an arbitration proceeding that must be
[4]
wherein it argued that the alleged contract between the conducted in the Philippines under the jurisdiction and control of
parties, dated July 11, 1996, was never consummated because the RTC; and before an arbitrator who resides in the country;
respondent never returned the proposed agreement bearing its and that the arbitral award is subject to court approval,
written acceptance or conformity nor did respondent open the disapproval and modification, and that there must be an appeal
Irrevocable Letter of Credit at sight. Petitioner contended that from the judgment of the RTC. The RTC found that the arbitration
the controversy between the parties was whether or not the clause in question contravened these procedures, i.e., the
alleged contract between the parties was legally in existence arbitration clause contemplated an arbitration proceeding
and the RTC was not the proper forum to ventilate such issue. It in New York before a non-resident arbitrator (American
claimed that the contract contained an arbitration clause, to wit: Arbitration Association); that the arbitral award shall be final and
binding on both parties. The RTC said that to apply Section 7 of
the Arbitration Law to such an agreement would result in
disregarding the other sections of the same law and rendered
them useless and mere surplusages.
In this case, petitioner raises before the CA the issue that the Notwithstanding our ruling on the validity and
respondent Judge acted in excess of jurisdiction or with grave enforceability of the assailed arbitration clause
abuse of discretion in refusing to dismiss, or at least suspend, providing for foreign arbitration, it is our considered
the proceedings a quo, despite the fact that the partys opinion that the case at bench still cannot be brought
agreement to arbitrate had not been complied with. Notably, the under the Arbitration Law for the purpose of
RTC found the existence of the arbitration clause, since it said in suspending the proceedings before the trial court. We
its decision that hardly disputed is the fact that the arbitration note that in its Motion to Dismiss/Suspend Proceedings,
clause in question contravenes several provisions of the etc, petitioner Cargill alleged, as one of the grounds
Arbitration Law x x x and to apply Section 7 of the Arbitration thereof, that the alleged contract between the parties
Law to such an agreement would result in the disregard of the do not legally exist or is invalid. As posited by
afore-cited sections of the Arbitration Law and render them petitioner, it is their contention that the said contract,
useless and mere surplusages. However, notwithstanding the bearing the arbitration clause, was never consummated
finding that an arbitration agreement existed, the RTC denied by the parties. That being the case, it is but proper that
petitioner's motion and directed petitioner to file an answer. such issue be first resolved by the court through an
appropriate trial. The issue involves a question of fact
In La Naval Drug Corporation v. Court of Appeals,[15] it that the trial court should first resolve.
was held that R.A. No. 876 explicitly confines the courts
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 Arbitration is not proper when one of the parties
directing the parties to proceed with the arbitration in repudiates the existence or validity of the contract.
accordance with the terms thereof. If the court, upon the other Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA
hand, finds that no such agreement exists, the proceedings shall 607, (G.R.No.161957), where the Supreme Court held
be dismissed. that:
Such decision shall be final and binding upon 2nd initial rebar requirements purchased from Pag-Asa Steel Wo
the parties and the Contractor shall proceed with the Inc..
execution of the Works with due diligence Reinforcing steel bars purchased from ARCA Industrial Sales (t
notwithstanding any Contractor's objection to the net weight of 744,197.66 kilograms) 50% of net amount due.
decision of the Engineer. If within a period of thirty (30)
days from receipt of the LICOMCEN, INCORPORATED's Subtotal.
decision on the dispute, either party does not officially Less
give notice to contest such decision through arbitration, Purchase cost of steel bars by Ramon Quinquileria..
the said decision shall remain final and binding.
However, should any party, within thirty (30) days from TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATER
receipt of the LICOMCEN, INCORPORATED's decision, COSTS AT SITE...
contest said decision, the dispute shall be submitted for
arbitration under the Construction Industry Arbitration Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to
Law, Executive Order 1008. The arbitrators appointed pay FSI [t]he cost of materials or goods reasonably ordered
under said rules and regulations shall have full power for the Permanent or Temporary Works which have
to open up, revise and review any decision, opinion, been delivered to the Contractor but not yet used, and which
direction, certificate or valuation of the LICOMCEN, delivery has been certified by the Engineer.[31] None of these
INCORPORATED. Neither party shall be limited to the requisites were allegedly complied with. It contends that FSI
evidence or arguments put before the LICOMCEN, failed to establish that the steel bars delivered in Legaspi City,
INCORPORATED for the purpose of obtaining his said on January 14, 1998, were for the Citimall project. In fact, the
decision. No decision given by the LICOMCEN, steel bars were delivered not at the site of the Citimall project,
INCORPORATED shall disqualify him from being called but at FSIs batching plant called Tuanzon compound, a few
as a witness and giving evidence in the arbitration. It is hundred meters from the site. Even if delivery to Tuanzon was
understood that the obligations of the LICOMCEN, allowed, the delivery was done in violation of ESCAs instruction
INCORPORATED, the Engineer and the Contractor shall to ship only 50% of the materials. Advised as early as December
not be altered by reason of the arbitration being 1997 to suspend the works, FSI proceeded with the delivery of
conducted during the progress of the Works.[26] the steel bars in January 1998. LICOMCEN declared that it should
not be made to pay for costs that FSI willingly incurred for itself.
LICOMCEN posits that only disputes in connection with or arising [32]
Contrary to LICOMCENs arguments, GC-42 of the GCC The jurisdiction of courts and quasi-judicial bodies is determined
does not require delivery of the materials at the site of the by the Constitution and the law.[44] It cannot be fixed by the will
Citimall project; it only requires delivery to the contractor, which of the parties to a dispute;[45] the parties can neither expand nor
is FSI. Moreover, the Tuanzon compound, where the steel bars diminish a tribunals jurisdiction by stipulation or agreement. The
were actually delivered, is very close to the Citimall project text of Section 4 of E.O. 1008 is broad enough to cover any
site. FSI contends that it is a normal construction practice for dispute arising from, or connected with construction contracts,
contractors to set up a staging site, to prepare the materials and whether these involve mere contractual money claims or
equipment to be used, rather than stock them in the crowded execution of the works.[46] Considering the intent behind the law
job/project site. FSI also asserts that it was useless to have the and the broad language adopted, LICOMCEN erred in insisting on
delivery certified by ESCA because by then the Citimall project its restrictive interpretation of GC-61. The CIACs jurisdiction
had been suspended. It would be unfair to demand FSI to cannot be limited by the parties stipulation that only disputes in
perform an act that ESCA and LICOMCEN themselves had connection with or arising out of the physical construction
prevented from happening.[38] activities (execution of the works) are arbitrable before it.
The CA deleted the awards for equipment and labor In fact, all that is required for the CIAC to acquire
standby costs on the ground that FSIs documentary evidence jurisdiction is for the parties to a construction contract
was inadequate. FSI finds the ruling erroneous, since LICOMCEN to agree to submit their dispute to arbitration. Section 1,
never questioned the list of employees and equipments Article III of the 1988 CIAC Rules of Procedure (as amended by
employed and rented by FSI for the duration of the suspension. CIAC Resolution Nos. 2-91 and 3-93) states:
[39]
Any question between the contracting parties In case of total suspension or suspension of
that may arise out of or in connection with the activities along the critical path of the approved
Contract, or breach thereof, shall be litigated in the PERT/CPM network and the cause of which is not due to
courts of Legaspi City except where otherwise any fault of the Contractor, the elapsed time
specifically stated or except when such question is between the effective order for suspending work
submitted for settlement thru arbitration as and the order to resume work shall be allowed
provided herein. the Contractor by adjusting the time allowed for
his execution of the Contract Works.
The second exception clause authorizes the submission to
arbitration of any dispute between LICOMCEM and FSI, even if The Engineer through LICOMCEN,
the dispute does not directly involve the execution of physical INCORPORATED shall issue the order lifting the
construction works. This was precisely the avenue taken by FSI suspension of work when conditions to resume work
when it filed its petition for arbitration with the CIAC. shall have become favorable or the reasons for the
suspension have been duly corrected.[50]
If the CIACs jurisdiction can neither be enlarged nor diminished
by the parties, it also cannot be subjected to a condition
precedent. GC-61 requires a party disagreeing with LICOMCENs GC-41 LICOMCEN, INCORPORATED's RIGHT TO
decision to officially give notice to contest such SUSPEND WORK OR TERMINATE THE CONTRACT
decision through arbitration within 30 days from receipt of
the decision. However, FSIs April 15, 1998 letter is not the notice xxxx
contemplated by GC-61; it never mentioned FSIs plan to submit
the dispute to arbitration and instead requested LICOMCEN to 2. For Convenience of LICOMCEN,
reevaluate its claims. Notwithstanding FSIs failure to make a INCORPORATED
proper and timely notice, LICOMCENs decision (embodied in
its March 24, 1998 letter) cannot become final and binding so as If any time before completion of work
to preclude resort to the CIAC arbitration. To reiterate, all that is under the Contract it shall be found by the
required for the CIAC to acquire jurisdiction is for the parties to LICOMCEN, INCORPORATED that reasons beyond
agree to submit their dispute to voluntary arbitration: the control of the parties render it impossible
or against the interest of the LICOMCEN,
[T]he mere existence of an arbitration clause in INCORPORATED to complete the work, the
the construction contract is considered by law as LICOMCEN, INCORPORATED at any time, by
an agreement by the parties to submit existing written notice to the Contractor, may discontinue
or future controversies between them to CIAC the work and terminate the Contract in whole or in
jurisdiction, without any qualification or part. Upon the issuance of such notice of termination,
condition precedent. To affirm a condition precedent the Contractor shall discontinue to work in such
in the construction contract, which would effectively manner, sequence and at such time as the LICOMCEN,
suspend the jurisdiction of the CIAC until compliance INCORPORATED/Engineer may direct, continuing and
therewith, would be in conflict with the recognized doing after said notice only such work and only until
intention of the law and rules to automatically vest such time or times as the LICOMCEN,
CIAC with jurisdiction over a dispute should the INCORPORATED/Engineer may direct.[51]
construction contract contain an arbitration clause.[48]
The CIAC is given the original and exclusive Under these stipulations, we consider LICOMCENs initial
jurisdiction over disputes arising from, or connected with, suspension of the works valid. GC-38 authorizes the
contracts entered into by parties involved in construction in suspension of the works for factors or causes which ESCA deems
the Philippines.[49] This jurisdiction cannot be altered by necessary in the interests of the works and LICOMCEN. The
stipulations restricting the nature of construction disputes, factors or causes of suspension may pertain to a change or
appointing another arbitral body, or making that bodys decision revision of works, as cited in the December 16, 1997 and
final and binding. January 6, 1998 letters of ESCA, or to the pendency of a case
before the Ombudsman (OMB-ADM-1-97-0622), as cited in
The jurisdiction of the CIAC to resolve the dispute LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998
between LICOMCEN and FSI is, therefore, affirmed. and February 17, 1998 letters. It was not necessary for
ESCA/LICOMCEN to wait for a restraining or injunctive order to
The validity of the indefinite be issued in any of the cases filed against LICOMCEN before it
suspension of the works on the can suspend the works. The language of GC-38 gives
Citimall project ESCA/LICOMCEN sufficient discretion to determine whether the
69
existence of a particular situation or condition necessitates the shall deduct any outstanding balance due from the
suspension of the works and serves the interests of LICOMCEN. Contractor for advances in respect to mobilization and
materials, and any other sum the LICOMCEN,
Although we consider the initial suspension of the works INCORPORATED is entitled to be credited.[56]
as valid, we find that LICOMCEN wrongfully prolonged
the suspension of the works (or indefinite suspension as For LICOMCEN to be liable for the cost of materials or goods,
LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to issue an item two of GC-42 requires that
order lifting the suspension of work when conditions to resume
work shall have become favorable or the reasons for the a. the materials or goods were reasonably ordered for the
suspension have been duly corrected. The Ombudsman case Permanent or Temporary Works;
(OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in their b. the materials or goods were delivered to the
letters to FSI as a ground for the suspension, was dismissed as Contractor but not yet used; and
early as October 12, 1998, but neither ESCA nor LICOMCEN c. the delivery was certified by the Engineer.
informed FSI of this development.The pendency of the other
cases[52] may justify the continued suspension of the works, but Both the CIAC and the CA agreed that these requisites were met
LICOMCEN never bothered to inform FSI of the existence of by FSI to make LICOMCEN liable for the cost of the steel bars
these cases until the arbitration proceedings ordered for the Citimall project; the two tribunals differed only to
commenced. By May 28, 2002, the City Government of Legaspi the extent of LICOMCENs liability because the CA opined that it
sent LICOMCEN a notice instructing it to proceed with the should be limited only to 50% of the cost of the steel bars. A
Citimall project;[53] again, LICOMCEN failed to relay this review of the records compels us to uphold the CAs finding.
information to FSI. Instead, LICOMCEN conducted a rebidding of
the Citimall project based on the new design. [54] LICOMCENs Prior to the delivery of the steel bars, ESCA informed
claim that the rebidding was conducted merely to get cost FSI of the suspension of the works; ESCAs January 6, 1998 letter
estimates for the new design goes against the established reads:
practice in the construction industry. We find the CIACs
discussion on this matter relevant: As per our information to you on December 16,
1997, a major revision in the design of the Legaspi
But what is more appalling and disgusting is the Citimall necessitated a change in the bored piles
allegation x x x that the x x x invitation to bid was requirement of the project. The change involved a
issued x x x solely to gather cost estimates on the substantial reduction in the number and length
redesigned [Citimall project] x x x. This Arbitral Tribunal of piles.
finds said act of asking for bids, without any
intention of awarding the project to the lowest We expected that you would have suspended the
and qualified bidder, if true, to be extremely deliveries of the steel bars until the new design
irresponsible and highly unprofessional. It might has been approved.
even be branded as fraudulent x x x [since] the invited
bidders [were required] to pay P2,000.00 each for a set According to you[,] the steel bars had already
of the new plans, which amount was non- been paid and loaded and out of Manila on said
refundable. The presence of x x x deceit makes the date.
whole story repugnant and unacceptable.[55]
In order to avoid double handling, storage,
LICOMCENs omissions and the imprudent rebidding of security problems, we suggest that only 50% of
the Citimall project are telling indications of LICOMCENs the total requirement of steel bars be delivered
intent to ease out FSI and terminate their contract. As at jobsite. The balance should be returned
with GC-31, GC-42(2) grants LICOMCEN ample discretion to to Manila where storage and security is better.
determine what reasons render it against its interest to
complete the work in this case, the pendency of the other cases In order for us to consider additional cost due to the shi
and the revised designs for the Citimall project. Given this pping of the excess steel bars, we need to know the
authority, the Court fails to the see the logic why LICOMCEN had actual dates of purchase, payments and loading of the
to resort to an indefinite suspension of the works, instead of steel bars. Obviously, we cannot consider the additional
outrightly terminating the contract in exercise of its rights under cost if you have had the chance to delay the shipping
GC-42(2). of the steel bars.[57]
We now proceed to discuss the effects of these findings with From the above, it appears that FSI was informed of the
regard to FSIs monetary claims against LICOMCEN. necessity of suspending the works as early as December 16,
1997. Pursuant to GC-38 of the GCC, FSI was expected
The claim for material costs at site to immediately comply with the order to suspend the work.
[58]
Though ESCAs December 16, 1997 notice may not have been
GC-42 of the GCC states: categorical in ordering the suspension of the works, FSIs reply
GC-42 PAYMENT FOR TERMINATED CONTRACT letter of December 18, 1997 indicated that it actually complied
with the notice to suspend, as it said, We hope for the early
If the Contract is terminated as aforesaid, the resolution of the new foundation plan and the resumption of
Contractor will be paid for all items of work executed, work.[59] Despite the suspension, FSI claimed that it could not
satisfactorily completed and accepted by the stop the delivery of the steel bars (nor found the need to do so)
LICOMCEN, INCORPORATED up to the date of because (a) the steel bars were ordered as early as November
termination, at the rates and prices provided for in the 1997 and were already loaded in Manila and expected to arrive
Contract and in addition: in Legaspi City by December 23, 1997, and (b) it expected
immediate resumption of work to meet the 90-day deadline.[60]
1. The cost of partially accomplished items of
additional or extra work agreed upon by the Records, however, disclose that these claims are not
LICOMCEN, INCORPORATED and the entirely accurate. The memorandum of agreement and sale
Contractor. covering the steel bars specifically stated that these would be
withdrawn from the Cagayan de Oro depot, not Manila[61];
2. The cost of materials or goods indeed, the bill of lading stated that the steel bars were loaded
reasonably ordered for the Permanent or in Cagayan de Oro on January 11, 1998, and arrived
Temporary Works which have been in Legaspi City within three days, on January 14, 1998.[62] The
delivered to the Contractor but not yet loading and delivery of the steel bar thus happened after FSI
used and which delivery has been received ESCAs December 16, 1997 and January 6, 1998 letters
certified by the Engineer. days after the instruction to suspend the works. Also, the same
stipulation that authorizes LICOMCEN to suspend the works
3. The reasonable cost of demobilization allows the extension of the period to complete the works. The
relevant portion of
For any payment due the Contractor under the above GC-38 states:
conditions, the LICOMCEN, INCORPORATED, however,
70
In case of total suspension x x x and the cause nor differentiated the two terms. [A] contract must be
of which is not due to any fault of the Contractor interpreted from the language of the contract itself, according to
[FSI], the elapsed time between the effective its plain and ordinary meaning. [66] If the terms of a contract are
order for suspending work and the order to clear and leave no doubt upon the intention of the contracting
resume work shall be allowed the Contractor by parties, the literal meaning of the stipulations shall control. [67]
adjusting the time allowed for his execution of Nonetheless, on account of our earlier discussion of
the Contract Works.[63] LICOMCENs failure to observe the proper procedure in
terminating the contract by declaring that it was merely
The above stipulation, coupled indefinitely suspended, we deem that FSI is entitled to the
with the short period it took to ship the payment of nominal damages. Nominal damages may be
steel bars from Cagayan de Oro to Legaspi City, thus negates awarded to a plaintiff whose right has been violated or invaded
both FSIs by the defendant, for the purpose of vindicating or recognizing
argument and the CIACs ruling[64] that there was no necessity to that right, and not for indemnifying the plaintiff for any loss
stop the shipment so as to meet the 90-day deadline. These suffered by him.[68] Its award is, thus, not for the purpose of
circumstances prove that FSI acted imprudently in proceeding indemnification for a loss but for the recognition and vindication
with the delivery, contrary to LICOMCENs instructions. The CA of a right. A violation of the plaintiffs right, even if only
was correct in holding LICOMCEN liable for only 50% of the costs technical, is sufficient to support an award of nominal damages.
[69]
of the steel bars delivered. FSI is entitled to recover the amount of P100,000.00 as
nominal damages.
The claim for equipment and
labor standby costs The liability for costs of arbitration
The Court upholds the CAs ruling deleting the award for Under the parties Terms of Reference, executed before the CIAC,
equipment and labor standby costs. We quote in agreement the costs of arbitration shall be equally divided between them,
pertinent portions of the CA decision: subject to the CIACs determination of which of the parties shall
eventually shoulder the amount. [70] The CIAC eventually ruled
The CIAC relied solely on the list of 37 pieces that since LICOMCEN was the party at fault, it should bear the
of equipment respondent allegedly rented and costs. As the CA did, we agree with this finding. Ultimately, it
maintained at the construction site during the was LICOMCENs imprudent declaration of indefinitely
suspension of the project with the prorated rentals suspending the works that caused the dispute between it and
incurred x x x. To the mind of this Court, these lists FSI. LICOMCEN should bear the costs of arbitration.
are not sufficient to establish the fact that
indeed [FSI] incurred the said expenses. Reliance WHEREFORE, premises considered, the petition for review
on said lists is purely speculative x x x the list of on certiorari of LICOMCEN INCORPORATED, docketed as G.R. No.
equipments is a mere index or catalog of the 167022, and the petition for review on certiorari of FOUNDATION
equipments, which may be utilized at the SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED.
construction site. It is not the best evidence to The November 23, 2004 Decision of the Court of Appeals in CA-
prove that said equipment were in fact G.R. SP No. 78218 is MODIFIED to include the award of
rented and maintained at the construction site during nominal damages in favor of FOUNDATION SPECIALISTS, INC.
the suspension of the work. x x x [FSI] should have Thus, LICOMCEN INCORPORATED is ordered to pay FOUNDATION
presented the lease contracts or any similar SPECIALISTS, INC. the following amounts:
documents such as receipts of payments x x
x. Likewise, the list of employees does not in a. P1,264,404.12 for unpaid balance on FOUNDATION
anyway prove that those employees in the list SPECIALISTS, INC. billings;
were indeed at the construction site or were required to b. P5,694,939.87 for material costs at site; and
be on call should their services be needed and were c. P100,000.00 for nominal damages.
being paid their salaries during the suspension
of the project.Thus, in the absence of sufficient LICOMCEN INCORPORATED is also ordered to pay the costs of
evidence, We deny the claim for equipment and arbitration. No costs.SO ORDERED.
labor standby costs.[65] THIRD DIVISION July 4, 2012 G.R. No. 172438
METROPOLITAN CEBU WATER DISTRICT,Petitioner,- versus
-MACTAN ROCK INDUSTRIES, INC.,Respondent.
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized MENDOZA, J.:
profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO
SUSPEND WORK OR TERMINATE THE CONTRACT This is a petition for review on certiorari under Rule 45
xxxx assailing the February 20, 2006 Decision[1] and the March 30,
2006 Resolution[2] of the Court of Appeals (CA) in CAG.R. CEB SP.
2. For Convenience of the LICOMCEN, INCORPORATED No. 00623.
1. Ordering the reformation of Clause 17 of the Consistent with the above-mentioned policy of
Water Supply Contract to read: encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses.
17[.] Price Escalation and/or De-Escalation shall be based on Provided such clause is susceptible of an interpretation
the parametric formula: that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in
17.1 Power Rate Price Adjustment/Power Cost favor of arbitration. It is to be highlighted that the
Adjustment dispute in the case at bar arose from the parties
incongruent positions with regard to clause 17 of the
Current Power Rate - Base Power Rate x 30% of base selling Water Supply Contract[,] specifically the price
price of water escalation/adjustment. The instant case involves
Base Power Rate technical discrepancies that are better left to an arbitral
body that has expertise in those areas. Nevertheless, in
17.2 Consumer Price Index (CPI) Adjustment/Operating Cost any event, the inclusion of an arbitration clause in a
Adjustment: contract does not ipso facto divest the courts of
jurisdiction to pass upon the findings of arbitral bodies,
Current CPI Base CPI x 40% of base selling price of water because the awards are still judicially reviewable under
Base CPI certain conditions.[24] (Citations omitted.)
17.3 Capital Cost Recovery Adjustment: MCWDs motion for reconsideration of the decision in the First
Petition was still pending when it filed the petition for
Current Peso to Base Peso to US$ review[25] under Rule 43 (Second Petition) appealing the decision
US$ Exchange Rate Exchange Rate x 30% of base selling of the CIAC. The motion for reconsideration was eventually
price of water denied in a Resolution[26] dated May 3, 2006. MCWD did not
Base Peso to US $ Exchange Rate appeal from the denial of the motion. It, thus, became final and
executory.[27]
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$
72
The Construction Industry Arbitration
Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition Commission (CIAC) was created in 1985 under Executive
for review under Rule 43 appealing the decision of the CIAC Order (E.O.) No. 1008 (Creating an Arbitration Machinery for the
Philippine Construction Industry), in recognition of the need to
Aggrieved by the CIAC Decision, MCWD filed a petition establish an arbitral machinery that would expeditiously settle
for review under Rule 43 with the CA which was docketed as CA- construction industry disputes. The prompt resolution of
G.R. CEB SP. No. 00623. problems arising from, or connected to, the construction
industry was considered necessary and vital for the fulfillment of
The CA, however, dismissed the petition in its Decision national development goals, as the construction industry
dated February 20, 2006. The Court therein stated that the issue provided employment to a large segment of the national labor
of jurisdiction had already been resolved by the 18 th Division in force, and was a leading contributor to the gross national
the First Petition, where the CA upheld the jurisdiction of the product. [31]
CIAC over Arbitration Case No. 12-2004.
Under Section 4 of E.O. No. 1008, the CIACs jurisdiction
Citing jurisprudence, the CA also ruled that there being was specifically delineated as follows:
an arbitration clause in the Contract, the action for reformation
of contract instituted by MRII in this case fell squarely within the SECTION 4. Jurisdiction - The CIAC shall
jurisdiction of the CIAC, not the courts. In relation to this, the CA have original and exclusive jurisdiction over disputes
noted that the present rule is that courts will look with favor arising from, or connected with, contracts entered into
upon amicable agreements to settle disputes through by parties involved in construction in the Philippines,
arbitration, and will only interfere with great reluctance to whether the disputes arise before or after the
anticipate or nullify the action of the arbitrator. MCWD being a completion of the contract, or after the abandonment
signatory and a party to the Water Supply Contract, it cannot or breach thereof. These disputes may involve
escape its obligation under the arbitration clause. [28] government or private contracts. For the Board to
acquire jurisdiction, the parties to a dispute must agree
The CA also held that the CIAC did not err in finding to submit the same to voluntary arbitration.
that the Water Supply Contract is clear on the matter of the
reckoning period for the computation of the escalation cost The jurisdiction of the CIAC may include but is
from January 9, 1999, or the first day of delivery of water. not limited to violation of specifications for materials
Moreover, the CA found that the CIAC did not err in ruling that and workmanship; violation of the terms of agreement;
the contract be reformed to include Capital Cost Recovery in the interpretation and/or application of contractual
parametric formula for price escalation. Neither did it err in provisions; amount of damages and penalties;
holding that the Capital Cost Recovery shall be 30% of the Base commencement time and delays; maintenance and
Selling Price of water as a consequence of the reformation of defects; payment default of employer or contractor and
Clause 17. changes in contract cost.
MAY A PARTY, WHO IS A SIGNATORY TO THE As earlier stated, following the denial of its motion to dismiss by
WATER SUPPLY CONTRACT[,] IN EFFECT CIAC, MCWD filed the First Petition with the CA, which decided in
SUBMITTING ITSELF TO THE JURISDICTION OF favor of MRII and upheld the jurisdiction of the CIAC.
THE CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION, QUESTION THE JURISDICTION OF Not being in conformity, MCWD filed a motion for
[THE] CIAC? reconsideration.
DOES THE CONSTRUCTION INDUSTRY While the said motion was pending with the CA, MCWD filed the
ARBITRATION COMMISSION HAVE THE (SIC) Second Petition with the same court. Eventually, the motion was
JURISDICTION OVER A COMPLAINT PRAYING FOR denied, and MCWD never appealed the case. Thus, the decision
A REFORMATION OF A WATER SUPPLY CONTRACT? of the CA in the First Petition became final and executory.
In its Decision in the First Petition, the CA affirmed the arbitral To determine whether there is identity of the rights
bodys finding in CIAC Case No. 12-2004 that the case was within asserted and reliefs prayed for, grounded on the same facts and
its jurisdiction. Such decision having become final, it is beyond bases, the following tests may be utilized: (1) whether the same
the jurisdiction of this Court, or any court or body, for that evidence would support and sustain both the first and the
matter, to review or modify, even supposing for the sake of second causes of action, also known as the same evidence test;
argument, that it is indeed erroneous. or (2) whether the defenses in one case may be used to
substantiate the complaint in the other.[39] Also fundamental is
Also, the parties apparently characterized the Contract the test of determiningwhether the cause of action in the
as one involving construction, as its arbitration clause second case existed at the time of the filing of the first case. [40]
specifically refers disputes, controversies or claims arising out of
or relating to the Contract or the breach, termination or validity In the First Petition, MCWD argued that the CIACs
thereof, if the same cannot be settled amicably, to an arbitration issuance of its Order[41] dated May 28, 2004 was tainted with
tribunal, in accordance with E.O. No. 1008, or the Construction grave abuse of discretion amounting to excess or lack of
Industry Arbitration Law: jurisdiction. Thus, MCWD stated in its prayer:
In both cases, MCWD was the petitioner and MRII, the It is also prayed that a Temporary Restraining
respondent. Although they differ in form, in essence, the two Order and a Writ of Preliminary Injunction be issued at
cases involved a common issue, that is, MCWDs challenge to the the outset, ordering the stay of execution pending the
jurisdiction of the CIAC over the arbitration proceedings arising resolution of the issues raised in the Petition.
74
Other measures of relief, which are just and Whether the CIAC had jurisdiction to order the
equitable, are also prayed for.[44] reformation of the Water Supply Contract
The jurisdiction of courts and quasi-judicial bodies is
In both cases, the parties also necessarily relied on the determined by the Constitution and the law.[50] It cannot be fixed
same laws and arguments in support of their respective by the will of the parties to the dispute, nor can it be expanded
positions on the matter of jurisdiction. or diminished by stipulation or agreement. [51] The text of Section
4 of E.O. No. 1008 is broad enough to cover any dispute arising
In the First Petition, in support of its argument, that the from, or connected with, construction contracts, whether these
CIAC had no jurisdiction to arbitrate the causes of action raised involve mere contractual money claims or execution of the
by MRII, MCWD cited the portions of the Contract on the works. This jurisdiction cannot be altered by stipulations
obligations of the water supplier, E.O. No. 1008 (specifically restricting the nature of construction disputes, appointing
Section 4 on jurisdiction), the Rules of Procedure Governing another arbitral body, or making that bodys decision final and
Construction Arbitration (Section 1, Article III). It also alleged binding.[52]
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 Thus, unless specifically excluded, all incidents and
definition of an infrastructure project.[45] matters relating to construction contracts are deemed to be
within the jurisdiction of the CIAC. Based on the previously cited
MRII, however, opined that the CIAC had jurisdiction provision outlining the CIACs jurisdiction, it is clear that with
over the complaint and, therefore, correctly denied petitioners regard to contracts over which it has jurisdiction, the only
motion to dismiss. MRII argued that certiorari was not a proper matters that have been excluded by law are disputes arising
remedy in case of denial of a motion to dismiss and that the from employer-employee relationships, which continue to be
claims fell squarely under CIACs original and exclusive governed by the Labor Code of the Philippines. Moreover, this is
jurisdiction. MRII, in support of its position, cited Section 1 of LOI consistent with the policy against split jurisdiction.
No. 1186 and Section 5(k) of R.A. No. 9184. MRII further
proposed that, as shown by MCWDs pro-forma Water Supply In fact, in National Irrigation Administration v. Court of
Contract, Specifications, Invitation to Submit Proposal, Pre-Bid Appeals,[53] it was held that the CIAC had jurisdiction over the
Conference minutes, Addendum No. 1, and MRIIs Technical and dispute, and not the contract. Therefore, even if the contract
Financial Proposals, the undertaking contemplated by the preceded the existence of the CIAC, since the dispute arose
parties is one of infrastructure and of works, rather than one of when the CIAC had already been constituted, the arbitral board
supply or mere services.[46] was exercising current, and not retroactive, jurisdiction. In the
same case, it was held that as long as the parties agree to
In the Second Petition, in support of the issue of submit to voluntary arbitration, regardless of what forum they
jurisdiction, MCWD again relied on Section 4 of E.O. No. 1008 may choose, their agreement will fall within the jurisdiction of
and Section 1, Article III of the Rules of Procedure Governing the CIAC, such that, even if they specifically choose another
Construction Arbitration. It also brought to fore the alleged forum, the parties will not be precluded from electing to submit
faulty conclusion of MRII that a water supply contract is their dispute to the CIAC because this right has been vested
subsumed under the definition of an infrastructure project under upon each party by law.
LOI 1186.[47]
This is consistent with the principle that when an
In its Comment, MRII reiterated and adopted its administrative agency or body is conferred quasi-judicial
arguments before the CIAC, and insisted that the undertaking functions, all controversies relating to the subject matter
contemplated by the parties was one of infrastructure and of pertaining to its specialization are deemed to be included within
works, as distinguished from mere supply from off-the-shelf or its jurisdiction since the law does not sanction a split of
from mere services.[48] Section 1 of LOI No. 1186, to define jurisdiction, as stated in Pea v. Government Service Insurance
infrastructure and Section 5(k) of R.A. No. 9184 to include water System.[54]
supply, were again cited. In support of its arguments, MRII cited
anew MCWDs pro-forma Water Supply Contract, Specifications In Pea, the Court held that although the complaint for
(in its Invitation to Submit Proposal), pronouncements at the Pre- specific performance, annulment of mortgage, and damages
Bid Conference, Addendum No. 1, and MRIIs Technical and filed by the petitioner against the respondent included title to,
Financial Proposals. MRII further extensively reproduced the possession of, or interest in, real estate, it was well within the
content of the joint affidavit of Messrs. Antonio P. Tompar and jurisdiction of the Housing and Land Use Regulatory
Lito R. Maderazo, MRIIs President/CEO and Financial Manager, Board (HLURB), a quasi-judicial body, as it involved a claim
respectively.[49] against the subdivision developer, Queens Row Subdivision, Inc.,
as well as the Government Service Insurance System (GSIS).
Given that the same arguments were raised on the
matter of CIAC jurisdiction, the parties thus relied on This case was later cited in Badillo v. Court of Appeals,[55] where
substantially the same evidence in both petitions. MCWD the Court concluded that the HLURB had jurisdiction over
annexed to both petitions copies of the Water Supply Contract, complaints for annulment of title. The Court also held that courts
the complaint filed by MRII with the CIAC, and its Answer to the will not determine a controversy where the issues for resolution
said complaint. On the other hand, MRII presented Addendum demand the exercise of sound administrative discretion, such as
No. 1 to the Water Supply Contract and its Technical and that of the HLURB, the sole regulatory body for housing and land
Financial Proposals. development. It was further pointed out that the extent to which
an administrative agency may exercise its powers depends on
Moreover, the first cause of action in the Second the provisions of the statute creating such agency.
Petition, that is, the CIACs having assumed jurisdiction, allegedly The ponencia further quoted from C.T. Torres
unlawfully, over the dispute arising from the Water Supply Enterprises, Inc. v. Hibionada:[56]
Contract, obviously existed at the time the First Petition was The argument that only courts of justice can adjudicate
filed, as the latter case dealt with the jurisdiction of the CIAC claims resoluble under the provisions of the Civil Code
over the complaint filed. is out of step with the fast-changing times. There are
hundreds of administrative bodies now performing this
Finally, any judgment that may be rendered in the First function by virtue of a valid authorization from the
Petition on the matter of whether the CIAC has jurisdiction over legislature. This quasi-judicial function, as it is called, is
the arbitration proceedings, regardless of which party was exercised by them as an incident of the principal power
successful, would amount to res judicata in the Second Petition, entrusted to them of regulating certain activities falling
insofar as the issue of jurisdiction is concerned. In fact, what under their particular expertise.
MCWD should have done was to appeal to the Court after the
denial of its motion for reconsideration in the First Petition. For In the Solid Homes case for example the Court affirmed
not having done so, the decision therein became final and, the competence of the Housing and Land Use
therefore, immutable. Regulatory Board to award damages although this is an
essentially judicial power exercisable ordinarily only by
Thus, following the above discussion, the 19th Division the courts of justice. This departure from the traditional
was correct in refusing to render judgment on the issue of allocation of governmental powers is justified by
jurisdiction in the Second Petition. expediency, or the need of the government to respond
75
swiftly and competently to the pressing problems of Thus, under the CIAC Rules, even without the
the modern world. participation of one of the parties in the proceedings, the CIAC is
still required to proceed with the hearing of the construction
In Bagunu v. Spouses Aggabao,[57] the Court ruled dispute.[61]
that the RTC must defer the exercise of its jurisdiction on related
issues involving the same subject matter properly within its This Court has held that the CIAC has jurisdiction over a
jurisdiction, such as the distinct cause of action for reformation dispute arising from a construction contract even though only
of contracts involving the same property, since the DENR one of the parties requested for arbitration. [62] In fact,
assumed jurisdiction over the lot in question, pursuant to its in Philrock, Inc. v. Construction Industry Arbitration Commission,
[63]
mandate. the Court held that the CIAC retained jurisdiction even if both
parties had withdrawn their consent to arbitrate.
In National Housing Authority v. First United Constructors
Corporation,[58] the Court held that there was no basis for the In this case, there being a valid arbitration clause
exclusion of claims for business losses from the jurisdiction of mutually stipulated
the CIAC because E.O. No. 1008 excludes from the coverage of by the parties, they are bothcontractually bound to settle their d
the law only those disputes arising from employer-employee ispute
relationships which are covered by the Labor Code, conveying through arbitration before the CIAC. MCWD refused to
an intention to encompass a broad range of arbitrable issues participate, but this should not affect the authority of the CIAC
within the jurisdiction of CIAC.[59] Section 4 provides that (t)he to conduct the proceedings, and, thereafter, issue an arbitral
jurisdiction of the CIAC may include but is not limited to xx x, award.
underscoring the expansive character of the CIACs jurisdiction.
Very clearly, the CIAC has jurisdiction over a broad range of Now, with the CIAC decision being questioned by
issues and claims arising from construction disputes, including MCWD, the Court takes a cursory reading of the said decision. It
but not limited to claims for unrealized profits and opportunity reveals that the conclusions arrived at by CIAC are supported by
or business losses. What E.O. No. 1008 emphatically excludes is facts and the law. Article 1359 of the Civil Code states that when
only disputes arising from employer-employee relationships.[60] there has been a meeting of the minds of the parties to a
contract, but their true intention is not expressed in the
Where the law does not delineate, neither should we. instrument purporting to embody the agreement by reason of
Neither the provisions of the Civil Code on reformation of mistake, fraud, inequitable conduct or accident, one of the
contracts nor the law creating the CIAC exclude the reformation parties may ask for the reformation of the instrument to the end
of contracts from its jurisdiction. Jurisprudence further dictates that such true intention may be expressed. The CIAC, in this
that the grant of jurisdiction over related and incidental matters case, found that the parametric formula for price escalation
is implied by law. Therefore, because the CIAC has been held to reflected in the Water Supply Contract involved two items:
have jurisdiction over the Contract, it follows that it has Power Rate Price Adjustment (30% of the base selling price of
jurisdiction to order the reformation of the Contract as well. water) and Consumer Price Index Adjustment (40% of the base
selling price of water). The remaining 30% of the selling price of
Whether MCWD can validly refuse to participate in the water, which should have been for Capital Cost Recovery, was
arbitration proceedings inadvertently left out in this parametric formula. Thus, the
Contract should be reformed accordingly to reflect the intention
In light of the finality of the CA decision on the matter of of the parties to include in the price escalation formula the
jurisdiction, the only remaining issue to be disposed of is Capital Cost Recovery Adjustment. These conclusions were
whether the CIAC could proceed with the case even if the MCWD affirmed by the CA in the assailed decision of February 20, 2006.
refused to participate in the arbitration proceedings.
As noted by MCWD in its reply, however, the dispositive
The Court rules in the affirmative. Though one party portion of the CIAC decision reforming the price escalation
can refuse to participate in the arbitration proceedings, formula is inconsistent with what was stated in the body of the
this cannot prevent the CIAC from proceeding with the case and decision. The formula contained in the body of the decision is as
issuing an award in favor of one of the parties. follows:
Current Forex Base Forex x 70% of 30% of Base WHEREFORE, premises considered, judgment is hereby
Selling Price of Water rendered as follows:
Base Forex
1. Ordering the reformation of Clause 17 of the Water
xxx[64] Supply Contract to read:
The dispositive portion of the decision, however, 17. Price Escalation and/or De-Escalation shall be based on
reads: the parametric formula:
WHEREFORE[,] premises considered, judgment is
hereby rendered as follows: 17.1. Power Rate Price Adjustment/Power Cost
Adjustment
1. Ordering the reformation of Clause 17 of the Water Supply
Contract to read:
Current Power Rate - Base Power Rate x 30% of base selling
17[.] Price Escalation and/or De-Escalation shall be based on price of water
the parametric formula: Base Power Rate
17.1 Power Rate Price Adjustment/Power Cost 17.2 Consumer Price Index (CPI) Adjustment/Operating Cost
Adjustment Adjustment:
Current Power Rate Base Power Rate x 30% of Base Selling Current CPI Base CPI x 30% of 40% of base selling price of
Price of water water
Base Power Rate Base CPI
17.2 Consumer Price Index (CPI) Adjustment/Operatiing 17.3 Capital Cost Recovery Adjustment:
(sic) Cost Adjustment:
Current Peso to Base Peso to US$
Current CPI Base CPI x 40% of Base Selling Price of Water US$ Exchange Rate Exchange Rate x 70% of 30% of base
Base CPI selling price of water
Base Peso to US $ Exchange Rate
17.3 Capital Cost Recovery Adjustment:
Price escalation shall be reckoned from January 1999 when
Current Peso to Base Peso to US$ the water was first delivered by Mactan Rock Industries, Inc.
US$ Exchange Rate Exchange Rate x 30% of base selling price to the MCWD facilities in Mactan. The base CPI, base US$
of water Exchange Rate and the Base Power Rate shall be the
Base Peso to US $ Exchange Rate prevailing rate in January 1999, while the Base Selling Price
of water shall mean the 1996 rate per cubic meter of water
The general rule is that where there is a conflict as provided for in the Water Supply Contract.
between the fallo, or the dispositive part, and the body of the
decision or order, the fallo prevails on the theory that the fallo is 2. Ordering Respondent Metropolitan Cebu Water District
the final order and becomes the subject of execution, while the to pay Claimant, Mactan Rock Industries, Inc. under the
body of the decision merely contains the reasons or conclusions reformed Clause 17 of the Water Supply Contract, the net
of the court ordering nothing. However, where one can clearly amount of Php12,126,296.70 plus legal interest of six
and unquestionably conclude from the body of the decision that percent (6%) per annum from March 15, 2004, the date of
there was a mistake in the dispositive portion, the body of the filing of the case with the Construction Industry Arbitration
decision will prevail.[65] Commission, and twelve percent (12%) per annum from the
date this Decision becomes final and executory, until the
Following the reasoning of the CIAC in this case, there foregoing amounts shall have been fully paid.
are three components to price adjustment: (1) Power Cost
Adjustment (30% of the base selling price of water); (2) 3. Claimant Mactan Rock Industries, Inc. and Metropolitan
Operating Cost Adjustment (40% of the base selling price of Cebu Water District shall share the cost of arbitration equally.
water); and (3) Capital Cost Adjustment (30% of the base selling
price of water). SO ORDERED.
SECOND DIVISIONG.R. No. 179628 January 16,
In turn, the second componentOperating Cost 2013
Adjustmentis computed based on Local Operating Cost
Adjustment (30%), and Foreign Operating Cost Adjustment
(70%). THE MANILA INSURANCE COMPANY, INC., Petitioner,
vs.
Capital Cost Adjustment, on the other hand, is SPOUSES ROBERTO and AIDA AMURAO, Respondents.
composed of Local Capital Cost Adjustment (30%), and Foreign
Capital Cost Adjustment (70%). DEL CASTILLO, J.:
This is consistent with the formula set forth in the body
of the CIAC decision. If the formula in the dispositive portion The jurisdiction of the Construction Industry Arbitration
were to be followed, Operating Cost Adjustment would be Commission (CIAC) is conferred by law. Section 4 1 of Executive
computed with the Local Operating Cost Adjustment Order (E.O.) No. I 008, otherwise known as the Construction
representing the entire 40% of the base selling price of water Industry Arbitration Law, "is broad enough to cover any dispute
instead of just 30% of the Operating Cost Adjustment. Moreover, arising from, or connected with construction contracts, whether
if the Capital Cost Recovery Adjustment were to be computed these involve mere contractual money claims or execution of
based solely on Foreign Capital Cost Recovery Adjustment, it the works."2
would represent the entire 30% of the base selling price of
77
This Petition for Review on Certiorari 3 under Rule 45 of the Rules each contract becomes completed at the same time, and the
of Court assails the Decision 4 dated June 7, 2007 and the consideration which supports the principal contract likewise
Resolution5 dated September 7, 2007 of the Court of Appeals supports the subsidiary one." 30 The CA likewise said that,
(CA) in CA-G.R. SP No. 96815. although the contract of surety is only an accessory to the
principal contract, the suretys liability is direct, primary and
absolute.31 Thus:
Factual Antecedents
Issues
On November 15, 2001, due to the failure of Aegean to
complete the project, respondent spouses filed with the Regional
Trial Court (RTC) of Quezon City, Branch 217, a Hence, this petition raising the following issues:
Complaint,10 docketed as Civil Case No. Q-01-45573, against
petitioner and Intra Strata to collect on the performance bonds A.THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY
they issued in the amounts of P2,760,000.00 WHEN THERE ARE DIFFERENCES IN THE INTERPRETATION OF
and P4,440,000.00, respectively.11 ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE
PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.
Intra Strata, for its part, filed an Answer 12 and later, a Motion to
Admit Third Party Complaint,13 with attached Third Party B.THE HONORABLE CA ERRED IN TREATING PETITIONER AS A
Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.
Mariano.
The fact that petitioner is not a party to the CCA cannot remove
The CIAC has jurisdiction over the case the dispute from the jurisdiction of the CIAC because the issue
of whether respondent-spouses are entitled to collect on the
Section 4 of E.O. No. 1008 provides that: performance bond, as we have said, is a dispute arising from or
connected to the CCA.
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with, In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor
contracts entered into by parties involved in construction in the Land, Inc.,59 we rejected the argument that the jurisdiction of
Philippines, whether the dispute arises before or after the CIAC is limited to the construction industry, and thus, cannot
completion of the contract, or after the abandonment or breach extend to surety contracts. In that case, we declared that
thereof. These disputes may involve government or private "although not the construction contract itself, the performance
contracts. For the Board to acquire jurisdiction, the parties to a bond is deemed as an associate of the main construction
dispute must agree to submit the same to voluntary arbitration. contract that it cannot be separated or severed from its
principal. The Performance Bond is significantly and
substantially connected to the construction contract that there
The jurisdiction of the CIAC may include but is not limited to
can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008,
violation of specifications for materials and workmanship,
which has jurisdiction over any dispute arising from or
violation of the terms of agreement, interpretation and/or
connected with it."60
application of contractual time and delays, maintenance and
defects, payment, default of employer or contractor, and
changes in contract cost. In view of the foregoing, we agree with the petitioner that
juriisdiction over the instant case lies with the CIAC, and not
with the RTC. Thus, the Complaint filed by respondent-spouses
Excluded from the coverage of the law are disputes arising from
with the RTC must be dismissed.
employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
79
WHEREFORE, the petition is hereby GRANTED. The Decision and 2) that the cause of action of the third party plaintiff ha[d]
dated June 7, 2007 and the Resolution dated September 7, 2007 already prescribed.
of the Court of Appeals in CA-G.R. SP No. 96815 are hereby
ANNULLED and SET ASIDE. The Presiding Judge of the Regional On September 16, 1991, the trial court issued an order
Trial Court of Quezon City, Branch 217 1s DIRECTED to dismiss dismissing the third party complaint. Defendant-third party
Civil Case No. Q-01-45573 for lack of jurisdiction.SO ORDERED. plaintiffs motion for reconsideration of this order was
subsequently denied.[3]
FIRST DIVISION[G.R. No. 123871. August 31, 1998]
Respondent Courts Ruling
Associated Bank also disallowed a similar third-party Sec. 13. The findings of facts of the decision or award rendered
complaint, ruling thus: by the Arbitration Committee or by the sole Arbitrator as the
case may be shall be final and conclusive upon all the parties in
Under the rules and regulations of the Philippine Clearing House said arbitration dispute. The decision or award of the Arbitration
Corporation (PCHC), the mere act of participation of the parties Committee or of the Sole Arbitrator shall be appealable only on
81
questions of law to any of the Regional Trial Courts in the on October 18, 1991 as "Drawn Against Insufficient Funds."
National Capital Judicial Region where the Head Office of any of HBSTC received the notice of dishonor on October 21, 1991 but
the parties is located. The appellant shall perfect his appeal by refused to accept the checks and on October 22, 1991, returned
filing a notice of appeal to the Arbitration Secretariat and filing a them to FEBTC through the PCHC for the reason "Beyond
Petition with the Regional Trial Court of the National Capital Reglementary Period," implying that HBSTC already treated the
Region xxx. three (3) FEBTC checks as cleared and allowed the proceeds
thereof to be withdrawn. 4 FEBTC demanded reimbursement for
the returned checks and inquired from HBSTC whether it had
Furthermore, when the error is so patent, gross and
permitted any withdrawal of funds against the unfunded checks
prejudicial as to constitute grave abuse of discretion, courts may
and if so, on what date. HBSTC, however, refused to make any
address questions of fact already decided by the arbitrator.[9]
reimbursement and to provide FEBTC with the needed
information.
We are not unaware of the rule that a trial court, which has
jurisdiction over the main action, also has jurisdiction over the
Thus, on December 12, 1991, FEBTC submitted the dispute for
third party complaint, even if the said court would have had no
arbitration before the PCHC Arbitration Committee, 5 under the
jurisdiction over it had it been filed as an independent action.
[10] PCHC's Supplementary Rules on Regional Clearing to which
However, this doctrine does not apply in the case of banks,
FEBTC and HBSTC are bound as participants in the regional
which have given written and subscribed consentto arbitration
clearing operations administered by the PCHC. 6
under the auspices of the PCHC.
KAPUNAN, J.: 3. The amount for attorneys fees at the rate of 25% of any and
all sums due;
Section 2 of the Law on Secrecy of Bank Deposits, [1] as
amended, declares bank deposits to be absolutely confidential 4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from
except: May 22, 1990 until payment thereof.
(1) In an examination made in the course of a special or 5. Exemplary and punitive damages against the defendant in
general examination of a bank that is specifically authorized by such amounts as may be awarded by this Tribunal in order to
the Monetary Board after being satisfied that there is reasonable serve a lesson to all member-Banks under the PCHC umbrella to
ground to believe that a bank fraud or serious irregularity has striclty comply with the provisions thereof;
84
6. The costs of suit which includes filing fee in addition to result of its own employees admitted error in encoding the
litigation expenses which shall be proven in the course of check.
arbitration.
The money depositied in Account No. 0111-018548 is not the
7. Such other damages thay may be awarded by this Tribunal.[2] subject matter of the litigation in the Arbicom case for as clearly
stated by petitioner itself, it is the alleged violation by
respondent of the rules and regulations of the PCHC.[4]
Thereafter, Union Bank filed in the Regional Trial court
(RTC) of Makati a petition for the examination of Account No.
111-01854-8. Judgment on the arbitration case was held in Union Bank is now before this Court insisting that the
abeyance pending the resolution of said petition. money deposited in Account No. 0111-01854-8 is the subject
matter of the litigation Petitioner cites the case of Mathay vs.
Consolidated Bank and Trust Company,[5] where we defined
Upon motion of private respondent, the RTC dismissed
subject matter of the action, thus:
Union Banks petition. The RTC held that:
Further, petitioner rejected private respondents proposal that Hence, the amount actually debited from the subject account
the drawer issue postdated checks in favor of petitioner since becomes very material and germane to petitioners claim for
the identity and credit standing of the depositor were unknown reimbursement as it is only upon examination of subject account
to petitioner. can it be proved that indeed a discrepancy in the amount
credited to petitioner was committed, thereby, rendering
2.9. On May 23, 1991, defendants Branch Manager, the same respondent Allied Bank liable to petitioner for the deficiency. The
Mr. Rodolfo Jose wrote plaintiffs Ms. Erlinda Valenton again money deposited in aforesaid account is undeniably the subject
insisting on the execution of the Quitclaim and Release in favor matter of the litigation since the issue in the Arbicom case is
of defendant as the Branch has endeavored to negotiate with its whether respondent Bank should be held liable to petitioner for
client for the collection of such amount. Upon a reading of the reimbursement of the amount of money constituting the
terms of the Quitclaim and Release being proposed by difference between the amount of the check and the amount
defendant, the unmistakable fact lies that again defendant credited to petitioner, that is, P999,000.00, which has remained
attempts for the second time to take advantage of plaintiffs deposited in aforesaid account.
plight by indicating that the terms of the payment of the
principal amount of P999,000.00 is by way of several personal On top of the allegations in the complaint, which can be verified
postdated checks up to March 21, 1992 from a person whose only by examining the subject bank account, the defense of
identity is not even disclosed to plaintiff. respondent Allied Bank that the reimbursement cannot be made
since clients account is not sufficiently funded at the time
To an ordinary person aggrieved already by having been taken petitioner sent its Charge Slip, bolsters petitioners contention
advantage of for 620 days more or less, the proposal of that the money in subject account is the very subject matter of
defendant could not be acceptable for the reason that aside the pending Arbicom case.
from the interest lost already for the use of its money by
another party, no assurance is made as to the actual collection Indeed, to prove the allegations in its Complaint before the
thereof from a party whose credit standing, the recipient is not PCHC Arbitration Committee, and to rebut private respondents
at all aware of.[10] defense on the matter, petitioner needs to determine:
Petitioner also believed that it had no privity with the depositor: 1. how long respondent Allied Bank had willfully or negligently
allowed the difference of P999,000.00 to be maintained in the
2.12. Plaintiff then replied to defendants letter by requesting subject account without remitting the same to petitioner;
that in lieu of the post-dated checks from defendants client with
whom plaintiff has no privity whatsoever, if the defendant could 2. whether indeed the subject account was no longer sufficiently
tender the full payment of the amount of P999,000.00 in funded when petitioner sent its charge slip for reimbursement to
defendants own Managers check and that plaintiff is willing to respondent bank on May 7, 1991; and
forego its further claims for interest and losses for a period of
620 days, more or less.[11]
3. whether or not respondent Allied Banks actuations in refusing
to immediately reimburse the discrepancy was attended by
The following argument adduced by petitioner in the good or bad faith.
Arbicom case leaves no doubt that petitioner is holding private
respondent itself liable for the discrepancy:
In other words, only a disclosure of the pertinent details and
information relating to the transactions involving subject
Defendant by its acceptance thru the clearing exchange of the account will enable petitioner to prove its allegations in the
check deposit from its client cannot be said to be free from any pending Arbicom case. xxx[14]
liability for the unpaid portion of the check amount considering
that defendant as the drawee bank, is remiss in its duty of
verifying possible technicalities on the face of the check. In short, petitioner is fishing for information so it can
determine the culpability of private respondent and the amount
of damages it can recover from the latter. It does not seek
86
recovery of the very money contained in the deposit. The denied in the second assailed order dated July
subject matter of the dispute may be the amount of 20, 1994 (Emphasis and words in bracket added).
P999,000.00 that petitioner seeks from private respondent as a
result of the latters alleged failure to inform the former of the
discrepancy; but it is not the P999,000.00 deposited in the From the order denying its motion to discharge attachment by
drawers account. By the terms of R.A. No. 1405, the money counter-bond, petitioner went to the Court of Appeals on a
deposited itself should be the subject matter of the litigation. petition for certiorari thereat docketed as CA-G.R. SP No. 34876,
ascribing on the trial court the commission of grave abuse of
discretion amounting to lack of jurisdiction.
That petitioner feels a need for such information in order to
establish its case against private respondent does not, by itself, While acknowledging that [R]espondent Judge may have erred
warrant the examination of the bank deposits. The necessity of in his Order of June 13, 1994 that the counter-bond should be in
the inquiry, or the lack thereof, is immaterial since the case the amount of P27,237,700.00, in that he erroneously factored
does not come under any of the exceptions allowed by the Bank in, in arriving at such amount, unliquidated claim items, such as
Deposits Secrecy Act. actual and exemplary damages, legal interest, attorneys fees
and expenses of litigation, the CA, in the herein
assailed decision dated October 9, 1995, nonetheless denied
WHEREFORE, the petition is DENIED. due course to and dismissed the petition. For, according to the
appellate court, the RTCs order may be defended by, among
others, the provision of Section 12 of Rule 57 of the Rules of
SO ORDERED. G.R. NO. 123638 June 15, 2005
Court, infra. The CA added that, assuming that the RTC erred on
THIRD DIVISION
the matter of computing the amount of the discharging counter-
INSULAR SAVINGS BANK,Petitioner,- versus -COURT OF
bond, its error does not amount to grave abuse of discretion.
APPEALS, JUDGE OMAR U. AMIN, in his capacity as
Presiding Judge of Branch 135 of the Regional Trial Court
With its motion for reconsideration having been similarly denied,
of Makati, and FAR EAST BANK AND TRUST COMPANY,
petitioner is now with us, faulting the appellate court, as follows:
Respondents.
I. THE COURT OF APPEALS ERRED IN NOT RULING THAT
THE PRINCIPAL AMOUNT CLAIMED BY
RESPONDENT BANK SHOULD BE THE BASIS
GARCIA, J.:
FOR COMPUTING THE AMOUNT OF THE
COUNTER-BOND, FOR THE PRELIMINARY
Thru this appeal via a petition for review on certiorari under Rule
ATTACHMENT WAS ISSUED FOR THE SAID
45 of the Rules of Court, petitioner Insular Savings
AMOUNT ONLY.
Bank seeks to set aside the decision[1] dated October 9,
1995 of the Court of Appeals in CA-G.R. SP No. 34876 and
II. THE COURT OF APPEALS ERRED IN NOT RULING THAT
its resolution dated January 24, 1996, [2] denying petitioners
THE ARGUMENT THAT THE AMOUNT OF THE
motion for reconsideration.
COUNTER-BOND SHOULD BE BASED ON THE
VALUE OF THE PROPERTY ATTACHED CANNOT
The assailed decision of October 9, 1995 cleared the Regional
BE RAISED FOR THE FIRST TIME IN THE COURT
Trial Court (RTC) at Makati, Branch 135, of committing, as
OF APPEALS.
petitioner alleged, grave abuse of discretion in denying
petitioners motion to discharge attachment by counter-bond in
III. THE COURT OF APPEALS ERRED IN RULING THAT THE
Civil Case No. 92-145, while the equally assailed resolution of
AMOUNT OF THE COUNTER-BOND SHOULD BE
January 24, 1996 denied petitioners motion for reconsideration.
BASED ON THE VALUE OF THE PROPERTY
ATTACHED EVEN IF IT WILL RESULT IN MAKING
The undisputed facts are summarized in the appellate courts
THE AMOUNT OF THE COUNTER-BOND EXCEED
decision[3] under review, as follows:
THE AMOUNT FOR WHICH PRELIMINARY
ATTACHMENT WAS ISSUED.
On December 11, 1991, respondent Bank [Far East
Bank and Trust Company] instituted Arbitration Case
Simply put, the issue is whether or not the CA erred in not ruling
No. 91-069 against petitioner [Insular Savings Bank]
that the trial court committed grave abuse of discretion in
before the Arbitration Committee of the Philippine
denying petitioners motion to discharge attachment by counter-
Clearing House Corporation [PCHC]. The dispute
bond in the amount of P12,600,000.00.
between the parties involved three [unfunded] checks
with a total value of P25,200,000.00. The checks were
Says the trial court in its Order of June 13, 1994:
drawn against respondent Bank and were presented by
xxx (T)he counter-bond posted by [petitioner] Insular
petitioner for clearing. As respondent Bank returned
Savings Bank should include the unsecured portion of
the checks beyond the reglementary period, [but after
[respondents] claim of P12,600,000.00 as agreed by
petitioners account with PCHC was credited with the
means of arbitration between [respondent] and
amount of P25,200,000.00] petitioner refused to refund
[petitioner]; Actual damages at 25% percent per
the money to respondent Bank. While the dispute was
annum of unsecured amount of claim from October 21,
pending arbitration, on January 17, 1992, respondent
1991 in the amount of P7,827,500.00; Legal interest of
Bank instituted Civil Case No. 92-145 in the Regional
12% percent per annum from October 21, 1991 in the
Trial Court of Makati and prayed for the issuance of a
amount of P3,805,200.00; Exemplary damages in the
writ of preliminary attachment. On January 22, 1992,
amount of P2,000,000.00; and attorneys fees and
Branch 133 of the Regional Trial Court of Makati issued
expenses of litigation in the amount of P1,000,000.00
an Order granting the application for preliminary
with a total amount of P27,237,700.00 (Adlawan vs.
attachment upon posting by respondent Bank of an
Tomol, 184 SCRA 31 (1990).
attachment bond in the amount of P6,000,000.00.
On January 27, 1992, Branch 133 of the Regional Trial
Court of Makati issued a writ of preliminary attachment
Petitioner, on the other hand, argues that the starting point in
for the amount of P25,200,000.00. During the hearing
computing the amount of counter-bond is the amount of the
on February 11, 1992 before the Arbitration Committee
respondents demand or claim only, in this case P25,200,000.00,
of the Philippine Clearing House Corporation, petitioner
excluding contingent expenses and unliquidated amount of
and respondent Bank agreed to temporarily divide
damages. And since there was a mutual agreement between the
between them the disputed amount of P25,200,000.00
parties to temporarily, but equally, divide between themselves
while the dispute has not yet been resolved. As a
the said amount pending and subject to the final outcome of the
result, the sum of P12,600,000.00 is in the possession
arbitration, the amount of P12,600,000.00 should, so petitioner
of respondent Bank. On March 9, 1994, petitioner filed
argues, be the basis for computing the amount of the counter-
a motion to discharge attachment by counter-bond in
bond.
the amount of P12,600,000.00. On June 13, 1994,
respondent Judge issued the first assailed order
The Court rules for the petitioner.
denying the motion. On June 27, 1994, petitioner
filed a motion for reconsideration which was
87
The then pertinent provision of Rule 57 (Preliminary Attachment) writ of attachment issued on January 27, 1992, in turn, expressly
of the Rules of Court under which the appellate court issued its indicated that petitioner is justly indebted to respondent in the
assailed decision and resolution, provides as follows: amount of P25,200,000.00.[8] On February 11, 1992, before the
Arbitration Committee of the Philippine Clearing House
SEC. 12. Discharge of attachment upon giving counter- Corporation, petitioner and respondent, however, agreed to
bond. At any time after an order of attachment has equally divide between themselves, albeit on a temporary basis,
been granted, the party whose property has been the disputed amount of P25,200,000.00, subject to the outcome
attached, . . . may upon reasonable notice to the of the arbitration proceedings. Thus, the release by petitioner of
applicant, apply to the judge who granted the order or the amount of P12,600,000.00 to respondent. On March 7, 1994,
to the judge of the court which the action is pending, petitioner filed a motion to discharge attachment by counter-
for an order discharging the attachment wholly or in bond in the amount of P12,600,000.00[9] which, to petitioner, is
part on the security given. The judge shall, after the extent that respondent may actually be prejudiced in the
hearing, order the discharge of the attachment if a event its basic complaint for recovery of money against
cash deposit is made, or a counter-bond executed to petitioner prospers.
the attaching creditor is filed, on behalf of the adverse
party, with the clerk or judge of the court where the As things stood, therefore, respondents principal claim against
application is made in an amount equal to the petitioner immediately prior to the filing of the motion to
value of the property attached as determined by discharge attachment has effectively been pruned down
the judge, to secure the payment of any to P12,600,000.00. The trial court was fully aware of this reality.
judgment that the attaching creditor may Accordingly, it should have allowed a total discharge of the
recover in the action. x x x . Should such counter- attachment on a counter-bond based on the reduced claim of
bond for any reason be found to be, or become respondent. If a portion of the claim is already secured, we see
insufficient, and the party furnishing the same fail to no justifiable reason why such portion should still be subject of
file an additional counter-bond, the attaching party counter-bond. It may be that a counter-bond is intended to
may apply for a new order of attachment 4 (Emphasis secure the payment of any judgment that the attaching party
supplied).[4] may recover in the main action. Simple common sense, if not
consideration of fair play, however, dictates that a part of a
possible judgment that has veritably been preemptively
As may be noted, the amount of the counter-attachment bond satisfied or secured need not be covered by the counter-bond.
is, under the terms of the aforequoted Section 12, to be
measured against the value of the attached property, as With the view we take of this case, the trial court, in
determined by the judge to secure the payment of any requiring petitioner to post a counter-bond in the amount
judgment that the attaching creditor may recover in the action. of P27,237,700.00,
Albeit not explicitly stated in the same section and without obviously glossed over one certain fundamental. We refer to the
necessarily diminishing the sound discretion of the issuing judge fact that the attachment respondent applied for and the
on matters of bond approval, there can be no serious objection, corresponding writ issued was only for the amount of P25.2
in turn, to the proposition that the attached property - and Million. Respondent, it bears to stress, did not pray for
logically the counter-bond necessary to discharge the lien on attachment on its other claims, contingent and unliquidated as
such property - should as much as possible correspond in value they were. Then, too, the attaching writ rightly excluded such
to, or approximately match the attaching creditors principal claims. While the records do not indicate, let alone provide a
claim. Else, excessive attachment, which ought to be avoided at clear answer as to the actual value of the property levied upon,
all times, shall ensue. As we held in Asuncion vs. Court of it may reasonably be assumed that it is equal to respondents
Appeals:[5] principal claim. Be that as it may, it was simply unjust for the
trial court to base the amount of the counter-bond on a figure
We, however, find the counter-attachment bond in the beyond the P25,200,000.00 threshold, as later reduced
amount of P301,935.41 required of the private to P12,600,200.00.
respondent by the trial court as rather excessive under
the circumstances. Considering that the principal The trial court, therefore, committed grave abuse of discretion
amounts claimed by the petitioner . . . total only when it denied petitioners motion to discharge attachment by
P185,685.00, and that he had posted a bond of only counter-bond in the amount of P12,600,000.00, an amount more
P80,000.00 for the issuance of the writ of preliminary than double the attachment bond required of, and given by,
attachment, we deem it reasonable to lower the respondent. As a necessary consequence, the Court of Appeals
amount of the counter-attachment bond to be posted committed reversible error when it dismissed petitioners
by the private respondent . . . to the sum of recourse thereto in CA-G.R. SP No. 34876.
P185,685.00.
It bears to stress, as a final consideration, that the certiorari
proceedings before the appellate court and the denial of the
The following excerpts from Herrera, REMEDIAL LAW, Vol. VII, motion to discharge attachment subject of such proceedings,
1997 ed., p. 61, citing retired Justice Jose Y. Feria, drive home transpired under the old rules on preliminary attachment which
the same point articulated in Asuncion: has since been revised.[10] And unlike the former Section 12 of
Rule 57 of the Rules of Court where the value of the property
The sheriff is required to attach only so much attached shall be the defining measure in the computation of
of the property of the party against whom the order is the discharging counter-attachment bond, the present less
issued as may be sufficient to satisfy the applicants stringent Section 12 of Rule 57 provides that the court shall
demand, the amount of which is stated in the order the discharge of attachment if the movant makes a cash
order, unless a deposit is made or a counter-bond deposit, or files a counter-bond . . . in an amount equal to that
is given equal to said amount. However, if the value fixed by the court in the order of attachment, exclusive of costs.
of the property to be attached is less than the amount Not being in the nature of a penal statute, the Rules of Court
of the demand, the amount of the applicants bond may cannot be given retroactive effect.[11]
be equal to the value of said property, and the
amount of the adverse partys deposit or counter- This disposition should be taken in the light of then Section 12,
bond may be equal to the applicants bond. The Rule 57 of the Rules of Court.
writ of preliminary attachment is issued upon approval
of the requisite bond. (Emphasis supplied). WHEREFORE, the instant petition is GRANTED. Accordingly,
Turning to the case at bar, the records show that the principal the assailed decision and resolution of the Courts of Appeals are
claim of respondent, as plaintiff a quo, is in the amount hereby REVERSED and SET ASIDE, along with the orders
of P25,200,000.00,[6] representing the three (3) unfunded checks dated June 13, 1994 and July 20, 1994 of the Regional Trial Court
drawn against, and presented for clearing to, respondent bank. at Makati, Branch 135, in Civil Case No. 92-145insofar they
Jurisprudence teaches that a writ of attachment cannot be denied petitioners motion to discharge attachment by counter-
issued for moral and exemplary damages, and other bond in the amount of P12,600,000.00, and a new one
unliquidated or contingent claim.[7] entered GRANTING such motion upon the reposting of the
same counter-bond.
The order of attachment dated January 22, 1992 fixed the bond
to be posted by respondent, as applicant, at P6,000,000.00. The SO ORDERED.
88
FIRST DIVISION June 22, 2006 G.R. No. 141818 SO ORDERED.[9] (Emphasis supplied)
On December 11, 1991, Far East Bank and Trust Company (c) Procedings against Home Bankers and
(Respondent) filed a complaint against Home Bankers Trust and Trust Co. are suspended pending award/decision in the
Company (HBTC)[4] with the Philippine Clearing House arbitration proceedings while those against individual
Corporations (PCHC) Arbitration Committee docketed as defendants be immediately reinstated and continued.
Arbicom Case No. 91-069.[5] Respondent sought to recover from
the petitioner, the sum of P25,200,000.00 representing the total
amount of the three checks drawn and debited against its
clearing account.HBTC sent these checks to respondent for
clearing by operation of the PCHC clearing system. Thereafter, HBT and Tancuans separate Motions for
respondent dishonored the checks for insufficiency of funds and Reconsiderations are hereby denied, for lack of merit.
returned the checks to HBTC. However, the latter refused to
accept them since the checks were returned by respondent after
the reglementary regional clearing period.[6]
SO ORDERED.[11]
SO ORDERED.[13]
(b) The Motions to Dismiss filed by all
defendants denied, for lack of merit; and
SO ORDERED.[22]
Sections 23, 24 and 29 of The Arbitration Law, and
Section 13 of the PCHC Rules, provide:
Meanwhile respondent avers that the RTC correctly (a) The award was procured by corruption, fraud
dismissed the appeal from the award of private arbitrators since or other undue means; or
there is no statutory basis for such appeal. Respondent argues
that petitioners claim that the parties by agreement had (b) That there was evident partiality or corruption
conferred on the RTC appellate jurisdiction over decisions of in the arbitrators or any of them; or
private arbitrators is erroneous because they cannot confer a
non-existent jurisdiction on the RTC or any court. Furthermore,
the petition for review filed by petitioner violated the rule on (c) That the arbitrators were guilty of misconduct
commencing an original action under Section 5, Rule 1, and the in refusing to postpone the hearing upon sufficient cause
raffle of cases under Section 2, Rule 20 of the Rules of Court, shown, or in refusing to hear evidence pertinent and
when it filed the same in Branch 135 of the RTC of Makati where material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section
90
nine hereof, and willfully refrained from disclosing such committee or sole arbitrator or of the Board of Directors,
disqualification or of any other misbehavior by which the as the case may be, within a non-extendible period of
rights of any party have been materially prejudiced; or fifteen (15) days from and after its receipt of the order
denying or granting said motion for reconsideration or new
trial had been filed, within a non-extendible period of
(d) That the arbitrators exceeded their powers, or
fifteen (15) days from and after its receipt of the order
so imperfectly executed them, that a mutual, final and
denying or granting said motion for reconsideration or of
definite award upon the subject matter submitted to them
the decision rendered after the new trial if one had been
was not made.
granted.
xxxx
x x x x. (Emphasis supplied)
On August 3, 1993, SPI and its co-defendants filed a This Court notes, however, that the `Conditions of Contract
motion to suspend proceedings instead of filing an answer. The referred to, contains the following provisions:
motion was anchored on defendants allegation that the formal
trade contract for the construction of the project provided for a `3. Contract Document.
clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the
contract. The following day, SPI submitted a copy of the Three copies of the Contract Documents
conditions of the contract containing the arbitration clause that referred to in the Articles of
it failed to append to its motion to suspend proceedings. Agreement shall be signed by the parties
to the contract and distributed to the
Owner and the Contractor for their safe
Petitioner opposed said motion claiming that there was no keeping. (underscoring supplied)
formal contract between the parties although they entered into
an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement did And it is significant to note further that the said
not provide for arbitration and therefore the court could not be `Conditions of Contract is not duly signed by the parties on
deprived of jurisdiction conferred by law by the mere allegation any page thereof --- although it bears the initials of BFs
of the existence of an arbitration clause in the agreement representatives (Bayani F. Fernando and Reynaldo M. de la
between the parties. Cruz) without the initials thereon of any representative of
Shangri-La Properties, Inc.
The lower court denied SPIs motion for reconsideration for Notice of the demand for arbitration dispute shall be filed in
lack of merit and directed it and the other defendants to file writing with the other party to the contract and a copy filed with
their responsive pleading or answer within fifteen (15) days from the Project Manager. The demand for arbitration shall be made
notice. within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed; in no case, however,
Instead of filing an answer to the complaint, SPI filed a shall the demand be made later than the time of final payment
petition for certiorari under Rule 65 of the Rules of Court before except as otherwise expressly stipulated in the contract
the Court of Appeals. Said appellate court granted the petition, (underscoring supplied)
annulled and set aside the orders and stayed the proceedings in
the lower court. In so ruling, the Court of Appeals held: quoted in its order (Annex A, petition). As the respondent Court
there said, after the final demand to pay the amount
The reasons given by the respondent Court in denying of P110,883,101.52, instead of paying, petitioners set up its own
petitioners motion to suspend proceedings are untenable. claim against respondent Corporation in the amount
of P220,000,000.00 and set a conference thereon on July 12,
1993. Said conference proved futile. The next day, July 14, 1993,
1. The notarized copy of the articles of agreement attached as
respondent Corporation filed its complaint against petitioners.
Annex A to petitioners reply dated August 26, 1993, has been
On August 13, 1993, petitioners wrote to respondent
submitted by them to the respondent Court (Annex G, petition).
Corporation requesting arbitration. Under the circumstances, it
It bears the signature of petitioner Rufo B. Colayco, president of
cannot be said that petitioners resort to arbitration was made
petitioner Shangri-La Properties, Inc., and of Bayani Fernando,
beyond reasonable time. Neither can they be considered in
president of respondent Corporation (Annex G-1, petition). At
default of their obligation to respondent Corporation.
page D/4 of said articles of agreement it is expressly provided
that the conditions of contract are `deemed an integral part
thereof (page 188, rollo). And it is at pages D/42 to D/44 of the Hence, this petition before this Court. Petitioner assigns
conditions of contract that the provisions for arbitration are the following errors:
found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35
on arbitration specifically provides: A.
Provided always that in case any dispute or difference shall arise THE COURT OF APPEALS ERRED IN ISSUING THE
between the Owner or the Project Manager on his behalf and the EXTRAORDINARY WRIT OF CERTIORARIALTHOUGH
Contractor, either during the progress or after the completion or THE REMEDY OF APPEAL WAS AVAILABLE TO
abandonment of the Works as to the construction of this RESPONDENTS.
Contract or as to any matter or thing of whatsoever nature
arising thereunder or in connection therewith (including any
matter or being left by this Contract to the discretion of the B.
Project Manager or the withholding by the Project Manager of
any certificate to which the Contractor may claim to be entitled THE COURT OF APPEALS ERRED IN FINDING GRAVE
or the measurement and valuation mentioned in clause 30 (5) ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF
(a) of these Conditions or the rights and liabilities of the parties THE TRIAL COURT THAT:
under clauses 25, 26, 32 or 33 of these Conditions), the Owner
and the Contractor hereby agree to exert all efforts to settle
(i) THE PARTIES DID NOT ENTER INTO AN
their differences or dispute amicably. Failing these efforts then
AGREEMENT TO ARBITRATE.
such dispute or difference shall be referred to Arbitration in
accordance with the rules and procedures of the Philippine
Arbitration Law. (ii) ASSUMING THAT THE PARTIES DID ENTER
INTO THE AGREEMENT TO
ARBITRATE, RESPONDENTS ARE
The fact that said conditions of contract containing the
ALREADY IN DEFAULT IN INVOKING
arbitration clause bear only the initials of respondent
THE AGREEMENT TO ARBITRATE.
Corporations representatives, Bayani Fernando and Reynaldo de
la Cruz, without that of the representative of petitioner Shangri-
La Properties, Inc. does not militate against its effectivity. Said On the first assigned error, petitioner contends that the
petitioner having categorically admitted that the document, Order of the lower court denying the motion to suspend
Annex A to its reply dated August 26, 1993 (Annex G, petition), proceedings is a resolution of an incident on the merits. As such,
is the agreement between the parties, the initial or signature of upon the continuation of the proceedings, the lower court would
said petitioners representative to signify conformity to appreciate the evidence adduced in their totality and thereafter
arbitration is no longer necessary. The parties, therefore, should render a decision on the merits that may or may not sustain the
be allowed to submit their dispute to arbitration in accordance existence of an arbitration clause. A decision containing a
with their agreement. finding that the contract has no arbitration clause can then be
elevated to a higher court in an ordinary appeal where an
adequate remedy could be obtained.Hence, to petitioner, the
2. The respondent Court held that petitioners `are in default in
Court of Appeals should have dismissed the petition
proceeding with such arbitration. It took note of `the fact that
for certiorari because the remedy of appeal would still be
under the supposed Arbitration Clause invoked by defendants, it
available to private respondents at the proper time. [7]
95
The above contention is without merit. incidentally, is a question of law, then it has to answer the core
issue of whether there exists an Arbitration Clause which,
admittedly, is a question of fact.
The rule that the special civil action of certiorari may not
be invoked as a substitute for the remedy of appeal is succinctly
reiterated in Ongsitco v. Court of Appeals[8] as follows: Moreover, where a rigid application of the rule
that certiorari cannot be a substitute for appeal will result in a
manifest failure or miscarriage of justice, the provisions of the
x x x. Countless times in the past, this Court has held that
Rules of Court which are technical rules may be relaxed. [10] As
`where appeal is the proper remedy, certiorari will not lie. The
we shall show hereunder, had the Court of Appeals dismissed
writs of certiorari and prohibition are remedies to correct lack or
the petition for certiorari, the issue of whether or not an
excess of jurisdiction or grave abuse of discretion equivalent to
arbitration clause exists in the contract would not have been
lack of jurisdiction committed by a lower court. `Where the
resolved in accordance with evidence extant in the record of the
proper remedy is appeal, the action for certiorari will not be
case. Consequently, this would have resulted in a judicial
entertained. x x x. Certiorari is not a remedy for errors of
rejection of a contractual provision agreed by the parties to the
judgment. Errors of judgment are correctible by appeal, errors of
contract.
jurisdiction are reviewable by certiorari.
In the same vein, this Court holds that the question of the
Rule 65 is very clear. The extraordinary remedies of certiorari,
existence of the arbitration clause in the contract between
prohibition and mandamus are available only when `there is no
petitioner and private respondents is a legal issue that must be
appeal or any plain, speedy and adequate remedy in the
determined in this petition for review on certiorari.
ordinary course of law x x x. That is why they are referred to as
`extraordinary. x x x.
Petitioner, while not denying that there exists an
arbitration clause in the contract in question, asserts that in
The Court has likewise ruled that certiorari will not be
contemplation of law there could not have been one considering
issued to cure errors in proceedings or correct erroneous
the following points. First, the trial court found that the
conclusions of law or fact. As long as a court acts within its
conditions of contract embodying the arbitration clause is not
jurisdiction, any alleged errors committed in the exercise of its
duly signed by the parties. Second, private respondents
jurisdiction will amount to nothing more than errors of judgment
misrepresented before the Court of Appeals that they produced
which are reviewable by timely appeal and not by a special civil
in the trial court a notarized duplicate original copy of the
action of certiorari.[9]v. Court of Appeals, 327 Phil. 1, 41-42
construction agreement because what were submitted were
(1996).9
mere photocopies thereof. The contract(s) introduced in court by
private respondents were therefore of dubious authenticity
This is not exactly so in the instant case. While this Court because: (a) the Agreement for the Execution of Builders Work
does not deny the eventual jurisdiction of the lower court over for the EDSA Plaza Project does not contain an arbitration
the controversy, the issue posed basically is whether the lower clause, (b) private respondents surreptitiously attached as
court prematurely assumed jurisdiction over it. If the lower court Annexes `G-3 to `G-5 to their petition before the Court of
indeed prematurely assumed jurisdiction over the case, then it Appeals but these documents are not parts of the Agreement of
becomes an error of jurisdiction which is a proper subject of a the parties as there was no formal trade contract executed, (c) if
petition for certiorari before the Court of Appeals. And if the the entire compilation of documents is indeed a formal trade
lower court does not have jurisdiction over the controversy, then contract, then it should have been duly notarized, (d) the
any decision or order it may render may be annulled and set certification from the Records Management and Archives Office
aside by the appellate court. dated August 26, 1993 merely states that the notarial record of
Nilberto Briones x x x is available in the files of (said) office
However, the question of jurisdiction, which is a question as Notarial Registry Entry only, (e) the same certification attests
of law depends on the determination of the existence of the that the document entered in the notarial registry pertains to
arbitration clause, which is a question of fact. In the instant the Articles of Agreement only without any other accompanying
case, the lower court found that there exists an arbitration documents, and therefore, it is not a formal trade contract, and
clause. However, it ruled that in contemplation of law, said (f) the compilation submitted by respondents are a mere hodge-
arbitration clause does not exist. podge of documents and do not constitute a single intelligible
agreement.
The flaw in petitioners contentions therefore lies in its WHEREFORE, the questioned Decision of the Court of
having segmented the various components of the whole Appeals is hereby AFFIRMED and the petition
contract between the parties into several parts. This for certiorariDENIED. This Decision is immediately
notwithstanding, petitioner ironically admits the execution of the executory. Costs against petitioner.
Articles of Agreement. Notably, too, the lower court found that
the said Articles of Agreement also provides that the `Contract
Documents therein listed `shall be deemed an integral part of SO ORDERED.
this Agreement, and one of the said documents is the
`Conditions of Contract which contains the Arbitration Clause. It EN BANCG.R. No. L-27010 April 30, 1969
is this Articles of Agreement that was duly signed by Rufo B.
Colayco, president of private respondent SPI, and Bayani F.
MARLENE DAUDEN-HERNAEZ, petitioner,
Fernando, president of petitioner corporation. The same
vs.
agreement was duly subscribed before notary public Nilberto R.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of
Briones. In other words, the subscription of the principal
First Instance of Quezon City, HOLLYWOOD FAR EAST
agreement effectively covered the other documents
PRODUCTIONS, INC., and RAMON
incorporated by reference therein.
VALENZUELA, respondents.
This Court likewise does not find that the Court of Appeals
REYES, J.B.L., Acting C.J.:
erred in ruling that private respondents were not in default in
invoking the provisions of the arbitration clause which states
that (t)he demand for arbitration shall be made within a Petition for a writ of certiorari to set aside certain orders of the
reasonable time after the dispute has arisen and attempts to Court of First Instance of Quezon City (Branch IV), in its Civil
settle amicably had failed. Under the factual milieu, private Case No. Q-10288, dismissing a complaint for breach of contract
respondent SPI should have paid its liabilities under the contract and damages, denying reconsideration, refusing to admit an
in accordance with its terms. However, misunderstandings amended complaint, and declaring the dismissal final and
appeared to have cropped up between the parties ostensibly unappealable.
brought about by either delay in the completion of the
construction work or by force majeure or the fire that partially The essential facts are the following:
gutted the project. The almost two-year delay in paying its
liabilities may not therefore be wholly ascribed to private
respondent SPI. Petitioner Marlene Dauden-Hernaez, a motion picture actress,
had filed a complaint against herein private respondents,
Hollywood Far East Productions, Inc., and its President and
Besides, private respondent SPIs initiative in calling for a General Manager, Ramon Valenzuela, to recover P14,700.00
conference between the parties was a step towards the agreed representing a balance allegedly due said petitioner for her
resort to arbitration. However, petitioner posthaste filed the services as leading actress in two motion pictures produced by
complaint before the lower court. Thus, while private respondent the company, and to recover damages. Upon motion of
SPIs request for arbitration on August 13, 1993 might appear an defendants, the respondent court (Judge Walfrido de los Angeles
afterthought as it was made after it had filed the motion to presiding) ordered the complaint dismissed, mainly because the
suspend proceedings, it was because petitioner also appeared to "claim of plaintiff was not evidenced by any written document,
97
either public or private", and the complaint "was defective on its pleading once as a matter of course, that is, without
face" for violating Articles 1356 and 1358 of the Civil, Code of leave of court, at any time before a responsive pleading
the Philippines, as well as for containing defective allege, is served. A motion to dismiss is not a "responsive
petitions. Plaintiff sought reconsideration of the dismissal and pleading". (Moran on the Rules of Court, vol. 1, 1952,
for admission of an amended complaint, attached to the motion. ed., p. 376). As plaintiffs amended their complaint
The court denied reconsideration and the leave to amend; before it was answered, the motion to admit the
whereupon, a second motion for reconsideration was filed. amendment should not have been denied. It is true
Nevertheless, the court also denied it for being pro forma, as its that the amendment was presented after the original
allegations "are, more or less, the same as the first motion", and complaint had been ordered dismissed. But that order
for not being accompanied by an affidavit of merits, and further was not yet final for it was still under reconsideration.
declared the dismissal final and unappealable. In view of the
attitude of the Court of First Instance, plaintiff resorted to this The foregoing observations leave this Court free to discuss the
Court. main issue in this petition. Did the court below abuse its
discretion in ruling that a contract for personal services
The answer sets up the defense that "the proposed amended involving more than P500.00 was either invalid of unenforceable
complaint did not vary in any material respect from the original under the last paragraph of Article 1358 of the Civil Code of the
complaint except in minor details, and suffers from the same Philippines?
vital defect of the original complaint", which is the violation of
Article 1356 of the Civil Code, in that the contract sued upon We hold that there was abuse, since the ruling herein contested
was not alleged to be in writing; that by Article 1358 the writing betrays a basic and lamentable misunderstanding of the role of
was absolute and indispensable, because the amount involved the written form in contracts, as ordained in the present Civil
exceeds five hundred pesos; and that the second motion for Code.
reconsideration did not interrupt the period for appeal, because
it was not served on three days' notice.
In the matter of formalities, the contractual system of our Civil
Code still follows that of the Spanish Civil Code of 1889 and of
We shall take up first the procedural question. It is a well the "Ordenamiento de Alcala" 2 of upholding the spirit and intent
established rule in our jurisprudence that when a court sustains of the parties over formalities: hence, in general, contracts are
a demurrer or motion to dismiss it is error for the court to valid and binding from their perfection regardless of form
dismiss the complaint without giving the party plaintiff an whether they be oral or written. This is plain from Articles 1315
opportunity to amend his complaint if he so chooses. 1 Insofar as and 1356 of the present Civil Code. Thus, the first cited
the first order of dismissal (Annex D, Petition) did not provide provision prescribes:
that the same was without prejudice to amendment of the
complaint, or reserve to the plaintiff the right to amend his
complaint, the said order was erroneous; and this error was ART. 1315. Contracts are perfected by mere consent,
compounded when the motion to accept the amended complaint and from that moment the parties are bound not only
was denied in the subsequent order of 3 October 1966 (Annex F, to the fulfillment of what has been expressly stipulated
Petition). Hence, the petitioner-plaintiff was within her rights in but also to all the consequences which, according to
filing her so-called second motion for reconsideration, which was their nature, may be in keeping with good faith, usage
actually a first motion against the refusal to admit the amended and law. (Emphasis supplied)
complaint.
Concordantly, the first part of Article 1356 of the Code Provides:
It is contended that the second motion for reconsideration was
merely pro forma and did not suspend the period to appeal from ART. 1356. Contracts shall be obligatory in whatever
the first order of dismissal (Annex D) because (1) it merely form they may have been entered into, provided all the
reiterated the first motion for reconsideration and (2) it was filed essential requisites for their validity are present....
without giving the counsel for defendant-appellee the 3 days' (Emphasis supplied)
notice provided by the rules. This argument is not tenable, for
the reason that the second motion for reconsideration was
These essential requisites last mentioned are normally (1)
addressed to the court' refusal to allow an amendment to the
consent (2) proper subject matter, and (3) consideration
original complaint, and this was a ground not invoked in the first
or causa for the obligation assumed (Article 1318). 3 So that once
motion for reconsideration. Thus, the second motion to
the three elements exist, the contract is generally valid and
reconsider was really not pro forma, as it was based on a
obligatory, regardless of the form, oral or written, in which they
different ground, even if in its first part it set forth in greater
are couched.lawphi1.nt
detail the arguments against the correctness of the first order to
dismiss. And as to the lack of 3 days' notice, the record shows
that appellees had filed their opposition (in detail) to the second To this general rule, the Code admits exceptions, set forth in the
motion to reconsider (Answer, Annex 4); so that even if it were second portion of Article 1356:
true that respondents were not given the full 3 days' notice they
were not deprived of any substantial right. Therefore, the claim However, when the law requires that a contract be in
that the first order of dismissal had become final and some form in order that it may be valid or enforceable,
unappealable must be overruled. or that a contract be proved in a certain way, that
requirement is absolute and indispensable....
It is well to observe in this regard that since a motion to dismiss
is not a responsive pleading, the plaintiff-petitioner was entitled It is thus seen that to the general rule that the form (oral or
as of right to amend the original dismissed complaint. In Paeste written) is irrelevant to the binding effect inter partes of a
vs. Jaurigue 94 Phil. 179, 181, this Court ruled as follows: contract that possesses the three validating elements of
consent, subject matter, and causa, Article 1356 of the Code
Appellants contend that the lower court erred in not establishes only two exceptions, to wit:
admitting their amended complaint and in holding that
their action had already prescribed. Appellants are right (a) Contracts for which the law itself requires that they be in
on both counts. some particular form (writing) in order to make them valid and
enforceable (the so-called solemn contracts). Of these the
Amendments to pleadings are favored and should be typical example is the donation of immovable property that the
liberally allowed in the furtherance of justice. (Torres vs. law (Article 749) requires to be embodied in a public instrument
Tomacruz, 49 Phil. 913). Moreover, under section 1 of in order "that the donation may be valid", i.e., existing or
Rule 17, Rules of Court, a party may amend his binding. Other instances are the donation of movables worth
98
more than P5,000.00 which must be in writing, "otherwise the installation of Liquefied Petroleum Gas (LPG) Cylinder
donation shall be void" (Article 748); contracts to pay interest on manufacturing plants, while private respondent Pacific General
loans (mutuum) that must be "expressly stipulated in writing" Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
(Article 1956); and the agreements contemplated by Article
1744, 1773, 1874 and 2134 of the present Civil Code. On March 5, 1997, PGSMC and KOGIES executed a
Contract[1] whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was
(b) Contracts that the law requires to be proved by some writing executed in the Philippines. On April 7, 1997, the parties
(memorandum) of its terms, as in those covered by the old executed, in Korea, an Amendment for Contract No. KLP-970301
Statute of Frauds, now Article 1403(2) of the Civil Code. Their dated March 5, 1997[2]amending the terms of payment. The
existence not being provable by mere oral testimony (unless contract and its amendment stipulated that KOGIES will ship the
wholly or partly executed), these contracts are exceptional in machinery and facilities necessary for manufacturing LPG
requiring a writing embodying the terms thereof for their cylinders for which PGSMC would pay USD 1,224,000. KOGIES
enforceability by action in court. would install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the plants
production of the 11-kg. LPG cylinder samples. Thus, the total
The contract sued upon by petitioner herein (compensation for contract price amounted to USD 1,530,000.
services) does not come under either exception. It is true that it
appears included in Article 1358, last clause, providing that "all On October 14, 1997, PGSMC entered into a Contract of
other contracts where the amount involved exceeds five Lease[3] with Worth Properties, Inc. (Worth) for use of Worths
hundred pesos must appear in writing, even a private one." But 5,079-square meter property with a 4,032-square meter
Article 1358 nowhere provides that the absence of written form warehouse building to house the LPG manufacturing plant. The
in this case will make the agreement invalid or unenforceable. monthly rental was PhP 322,560 commencing on January 1,
On the contrary, Article 1357 clearly indicates that contracts 1998 with a 10% annual increment clause. Subsequently, the
covered by Article 1358 are binding and enforceable by action or machineries, equipment, and facilities for the manufacture of
LPG cylinders were shipped, delivered, and installed in the
suit despite the absence of writing.
Carmona plant. PGSMC paid KOGIES USD 1,224,000.
ART. 1357. If the law requires a document or other However, gleaned from the Certificate[4] executed by
special form, as in the acts and contracts enumerated the parties on January 22, 1998, after the installation of the
in the following article, the contracting parties may plant, the initial operation could not be conducted as PGSMC
compel each other to observe that form, once the encountered financial difficulties affecting the supply of
contract has been perfected. This right may be materials, thus forcing the parties to agree that KOGIES would
exercised simultaneously with the action the contract. be deemed to have completely complied with the terms and
conditions of the March 5, 1997 contract.
(Emphasis supplied) .
For the remaining balance of USD306,000 for the
It thus becomes inevitable to conclude that both the court a installation and initial operation of the plant, PGSMC issued two
quo as well as the private respondents herein were grossly postdated checks: (1) BPI Check No. 0316412 dated January 30,
mistaken in holding that because petitioner Dauden's contract 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated
for services was not in writing the same could not be sued upon, March 30, 1998 for PhP 4,500,000.[5]
or that her complaint should be dismissed for failure to state a
cause of action because it did not plead any written agreement. When KOGIES deposited the checks, these were
dishonored for the reason PAYMENT STOPPED. Thus, on May 8,
1998, KOGIES sent a demand letter [6] to PGSMC threatening
The basic error in the court's decision lies in overlooking that in criminal action for violation of Batas Pambansa Blg. 22 in case of
our contractual system it is not enough that the law should nonpayment. On the same date, the wife of PGSMCs President
require that the contract be in writing, as it does in Article 1358. faxed a letter dated May 7, 1998 to KOGIES President who was
The law must further prescribe that without the writing the then staying at a Makati City hotel. She complained that not
contract is not valid or not enforceable by action. only did KOGIES deliver a different brand of hydraulic press from
that agreed upon but it had not delivered several equipment
parts already paid for.
WHEREFORE, the order dismissing the complaint is set aside,
and the case is ordered remanded to the court of origin for On May 14, 1998, PGSMC replied that the two checks it
further proceedings not at variance with this decision. issued KOGIES were fully funded but the payments were stopped
for reasons previously made known to KOGIES.[7]
Costs to be solidarity paid by private respondents Hollywood Far
On June 1, 1998, PGSMC informed KOGIES that PGSMC
East Productions, Inc., and Ramon Valenzuela.
was canceling their Contract dated March 5, 1997 on the ground
SECOND DIVISION G.R. No. 143581 January 7, 2008 that KOGIES had altered the quantity and lowered the quality of
the machineries and equipment it delivered to PGSMC, and that
KOREA TECHNOLOGIES CO., Petitioner,- versus - HON. PGSMC would dismantle and transfer the machineries,
ALBERTO A. LERMA, his capacity as Presiding Judge equipment, and facilities installed in the Carmona plant. Five
of Branch 256 of Regional Trial days later, PGSMC filed before the Office of the Public Prosecutor
Court of Muntinlupa City, andPACIFIC GENERAL STEEL an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813
MANUFACTURINGCORPORATION,Respondents. against Mr. Dae Hyun Kang, President of KOGIES.
On July 9, 1998, PGSMC filed an opposition to the TRO On September 21, 1998, the trial court issued an Order
arguing that KOGIES was not entitled to the TRO since Art. 15, (1) granting PGSMCs motion for inspection; (2) denying KOGIES
the arbitration clause, was null and void for being against public motion for reconsideration of the July 23, 1998 RTC Order; and
policy as it ousts the local courts of jurisdiction over the instant (3) denying KOGIES motion to dismiss PGSMCs compulsory
controversy. counterclaims as these counterclaims fell within the requisites of
compulsory counterclaims.
On July 17, 1998, PGSMC filed its Answer with
Compulsory Counterclaim[9] asserting that it had the full right to On October 2, 1998, KOGIES filed an Urgent Motion for
dismantle and transfer the machineries and equipment because Reconsideration[17] of the September 21, 1998 RTC Order
it had paid for them in full as stipulated in the contract; that granting inspection of the plant and denying dismissal of
KOGIES was not entitled to the PhP 9,000,000 covered by the PGSMCs compulsory counterclaims.
checks for failing to completely install and make the plant
operational; and that KOGIES was liable for damages amounting Ten days after, on October 12, 1998, without waiting for
to PhP 4,500,000 for altering the quantity and lowering the the resolution of its October 2, 1998 urgent motion for
quality of the machineries and equipment. Moreover, PGSMC reconsideration, KOGIES filed before the Court of Appeals (CA) a
averred that it has already paid PhP 2,257,920 in rent (covering petition for certiorari[18] docketed as CA-G.R. SP No. 49249,
January to July 1998) to Worth and it was not willing to further seeking annulment of the July 23, 1998 and September 21, 1998
shoulder the cost of renting the premises of the plant RTC Orders and praying for the issuance of writs of prohibition,
considering that the LPG cylinder manufacturing plant never mandamus, and preliminary injunction to enjoin the RTC and
became operational. PGSMC from inspecting, dismantling, and transferring the
machineries and equipment in the Carmona plant, and to direct
After the parties submitted their Memoranda, on July the RTC to enforce the specific agreement on arbitration to
23, 1998, the RTC issued an Order denying the application for a resolve the dispute.
writ of preliminary injunction, reasoning that PGSMC had paid
KOGIES USD 1,224,000, the value of the machineries and In the meantime, on October 19, 1998, the RTC denied
equipment as shown in the contract such that KOGIES no longer KOGIES urgent motion for reconsideration and directed the
had proprietary rights over them. And finally, the RTC held that Branch Sheriff to proceed with the inspection of the machineries
Art. 15 of the Contract as amended was invalid as it tended to and equipment in the plant on October 28, 1998.[19]
oust the trial court or any other court jurisdiction over any
dispute that may arise between the parties. KOGIES prayer for Thereafter, KOGIES filed a Supplement to the
an injunctive writ was denied. [10] The dispositive portion of the Petition[20] in CA-G.R. SP No. 49249 informing the CA about
Order stated: the October 19, 1998 RTC Order. It also reiterated its prayer for
the issuance of the writs of prohibition, mandamus and
preliminary injunction which was not acted upon by the
WHEREFORE, in view of the foregoing consideration, CA. KOGIES asserted that the Branch Sheriff did not have the
this Court believes and so holds that no cogent reason technical expertise to ascertain whether or not the machineries
exists for this Court to grant the writ of preliminary and equipment conformed to the specifications in the contract
injunction to restrain and refrain defendant from and were properly installed.
dismantling the machineries and facilities at the lot and
building of Worth Properties, Incorporated at Carmona, On November 11, 1998, the Branch Sheriff filed his
Cavite and transfer the same to another site: and Sheriffs Report[21] finding that the enumerated machineries and
therefore denies plaintiffs application for a writ of equipment were not fully and properly installed.
preliminary injunction.
The Court of Appeals affirmed the trial court and
declared
the arbitration clause against public policy
On July 29, 1998, KOGIES filed its Reply to Answer and
Answer to Counterclaim.[11] KOGIES denied it had altered the
quantity and lowered the quality of the machinery, equipment, On May 30, 2000, the CA rendered the assailed
and facilities it delivered to the plant. It claimed that it had Decision[22] affirming the RTC Orders and dismissing the petition
performed all the undertakings under the contract and had for certiorari filed by KOGIES. The CA found that the RTC did not
already produced certified samples of LPG cylinders. It averred gravely abuse its discretion in issuing the assailed July 23,
that whatever was unfinished was PGSMCs fault since it failed to 1998 and September 21, 1998 Orders. Moreover, the CA
procure raw materials due to lack of funds. KOGIES, relying reasoned that KOGIES contention that the total contract price for
on Chung Fu Industries (Phils.), Inc. v. Court of Appeals, USD 1,530,000 was for the whole plant and had not been fully
[12]
insisted that the arbitration clause was without question paid was contrary to the finding of the RTC that PGSMC fully paid
valid. the price of USD 1,224,000, which was for all the machineries
and equipment. According to the CA, this determination by the
After KOGIES filed a Supplemental Memorandum with RTC was a factual finding beyond the ambit of a petition for
Motion to Dismiss[13] answering PGSMCs memorandum of July certiorari.
22, 1998 and seeking dismissal of PGSMCs counterclaims,
KOGIES, on August 4, 1998,filed its Motion for On the issue of the validity of the arbitration clause, the
Reconsideration[14] of the July 23, 1998 Order denying its CA agreed with the lower court that an arbitration clause which
application for an injunctive writ claiming that the contract was provided for a final determination of the legal rights of the
not merely for machinery and facilities worth USD 1,224,000 but parties to the contract by arbitration was against public policy.
was for the sale of an LPG manufacturing plant consisting of
100
On the issue of nonpayment of docket fees and non- dated July 17, 1998 in accordance with Section 8 of Rule 11,
attachment of a certificate of non-forum shopping by PGSMC, 1997 Revised Rules of Civil Procedure, the rule that was
the CA held that the counterclaims of PGSMC were compulsory effective at the time the Answer with Counterclaim was
ones and payment of docket fees was not required since the filed. Sec. 8 on existing counterclaim or cross-claim states, A
Answer with counterclaim was not an initiatory pleading. For the compulsory counterclaim or a cross-claim that a defending party
same reason, the CA said a certificate of non-forum shopping has at the time he files his answer shall be contained therein.
was also not required.
Furthermore, the CA held that the petition for certiorari On July 17, 1998, at the time PGSMC filed its Answer
had been filed prematurely since KOGIES did not wait for the incorporating its counterclaims against KOGIES, it was not liable
resolution of its urgent motion for reconsideration of the to pay filing fees for said counterclaims being compulsory in
September 21, 1998 RTC Order which was the plain, speedy, and nature. We stress, however, that effective August 16,
adequate remedy available. According to the CA, the RTC must 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-
be given the opportunity to correct any alleged error it has SC, docket fees are now required to be paid in compulsory
committed, and that since the assailed orders were counterclaim or cross-claims.
interlocutory, these cannot be the subject of a petition for
certiorari. As to the failure to submit a certificate of forum
shopping, PGSMCs Answer is not an initiatory pleading which
Hence, we have this Petition for Review on Certiorari requires a certification against forum shopping under Sec. 5 [24] of
under Rule 45. Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible
The Issues error in denying KOGIES motion to dismiss PGSMCs compulsory
counterclaims.
Petitioner posits that the appellate court committed the
following errors: Interlocutory orders proper subject of certiorari
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER
THE MACHINERY AND FACILITIES AS A QUESTION OF Citing Gamboa v. Cruz,[25] the CA also pronounced that
FACT BEYOND THE AMBIT OF A PETITION FOR certiorari and Prohibition are neither the remedies to question
CERTIORARI INTENDED ONLY FOR CORRECTION OF the propriety of an interlocutory order of the trial court. [26] The
ERRORS OF JURISDICTION OR GRAVE ABUSE OF CA erred on its reliance on Gamboa.Gamboa involved the denial
DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF of a motion to acquit in a criminal case which was not assailable
JURISDICTION, AND CONCLUDING THAT THE TRIAL in an action for certiorari since the denial of a motion to quash
COURTS FINDING ON THE SAME QUESTION WAS required the accused to plead and to continue with the trial, and
IMPROPERLY RAISED IN THE PETITION BELOW; whatever objections the accused had in his motion to quash can
then be used as part of his defense and subsequently can be
b. DECLARING AS NULL AND VOID THE ARBITRATION raised as errors on his appeal if the judgment of the trial court is
CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN adverse to him. The general rule is that interlocutory orders
THE PARTIES FOR BEING CONTRARY TO PUBLIC POLICY cannot be challenged by an appeal. [27] Thus, in Yamaoka v.
AND FOR OUSTING THE COURTS OF JURISDICTION; Pescarich Manufacturing Corporation, we held:
Petitioner claims the RTC and the CA erred in ruling that RA 9285 incorporated the UNCITRAL Model law
the arbitration clause is null and void. to which we are a signatory
Petitioner is correct.
For domestic arbitration proceedings, we have
Established in this jurisdiction is the rule that the law of particular agencies to arbitrate disputes arising from contractual
the place where the contract is made governs. Lex loci relations. In case a foreign arbitral body is chosen by the parties,
contractus. The contract in this case was perfected here in the arbitration rules of our domestic arbitration bodies would not
the Philippines. Therefore, our laws ought to be applied. As signatory to the Arbitration Rules of the UNCITRAL
govern. Nonetheless, Art. 2044 of the Civil Code sanctions the Model Law on International Commercial Arbitration [41] of
validity of mutually agreed arbitral clause or the finality and the United Nations Commission on International Trade Law
binding effect of an arbitral award. Art. 2044 provides, Any (UNCITRAL) in the New York Convention on June 21, 1985,
stipulation that the arbitrators award or decision shall be the Philippines committed itself to be bound by the Model
final, is valid, without prejudice to Articles 2038, 2039 and Law. We have even incorporated the Model Law in Republic Act
2040. (Emphasis supplied.) No. (RA) 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 entitled An Act to Institutionalize the Use
Arts. 2038,[31] 2039,[32] and 2040[33] abovecited refer to of an Alternative Dispute Resolution System in the Philippines
instances where a compromise or an arbitral award, as applied and to Establish the Office for Alternative Dispute Resolution,
to Art. 2044 pursuant to Art. 2043,[34] may be voided, rescinded, and for Other Purposes, promulgated on April 2, 2004. Secs. 19
or annulled, but these would not denigrate the finality of the and 20 of Chapter 4 of the Model Law are the pertinent
arbitral award. provisions:
The arbitration clause was mutually and voluntarily CHAPTER 4 - INTERNATIONAL COMMERCIAL
agreed upon by the parties. It has not been shown to be ARBITRATION
contrary to any law, or against morals, good customs, public
order, or public policy. There has been no showing that the SEC. 19. Adoption of the Model Law on
parties have not dealt with each other on equal footing. We find International Commercial Arbitration.International
no reason why the arbitration clause should not be respected commercial arbitration shall be governed by the Model
and complied with by both parties. In Gonzales v. Climax Mining Law on International Commercial Arbitration (the Model
Ltd.,[35] we held that submission to arbitration is a contract and Law) adopted by the United Nations Commission on
that a clause in a contract providing that all matters in dispute International Trade Law on June 21, 1985 (United
between the parties shall be referred to arbitration is a contract. Nations Document A/40/17) and recommended for
[36]
Again in Del Monte Corporation-USA v. Court of Appeals, we enactment by the General Assembly in Resolution No.
likewise ruled that [t]he provision to submit to arbitration any 40/72 approved on December 11, 1985, copy of which
dispute arising therefrom and the relationship of the parties is is hereto attached as Appendix A.
part of that contract and is itself a contract. [37]
SEC. 20. Interpretation of Model Law.In
Arbitration clause not contrary to public policy interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in its
The arbitration clause which stipulates that the interpretation and resort may be made to the travaux
arbitration must be done in Seoul, Korea in accordance with the preparatories and the report of the Secretary General
Commercial Arbitration Rules of the KCAB, and that the arbitral of the United Nations Commission on International
award is final and binding, is not contrary to public policy. This Trade Law dated March 25, 1985 entitled, International
Court has sanctioned the validity of arbitration clauses in Commercial Arbitration: Analytical Commentary on
a catena of cases. In the 1957 case of Eastboard Navigation Ltd. Draft Trade identified by reference number A/CN. 9/264.
v. Juan Ysmael and Co., Inc.,[38] this Court had occasion to rule
that an arbitration clause to resolve differences and breaches of
mutually agreed contractual terms is valid. In BF Corporation v.
102
While RA 9285 was passed only in 2004, it nonetheless A foreign arbitral award, when confirmed by the Regional Trial
applies in the instant case since it is a procedural law which has Court, shall be enforced in the same manner as final and
a retroactive effect. Likewise, KOGIES filed its application for executory decisions of courts of law of the Philippines
arbitration before the KCAB on July 1, 1998 and it is still pending
because no arbitral award has yet been rendered. Thus, RA 9285 xxxx
is applicable to the instant case. Well-settled is the rule that
procedural laws are construed to be applicable to actions SEC. 47. Venue and Jurisdiction.Proceedings for recognition
pending and undetermined at the time of their passage, and are and enforcement of an arbitration agreement or for vacations,
deemed retroactive in that sense and to that extent. As a setting aside, correction or modification of an arbitral award,
general rule, the retroactive application of procedural laws does and any application with a court for arbitration assistance and
not violate any personal rights because no vested right has yet supervision shall be deemed as special proceedings and shall
attached nor arisen from them.[42] be filed with the Regional Trial Court (i) where arbitration
proceedings are conducted; (ii) where the asset to be
Among the pertinent features of RA 9285 applying and attached or levied upon, or the act to be enjoined is located;
incorporating the UNCITRAL Model Law are the following: (iii) where any of the parties to the dispute resides or has his
place of business; or (iv) in the National Judicial Capital
(1) The RTC must refer to arbitration in proper cases Region, at the option of the applicant.
Under Sec. 24, the RTC does not have jurisdiction over SEC. 48. Notice of Proceeding to Parties.In a special
disputes that are properly the subject of arbitration pursuant to proceeding for recognition and enforcement of an arbitral
an arbitration clause, and mandates the referral to arbitration in award, the Court shall send notice to the parties at their
such cases, thus: address of record in the arbitration, or if any part cannot be
served notice at such address, at such partys last known
SEC. 24. Referral to Arbitration.A court before address. The notice shall be sent al least fifteen (15) days
which an action is brought in a matter which is the before the date set for the initial hearing of the application.
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 It is now clear that foreign arbitral awards when
thereafter, refer the parties to arbitration unless it finds confirmed by the RTC are deemed not as a judgment of a foreign
that the arbitration agreement is null and void, court but as a foreign arbitral award, and when confirmed, are
inoperative or incapable of being performed. enforced as final and executory decisions of our courts of law.
(a) Maintain or restore the status quo pending determination PGSMC to preserve the subject equipment and
of the dispute; machineries
(b) Take action that would prevent, or refrain from taking Finally, while PGSMC may have been granted the right
action that is likely to cause, current or imminent harm or to dismantle and transfer the subject equipment and
prejudice to the arbitral process itself; machineries, it does not have the right to convey or dispose of
the same considering the pending arbitral proceedings to settle
(c) Provide a means of preserving assets out of which a the differences of the parties. PGSMC therefore must preserve
subsequent award may be satisfied; or and maintain the subject equipment and machineries with the
diligence of a good father of a family[51] until final resolution of
(d) Preserve evidence that may be relevant and material to the arbitral proceedings and enforcement of the award, if any.
the resolution of the dispute.
105
On 17 April 1986, the Lopez family, through counsel, ex-Senator
Lorenzo Tanada, requested President Aquino to order the return
WHEREFORE, this petition is PARTLY GRANTED, in to the Lopez family of TV Stations 2 and 4. 1
that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. On 13 June 1986, the Lopez family made a written request to
49249 is REVERSED and SET ASIDE; the PCGG for the return of TV Station Channel 2. On 18 June
1986, the PCGG approved the return of TV Station Channel 2 to
(2) The September 21, 1998 and October 19, 1998 RTC the Lopez family. 2 The return was made on 18 October 1986.
Orders in Civil Case No. 98-117 are REVERSED and SET ASIDE;
Thereafter, the Lopez family requested for the return of TV
(3) The parties are hereby ORDERED to submit
Station Channel 4. Acting upon the request, respondent
themselves to the arbitration of their dispute and differences
arising from the subject Contract before the KCAB; and Executive Secretary, by authority of the President, entered into
with the ABS-CBN Broadcasting Corporation, represented by its
(4) PGSMC is hereby ALLOWED to dismantle and President, Eugenio Lopez, Jr., an "Agreement to
transfer the equipment and machineries, if it had not done so, Arbitrate", 3 pursuant to which an Arbitration Committee was
and ORDERED to preserve and maintain them until the finality created, composed of Atty. Catalino Macaraig, Jr., for the
of whatever arbitral award is given in the arbitration Republic of the Philippines, Atty. Pastor del Rosario, for ABS-CBN,
proceedings. and retired Justice Vicente Abad Santos, as Chairman.
JOSE LUIS MARTIN C. GASCON, FAUSTINO "BONG" L. Before discussing the issues raised in the present petition, the
LAPIRA, and SPOUSES ALBERTO and KARLA Court will first resolve the question of whether or not the herein
LIM, petitioners, petitioners have the legal personality or standing to the the
vs. instant case.
The Hon. JOKER T. ARROYO, in his official capacity as
Executive Secretary to the President, Hon. TEODORO C. There have been several cases wherein the Court recognized
BENIGNO, as Press Secretary, Hon. REINERIO REYES, as the right of a taxpayer to file an action questioning the validity
the Secretary of Transportation and Communication, or constitutionality of a statute or law, on the theory that the
Hon. JOSE ALCUAZ, as Chairman of the National expenditure of public funds by an officer of the government for
Telecommunications Commission, Hon. CONRADO A. the purpose of administering or implementing an
LIMCAOCO, JR., as the Officer-in-Charge of the People's unconstitutional or invalid law, constitutes a misapplication of
Television 4, ABS-CBN BROADCASTING CORPORATION, such funds. 4
and MESSRS. VICENTE ABAD SANTOS, PASTOR DEL
ROSARIO and CATALINO MACARAIG, JR., in their
The present case, however, is not an action to question the
respective capacities as Chairman and Members of the
constitutionality or validity of a statute or law. It is an action to
"Arbitration Committee", respondents.
annul and set aside the "Agreement to Arbitrate", which, as
between the parties, is contractual in character. Petitioners have
not shown that they have a legal interest in TV Station Channel
4 and that they will be adversely affected if and when the said
PADILLA, J.: television station is returned to the Lopez family. Petitioners,
therefore, have no legal standing to file the present petition.
This Agreement shall be governed by the laws of the State of In a Resolution[14] dated 23 December 1996 the trial court
California and/or, if applicable, the United States of America. All deferred consideration of petitioners Motion to Suspend
disputes arising out of or relating to this Agreement or the Proceedingsas the grounds alleged therein did not constitute the
parties relationship, including the termination thereof, shall be suspension of the proceedings considering that the action was
resolved by arbitration in the City of San Francisco, State of for damages with prayer for the issuance of Writ of Preliminary
California, under the Rules of the American Arbitration Attachment and not on the Distributorship Agreement.
Association. The arbitration panel shall consist of three
members, one of whom shall be selected by DMC-USA, one of On 15 January 1997 petitioners filed a Motion for
whom shall be selected by MMI, and third of whom shall be Reconsideration to which private respondents filed
selected by the other two members and shall have relevant their Comment/Opposition.On 31 January 1997 petitioners filed
experience in the industry x x x x their Reply. Subsequently, private respondents filed an Urgent
Motion for Leave to Admit Supplemental Pleading dated 2 April
107
1997. This Motion was admitted, over petitioners opposition, in the petition to compel arbitration in the United States made the
an Order of the trial court dated 27 June 1997. petition filed before this Court an alternative remedy and, in a
way, an abandonment of the cause they are fighting for here in
the Philippines, thus warranting the dismissal of the present
As a result of the admission of the Supplemental
petition before this Court.
Complaint, petitioners filed on 22 July 1997
a Manifestation adopting their Motion to Suspend Proceedings of
17 October 1996 and Motion for Reconsideration of 14 January There is no doubt that arbitration is valid and constitutional
1997. in our jurisdiction.[21] Even before the enactment of RA 876, this
Court has countenanced the settlement of disputes through
arbitration. Unless the agreement is such as absolutely to close
On 11 November 1997 the Motion to Suspend
the doors of the courts against the parties, which agreement
Proceedings was denied by the trial court on the ground that
would be void, the courts will look with favor upon such
it "will not serve the ends of justice and to allow said suspension
amicable arrangement and will only interfere with great
will only delay the determination of the issues, frustrate the
reluctance to anticipate or nullify the action of the arbitrator.
quest of the parties for a judicious determination of their [22]
Moreover, as RA 876 expressly authorizes arbitration of
respective claims, and/or deprive and delay their rights to seek
domestic disputes, foreign arbitration as a system of settling
redress."[15]
commercial disputes was likewise recognized when the
Philippines adhered to the United Nations "Convention on the
On appeal, the Court of Appeals affirmed the decision of Recognition and the Enforcement of Foreign Arbitral Awards of
the trial court. It held that the alleged damaging acts recited in 1958" under the 10 May 1965 Resolution No. 71 of the Philippine
the Complaint, constituting petitioners causes of action, required Senate, giving reciprocal recognition and allowing enforcement
the interpretation of Art. 21 of the Civil Code [16] and that in of international arbitration agreements between parties of
determining whether petitioners had violated it "would require a different nationalities within a contracting state.[23]
full blown trial" making arbitration "out of the
question."[17]Petitioners Motion for Reconsideration of the
A careful examination of the instant case shows that the
affirmation was denied. Hence, this Petition for Review.
arbitration clause in the Distributorship Agreement between
petitioner DMC-USA and private respondent MMI is valid and the
The crux of the controversy boils down to whether the dispute between the parties is arbitrable. However, this Court
dispute between the parties warrants an order compelling them must deny the petition.
to submit to arbitration.
WHEREFORE, the petition is DENIED. The Decision of the On September 11, 1991, Toyota filed a case against APT and Sun
Court of Appeals affirming the Order of the Regional Trial Court Valley docketed as Civil Case No. 91-2504 with the Regional Trial
of Malabon, Metro Manila, in Civil Case No. 2637-MN, which Court of Makati, Branch 146 presided by Judge Salvador
denied petitioners Motion to Suspend Proceedings, is Tensuan. The complaint was for the reformation of the Deed of
AFFIRMED.The Regional Trial Court concerned is directed to Sale executed between Toyota and APT. Toyota alleges that the
proceed with the hearing of Civil Case No. 2637-MN with instrument failed to reflect the true intention of the parties, as
dispatch. No costs.SO ORDERED. evidenced by the failure of the title to include the 723 square
meters strip of land.
THIRD DIVISIONG.R. No. 102881 December 7, 1992
Toyota alleges that the discrepancy came about because of the
TOYOTA MOTOR PHILIPPINES CORPORATION, petitioner, serious flaw in the classification/cataloguing of properties bidded
vs. out for sale by APT. Toyota was made to understand that
THE COURT OF APPEALS, HON. FERNANDO V. GOROSPE, included in its perimeter fence is the disputed strip of land.
JR. and SUN VALLEY MANUFACTURING & DEVELOPMENT Thus, Toyota sought the resurvey of the property to correct this
CORPORATION, respondents. error in the title. Sun Valley was impleaded considering that it
purchased the adjoining land whose title allegedly included the
723 square meters property.
GUTIERREZ, JR., J.:
The respondent court denied due course to the Toyota petition Sun Valley, on the other hand raises the following:
on the finding that the amendment of Sun Valley's complaint
was a valid one as Sun Valley's action was not for unlawful
detainer but an accion publiciana. Furthermore, the 1. Whether or not the petitioner availed of the proper mode of
supplemental petitions filed by Toyota assailing the prohibitory elevating the case to this Court.
and mandatory injunctive writ were not ruled upon as they were
expunged from the records because of Toyota's failure to attach
a motion to admit these supplemental petitions.
110
2. Whether or not the Court of Appeals committed grave abuse dismiss was sustained, correctly ruled that misjoinder of parties
of discretion in refusing to act upon petitioner's supplemental is not a ground for dismissal.
petitions for certiorari.
American jurisprudence from where provisions on reformation of
3. Whether or not the complaint filed in the court below is instruments were taken discloses that suits to reform written
an accion publiciana which is within the jurisdiction of the RTC. instruments are subject to the general rule in equity that all
persons interested in the subject matter of the litigation,
whether it is a legal or an equitable interest should be made
4. Whether or not Judge Salvador S. Tensuan had jurisdiction to
parties, so that the court may settle all their rights at once and
take cognizance of Civil Case No. 2504 for reformation of
thus prevent the necessity of a multiplicity of suits (Bevis
instrument.
Construction Co. v. Grace [Fla App] 115 So 2d 84; Green v.
Stone, 54 N.J.E. 387, 34 A 1099). As a general rule, therefore, all
5. Whether or not respondent Judge Gorospe, Jr. committed persons to be affected by the proposed reformation must be
grave abuse of discretion in granting private respondent's made parties (American Fidelity & Casualty Co. v. Elder, 189 Ga
application for a writ of preliminary prohibitory/mandatory 229, 5 SE 2d 668; Kemp v. Funderburk, 224 NC 353, 30 SE 2d
injunction. 155). In an action to reform a deed, all parties claiming an
interest in the land or any part thereof purportedly conveyed by
6. Whether or not Judge Tensuan committed grave abuse of the instrument sought to be reformed, and whose interests will
discretion in issuing the writ of mandatory injunction dated be affected by the reformation of the instrument are necessary
December 19, 1991. parties to the action (Kemp v. Funderburk, 224 NC 353, 30 SE 2d
155).
Where there are conflicting but inextricably interconnected xxx xxx xxx
issues in one and the same complicated case, it is best that
these be resolved in one integrated proceeding where an overall 5. In case of disagreement or conflict arising out of this
picture of the entirety of the case can be presented and Contract, the parties hereby undertake to submit the matter for
examined. Piecemeal determinations by several trial courts on determination by a committee of experts, acting as arbitrators,
segments of the basic issue and disconnected appeals to the composition of which shall be as follows:
different Divisions of the Court of Appeals resulting in separate
decisions each dealing with only part of the problem are
a) One member to be appointed by the VENDOR;
discouraged. Needless multiplicity of suits is something which is
frowned upon.
b) One member to be appointed by the VENDEE;
xxx xxx xxx
c) One member, who shall be a lawyer, to be appointed by both
of the aforesaid parties;
Amid the clutter of extraneous materials which have certainly
bloated the records of this case, we find only two (2) issues vital
to the disposition of the petition: first, is the matter of The members of the Arbitration Committee shall be appointed
jurisdiction, who as between Judge Tensuan or Judge Gorospe not later than three (3) working days from receipt of a written
has jurisdiction over the dispute; and second, who as between notice from either or both parties. The Arbitration Committee
the parties has the rightful possession of the land. shall convene not later than three (3) weeks after all its
members have been appointed and proceed with the
arbitration of the dispute within three (3) calendar months
Anent the issue on jurisdiction, we examine the two actions filed
counted therefrom. By written mutual agreement by the parties
by the parties.
hereto, such time limit for the arbitration may be extended for
another calendar month. The decision of the Arbitration
Toyota filed an action for reformation on September 11, 1991, Committee by majority vote of at least two (2) members shall
before Judge Tensuan alleging that the true intentions of the be final and binding upon both the VENDOR and the VENDEE;
parties were not expressed in the instrument (Art. 1359 Civil (Rollo, pp. 816-817)
Code). The instrument sought to be reformed is the deed of sale
executed by APT in favor of Toyota. Toyota alleges that there
xxx xxx xxx
was a mistake in the designation of the real properties subject
matter of the contract. Sun Valley was impleaded in order to
obtain complete relief since it was the owner of the adjacent lot. The contention that the arbitration clause has become
disfunctional because of the presence of third parties is
untenable.
Sun Valley, however, argues that the complaint for reformation
states no cause of action against it since an action for
reformation is basically one strictly between the parties to the Contracts are respected as the law between the contracting
contract itself. Third persons who are not parties to the contract parties (Mercantile Ins. Co. Inc. v. Felipe Ysmael, Jr. & Co., Inc.,
cannot and should not be involved. Thus, Sun Valley contends 169 SCRA 66 [1989]). As such, the parties are thereby expected
that it should not have been impleaded as a defendant. to abide with good faith in their contractual commitments
(Quillan v. CA, 169 SCRA 279 [1989]). Toyota is therefore bound
to respect the provisions of the contract it entered into with APT.
The Court of Appeals' 11th Division, in its decision promulgated
on April 15, 1992 where the denial of Sun Valley's motion to
111
Toyota filed an action for reformation of its contract with APT, long standing principle that equity follows the law. It is applied in
the purpose of which is to look into the real the abscence of and never against statutory law (Zabat v. Court
intentions/agreement of the parties to the contract and to of Appeals, 142 SCRA 587 [1986]). Courts are bound by rules of
determine if there was really a mistake in the designation of the law and have no arbitrary discretion to disregard them. (See
boundaries of the property as alleged by Toyota. Such questions Arsenal v. Intermediate Appellate Court, 143 SCRA 40 [1986].)
can only be answered by the parties to the contract themselves. Courts of equity must proceed with utmost caution especially
This is a controversy which clearly arose from the contract when rights of third parties may intervene. Thus in the instant
entered into by APT and Toyota. Inasmuch as this concerns more case, vis-a-vis well-settled principles or rules in land registration,
importantly the parties APT and Toyota themselves, the the equitable relief of reformation may not come into play in
arbitration committee is therefore the proper and convenient order to transfer or appropriate a piece of land that one claims
forum to settle the matter as clearly provided in the deed of to own but which is titled in the name of a third party.
sale.
On the other hand, Sun Valley filed an action for reconveyance
Having been apprised of the presence of the arbitration clause against Toyota to recover possession of the strip of land
in the motion to dismiss filed by APT, Judge Tensuan should have encroached upon and occupied by the latter. What Sun Valley
at least suspended the proceedings and directed the parties to seeks in its complaint is the recovery of possession de jure and
settle their dispute by arbitration (Bengson v. Chan, 78 SCRA not merely possession de facto. Toyota moved to dismiss on the
113 [1977], Sec. 7, RA 876). Judge Tensuan should have not assumption that the complaint was one for unlawful detainer
taken cognizance of the case. cognizable by the MTC.
But the more apparent reason which warrants the dismissal of We do not find any reversible error in the decision of the Court
the action as against Sun Valley is the fact that the complaint for of Appeals' 10th Division where it upheld Judge Gorospe's order
reformation amounts to a collateral attack on Sun Valley's title, denying Toyota's motion to dismiss. An amendment to a
contrary to the finding of the Court of Appeals' 11th Division. complaint before a responsive pleading is filed, is a matter of
right (Rule 10, Sec. 2). Whether or not the complaint was
amended, Sun Valley's complaint was one for accion
It is disputed that Sun Valley has a Torrens title registered in its
publiciana cognizable by the RTC. Its right over the land is
name by virtue of its purchase of the land from APT.
premised on the certificate of title registered in its name after it
had purchased said land from APT. As the registered owner it
Toyota contends that the 723 square meters strip of land which had the right of possession of said land illegally occupied by
it understood to be included in its purchase from APT was another (Ybaez v. IAC, 194 SCRA 743 [1991]). The case
erroneously included in Sun Valley's title. This is the reason why of Banayos v. Susana Realty, Inc. (71 SCRA 557 [1976]) is quite
reformation was sought to correct the mistake. instructive:
Well-settled is the rule that a certificate of title can not be xxx xxx xxx
altered, modified, or cancelled except in a direct proceeding in
accordance with law (Section 48, P.D. No. 1529).
We deem it advisable, at this point, to reiterate the essential
differences between three kinds of actions for the recovery of
In the case of Domingo v. Santos Ongsiako, Lim y Sia (55 Phil. possession of real property, namely: (1) the summary action
361 [1930]), the Court held that: for forcible entry and unlawful detainer; (2) the accion
publiciana; and (3) the accion de reivindicacion.
. . . The fact should not be overlooked that we are here
confronted with what is really a collateral attack upon a The action for forcible entry may be brought where
Torrens title. The circumstance that the action was directly dispossession of real property had taken place by any of the
brought to recover a parcel of land does not alter the truth means provided for in Section 1 of Rule 70 of the Revised
that the proceeding involves a collateral attack upon a Rules of Court, and in the case of unlawful detainer, where
Torrens title, because as we have found, the land in the possession is withheld after the expiration or termination
controversy lies within the boundaries determined by that of the right to hold possession, by virtue of any contract
title. The Land Registration Law defines the methods under express or implied. These two actions must be filed within
which a wrongful adjudication of title to land under the one (1) year after such unlawful deprivation or withholding of
Torrens system may be corrected . . . possession with the municipal or city court. These actions in
their essence are mere quieting processes by virtue of which
While reformation may often be had to correct mistakes in a party in possession of land may not be, by force,
defining the boundary of lands conveyed so as to identify the dispossessed of that land, the law restoring to him such
lands, it may not be used to pass other lands from those possession in a summary manner, until the right of
intended to be bought and sold, notwithstanding a mistake in ownership can be tried in due course of law. They are,
pointing out the lines, since reformation under these therefore, intended to provide an expeditious means of
circumstances would be inequitable and unjust. (McCay v. protecting actual possession or right to possession of
Jenkins, 244 Ala 650, 15 So 2d 409, 149 ALR 746) property. The aforesaid Rule 70 does not, however, cover all
of the cases of dispossession of lands. Thus, "whenever the
owner is dispossessed by any other means than those
Assuming that Toyota is afforded the relief prayed for in the mentioned he may maintain his action in the Court of First
Tensuan court, the latter can not validly order the contested Instance, and it is not necessary for him to wait until the
portion to be taken out from the Sun Valley's TCT and award it in expiration of twelve months before commencing an action to
favor of Toyota. be repossessed or declared to be owner of land." (Gumiran v.
Gumiran, 21 Phil. 174, 179. Cf. Medina, et al. v. Valdellon, 63
An action for reformation is in personam, not in rem (Cohen v. SCRA 278) Courts of First Instance have jurisdiction over
Hellman Commercial Trust & Savings Bank, 133 Cal App 758, 24 actions to recover possession of real property illegally
P2d 960; Edwards v. New York Life Ins. Co. 173 Tenn 102, 114 detained, together with rents due and damages, even though
SW 2d 808) even when real estate is involved (Agurs v. Holt, 232 one (1) year has not expired from the beginning of such
La 1026, 95 So 2d 644; Vallee v. Vallee (La App) 180 So 2d 570). illegal detention, provided the question of ownership of such
It is merely an equitable relief granted to the parties where property is also involved. In other words, if the party illegal
through mistake or fraud, the instrument failed to express the dispossessed desires to raise the question of illegal
real agreement or intention of the parties. While it is a dispossession as well as that of the ownership over the
recognized remedy afforded by courts of equity it may not be property, he may commence such action in the Court of First
applied if it is contrary to well-settled principles or rules. It is a Instance immediately or at any time after such illegal
112
dispossession. If he decides to raise the question of illegal As early as September, 1988 prior to the construction of the
dispossession only, and the action is filed more than one (1) perimeter fence, Toyota was already aware of the discrepancies
year after such deprivation or withholding of possession, in the property's description in the title and the actual survey.
then the Court of First Instance will have original jurisdiction
over the case. (Bishop of Cebu v. Mangoron, 6 Phil. 286; The letter of its surveyor company, Summa Kumagai thus
Catholic Church v. Tarlac and Victoria, 9 Phil. 450; Ledesma v. reveals:
Marcos, 9 Phil. 618; Medina, et al. v. Valdellon, supra) The
former is an accion de reivindicacion which seeks the
recovery of ownership as well as possession, while the latter 09 September, 1988
refers to an accion publiciana, which is the recovery of the
right to possess and is a plenary action in an ordinary TOYOTA MOTOR PHILIPPINES CORPORATION
proceeding in the Court of First Instance. (Sec. 88, Rep. Act 10th Floor, Metrobank Plaza
No. 296; Rule 70, Rules of Court; Manila Railroad Co. v. Sen. Gil J. Puyat Ave.
Attorney General, 20 Phil. 523; Lim Cay v. Del, 55 Phil. 692; Makati, Metro Manila
Central Azucarera de Tarlac v. De Leon, 56 Phil. 169; Navarro
v. Aguila, 66 Phil. 604; Luna v. Carandang, 26 SCRA 306;
ATTENTION: MR. FLORENCIO JURADO
Medina, et al. v. Valdellon, supra; Pasaqui, et al. v.
Finance Officer
Villablanca, et al., supra).
In the instant case the existence of a "clear positive right" CESAR D. ELE
especially calling for judicial protection has been shown by Sun Project Manager (Emphasis supplied, Rollo, p. 811)
Valley.
The records also reveal that Toyota's own surveyor, the Certeza
Sun Valley, on the other hand has TCT No. 49019 of the Registry Surveying & Acrophoto Systems, Inc. confirmed in its reports
of Deeds of Paraaque embracing the aforesaid property in its dated April 1 and April 5, 1991 that Toyota's perimeter fence
name, having been validly acquired also from APT by virtue of a overlaps the boundaries of Sun Valley's lot (Rollo, pp. 833-383).
Deed of Sale executed in its favor on December 5, 1990 (Rollo,
pp. 823-825; 826-827).
Even communication exchanges between and among APT,
Toyota & Sun Valley show that the parties are certainly aware
There are other circumstances in the case which militate against that the ownership of the disputed property more properly
Toyota's claim for legal possession over the disputed area. pertains to Sun Valley. Among these are the following:91
The fact that Toyota has filed a suit for reformation seeking the MR. JOSE CH. ALVAREZ
inclusion of the 723 square meters strip of land is sufficient to President
deduce that it is not entitled to take over the piece of property it Sun Valley Manufacturing &
now attempts to appropriate for itself. Development Corp. (SVMDC)
Cor. Aurora Blvd. and Andrews Ave.
Pasay City, Metro Manila
113
Dear Mr. Alvarez: TOYOTA MOTOR PHILIPPINES CORPORATION
Rm. 15, South Superhighway
Paraaque, Metro Manila
Thank you for honoring our invitation to a luncheon meeting
held at noon time today at Sugi Restaurant.
ATTENTION: MR. MASAO MITAKE
President
As per our understanding, we would like to propose as a
package the settlement of differences between your property
and ours as follows: Gentlemen:
1. Boundary Issue between TMP Main Office & Factory and the This refers to our several meetings regarding the property
recently acquired property of SVMDC. problems at "Lot 6" and your encroachment of SVMD LOT I.
The boundary lines to our property lines bidded early 1988 We wish to thank you for finally acknowledging the legitimacy
were determined after making full payment in August 1988 of our demands on both properties. In order to start a good
jointly by representatives of TMP/Metrobank Messrs. Mitake, business relationship, we propose that the property problem
Pedrosa, Alonzo and Jurado, APT Mr. Bince together with at "LOT 6" which consists of the perimeter fence, water
representatives of Geo-Resources who installed the reservoir, water pump and systems be settled first, in the
monuments and prepared the technical description of the amount of P3,500,000.00 payable to CMANC.
property. The construction of the fence utilized existing fence
marked yellow on Exhibit 1 and made sure that the new fence We also would like to request you to allow us to continue
to set boundaries were on top of the monuments set by Geo- usage of the MERALCO posts and lines connecting to SVMD
Resources. The replacement of existing wire fence were power station which passes thru your property and allow entry
affected by setting concrete walls on exactly the same of MERALCO linemen from time to time.
position.
II. Question of ownership of certain permanent improvements Moreover, Sun Valley puts forth evidence that Toyota has altered
(underground water reservoir and perimeter walls/fences) the boundaries of its own property by moving the monuments
located at Lot 6 which we won by bidding from APT on erected thereon by APT's surveyor Geo-Resources and
October 5, 1990. Consultancy, Inc. when Lot 2 was initially surveyed in August
1988:
We have made our position to APT that these permanent
improvements are part of Lot 6 on "as is where is" bid basis The Asset Privitalization Trust
(See explanatory map Exhibit 3). However, since you have 10th Floor, BA-Lepanto Building
relayed to us that the underground water reservoir is of no 9847 Paseo de Roxas Building
use to you, as part of the total package we are proposing to Metro Manila
pay for the underground water reservoir, the applicable
perimeter walls/fences and the water pump/pipings at a price
mutually agreed upon. Attention: Mr. Felipe B. Bince, Jr.
Associate Executive Trustee
ii. a letter testimonial from reputable banks A copy of the draft Concession Agreement is included in
attesting that the project proponent and/or the the Bid Documents. Any material changes would be
members of the consortium are banking with made known to prospective challengers through bid
them, that the project proponent and/or the bulletins. However, a final version will be issued before
members are of good financial standing, and the award of contract.
have adequate resources.
The PBAC also stated that it would require AEDC to sign
d. The basis for the prequalification shall be the Supplement C of the Bid Documents (Acceptance of Criteria and
proponent's compliance with the minimum technical Waiver of Rights to Enjoin Project) and to submit the same with
and financial requirements provided in the Bid the required Bid Security.
Documents and the IRR of the BOT Law. The minimum
amount of equity shall be 30% of the Project Cost.
On September 20, 1996, the consortium composed of People's
Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and
e. Amendments to the draft Concession Agreement Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security
shall be issued from time to time. Said amendments Bank) (collectively, Paircargo Consortium) submitted their
shall only cover items that would not materially affect competitive proposal to the PBAC. On September 23, 1996, the
the preparation of the proponent's proposal. PBAC opened the first envelope containing the prequalification
documents of the Paircargo Consortium. On the following day,
On August 29, 1996, the Second Pre-Bid Conference was held September 24, 1996, the PBAC prequalified the Paircargo
where certain clarifications were made. Upon the request of Consortium.
prospective bidder People's Air Cargo & Warehousing Co., Inc
(Paircargo), the PBAC warranted that based on Sec. 11.6, Rule On September 26, 1996, AEDC informed the PBAC in writing of
11 of the Implementing Rules and Regulations of the BOT Law, its reservations as regards the Paircargo Consortium, which
only the proposed Annual Guaranteed Payment submitted by include:
the challengers would be revealed to AEDC, and that the
challengers' technical and financial proposals would remain
confidential. The PBAC also clarified that the list of revenue a. The lack of corporate approvals and financial
sources contained in Annex 4.2a of the Bid Documents was capability of PAIRCARGO;
merely indicative and that other revenue sources may be
included by the proponent, subject to approval by DOTC/MIAA. b. The lack of corporate approvals and financial
Furthermore, the PBAC clarified that only those fees and charges capability of PAGS;
denominated as Public Utility Fees would be subject to
regulation, and those charges which would be actually deemed
Public Utility Fees could still be revised, depending on the c. The prohibition imposed by RA 337, as amended (the
outcome of PBAC's query on the matter with the Department of General Banking Act) on the amount that Security Bank
Justice. could legally invest in the project;
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled d. The inclusion of Siemens as a contractor of the
"Answers to the Queries of PAIRCARGO as Per Letter Dated PAIRCARGO Joint Venture, for prequalification purposes;
September 3 and 10, 1996." Paircargo's queries and the PBAC's and
responses were as follows:
e. The appointment of Lufthansa as the facility
1. It is difficult for Paircargo and Associates to meet the operator, in view of the Philippine requirement in the
required minimum equity requirement as prescribed in operation of a public utility.
Section 8.3.4 of the Bid Documents considering that
the capitalization of each member company is so
116
The PBAC gave its reply on October 2, 1996, informing AEDC Government granted PIATCO the franchise to operate and
that it had considered the issues raised by the latter, and that maintain the said terminal during the concession period and to
based on the documents submitted by Paircargo and the collect the fees, rentals and other charges in accordance with
established prequalification criteria, the PBAC had found that the rates or schedules stipulated in the 1997 Concession
the challenger, Paircargo, had prequalified to undertake the Agreement. The Agreement provided that the concession period
project. The Secretary of the DOTC approved the finding of the shall be for twenty-five (25) years commencing from the in-
PBAC. service date, and may be renewed at the option of the
Government for a period not exceeding twenty-five (25) years.
At the end of the concession period, PIATCO shall transfer the
The PBAC then proceeded with the opening of the second
development facility to MIAA.
envelope of the Paircargo Consortium which contained its
Technical Proposal.
On November 26, 1998, the Government and PIATCO signed an
Amended and Restated Concession Agreement (ARCA). Among
On October 3, 1996, AEDC reiterated its objections, particularly
the provisions of the 1997 Concession Agreement that were
with respect to Paircargo's financial capability, in view of the
amended by the ARCA were: Sec. 1.11 pertaining to the
restrictions imposed by Section 21-B of the General Banking Act
definition of "certificate of completion"; Sec. 2.05 pertaining to
and Sections 1380 and 1381 of the Manual Regulations for
the Special Obligations of GRP; Sec. 3.02 (a) dealing with the
Banks and Other Financial Intermediaries. On October 7, 1996,
exclusivity of the franchise given to the Concessionaire; Sec.
AEDC again manifested its objections and requested that it be
4.04 concerning the assignment by Concessionaire of its interest
furnished with excerpts of the PBAC meeting and the
in the Development Facility; Sec. 5.08 (c) dealing with the
accompanying technical evaluation report where each of the
proceeds of Concessionaire's insurance; Sec. 5.10 with respect
issues they raised were addressed.
to the temporary take-over of operations by GRP; Sec. 5.16
pertaining to the taxes, duties and other imposts that may be
On October 16, 1996, the PBAC opened the third envelope levied on the Concessionaire; Sec. 6.03 as regards the periodic
submitted by AEDC and the Paircargo Consortium containing adjustment of public utility fees and charges; the entire Article
their respective financial proposals. Both proponents offered to VIII concerning the provisions on the termination of the contract;
build the NAIA Passenger Terminal III for at least $350 million at and Sec. 10.02 providing for the venue of the arbitration
no cost to the government and to pay the government: 5% proceedings in case a dispute or controversy arises between the
share in gross revenues for the first five years of operation, parties to the agreement.
7.5% share in gross revenues for the next ten years of
operation, and 10% share in gross revenues for the last ten
Subsequently, the Government and PIATCO signed three
years of operation, in accordance with the Bid Documents.
Supplements to the ARCA. The First Supplement was signed on
However, in addition to the foregoing, AEDC offered to pay the
August 27, 1999; the Second Supplement on September 4,
government a total of P135 million as guaranteed payment for
2000; and the Third Supplement on June 22, 2001 (collectively,
27 years while Paircargo Consortium offered to pay the
Supplements).
government a total of P17.75 billion for the same period.
The question on legal standing is whether such parties have Respondent PIATCO further alleges that this Court is without
"alleged such a personal stake in the outcome of the jurisdiction to review the instant cases as factual issues are
controversy as to assure that concrete adverseness which involved which this Court is ill-equipped to resolve. Moreover,
sharpens the presentation of issues upon which the court so PIATCO alleges that submission of this controversy to this Court
largely depends for illumination of difficult constitutional at the first instance is a violation of the rule on hierarchy of
questions."9 Accordingly, it has been held that the interest of a courts. They contend that trial courts have concurrent
person assailing the constitutionality of a statute must be direct jurisdiction with this Court with respect to a special civil action
and personal. He must be able to show, not only that the law or for prohibition and hence, following the rule on hierarchy of
any government act is invalid, but also that he sustained or is in courts, resort must first be had before the trial courts.
imminent danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers thereby in some
After a thorough study and careful evaluation of the issues
indefinite way. It must appear that the person complaining has
involved, this Court is of the view that the crux of the instant
been or is about to be denied some right or privilege to which he
controversy involves significant legal questions. The facts
is lawfully entitled or that he is about to be subjected to some
necessary to resolve these legal questions are well established
burdens or penalties by reason of the statute or act complained
and, hence, need not be determined by a trial court.
of.10
The rule on hierarchy of courts will not also prevent this Court
We hold that petitioners have the requisite standing. In the
from assuming jurisdiction over the cases at bar. The said rule
above-mentioned cases, petitioners have a direct and
may be relaxed when the redress desired cannot be obtained in
substantial interest to protect by reason of the implementation
the appropriate courts or where exceptional and compelling
of the PIATCO Contracts. They stand to lose their source of
circumstances justify availment of a remedy within and calling
livelihood, a property right which is zealously protected by the
for the exercise of this Court's primary jurisdiction.19
Constitution. Moreover, subsisting concession agreements
between MIAA and petitioners-intervenors and service contracts
between international airlines and petitioners-intervenors stand It is easy to discern that exceptional circumstances exist in
to be nullified or terminated by the operation of the NAIA IPT III the cases at bar that call for the relaxation of the rule. Both
under the PIATCO Contracts. The financial prejudice brought petitioners and respondents agree that these cases are
about by the PIATCO Contracts on petitioners and petitioners- of transcendental importance as they involve the
intervenors in these cases are legitimate interests sufficient to construction and operation of the country's premier international
confer on them the requisite standing to file the instant airport. Moreover, the crucial issues submitted for resolution are
petitions. of first impression and they entail the proper legal interpretation
of key provisions of the Constitution, the BOT Law and its
Implementing Rules and Regulations. Thus, considering the
b. G.R. No. 155547
nature of the controversy before the Court, procedural bars may
be lowered to give way for the speedy disposition of the instant
In G.R. No. 155547, petitioners filed the petition for prohibition cases.
as members of the House of Representatives, citizens and
taxpayers. They allege that as members of the House of
Legal Effect of the Commencement of Arbitration
Representatives, they are especially interested in the PIATCO
Proceedings by
Contracts, because the contracts compel the Government
and/or the House of Representatives to appropriate funds
necessary to comply with the provisions therein. 11 They cite PIATCO
provisions of the PIATCO Contracts which require disbursement
of unappropriated amounts in compliance with the contractual
There is one more procedural obstacle which must be overcome.
obligations of the Government. They allege that the Government
The Court is aware that arbitration proceedings pursuant to
obligations in the PIATCO Contracts which compel government
Section 10.02 of the ARCA have been filed at the instance of
expenditure without appropriation is a curtailment of their
respondent PIATCO. Again, we hold that the arbitration step
prerogatives as legislators, contrary to the mandate of the
taken by PIATCO will not oust this Court of its jurisdiction over
Constitution that "[n]o money shall be paid out of the treasury
the cases at bar.
except in pursuance of an appropriation made by law." 12
The PBAC has determined that any prospective bidder for the PIATCO maintains, however, that the Concession Agreement
construction, operation and maintenance of the NAIA IPT III attached to the Bid Documents is intended to be a draft, i.e.,
project should prove that it has the ability to provide equity in subject to change, alteration or modification, and that this
the minimum amount of 30% of the project cost, in accordance intention was clear to all participants, including AEDC, and
with the 70:30 debt-to-equity ratio prescribed in the Bid DOTC/MIAA. It argued further that said intention is expressed in
Documents. Thus, in the case of Paircargo Consortium, the PBAC Part C (6) of Bid Bulletin No. 3 issued by the PBAC which states:
should determine the maximum amounts that each member
of the consortium may commit for the construction, operation
6. Amendments to the Draft Concessions Agreement
and maintenance of the NAIA IPT III project at the time of pre-
121
Amendments to the Draft Concessions Agreement shall through public bidding, when such subsequent amendment was
be issued from time to time. Said amendments shall made without a new public bidding, is null and void:
only cover items that would not materially affect the
preparation of the proponent's proposal.
The Court agrees with the contention of counsel for the
plaintiffs that the due execution of a contract after
By its very nature, public bidding aims to protect the public public bidding is a limitation upon the right of the
interest by giving the public the best possible advantages contracting parties to alter or amend it without another
through open competition. Thus: public bidding, for otherwise what would a public
bidding be good for if after the execution of a
contract after public bidding, the contracting
Competition must be legitimate, fair and honest. In the
parties may alter or amend the contract, or even
field of government contract law, competition requires,
cancel it, at their will? Public biddings are held for
not only `bidding upon a common standard, a common
the protection of the public, and to give the public the
basis, upon the same thing, the same subject matter,
best possible advantages by means of open
the same undertaking,' but also that it be
competition between the bidders. He who bids or offers
legitimate, fair and honest; and not designed to
the best terms is awarded the contract subject of the
injure or defraud the government.31
bid, and it is obvious that such protection and best
possible advantages to the public will disappear if the
An essential element of a publicly bidded contract is that all parties to a contract executed after public bidding may
bidders must be on equal footing. Not simply in terms of alter or amend it without another previous public
application of the procedural rules and regulations imposed by bidding.35
the relevant government agency, but more importantly, on the
contract bidded upon. Each bidder must be able to bid on the
Hence, the question that comes to fore is this: is the 1997
same thing. The rationale is obvious. If the winning bidder is
Concession Agreement the same agreement that was offered for
allowed to later include or modify certain provisions in the
public bidding, i.e., the draft Concession Agreement attached to
contract awarded such that the contract is altered in any
the Bid Documents? A close comparison of the draft Concession
material respect, then the essence of fair competition in the
Agreement attached to the Bid Documents and the 1997
public bidding is destroyed. A public bidding would indeed be a
Concession Agreement reveals that the documents differ in at
farce if after the contract is awarded, the winning bidder may
least two material respects:
modify the contract and include provisions which are favorable
to it that were not previously made available to the other
bidders. Thus: a. Modification on the Public
It is inherent in public biddings that there shall be a fair Utility Revenues and Non-Public
competition among the bidders. The specifications in
such biddings provide the common ground or basis for
Utility Revenues that may be
the bidders. The specifications should, accordingly,
operate equally or indiscriminately upon all bidders.32
collected by PIATCO
The same rule was restated by Chief Justice Stuart of the
Supreme Court of Minnesota: The fees that may be imposed and collected by PIATCO under
the draft Concession Agreement and the 1997 Concession
Agreement may be classified into three distinct categories: (1)
The law is well settled that where, as in this case,
fees which are subject to periodic adjustment of once every two
municipal authorities can only let a contract for public
years in accordance with a prescribed parametric formula and
work to the lowest responsible bidder, the proposals
adjustments are made effective only upon written approval by
and specifications therefore must be so framed as to
MIAA; (2) fees other than those included in the first category
permit free and full competition. Nor can they enter
which maybe adjusted by PIATCO whenever it deems necessary
into a contract with the best bidder containing
without need for consent of DOTC/MIAA; and (3) new fees and
substantial provisions beneficial to him, not
charges that may be imposed by PIATCO which have not been
included or contemplated in the terms and
previously imposed or collected at the Ninoy Aquino
specifications upon which the bids were invited.33
International Airport Passenger Terminal I, pursuant to
Administrative Order No. 1, Series of 1993, as amended. The
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support glaring distinctions between the draft Concession Agreement
its argument that the draft concession agreement is subject to and the 1997 Concession Agreement lie in the types of fees
amendment, the pertinent portion of which was quoted above, included in each category and the extent of the supervision and
the PBAC also clarified that "[s]aid amendments shall only regulation which MIAA is allowed to exercise in relation thereto.
cover items that would not materially affect the
preparation of the proponent's proposal."
For fees under the first category, i.e., those which are subject
to periodic adjustment in accordance with a prescribed
While we concede that a winning bidder is not precluded from parametric formula and effective only upon written approval by
modifying or amending certain provisions of the contract bidded MIAA, the draft Concession Agreement includes the
upon, such changes must not constitute substantial or following:36
material amendments that would alter the basic
parameters of the contract and would constitute a denial
(1) aircraft parking fees;
to the other bidders of the opportunity to bid on the
same terms. Hence, the determination of whether or not a
modification or amendment of a contract bidded out constitutes (2) aircraft tacking fees;
a substantial amendment rests on whether the contract, when
taken as a whole, would contain substantially different terms
(3) groundhandling fees;
and conditions that would have the effect of altering the
technical and/or financial proposals previously submitted by
other bidders. The alterations and modifications in the contract (4) rentals and airline offices;
executed between the government and the winning bidder must
be such as to render such executed contract to be an entirely
(5) check-in counter rentals; and
different contract from the one that was bidded upon.
Attendant Liabilities refer to all amounts recorded and xxx xxx xxx
from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who
(c) GRP agrees with Concessionaire (PIATCO) that it shall
have provided, loaned or advanced funds actually used for
negotiate in good faith and enter into direct
the Project, including all interests, penalties, associated
agreement with the Senior Lenders, or with an agent of
fees, charges, surcharges, indemnities, reimbursements and
such Senior Lenders (which agreement shall be subject to
other related expenses, and further including amounts
the approval of the Bangko Sentral ng Pilipinas), in such
owed by Concessionaire to its suppliers, contractors and
form as may be reasonably acceptable to both GRP and
sub-contractors.48
Senior Lenders, with regard, inter alia, to the following
parameters:
It is clear from the above-quoted provisions that Government,
in the event that PIATCO defaults in its loan obligations,
xxx xxx xxx
is obligated to pay "all amounts recorded and from time to
time outstanding from the books" of PIATCO which the latter
owes to its creditors.49 These amounts include "all interests, (iv) If the Concessionaire [PIATCO] is in default under a
penalties, associated fees, charges, surcharges, indemnities, payment obligation owed to the Senior Lenders, and
reimbursements and other related expenses."50 This obligation as a result thereof the Senior Lenders have become entitled
of the Government to pay PIATCO's creditors upon PIATCO's to accelerate the Senior Loans, the Senior Lenders shall
default would arise if the Government opts to take over NAIA IPT have the right to notify GRP of the same, and without
III. It should be noted, however, that even if the Government prejudice to any other rights of the Senior Lenders or any
chooses the second option, which is to allow PIATCO's unpaid Senior Lenders' agent may have (including without
creditors operate NAIA IPT III, the Government is still at a risk of limitation under security interests granted in favor of the
being liable to PIATCO's creditors should the latter be unable to Senior Lenders), to either in good faith identify and
designate a qualified operator within the prescribed period. 51 In designate a nominee which is qualified under sub-clause
effect, whatever option the Government chooses to take (viii)(y) below to operate the Development Facility [NAIA
in the event of PIATCO's failure to fulfill its loan Terminal 3] or transfer the Concessionaire's [PIATCO] rights
obligations, the Government is still at a risk of assuming and obligations under this Agreement to a transferee which
PIATCO's outstanding loans. This is due to the fact that the is qualified under sub-clause (viii) below;
Government would only be free from assuming PIATCO's debts if
the unpaid creditors would be able to designate a qualified
xxx xxx xxx
operator within the period provided for in the contract.
Thus, the Government's assumption of liability is virtually
125
(vi) if the Senior Lenders, acting in good faith and using pay any and all amounts owed by PIATCO to its lenders in
reasonable efforts, are unable to designate a nominee or connection with NAIA IPT III. Worse, the conditions that would
effect a transfer in terms and conditions satisfactory to the make the Government liable for PIATCO's debts is triggered by
Senior Lenders within one hundred eighty (180) days after PIATCO's own default of its loan obligations to its Senior Lenders
giving GRP notice as referred to respectively in (iv) or (v) to which loan contracts the Government was never a party to.
above, then GRP and the Senior Lenders shall endeavor in The Government was not even given an option as to what
good faith to enter into any other arrangement relating to course of action it should take in case PIATCO defaulted in the
the Development Facility [NAIA Terminal 3] (other than a payment of its senior loans. The Government, upon PIATCO's
turnover of the Development Facility [NAIA Terminal 3] to default, would be merely notified by the Senior Lenders of the
GRP) within the following one hundred eighty (180) days. If same and it is the Senior Lenders who are authorized to appoint
no agreement relating to the Development Facility [NAIA a qualified nominee or transferee. Should the Senior Lenders fail
Terminal 3] is arrived at by GRP and the Senior Lenders to make such an appointment, the Government is then
within the said 180-day period, then at the end thereof automatically obligated to "directly deal and negotiate" with the
the Development Facility [NAIA Terminal 3] shall be Senior Lenders regarding NAIA IPT III. The only way the
transferred by the Concessionaire [PIATCO] to GRP or Government would not be liable for PIATCO's debt is for a
its designee and GRP shall make a termination qualified nominee or transferee to be appointed in place of
payment to Concessionaire [PIATCO] equal to the PIATCO to continue the construction, operation and maintenance
Appraised Value (as hereinafter defined) of the of NAIA IPT III. This "pre-condition", however, will not take the
Development Facility [NAIA Terminal 3] or the sum of contract out of the ambit of a direct guarantee by the
the Attendant Liabilities, if greater. Notwithstanding government as the existence, availability and willingness of a
Section 8.01(c) hereof, this Agreement shall be deemed qualified nominee or transferee is totally out of the
terminated upon the transfer of the Development Facility government's control. As such the Government is virtually at
[NAIA Terminal 3] to GRP pursuant hereto; the mercy of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders (that they
would appoint a qualified nominee or transferee or agree to
xxx xxx xxx
some other arrangement with the Government) and the
existence of a qualified nominee or transferee who is able and
Section 1.06. Attendant Liabilities willing to take the place of PIATCO in NAIA IPT III.
Attendant Liabilities refer to all amounts in each case The proscription against government guarantee in any
supported by verifiable evidence from time to time owed form is one of the policy considerations behind the BOT
or which may become owing by Concessionaire Law. Clearly, in the present case, the ARCA obligates the
[PIATCO] to Senior Lenders or any other persons or Government to pay for all loans, advances and obligations
entities who have provided, loaned, or advanced funds arising out of financial facilities extended to PIATCO for the
or provided financial facilities to Concessionaire implementation of the NAIA IPT III project should PIATCO default
[PIATCO] for the Project [NAIA Terminal 3], including, in its loan obligations to its Senior Lenders and the latter fails to
without limitation, all principal, interest, associated appoint a qualified nominee or transferee. This in effect would
fees, charges, reimbursements, and other related make the Government liable for PIATCO's loans should the
expenses (including the fees, charges and expenses of any conditions as set forth in the ARCA arise. This is a form of direct
agents or trustees of such persons or entities), whether government guarantee.
payable at maturity, by acceleration or otherwise, and
further including amounts owed by Concessionaire [PIATCO]
The BOT Law and its implementing rules provide that in order for
to its professional consultants and advisers, suppliers,
an unsolicited proposal for a BOT project may be accepted, the
contractors and sub-contractors.54
following conditions must first be met: (1) the project involves a
new concept in technology and/or is not part of the list of
It is clear from the foregoing contractual provisions that in the priority projects, (2) no direct government guarantee,
event that PIATCO fails to fulfill its loan obligations to its Senior subsidy or equity is required, and (3) the government
Lenders, the Government is obligated to directly negotiate and agency or local government unit has invited by publication other
enter into an agreement relating to NAIA IPT III with the Senior interested parties to a public bidding and conducted the
Lenders, should the latter fail to appoint a qualified nominee or same.56 The failure to meet any of the above conditions will
transferee who will take the place of PIATCO. If the Senior result in the denial of the proposal. It is further provided that the
Lenders and the Government are unable to enter into an presence of direct government guarantee, subsidy or equity will
agreement after the prescribed period, the Government must "necessarily disqualify a proposal from being treated and
then pay PIATCO, upon transfer of NAIA IPT III to the accepted as an unsolicited proposal." 57 The BOT Law clearly and
Government, termination payment equal to the appraised value strictly prohibits direct government guarantee, subsidy and
of the project or the value of the attendant liabilities equity in unsolicited proposals that the mere inclusion of a
whichever is greater. Attendant liabilities as defined in the provision to that effect is fatal and is sufficient to deny the
ARCA includes all amounts owed or thereafter may be owed by proposal. It stands to reason therefore that if a proposal can be
PIATCO not only to the Senior Lenders with whom PIATCO has denied by reason of the existence of direct government
defaulted in its loan obligations but to all other persons who guarantee, then its inclusion in the contract executed after the
may have loaned, advanced funds or provided any other type of said proposal has been accepted is likewise sufficient to
financial facilities to PIATCO for NAIA IPT III. The amount of invalidate the contract itself. A prohibited provision, the
PIATCO's debt that the Government would have to pay as a inclusion of which would result in the denial of a proposal
result of PIATCO's default in its loan obligations -- in case no cannot, and should not, be allowed to later on be inserted in the
qualified nominee or transferee is appointed by the Senior contract resulting from the said proposal. The basic rules of
Lenders and no other agreement relating to NAIA IPT III has justice and fair play alone militate against such an occurrence
been reached between the Government and the Senior Lenders and must not, therefore, be countenanced particularly in this
-- includes, but is not limited to, "all principal, interest, instance where the government is exposed to the risk of
associated fees, charges, reimbursements, and other related shouldering hundreds of million of dollars in debt.
expenses . . . whether payable at maturity, by acceleration or
otherwise."55
This Court has long and consistently adhered to the legal maxim
that those that cannot be done directly cannot be done
It is clear from the foregoing that the ARCA provides for indirectly.58 To declare the PIATCO contracts valid despite
a direct guarantee by the government to pay PIATCO's the clear statutory prohibition against a direct
loans not only to its Senior Lenders but all other entities government guarantee would not only make a mockery
who provided PIATCO funds or services upon PIATCO's of what the BOT Law seeks to prevent -- which is to
default in its loan obligation with its Senior Lenders. The expose the government to the risk of incurring a
fact that the Government's obligation to pay PIATCO's lenders monetary obligation resulting from a contract of loan
for the latter's obligation would only arise after the Senior between the project proponent and its lenders and to
Lenders fail to appoint a qualified nominee or transferee does which the Government is not a party to -- but would also
not detract from the fact that, should the conditions as stated in render the BOT Law useless for what it seeks to achieve
the contract occur, the ARCA still obligates the Government to - to make use of the resources of the private sector in
126
the "financing, operation and maintenance of shall be offset from the amount next payable by
infrastructure and development projects"59 which are Concessionaire to GRP.62
necessary for national growth and development but
which the government, unfortunately, could ill-afford to
PIATCO cannot, by mere contractual stipulation,
finance at this point in time.
contravene the Constitutional provision on temporary
government takeover and obligate the government to
IV pay "reasonable cost for the use of the Terminal and/or
Terminal Complex."63 Article XII, section 17 of the 1987
Constitution envisions a situation wherein the exigencies of the
Temporary takeover of business affected with public
times necessitate the government to "temporarily take over or
interest
direct the operation of any privately owned public utility or
business affected with public interest." It is the welfare and
Article XII, Section 17 of the 1987 Constitution provides: interest of the public which is the paramount consideration in
determining whether or not to temporarily take over a particular
business. Clearly, the State in effecting the temporary takeover
Section 17. In times of national emergency, when the
is exercising its police power. Police power is the "most
public interest so requires, the State may, during the
essential, insistent, and illimitable of powers." 64 Its exercise
emergency and under reasonable terms prescribed by
therefore must not be unreasonably hampered nor its exercise
it, temporarily take over or direct the operation of any
be a source of obligation by the government in the absence of
privately owned public utility or business affected with
damage due to arbitrariness of its exercise. 65 Thus, requiring the
public interest.
government to pay reasonable compensation for the reasonable
use of the property pursuant to the operation of the business
The above provision pertains to the right of the State in times of contravenes the Constitution.
national emergency, and in the exercise of its police power, to
temporarily take over the operation of any business affected
V
with public interest. In the 1986 Constitutional Commission, the
term "national emergency" was defined to include threat from
external aggression, calamities or national disasters, but not Regulation of Monopolies
strikes "unless it is of such proportion that would paralyze
government service."60 The duration of the emergency itself is
A monopoly is "a privilege or peculiar advantage vested in one
the determining factor as to how long the temporary takeover
or more persons or companies, consisting in the exclusive right
by the government would last.61 The temporary takeover by the
(or power) to carry on a particular business or trade,
government extends only to the operation of the business and
manufacture a particular article, or control the sale of a
not to the ownership thereof. As such the government is not
particular commodity."66 The 1987 Constitution strictly
required to compensate the private entity-owner of the
regulates monopolies, whether private or public, and even
said business as there is no transfer of
provides for their prohibition if public interest so requires. Article
ownership, whether permanent or temporary. The private
XII, Section 19 of the 1987 Constitution states:
entity-owner affected by the temporary takeover cannot,
likewise, claim just compensation for the use of the said
business and its properties as the temporary takeover by the Sec. 19. The state shall regulate or prohibit monopolies
government is in exercise of its police power and not of its when the public interest so requires. No combinations
power of eminent domain. in restraint of trade or unfair competition shall be
allowed.
Article V, Section 5.10 (c) of the 1997 Concession Agreement
provides: Clearly, monopolies are not per se prohibited by the Constitution
but may be permitted to exist to aid the government in carrying
on an enterprise or to aid in the performance of various services
Section 5.10 Temporary Take-over of operations by GRP.
and functions in the interest of the public.67 Nonetheless, a
determination must first be made as to whether public interest
. requires a monopoly. As monopolies are subject to abuses that
can inflict severe prejudice to the public, they are subject to a
higher level of State regulation than an ordinary business
(c) In the event the development Facility or any part
undertaking.
thereof and/or the operations of Concessionaire or any
part thereof, become the subject matter of or be
included in any notice, notification, or declaration In the cases at bar, PIATCO, under the 1997 Concession
concerning or relating to acquisition, seizure or Agreement and the ARCA, is granted the "exclusive right to
appropriation by GRP in times of war or national operate a commercial international passenger terminal within
emergency, GRP shall, by written notice to the Island of Luzon" at the NAIA IPT III. 68This is with the
Concessionaire, immediately take over the operations exception of already existing international airports in Luzon such
of the Terminal and/or the Terminal Complex. During as those located in the Subic Bay Freeport Special Economic
such take over by GRP, the Concession Period shall be Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in
suspended; provided, that upon termination of war, Laoag City.69 As such, upon commencement of PIATCO's
hostilities or national emergency, the operations shall operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease
be returned to Concessionaire, at which time, the to function as international passenger terminals. This, however,
Concession period shall commence to run does not prevent MIAA to use Terminals 1 and 2 as domestic
again.Concessionaire shall be entitled to passenger terminals or in any other manner as it may deem
reasonable compensation for the duration of the appropriate except those activities that would compete with
temporary take over by GRP, which compensation NAIA IPT III in the latter's operation as an international
shall take into account the reasonable cost for passenger terminal.70 The right granted to PIATCO
the use of the Terminal and/or Terminal Complex, to exclusively operate NAIA IPT III would be for a period of
(which is in the amount at least equal to the debt twenty-five (25) years from the In-Service Date 71 and renewable
service requirements of Concessionaire, if the for another twenty-five (25) years at the option of the
temporary take over should occur at the time when government.72 Both the 1997 Concession Agreement and
Concessionaire is still servicing debts owed to project the ARCA further provide that, in view of the exclusive
lenders), any loss or damage to the Development right granted to PIATCO, the concession contracts of the
Facility, and other consequential damages. If the service providers currently servicing Terminals 1 and 2
parties cannot agree on the reasonable compensation would no longer be renewed and those concession
of Concessionaire, or on the liability of GRP as contracts whose expiration are subsequent to the In-
aforesaid, the matter shall be resolved in accordance Service Date would cease to be effective on the said
with Section 10.01 [Arbitration]. Any amount date.73
determined to be payable by GRP to Concessionaire
127
The operation of an international passenger airport terminal is bar, have a valid and binding contract with the Government,
no doubt an undertaking imbued with public interest. In entering through MIAA, whose period of effectivity, as well as the other
into a BuildOperate-and-Transfer contract for the construction, terms and conditions thereof, cannot be violated.
operation and maintenance of NAIA IPT III, the government has
determined that public interest would be served better if private
In fine, the efficient functioning of NAIA IPT III is imbued with
sector resources were used in its construction and an exclusive
public interest. The provisions of the 1997 Concession
right to operate be granted to the private entity undertaking the
Agreement and the ARCA did not strip government, thru the
said project, in this case PIATCO. Nonetheless, the privilege
MIAA, of its right to supervise the operation of the whole NAIA
given to PIATCO is subject to reasonable regulation and
complex, including NAIA IPT III. As the primary government
supervision by the Government through the MIAA, which is the
agency tasked with the job, 79 it is MIAA's responsibility to ensure
government agency authorized to operate the NAIA complex, as
that whoever by contract is given the right to operate NAIA IPT
well as DOTC, the department to which MIAA is attached. 74
III will do so within the bounds of the law and with due regard to
the rights of third parties and above all, the interest of the
This is in accord with the Constitutional mandate that a public.
monopoly which is not prohibited must be regulated. 75While it is
the declared policy of the BOT Law to encourage private sector
VI
participation by "providing a climate of minimum government
regulations,"76 the same does not mean that Government must
completely surrender its sovereign power to protect public CONCLUSION
interest in the operation of a public utility as a monopoly. The
operation of said public utility can not be done in an arbitrary
In sum, this Court rules that in view of the absence of the
manner to the detriment of the public which it seeks to serve.
requisite financial capacity of the Paircargo Consortium,
The right granted to the public utility may be exclusive but the
predecessor of respondent PIATCO, the award by the PBAC of
exercise of the right cannot run riot. Thus, while PIATCO may be
the contract for the construction, operation and maintenance of
authorized to exclusively operate NAIA IPT III as an international
the NAIA IPT III is null and void. Further, considering that the
passenger terminal, the Government, through the MIAA, has the
1997 Concession Agreement contains material and substantial
right and the duty to ensure that it is done in accord with public
amendments, which amendments had the effect of converting
interest. PIATCO's right to operate NAIA IPT III cannot also violate
the 1997 Concession Agreement into an entirely different
the rights of third parties.
agreement from the contract bidded upon, the 1997 Concession
Agreement is similarly null and void for being contrary to public
Section 3.01(e) of the 1997 Concession Agreement and the policy. The provisions under Sections 4.04(b) and (c) in relation
ARCA provide: to Section 1.06 of the 1997 Concession Agreement and Section
4.04(c) in relation to Section 1.06 of the ARCA, which constitute
a direct government guarantee expressly prohibited by, among
3.01 Concession Period
others, the BOT Law and its Implementing Rules and Regulations
are also null and void. The Supplements, being accessory
xxx xxx xxx contracts to the ARCA, are likewise null and void.
(e) GRP confirms that certain concession WHEREFORE, the 1997 Concession Agreement, the Amended
agreements relative to certain services and and Restated Concession Agreement and the Supplements
operations currently being undertaken at the Ninoy thereto are set aside for being null and void. SO ORDERED.
Aquino International Airport passenger Terminal I have
a validity period extending beyond the In-Service
SECOND DIVISION G.R. No. L-47207 September 25, 1980
Date. GRP through DOTC/MIAA, confirms that these
services and operations shall not be carried over to
the Terminal and the Concessionaire is under no legal JOSE F. ESCANO, JESUS F. ESCANO, VICENTA F. ESCANO,
obligation to permit such carry-over except PILAR ESCANO-BERNAD, SAMUEL F. ESCANO, ANA MA. N.
through a separate agreement duly entered into with ILANO, MARIA LOURDES E. NOEL, PILAR VICTORIA E.
Concessionaire. In the event Concessionaire becomes NOEL and GABRIEL NOEL, for himself and the minor heirs
involved in any litigation initiated by any such of his deceased wife LOURDES ESCANO, petitioners-
concessionaire or operator, GRP undertakes and hereby appellants,
holds Concessionaire free and harmless on full
vs.
indemnity basis from and against any loss and/or any
COURT OF APPEALS and REPUBLIC OF THE
liability resulting from any such litigation, including the
cost of litigation and the reasonable fees paid or PHILIPPINES, respondents-appellees.
payable to Concessionaire's counsel of choice, all such
amounts shall be fully deductible by way of an offset
from any amount which the Concessionaire is bound to
pay GRP under this Agreement.
AQUINO, J.:
On November 29, 1972, the petitioners sued the Republic of the It also disregarded the rule that "no error which does not affect
Philippines (CAA) in the Court of First Instance of Cebu for the the jurisdiction over the subject matter will be considered unless
reconveyance of the ten lots (Civil Case No. L-13078). stated in the assignment of errors and properly argued in the
brief, save as the court, at its option, may notice plain errors not
After hearing, the trial court rendered a decision on October 30, specified, and also clerical errors" (Sec. 7, Rule 51, Rules of
1974, ordering the CAA to reconvey to the petitioners the ten Court).
lots after payment of the repurchase price of P31,977.
It departed from the accepted and usual course of an appeal by
The trial court found that the lots were no longer needed for the adjudicating a point which was not raised by the parties.
airport and that since 1964 they were never used for any Airport
facility. The 1964 contract of sale between the petitioners'
predecessors-in-interest and the Government is the law between
The petitioners (plaintiffs) appealed because the lower court did them. Had they intended that the conditions imposed in the
not award to them the reasonable compensation for the use and resale of General Campo's lots in 1961 should likewise be
occupation of the lots from the time that they tendered the imposed in the resale to the reversionary owners of the ten lots,
redemption price. they could have easily made a stipulation to that effect in the
1964 deed of sale.
The Government appealed because it believed that the
resolutory condition for the repurchase had not yet materialized. The fact that the contract of sale does not mention those
conditions means that they were never within the contemplation
of the parties. The Court of Appeals, in gratuitously imposing
The Court of Appeals affirmed the trial court's judgment allowing
those conditions, made a new contract for them.
the repurchase but it went farther. The Appellate Court ruled
that the repurchase should be subject to the same five
conditions which were imposed in 1961 on the resale made by In fact, the second condition "that the repurchases allow the
the CAA to General Isagani Campo of his two lots which are in CAA to continue using the property repurchased for airfield
proximity to petitioners' ten lots. Those conditions were as purposes, until such time as the airport operation is finally
follows (Exh. J-3): transferred to Mactan Airport" nullifies the reversion or
resolutory condition and negatives the trial court's findings that
the Lahug Aiport had ceased to be operational and that it had
(a) That all taxes imposed on the property
been replaced by the Mactan Airport.
from the time the property is repossessed by
the said spouses shall be paid by them.
The other point is that the Court of Appeals denied petitioners'
claim for reasonable compensation for the CAA's alleged use
(b) That the repurchasers shall allow the CAA
and occupancy of the lots from October 2, 1972 when the tender
to continue the property repurchased for
of the redemption price was made.
airfield purposes, until such time as the airport
operations are finally transferred to Mactan
Airport. The trial court disallowed that claim because (1) the
compensation was not stipulated by the parties in the contract
of sale; (2) the claim is inconsistent with petitioners' theory that
(c) That the CAA shall not pay any rents or
the CAA never used their lots for aviation purposes; (3) the
other charges for its continued use of the
Government, as owner, should not be required to pay rentals for
property.
the lots registered in its name, and (4) the petitioners'
predecessors-in-interest were able to use the price of P31,977.
(d) That the repurchase price of the property
in question shall be based on the price paid by
To those grounds, the Solicitor General adds that the CAA, as
the CAA for the acquisition.
owner, should not answer for the compensation for the use of
the lots before the issuance of a judicial declaration that the
(e) That the property shall not be resold by the resolutory condition had been fulfilled.
repurchasers until , the Lahug landing field is
finally transferred to Mactan Airport.
129
We hold that, while petitioners' claim for compensation may be the issue of performance bonus to voluntary arbitration" and
justified on the ground that the CAA should have reconveyed the that "the decision/award of the voluntary arbitrator shall be
ten lots upon the tender of the redemption price, nevertheless, respected and implemented by the parties as final and
it would seem to be inequitable to require the CAA to pay executory, in accordance with the law." 1
compensation when it had not derived any benefit from the lots.
On 14 August 1989, petitioner filed its position paper which
And, on the other hand, it is undeniable that during all the time aimed to show that the performance of the members of
that the reconveyance has not been effected the petitioners respondent union during the year was below the production
have been able to use the redemption price of P31,977 for their goals or targets set by Sime Darby for 1988-1989 and below
own purposes. previous years' levels for which reason the performance bonus
could not be granted. Petitioner there referred to the following
performance indicators: a) number of tires produced; b) degree
If any damage had been suffered by the petitioners due to the
of wastage of production materials; and c) number of pounds of
delay in the reconveyance, that damage might be equivalent to
tires produced per man hour. On that same day, 14 August
damnum absque injuria which is damage without injury or
1989, petitioner manifested before the Voluntary Arbitrator that
damage or injury inflicted without injustice, or loss or damage
it would file a Reply to the union's Position Paper submitted on
without violation of a legal right, or a wrong done to a man for
10 August 1989 not later than 18 August 1989.
which the law provides no remedy (1 Bouvier's Law Dictionary,
3rd Ed., p. 754).
However, before petitioner could submit its Reply to the union's
Position Paper, the Voluntary Arbitrator on 17 August 1989
The petitioners have been dealing with a governmental entity
issued an award which declared respondent union entitled to a
whose activities are presumably dictated by policy
performance bonus equivalent to 75% of the monthly basic pay
considerations and the public interest.
of its members. In that award, the Voluntary Arbitrator held that
a reading of the CBA provision on the performance bonus would
WHEREFORE, the decision of the Court of Appeals is modified by show that said provision was mandatory hence the only issue to
deleting therefrom the five conditions for the reconveyance of be resolved was the amount of performance bonus. The
the ten lots to the petitioners. The trial court's judgment is Voluntary Arbitrator further stated that petitioner company's
affirmed. No costs. SO ORDERED. financial statements as of 30 June 1988 revealed retained
earnings in the amount of P 324,370,372.32. From the foregoing,
THIRD DIVISION G.R. No. 90426 December 15, 1989 the Voluntary Arbitrator concluded that petitioner company
could well afford to give members of respondent union a
substantial performance bonus. The Voluntary Arbitrator also
SIME DARBY PILIPINAS, INC., petitioners, stated that there was evidence to show that the company has
vs. given performance bonuses to its managerial and non-unionized
DEPUTY ADMINISTRATOR BUENAVENTURA C. MAGSALIN employees as well as to monthly paid workers of the year 1988-
as Voluntary Arbitrator and the SIME DARBY EMPLOYEES 1989.
ASSOCIATION, respondents.
c) public policy encourages arbitration and arbitration WHEREFORE, the petition is DENIED, and the decision of the
agreements are to be liberally construed; Court of Appeals subject of the appeal is AFFIRMED. Costs
against petitioner.
BUENA , J.:
1) those "regarding the meaning, application or effect of the
agreement(s) or any clause thereof;" and
This appeal by certiorari under Rule 45 of the Rules of
Court seeks to annul and set aside the decision [1] of the Court of
2) those "in regard to the amount and computation of the Appeals[2] dated January 21, 1994 in CA-G.R. SP No. 29725,
royalties, deduction, or other item of expense" provided in the dismissing the petition for certiorari filed by petitioner to annul
agreement. the two (2) orders issued by the Regional Trial Court of
Makati[3] in Civil Case No. 92-145, the first, dated April 30, 1992,
The controversy involved in the action brought by Gregorian denying petitioner's motion to dismiss and the second, dated
against Western Minolco was the alleged violation by the latter October 1, 1992 denying petitioner's motion for reconsideration
of its agreements with the former, consisting of its entering into thereof.
a contract with a third party for the validation of mining claims
which it knew had already been located by Gregorian. What was The pertinent facts may be briefly stated as follows: Victor
involved, in other words, was the breach of faith, or the double Tancuan, one of the defendants in Civil Case No. 92-145, 0issued
dealing of Western Minolco in undertaking to validate in favor of Home Bankers Savings and Trust Company (HBSTC) check No.
133
193498 for P25,250,000.00 while Eugene Arriesgado issued Far respondent court held that "if the absence of a prior arbitration
East Bank and Trust Company (FEBTC) check Nos. 464264, may stay court action, so too and with more reason, should an
464272 and 464271 for P8,600,000.00, P8,500,000.00 arbitration already pending as obtains in this case stay the court
and P8,100,000.00, respectively, the three checks amounting action. A party to a pending arbitral proceeding may go to court
to P25,200,000.00. Tancuan and Arriesgado exchanged each to obtain conservatory reliefs in connection with his cause of
other's checks and deposited them with their respective banks action although the disposal of that action on the merits cannot
for collection. When FEBTC presented Tancuan's HBSTC check for as yet be obtained."[18] The respondent court
clearing, HBSTC dishonored it for being "Drawn Against discarded Puromines, Inc. vs. Court of Appeals,[19] stating that
Insufficient Funds." On October 15, 1991, HBSTC sent "perhaps Puromines may have been decided on a different
Arriesgado's three (3) FEBTC checks through the Philippine factual basis."[20]
Clearing House Corporation (PCHC) to FEBTC but was returned
on October 18, 1991 as "Drawn Against Insufficient Funds." In the instant petition,[21] petitioner contends that first, "no
HBSTC received the notice of dishonor on October 21, 1991 but party litigant can file a non-existent complaint," [22] arguing that
refused to accept the checks and on October 22, 1991, returned "one cannot file a complaint in court over a subject that is
them to FEBTC through the PCHC for the reason "Beyond undergoing arbitration."[23] Second, petitioner submits that
Reglementary Period," implying that HBSTC already treated the "[s]ince arbitration is a special proceeding by a clear provision of
three (3) FEBTC checks as cleared and allowed the proceeds law,[24] the civil suit filed below is, without a shadow of doubt,
thereof to be withdrawn.[4] FEBTC demanded reimbursement for barred by litis pendencia and should be dismissed de
the returned checks and inquired from HBSTC whether it had plano insofar as HBSTC is concerned." [25] Third, petitioner insists
permitted any withdrawal of funds against the unfunded checks that "[w]hen arbitration is agreed upon and suit is filed without
and if so, on what date. HBSTC, however, refused to make any arbitration having been held and terminated, the case that is
reimbursement and to provide FEBTC with the needed filed should be dismissed,"[26] citing Associated Bank vs. Court of
information. Appeals,[27] Puromines, Inc. vs. Court of Appeals, [28] and Ledesma
vs. Court of Appeals.[29] Petitioner demurs that
Thus, on December 12, 1991, FEBTC submitted the dispute the Puromines ruling was deliberately not followed by the
for arbitration before the PCHC Arbitration Committee, [5] under respondent court which claimed that:
the PCHC's Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional "xxx xxx.
clearing operations administered by the PCHC. [6]
On January 17, 1997, petitioners MCMC and MCHC filed a "D. Respondent Zosa is estopped from
petition for certiorari and prohibition under Rule 65 of the Rules questioning the validity of the arbitration
of Court with the Court of Appeals, questioning the trial court clause, including the right of petitioner MCMC
orders dated August 1, 1996, September 5, 1996, and to nominate its own arbitrator, which he
December 13, 1996.21 himself has invoked.
On March 21, 1997, the Court of Appeals rendered a decision, "II. In any event, the trial court acted without
giving due course to the petition, the decretal portion of which jurisdiction in hearing the case below, considering that
reads: it has no jurisdiction over the nature of the action or
suit since controversies in the election or appointment
"WHEREFORE, the petition is GIVEN DUE COURSE. The of officers or managers of a corporation, such as the
respondent court is directed to resolve the issue on the action brought by respondent Zosa, fall within the
validity or effectivity of the arbitration clause in the original and exclusive jurisdiction of the Securities and
Employment Agreement, and to suspend further Exchange Commission.
proceedings in the trial on the merits until the said
issue is resolved. The questioned orders are set aside "III. Contrary to respondent Zosa's allegation, the issue
insofar as they contravene this Court's resolution of the of the trial court's jurisdiction over the case below has
issues raised as herein pronounced. not yet been resolved with finality considering that
petitioners have expressly reserved their right to raise
"The petitioner is required to remit to this Court the said issue in the instant petition. Moreover, the
sum of P81.80 for cost within five (5) days from notice. principle of the law of the case is not applicable in the
instant case.
"SO ORDERED."22
"IV. Contrary to respondent Zosa's allegation,
petitioners MCMC and MCHC are not guilty of forum
Petitioners filed a motions for partial reconsideration of the CA
shopping.
decision praying (1) for the dismissal of the case in the trial
court, on the ground of lack of jurisdiction, and (2) that the
parties be directed to submit their dispute to arbitration in "V. Contrary to respondent Zosa's allegation, the
accordance with the Employment Agreement dated March 1994. instant petition for review involves only questions of
The CA, in a resolution promulgated on June 20, 1997, denied law and not of fact."24
the motion for partial reconsideration for lack of merit.
We rule against the petitioners.
In compliance with the CA decision, the trial court, on July 18,
1997, rendered a decision declaring the "arbitration clause" in It is error for the petitioners to claim that the case should fall
the Employment Agreement partially void and of no effect. The under the jurisdiction of the Securities and Exchange
dispositive portion of the decision reads: Commission [SEC, for brevity]. The controversy does not in
anyway involve the election/appointment of officers of petitioner
"WHEREFORE, premises considered, judgment is MCHC, as claimed by petitioners in their assignment of errors.
hereby rendered partially declaring the arbitration Respondent Zosa's amended complaint focuses heavily on the
clause of the Employment Agreement void and of no illegality of the Employment Agreement's "Arbitration Clause"
effect, only insofar as it concerns the composition of initially invoked by him in seeking his termination benefits under
the panel of arbitrators, and directing the parties to Section 8 of the employment contract. And under Republic Act
proceed to arbitration in accordance with the No. 876, otherwise known as the "Arbitration Law," it is the
Employment Agreement under the panel of three (3) regional trial court which exercises jurisdiction over questions
arbitrators, one for the plaintiff, one for the defendants, relating to arbitration. We thus advert to the following
and the third to be chosen by both the plaintiff and discussions made by the Court of Appeals, speaking thru Justice
defendants. The other terms, conditions and Minerva P. Gonzaga-Reyes,25 in C.A.-G.R. S.P. No. 43059, viz.
stipulations in the arbitration clause remain in force
and effect."23 "As regards the fourth assigned error, asserting that
jurisdiction lies with the SEC, which is raised for the
In view of the trial court's decision, petitioners filed this petition first time in this petition, suffice it to state that the
for review on certiorari, under Rule 45 of the Rules of Court, Amended Complaint squarely put in issue the question
assigning the following errors for the Court's resolution: whether the Arbitration Clause is valid and effective
between the parties. Although the controversy which
spawned the action concerns the validity of the
"I. The trial court gravely erred when it ruled that the
termination of the service of a corporate officer, the
arbitration clause under the employment agreement is
issue on the validity and effectivity of the arbitration
partially void and of no effect, considering that:
clause is determinable by the regular courts, and do
not fall within the exclusive and original jurisdiction of
"A. The arbitration clause in the employment the SEC.
agreement dated March 1994 between
respondent Zosa and defendants MCHC and
"The determination and validity of the agreement is not
MCMC is valid and binding upon the parties
a matter intrinsically connected with the regulation and
thereto.
internal affairs of corporations (see Pereyra vs. IAC, 181
SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather an
"B. In view of the fact that there are three ordinary case to be decided in accordance with the
parties to the employment agreement, it is but general laws, and do not require any particular
137
expertise or training to interpret and apply (Viray vs. "But as the defendants [herein petitioner] represent the
CA, 191 SCRA 308)."26 same interest, it could never be expected, in the
arbitration proceedings, that they would not protect
and preserve their own interest, much less, would both
Furthermore, the decision of the Court of Appeals in CA-G.R. SP
or either favor the interest of the plaintiff. The
No. 43059 affirming the trial court's assumption of jurisdiction
arbitration law, as all other laws, is intended for the
over the case has become the "law of the case" which now binds
good and welfare of everybody. In fact, what is being
the petitioners. The "law of the case" doctrine has been defined
challenged by the plaintiff herein is not the law itself
as "a term applied to an established rule that when an appellate
but the provision of the Employment Agreement based
court passes on a question and remands the cause to the lower
on the said law, which is the arbitration clause but only
court for further proceedings, the question there settled
as regards the composition of the panel of arbitrators.
becomes the law of the case upon subsequent appeal." 27 To
The arbitration clause in question provides, thus:
note, the CA's decision in CA-G.R. SP No. 43059 has already
attained finality as evidenced by a Resolution of this Court
ordering entry of judgment of said case, to wit: 'In the event that any dispute, controversy or claim arise out
of or under any provisions of this Agreement, then the
parties hereto agree to submit such dispute, controversy or
"ENTRY OF JUDGMENT
claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final
This is to certify that on September 8, 1997 a and binding. Arbitration shall be effected by a panel of three
decision/resolution rendered in the above-entitled case arbitrators. The Manager, Employee, and Corporation shall
was filed in this Office, the dispositive part of which designate one (1) arbitrator who shall, in turn, nominate and
reads as follows: elect as who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of
'G.R. No. 129615. (Magellan Capital an arbitration award, shall take place in Metro Manila. The
Management Corporation, et al. vs. Court of arbitrators shall interpret this Agreement in accordance with
Appeals, Rolando Zosa, et al.). Considering the the substantive laws of the Republic of the Philippines. The
petitioner's manifestation dated August 11, arbitrators shall have no power to add to, subtract from or
1997 and withdrawal of intention to file otherwise modify the terms of this Agreement or to grant
petition for review on certiorari, the Court injunctive relief of any nature. Any judgment upon the award
Resolved to DECLARE THIS CASE TERMINATED of the arbitrators may be entered in any court having
and DIRECT the Clerk of Court to INFORM the jurisdiction thereof, with costs of the arbitration to be borne
parties that the judgment sought to be equally by the parties, except that each party shall pay the
reviewed has become final and executory, no fees and expenses of its own counsel in the arbitration.'
appeal therefore having been timely (Emphasis supplied).
perfected.'
"From the foregoing arbitration clause, it appears that the
and that the same has, on September 17, 1997, two (2) defendants [petitioners] (MCMC and MCHC) have one
become final and executory and is hereby recorded in (1) arbitrator each to compose the panel of three (3)
the Book of Entries of Judgments."28 arbitrators. As the defendant MCMC is the Manager of
defendant MCHC, its decision or vote in the arbitration
proceeding would naturally and certainly be in favor of its
Petitioners, therefore, are barred from challenging anew, employer and the defendant MCHC would have to protect
through another remedial measure and in any other forum, the and preserve its own interest; hence, the two (2) votes of
authority of the regional trial court to resolve the validity of the both defendants (MCMC and MCHC) would certainly be
arbitration clause, lest they be truly guilty of forum-shopping against the lone arbitrator for the plaintiff [herein
which the courts consistently consider as a contumacious defendant]. Hence, apparently, plaintiff [defendant] would
practice that derails the orderly administration of justice. never get or receive justice and fairness in the arbitration
proceedings from the panel of arbitrators as provided in the
Equally unavailing for the petitioners is the review by this Court, aforequoted arbitration clause. In fairness and justice to the
via the instant petition, of the factual findings made by the trial plaintiff [defendant], the two defendants (MCMC and MCHC)
court that the composition of the panel of arbitrators would, in [herein petitioners] which represent the same interest should
all probability, work injustice to respondent Zosa. We have be considered as one and should be entitled to only one
repeatedly stressed that the jurisdiction of this Court in a arbitrator to represent them in the arbitration proceedings.
petition for review on certiorari under Rule 45 of the Revised Accordingly, the arbitration clause, insofar as the
Rules of Court is limited to reviewing only errors of law, not of composition of the panel of arbitrators is concerned should
fact, unless the factual findings complained of are devoid of be declared void and of no effect, because the law says, "Any
support by the evidence on record, or the assailed judgment is clause giving one of the parties power to choose more
based on misapprehension of facts.29 arbitrators than the other is void and of no effect" (Article
2045, Civil Code).
Even if procedural rules are disregarded, and a scrutiny of the
merits of the case is undertaken, this Court finds the trial court's "The dispute or controversy between the defendants (MCMC
observations on why the composition of the panel of arbitrators and MCHC) [herein petitioners] and the plaintiff [herein
should be voided, incisively correct so as to merit our approval. defendant] should be settled in the arbitration proceeding in
Thus, accordance with the Employment Agreement, but under the
panel of three (3) arbitrators, one (1) arbitrator to represent
the plaintiff, one (1) arbitrator to represent both defendants
"From the memoranda of both sides, the Court is of the
(MCMC and MCHC) [herein petitioners] and the third
view that the defendants [petitioner] MCMC and MCHC
arbitrator to be chosen by the plaintiff [defendant Zosa] and
represent the same interest. There is no quarrel that
defendants [petitioners].
both defendants are entirely two different corporations
with personalities distinct and separate from each other
and that a corporation has a personality distinct and "xxx xxx xxx"30
separate from those persons composing the
corporation as well as from that of any other legal In this connection, petitioners' attempt to put respondent in
entity to which it may be related. estoppel in assailing the arbitration clause must be struck down.
For one, this issue of estoppel, as likewise noted by the Court of
Appeals, found its way for the first time only on appeal. Well-
138
settled is the rule that issues not raised below cannot be have bound themselves to accept the decision of the arbitrator
resolved on review in higher courts. 31 Secondly, employment as final and binding.
agreements such as the one at bar are usually contracts of
adhesion. Any ambiguity in its provisions is generally resolved Arbitration may be classified, on the basis of the obligation on
against the party who drafted the document. Thus, in the which it is based, as either compulsory or voluntary.
relatively recent case of Phil. Federation of Credit Cooperatives,
Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria
Abril,32 we had the occasion to stress that "where a contract of Compulsory arbitration is a system whereby the parties to a
employment, being a contract of adhesion, is ambiguous, any dispute are compelled by the government to forego their right to
ambiguity therein should be construed strictly against the party strike and are compelled to accept the resolution of their dispute
who prepared it." And, finally, respondent Zosa never submitted through arbitration by a third party. 1The essence of arbitration
himself to arbitration proceedings (as there was none yet) remains since a resolution of a dispute is arrived at by resort to
before bewailing the composition of the panel of arbitrators. He a disinterested third party whose decision is final and binding on
in fact, lost no time in assailing the "arbitration clause" upon the parties, but in compulsory arbitration, such a third party is
realizing the inequities that may mar the arbitration proceedings normally appointed by the government.
if the existing line-up of arbitrators remained unchecked.
Under voluntary arbitration, on the other hand, referral of a
We need only to emphasize in closing that arbitration dispute by the parties is made, pursuant to a voluntary
proceedings are designed to level the playing field among the arbitration clause in their collective agreement, to an impartial
parties in pursuit of a mutually acceptable solution to their third person for a final and binding resolution. 2Ideally,
conflicting claims. Any arrangement or scheme that would give arbitration awards are supposed to be complied with by both
undue advantage to a party in the negotiating table is anathema parties without delay, such that once an award has been
to the very purpose of arbitration and should, therefore, be rendered by an arbitrator, nothing is left to be done by both
resisted. parties but to comply with the same. After all, they are
presumed to have freely chosen arbitration as the mode of
settlement for that particular dispute. Pursuant thereto, they
WHEREFORE, premises considered, the petition is hereby have chosen a mutually acceptable arbitrator who shall hear
DISMISSED and the decision of the trial court dated July 18, and decide their case. Above all, they have mutually agreed to
1997 is AFFIRMED.SO ORDERED. de bound by said arbitrator's decision.
EN BANCG.R. No. 120319 October 6, 1995 In the Philippine context, the parties to a Collective Bargaining
Agreement (CBA) are required to include therein provisions for a
LUZON DEVELOPMENT BANK, petitioner, machinery for the resolution of grievances arising from the
vs. interpretation or implementation of the CBA or company
ASSOCIATION OF LUZON DEVELOPMENT BANK personnel policies. 3 For this purpose, parties to a CBA shall
EMPLOYEES and ATTY. ESTER S. GARCIA in her capacity name and designate therein a voluntary arbitrator or a panel of
as VOLUNTARY ARBITRATOR, respondents. arbitrators, or include a procedure for their selection, preferably
from those accredited by the National Conciliation and Mediation
Board (NCMB). Article 261 of the Labor Code accordingly
ROMERO, J.:
provides for exclusive original jurisdiction of such voluntary
arbitrator or panel of arbitrators over (1) the interpretation or
From a submission agreement of the Luzon Development Bank implementation of the CBA and (2) the interpretation or
(LDB) and the Association of Luzon Development Bank enforcement of company personnel policies. Article 262
Employees (ALDBE) arose an arbitration case to resolve the authorizes them, but only upon agreement of the parties, to
following issue: exercise jurisdiction over other labor disputes.
Whether or not the company has violated the On the other hand, a labor arbiter under Article 217 of the Labor
Collective Bargaining Agreement provision and Code has jurisdiction over the following enumerated cases:
the Memorandum of Agreement dated April
1994, on promotion.
. . . (a) Except as otherwise provided under this Code the
Labor Arbiters shall have original and exclusive jurisdiction to
At a conference, the parties agreed on the submission of their hear and decide, within thirty (30) calendar days after the
respective Position Papers on December 1-15, 1994. Atty. Ester submission of the case by the parties for decision without
S. Garcia, in her capacity as Voluntary Arbitrator, received extension, even in the absence of stenographic notes, the
ALDBE's Position Paper on January 18, 1995. LDB, on the other following cases involving all workers, whether agricultural or
hand, failed to submit its Position Paper despite a letter from the non-agricultural:
Voluntary Arbitrator reminding them to do so. As of May 23,
1995 no Position Paper had been filed by LDB.
1. Unfair labor practice cases;
(B) Exclusive appellate jurisdiction over all In the same vein, it is worth mentioning that under Section 22 of
final judgments, decisions, resolutions, orders or Republic Act No. 876, also known as the Arbitration Law,
awards of Regional Trial Courts and quasi-judicial arbitration is deemed a special proceeding of which the court
agencies, instrumentalities, boards or commissions, specified in the contract or submission, or if none be specified,
including the Securities and Exchange Commission, the the Regional Trial Court for the province or city in which one of
Employees Compensation Commission and the Civil the parties resides or is doing business, or in which the
Service Commission, except those falling within the arbitration is held, shall have jurisdiction. A party to the
appellate jurisdiction of the Supreme Court in controversy may, at any time within one (1) month after an
accordance with the Constitution, the Labor Code of the award is made, apply to the court having jurisdiction for an
Philippines under Presidential Decree No. 442, as order confirming the award and the court must grant such order
amended, the provisions of this Act, and of unless the award is vacated, modified or corrected. 19
subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17
In effect, this equates the award or decision of the voluntary
of the Judiciary Act of 1948.
arbitrator with that of the regional trial court. Consequently, in a
petition for certiorari from that award or decision, the Court of
xxx xxx xxx Appeals must be deemed to have concurrent jurisdiction with
the Supreme Court. As a matter of policy, this Court shall
Assuming arguendo that the voluntary arbitrator or the panel of henceforth remand to the Court of Appeals petitions of this
voluntary arbitrators may not strictly be considered as a quasi- nature for proper disposition.
judicial agency, board or commission, still both he and the panel
are comprehended within the concept of a "quasi-judicial
instrumentality." It may even be stated that it was to meet the
140
ACCORDINGLY, the Court resolved to REFER this case to the effected, one after the other, during the late hours of
Court of Appeals.SO ORDERED. May 16 and the wee hours of May 17, 1996, a time
span of only seven (7) hours.
SECOND DIVISIONA.M. No. RTJ-00-1568 February 15,
2001 Three (3) related informations7 were then filed against Wang,
which were consolidated in Branch 18 of the Regional Trial Court
(RTC, for brevity) of Manila, presided by the respondent judge.
HON. ROBERT Z. BARBERS, Secretary of the Interior and
The charges were docketed as Criminal Case No. 96-149990 (for
Local Government, JUANITO DE GUZMAN and LUCIO
violation of section 16, Article III of Republic Act No. 6425,
MARGALLO IV, petitioners,
otherwise known as the Dangerous Drugs Act, as amended),
vs.
Criminal Case No. 96-149991(for violation of Presidential Decree
JUDGE PERFECTO A.S. LAGUIO, JR., respondent.
No. 1866 [Illegal Possession of Firearms]), and Criminal Case No.
96-149992 (for violation of COMELEC Resolution 2828 in relation
DE LEON, JR., J.: to Republic Act No. 7166 [COMELEC Gun Ban]).
Before us is an administrative complaint for alleged violation of Prior to his arraignment, Wang filed a motion for preliminary
Article 204 (Knowingly Rendering Unjust Judgment) of the investigation dated June 11, 1996 which was granted by the trial
Revised Penal Code, section 3(e) of Republic Act No. 3019 and court in an Order dated June 27, 1996. During the preliminary
sections 4(b) and (c) of Republic Act No. 6713, filed against investigation before the prosecutor, Wang denied that illegal
respondent judge in connection with his acquittal of the accused drugs or unlicensed firearms were found in his possession. The
LAWRENCE WANG y CHEN in Criminal Case Nos. 96-149990, 96- cases were later remanded to the trial court after Assistant City
149991 and 96-149992. Prosecutor Michaela M. Cua submitted a Resolution dated
August 22, 1996 finding probable cause against Wang. Fearing
On April 10, 1997, complainants ROBERT Z. BARBERS,1 JUANITO that his objection to his warrantless arrest and search would be
DE GUZMAN and LUCIO MARGALLO IV filed a joint complaint- waived by his entering a plea, Wang through counsel filed a
affidavit with the Office of the Ombudsman charging respondent Manifestation on November 7, 1996 making of record his
Judge PERFECTO A.S. LAGUIO, JR., of allegedly violating Article continuing objection to his warrantless arrest and praying that
204 of the Revised Penal Code, section 3(e) of Republic Act No. the trial court enter a plea of "not guilty" on his behalf. Acting on
3019,2and section 4, subsections (b) and (c) of Republic Act No. Wang's Manifestation, respondent judge entered a plea of "not
6713.3 Considering the Evaluation Report4 with recommendation guilty" for Wang as reflected in his Order of November 8, 1996.
of its Evaluation and Preliminary Investigation Bureau, the Office
of the Ombudsman endorsed 5the case to the Office of the Court During the trial, the prosecution presented and offered the
Administrator on May 9, 1997. It was pointed out in said testimonies of Insp. Cielito Coronel and Reynaldo Cristobal of the
Evaluation Report "that respondent is primarily accused of PARAC team who arrested Wang, and Felicisima Francisco,
Knowingly Rendering Unjust Judgment." forensic chemist of the National Bureau of Investigation, who
conducted laboratory tests to determine if the confiscated
The administrative complaint stemmed from the acquittal by substance was indeed "shabu", a prohibited drug.
respondent judge of Lawrence Wang, a Hong Kong national who
was apprehended by elements of the Public Assistance and During the hearing on December 6, 1996, the prosecution
Reaction Against Crime or PARAC, DILG, in Malate, Manila in the formally rested its case. In turn, the defense filed a motion for
early morning of May 17, 1996, the particulars of which are leave of court to file a Demurrer to Evidence. The trial court
described in the complainants' Joint Complaint-Affidavit 6 dated granted the defense's motion in an Order of the same date and
April 1, 1997, as follows: gave Wang a period of twenty-five (25) days from receipt
thereof within which to file a Demurrer to Evidence, and the
At about 7 p.m. on May 16, 1996, members of the prosecution a similar period to file its opposition thereto. An
PARAC led by P/Sr. Insp. Lucio Margallo, IV effected the undated Demurrer to Evidence was then filed by Wang through
arrest of SPO1 VERGEL DE DIOS, ROBERTO ANOBLING counsel on January 9, 1997.
and RESTITUTO ARELLANO during an entrapment
operation. This trio then called on their cohorts to bring Subsequently, Assistant City Prosecutor Winnie M. Edad filed a
in additional batch of shabu. After four (4) hours, or at "Manifestation with Motion" stating that the prosecution is
about 11 p.m. of May 16, 1996, PIO REDENTOR TECH resting its case against the accused, Wang, insofar as Criminal
and JOSEPH JUNIO arrived to deliver 150 grams of Case No. 96-149990 only was concerned but excluding the two
shabu. Tech and Junio were likewise arrested at 11 p.m. (2) remaining cases for illegal possession of firearms and
while they were delivering the shabu to de Dios and violation of the COMELEC gun ban, wherein the prosecution
company. When interrogated Tech and Junio disclosed claimed it has not yet rested. Consequently, in an Order dated
that a big transaction of shabu was about to be made January 14, 1997, the trial court set further hearings on the two
at an apartment along Maria Orosa St., Malate, Manila. (2) remaining cases on January 21, February 5, 11 and 12, 1997.
They also admitted that they worked for Lawrence
Wang. Accordingly, the PARAC immediately proceeded
On March 13, 1997, respondent judge issued a Resolution
to said place and conducted surveillance or stake-out
granting Wang's Demurrer to Evidence and acquitting Wang in
operations. After three (3) hours, or about 2:10 a.m. of
the said three (3) closely related cases. Respondent judge
the following day, May 17, 1996, the PARAC agents saw
declared therein and made the finding that:
a man, previously described by TECH as Wang and
identified by a police asset, coming out of the aforesaid
apartment and walking towards a parked BMW car. xxx xxx xxx
After Wang had opened the trunk compartment of the
car, the PARAC agents approached Wang and The threshold issue raised by accused in his
confronted him to ascertain his identity. P/Sr. Insp. Demurrer to Evidence is whether his warrantless
Margallo also prevented Wang from closing the trunk. arrest and search were lawful as argued by the
They then saw the bags of shabu inside the trunk. A prosecution, or unlawful as asserted by the
further search yielded cash amount of P650,000.00 in defense.
small denominations, one (1) mechanical scale and one
(1) electronic scale and two (2) unlicensed firearms,
namely: (1) AMT automatic pistol, cal. 380/9mm and (2) Under Section 5, Rule 113 of the New Rules of Court, a
Daewoo automatic pistol, cal. 9mm. Accordingly, the peace officer may arrest a person without a warrant:
accused was arrested. In all, three (3) arrests were (a) when, in his presence, the person to be arrested has
committed, is actually committing, or is attempting to
141
commit an offense; (b) when an offense has in fact just receipt of the respondent's comment strongly denying and
been committed, and he has personal knowledge of disputing the administrative charges against him and upon the
facts indicating that the person to be arrested has recommendation of OCA, this Court referred the matter to the
committed it, and (c) when the person to be arrested is then Court of Appeals Associate Justice (now Supreme Court
a prisoner who has escaped from a penal establishment Associate Justice) Consuelo Ynares-Santiago for investigation
or place where he is serving final judgment or and report. On September 7, 1998, she submitted her Report
temporarily confined while being transferred from one recommending that respondent judge be reprimanded and
confinement to another. None of these circumstances meted a fine equivalent to six (6) months salary. Her findings
were present when the accused was arrested. The were adopted by the Office of the Court Administrator, per its
accused was merely walking from the Maria Orosa Memorandum9 of December 2, 1999, to wit:
apartment and was about to enter the parked BMW car
when the police officers arrested and frisked him and xxx xxx xxx
searched his car. The accused was not committing any
visible offense at the time of his arrest. Neither was
there an indication that he was about to commit a The conduct of respondent, given the peculiar facts prevailing
crime or that he had just committed an offense. The in this case, leaves much to be desired vis--vis these legal
unlicensed AMT Cal. 380 9mm Automatic Back-up Pistol yardsticks. The abruptness and inordinate haste in which he
[sic] that the accused had in his possession was dismissed the charges against the accused gave rise to the
concealed inside the right front pocket of his pants. And suspicion that he railroaded the proceedings to favor the
the handgun was bantam and slim in size that it would accused.
not give an outward indication of a concealed gun if
placed inside the pants' side pocket as was done by the The records show that two members of the team which
accused. The arresting officers had no information arrested Lawrence Wang, namely P/Insp. Cielito Coronel and
and knowledge that the accused was carrying an SPO3 Reynaldo Cristobal were the only witnesses who
unlicensed handgun, nor did they see him in testified on the facts regarding the warrantless arrest and
possession thereof immediately prior to his seizure. The principal witness and leader of the team, P/Sr.
arrest. Insp. Lucio Margallo IV, who more than anybody else has the
personal knowledge of the circumstances surrounding the
Ditto on the 32 bags of shabu and the other unlicensed arrest of Wang was never presented as a witness. It must be
Daewoo Cal. 9mm Pistol with magazine that were found pointed out in this regard that Margallo, as leader of the
and seized from the car. The contraband items in arresting team could have clarified the circumstances
the car were not in plain view. The 32 bags of surrounding the arrest of Wang and the seizure of the drugs,
shabu were in the trunk compartment, and the firearms and cash found in the car especially the highly
Daewoo handgun was underneath the driver's contentious issue of whether or not the trunk of the car which
seat of the car. The police officers had no contained the "shabu" was already open with said prohibited
information, or knowledge that the banned drug in plain view when he and his team members
articles were inside the car, or that the accused approached. The record, however, discloses that after the
had placed them there. The police officers prosecutor handling the cases conferred with respondent,
searched the car on mere suspicion that there thereafter, Margallo's testimony was dispensed with on the
was shabu therein. dubious ground that it would merely be corroborative. xxx
xxx xxx xxx The record also reveals that Margallo received only one
subpoena to appear in Crim. Case No. 96-149990 (Violation of
Dangerous Drugs Act) on December 6, 1996 xxx.
Respondent judge then issued on the same day an Order dated Unfortunately, he was not able to attend because he was on
March 13, 1997 setting the promulgation of his aforequoted leave at the time xxx and only learned about the hearing after
Resolution on March 20, 1997. December 6, 1996 xxx. Curiously, no other summons were
served on him to testify despite his instructions to SPO3
On the day before the scheduled promulgation, SPO3 Cristobal Cristobal to manifest in Court that he be subpoenaed to testify
claimed that he received a telephone call from a person xxx. As in Crim. Case No. 96-149990, he also received only
claiming to be the branch clerk of court of RTC Manila, Branch one (1) subpoena in the other cases but the reason therefor
18. The caller, according to Cristobal, instructed him to bring to was for the Evidence Custodian namely, SPO3 Cristobal who
court the next day the money confiscated from Wang. Cristobal was under him, to bring the confiscated items in court xxx.
complied. The only other time he received a subpoena was when he was
required to attend the scheduled hearing on March 20, 1997
and he was not aware that said notice requiring his presence
After the Resolution of March 13, 1997 was promulgated by the
on said date was already for the promulgation of the order
trial court, Cristobal was presented with a special power-of-
granting the demurrer to evidence xxx.
attorney8 dated February 12, 1997 executed by Wang
authorizing his counsel, Atty. Oliver Lozano, to receive the
confiscated money. Cristobal handed over the money to Atty. The Resolution granting the demurrer to evidence dismissing
Oliver Lozano, but he first required Atty. Lozano to accomplish a all three (3) cases against Wang is likewise anchored on infirm
receipt written on the special power-of-attorney itself. legal moorings.
Not satisfied with Wang's acquittal, petitioners Barbers et. al., Section 15, Rule 119 of the Revised Rules of Criminal
filed the said Joint Complaint-Affidavit against respondent judge Procedure provides that:
before the Office of the Ombudsman. They also filed an
administrative complaint against the trial prosecutor, Assistant "Sec. 15. Demurrer to evidence. After the prosecution has
City Prosecutor Edad, for alleged gross neglect of duty in his rested its case, the court may dismiss the case on the ground
handling of the Wang cases. However, on September 6, 1999, of insufficiency of evidence: (1) on its own initiate (sic) after
the Department of Justice issued its Resolution dismissing the giving the prosecution an opportunity to be heard; or (2) on
administrative complaint against Edad for lack of merit. motion of the accused with prior leave of court.
After the said Joint Complaint-Affidavit of the complainants If the court denies the motion for dismissal, the accused may
(herein petitioners) against respondent judge was endorsed by adduce evidence in his defense. When the accused files such
the Ombudsman to the Office of the Court Administrator, this motion without the express leave of court, he waives the right
Court required the respondent to comment thereon. After its
142
to present evidence and submits the case for judgment on the document which he required said counsel to sign xxx. The
basis of the evidence for the prosecution." date of the execution of the Special Power of Attorney which
was more than a month prior to the promulgation of the
resolution only fueled Cristobal's suspicion that the
The rule is not applicable if the prosecution has not yet rested
proceedings were already rigged in Wang's favor xxx.
its case xxx.
P1,447,670.00 as the value of the accomplished works of the NAPOCORs Motion for Reconsideration of the said
Plaintiff that were destroyed by the waters released by the Order[14] was denied.[15]
opening of the spillway gates.
Plaintiff is directed to pay the Defendant its counterclaim: THE REGIONAL TRIAL COURT ERRED IN AFFIRMING THE
DECISION OF THE ARBITRAL TRIBUNAL DESPITE THE FACT THAT
P1,047,850.00 as the cost of rectification of the defective works A COPY OF THE ARBITRAL DECISION DATED MAY 14, 1998
performed by Plaintiff SUBMITTED BY GROGUN WAS NOT VERIFIED.
In its Comment, NAPOCOR argued that the foregoing On March 30, 2001, the Court of Appeals rendered a
Motion is premature because the Arbitration Tribunal had not decision,[18] reversing the Orders of the Regional Trial Court in
submitted its recommendation to the trial court and the same Quezon City, Branch 216 in Civil Case No. Q-96-28731, dated
had not been approved or adopted by the trial court. [11] September 15, 1998 and January 8, 1999 and remanded the
case to the trial court for further proceedings. [19]
THE COURT OF APPEALS PATENTLY ERRED IN NOT 6. SIMPLY AN ASSURANCE AGAINST PRODUCTS OF IMAGINATION;
DISMISSING THE APPEAL, DESPITE:
7. CANNOT BE RAISED AS AN OBJECTION FOR THE FIRST TIME ON
1. THE DEFECT OF NOT HAVING FILED A RECORD ON APPEAL WHICH APPEAL; HAS BEEN COMPLIED WITH BY PETITIONERS
IS REQUIRED IN SPECIAL PROCEEDINGS SUCH AS MOTION TO CONFIRM/ MODIFY THE SAME;
ARBITRATION UNDER REPUBLIC ACT NO. 876;
8. NOT NECESSARY WHERE AN OPPOSITION IS NOT BASED ON
2. THE FILING OF THE BRIEF HAVING BEEN DELAYED FOR MORE FRAUD, ACCIDENT, MISTAKE OR EXCUSABLE
THAN ONE (1) YEAR FROM THE NOTICE OF APPEAL; NEGLIGENCE;
3. IT HAVING FAILED TO REPUDIATE THE ARBITRAL AWARD WITHIN 9. HAS BEEN CURED/ OFFSET BY LACK OF OBJECTION THERETO AT
THE REGLEMENTARY PERIOD OF 30 DAYS UNDER FIRST INSTANCE IN THE COURT BELOW; AND
REPUBLIC ACT NO. 876;
10. DOES NOT BY ITS TECHNICALITY SACRIFICE SUBSTANTIAL
4. THE ARBITRAL DECISION BY VIRTUE OF A JOINT SUBMISSION BY JUSTICE.[22]
THE PARTIES WAS EFFECTIVELY ONE OF A JUDGMENT BY
CONSENT, AS SUCH IT SHOULD HAVE BEEN FIRST The petition lacks merit.
REPUDIATED BEFORE THE ARBITRAL TRIBUNAL. FAILING
TO REPUDIATE THE SAME BEFORE THE ARBITRAL
TRIBUNAL, ITS CONFIRMATION BY THE REGIONAL TRIAL Supreme Court Circular No. 2-90, which is based in a
COURT BECAME MINISTERIAL. THUS THE REGIONAL TRIAL Resolution of the Court En Banc in UDK-9748 (Anacleto Murillo v.
COURTS CONFIRMATION THEREOF IS NOT APPEALABLE; Rodolfo Consul), March 1, 1990, provides in 4(c) thereof:
5. THE ONLY TWO ASSIGNMENT OF ERRORS ARE NOT APPEALABLE c) xxx If an appeal under Rule 41 is taken from the regional trial
AS THEY HAVE NOT BEEN RAISED IN THE REGIONAL TRIAL court to the Court of Appeals and therein the appellant raises
COURT; only questions of law, the appeal shall be dismissed, issues
purely of law not being reviewable by said Court. xxx (Italics
supplied)[23]
6. THE APPEAL, WHICH ULTIMATELY RAISES ONLY QUESTIONS OF
LAW, WAS IMPROPERLY FILED UNDER RULE 41 OF THE
RULES OF COURT; AND This was reproduced in Rule 50, Section 2 of the 1997 Rules of
Civil Procedure.
II
Corollary thereto, in Roman Catholic Archbishop of Manila
v. Court of Appeals, et al.,[24] it was held that there is a question
THE COURT OF APPEALS PATENTLY ERRED IN CAVALIERLY of law when the issue does not call for an examination of the
GRANTING THE RELIEF APPEALED FOR ON THE MERITS probative value of evidence presented, the truth or falsehood of
WITHOUT YET GIVING APPELLEE THE OPPORTUNITY TO facts being admitted and the doubt concerns the correct
FILE ITS BRIEF AND/OR WITHOUT YET THE COURT OF
application of law and jurisprudence on the matter.
APPEALS HAVING RESOLVED THE PENDING INCIDENT
WHICH IS THE MOTION TO DISMISS FILED UNDER RULE 50
OF THE RULES OF COURT. The issues raised by NAPOCOR in its appeal to the Court of
Appeals are not purely questions of law. Specifically, NAPOCORs
arguments assailing the award by the trial court to GROGUN of
III the amount of (a) P1,447,670.00 representing the value of its
accomplished works which were destroyed by the flood waters;
THE COURT OF APPEALS PATENTLY ERRED IN SETTING and (b) P670,369.61 representing the compensation for idle
ASIDE THE ORDER OF THE REGIONAL TRIAL COURT time of manpower and equipment caused by the opening of the
DATED 15 SEPTEMBER 1998 WHICH MODIFIED IN PART CGHSS, raised factual issues. Furthermore, the determination of
AND CONFIRMED THE REST OF THE ARBITRAL DECISION the amount of damages NAPOCOR was entitled to under its
AND THE ORDER DATED 8 JANUARY 1999 WHICH DENIED counterclaim depends on whether the leakages were causally
RESPONDENTS MOTION FOR RECONSIDERATION, linked to any defective work performed by GROGUN.
SUPPOSEDLY BECAUSE THE ARBITRAL DECISION WAS NOT
VERIFIED, WHEN SUCH A LACK OF VERIFICATION: Then, too, the mere filing of the notice of appeal is
sufficient. Rule 41, Section 2 of the 1997 Rule on Civil Procedure
1. UNLIKE FOR AD HOC ARBITRATIONS WHICH ARE CONDUCTED categorically states:
OUTSIDE THE AUSPICES OF THE COURTS, MAY NOT
REQUIRE A VERIFICATION FOR AUTHENTICATING THE (a) Ordinary appeal. The appeal to the Court of Appeals in cases
ARBITRAL AWARD; decided by the Regional Trial Court in the exercise of its original
jurisdiction shall be taken by filing a notice of appeal with the
2. IS MERELY A FORMAL DEFECT THAT IS NEITHER JURISDICTIONAL court which rendered the judgment or final order appealed from
NOR FATAL; and serving a copy thereof upon the adverse party. No record on
appeal shall be required except in special proceedings and other
cases of multiple or separate appeals where the law or these
3. CAN BE DISPENSED WITH OR EXCUSED;
Rules so require. In such cases, the record on appeal shall be
filed and served in like manner.
4. DOES NOT OPERATE TO MAKE THE COURT TO NECESSARILY
COMMIT REVERSIBLE ERROR;
149
This petition originated from an action for collection of a Form and contents of award. The award must be made
sum of money filed with the Regional Trial Court,[25] which is an in writing and signed and acknowledged by a majority of the
ordinary civil action.[26] The decision of the parties to submit arbitrators, if more than one; and by the sole arbitrator, if there
their dispute to arbitration during the proceedings did not is only one. Each party shall be furnished with a copy of the
change the nature of the original action to one of special award. The arbitrators in their award may grant any remedy or
proceeding, under which an appeal shall be by record on appeal. relief which they may deem just and equitable and within the
Section 22 of the Arbitration Law, [27] which provides that scope of the agreement of the parties, which shall include, but
arbitration is in the nature of a special proceeding, is not not be limited to, the specific performance of a contract. (Italics
applicable. supplied)
GROGUN argues that the Court of Appeals should have GROGUN argues that NAPOCOR did not raise as issue the
dismissed the appeal because NAPOCOR filed its Appellants lack of verification of the copy of the arbitral award in the trial
Brief more than one year from the filing of the Notice of Appeal. court. Neither did NAPOCOR repudiate the arbitral award before
the Arbitration Tribunal and the trial court.
The argument is tenuous. Rule 44, Section 7 of the 1997
Rules of Civil Procedure provides that the appellant shall file his The argument is not well-taken. Ordinarily, points of law,
brief within forty-five (45) days from receipt of notice from the theories, issues and arguments not brought to the attention of
Court of Appeals. [28] the lower court cannot be raised for the first time on appeal.[33]
In the case at bar, NAPOCOR received notice from the In the case at bar, however, NAPOCOR could not have
Court of Appeals to file its Brief within 45 days on October 26, raised the lack of verification of the copy of the arbitral award
1999. On December 10, 1999, it filed a Motion for Extension of submitted by GROGUN since it was assailing the authenticity
forty five days, or until January 25, 2000, within which to file its and due execution of the copy itself. It was only after the trial
Brief, which was granted.[29] Hence, NAPOCORs Appellants Brief court upheld the said copy as a valid arbitral award that
filed on January 24, 2000 was on time. NAPOCOR was able to raise the issue, which was during the
filing of its appellants brief before the Court of Appeals.
GROGUN claims that the Court of Appeals had already
dismissed the appeal in its Resolution dated April 18, 2000, GROGUN also argues that the Court of Appeals should
to wit: have first decided the Motion to Dismiss filed by the NAPOCOR
before resolving the merits of the appeal. It also alleges that the
Court of Appeals did not require it to file an Appellees Brief.
In view of the resolution dated March 3, 2000 which considered
the case DISMISSED for failure to file appellants brief, the
motion for extension of time to file brief by the OSG and the The contention is without merit. The grant or denial of the
motion for early resolution filed by plaintiff-appellee Grogun, Inc. Motion to Dismiss was within the sound discretion of the Court of
are merely noted. (Emphasis and italics supplied) Appeals. Its resolution of the appeal on its merits meant that it
found the Motion to Dismiss to be without merit.On the other
hand, Rule 44, Section 8 of the 1997 Rules of Civil Procedure,
GROGUNs reliance is misplaced. In a subsequent [34]
provides that the appellee shall file his brief within forty-five
Resolution, the Court of Appeals corrected itself thus:
days from receipt of the appellants brief. Hence, there was no
need for the Court of Appeals to require GROGUN to file its
Considering that the resolution of this Court dated April 18, 2000 appellees brief.
in CV NO. 62017 was intended for CV NO. 62357, the same is
hereby RECALLED and SET ASIDE.
WHEREFORE, in view of the foregoing, the petition is
DENIED. The Decision of the Court of Appeals dated March 30,
We come now to the issue of whether the copy of the 2001, which set aside the Orders dated September 15, 1998 and
arbitral award submitted by GROGUN to the trial court was valid. January 8, 1999 of the Regional Trial Court of Quezon City,
Branch 216, in Civil Case No. Q-96-28731, and remanded the
GROGUN admits that the copy of the arbitral award it case to the trial court for further proceedings, is AFFIRMED.SO
submitted to the trial court was not verified. However, it argues ORDERED.
that the lack of verification is a formal defect which is not fatal,
and may be waived or dispensed with. It cites cases which, FIRST DIVISIONG.R. No. 94960 March 8, 1993
however, refer to the effect of lack of verification in
the pleadings.
IMPERIAL TEXTILE MILLS, INC., petitioner,
vs.
Verification in general is confirmation of correctness, truth, HON. VLADIMIR P.L. SAMPANG and IMPERIAL TEXTILE
or authenticity by affidavit, oath, or deposition.[30] The MILLS-MONTHLY EMPLOYEES ASSOCIATION (ITM-
verb verify is frequently used in its legal sense in legal MEA), respondents.
proceeding and matters of law, and as used and understood by
lawyers it has a technical signification, and means the swearing
CRUZ, J.:
to an affidavit; to affirm under oath; to confirm and substantiate
by oath; or even by agreement, to confirm by formal oath; to
testify or affirm formally or upon oath; to confirm or establish On March 20, 1987, petitioner Imperial Textile Mills, Inc. (the
the authority of; as by affirmation or competent evidence; to Company, for brevity) and respondent Imperial Textile Mills-
confirm or substantiate by proof; to establish by evidence. [31]The Monthly Employees Association (the Union, for brevity) entered
word verified, in connection with statutory reports, has a settled into a collective bargaining agreement providing across-the-
or well known meaning; and refers to an affidavit attached to board salary increases and other benefits retroactive to
the statement as to the truth of the matters therein set forth, November 1, 1986.
within the personal knowledge of the affiant, and it has been
held that the word means sworn to and ordinarily imports a On August 21, 1987, they executed another agreement on the
verity attested by the sanctity of an oath.[32] job classification and wage standardization plan. This was also
to take effect retroactively on November 1, 1986.
In the case at bar, the copy of the arbitral award did not
meet the requirements of Section 20 of the Arbitration Law, and A dispute subsequently arose in the interpretation of the two
consequently, therefore can not be the basis of the assailed agreements. The parties then submitted it to arbitration and
Orders of the trial court. Specifically, Section 20 provides:
150
designated public respondent Vladimir P.L. Sampang as the In the case of The Consolidated Bank & Trust Corporation
Voluntary Arbitrator. The understanding was that his decision (SOLIDBANK) v. Bureau of Labor Relations, et al., 3this Court held
would be final, executory and inappealable. 1 that the Voluntary Arbitrator lost jurisdiction over the case
submitted to him the moment be rendered his decision.
Therefore, he could no longer entertain a motion for
The Company maintained that the wage of a particular
reconsideration of the decision for its reversal or modification.
employee subject of possible adjustment on base pay should be
Thus:
the pay with the first year CBA increase already integrated
therein.
By modifying the original award, respondent arbitrator
exceeded his authority as such, a fact he was well aware
The Union argued that the CBA increases should not be included
of, as shown by his previous Resolution of Inhibition
in adjusting the wages to the base pay level, as it was separate
wherein he refused to act on the Union's motion for
and distinct from the increases resulting from the job
reconsideration of the award or decision. Thus,
classification and standardization scheme.
respondent arbitrator emphatically ruled:
On December 14, 1988, after a conference with the parties, the An award should be regarded as the judgment of a court
Voluntary Arbitrator rendered another decision, this time in favor of last resort, so that all reasonable presumptions should
of the Union. be ascertained in its favor and none to overthrow it.
Otherwise, arbitration proceedings, instead of being a
On January 20, 1989, the Company appealed to the NLRC. The quick and easy mode of obtaining justice, would be
appeal was dismissed for lack of jurisdiction. The reason was merely an unnecessary step in the course of litigation,
that the original rule allowing appeal if the Voluntary Arbitrator's causing delay and expenses, but not finally settling
award was more than P100,000.00 had already been repealed anything. Notwithstanding the natural reluctance of the
by BP 130. Moreover, under Article 262-A of the Labor Code, as courts to interfere with matters determined by the
amended, awards or decisions of voluntary arbitrators become arbitrators. they will do so in proper cases where the law
final and executory after calendar 10 days from notice thereof to ordains them. (Arbitration, Manguiat, citing U.S. v.
the parties. Gleason, 175 US 588)
The Company then came to this Court in this petition The power and authority of the Voluntary Arbitrator to act
for certiorari under Rule 65 of the Rules of Court. in the case commences from his appointment and
acceptance to act as such under the submission
agreement of the Parties and terminates upon his
The Court has deliberated on the arguments of the parties in rendition of his decision or award which is accorded the
light of the established facts and the applicable law and finds for benefits of the doctrine of res judicata as in judgments of
the Company. our regular courts of law. Since the power and authority
of the arbitrator to render a valid award, order or
The Union erred in filing a motion for reconsideration of the resolution rest upon the continuing mutual consent of the
decision dated July 12, 1988. So did the respondent Voluntary parties, and there is none shown here, the Voluntary
Arbitrator in entertaining the motion and vacating his first Arbitrator has no choice but to decline to rule on the
decision. pleadings submitted by the parties. (Emphasis supplied)
When the parties submitted their grievance to arbitration, they It is true that the present rule makes the voluntary arbitration
expressly agreed that the decision of the Voluntary Arbitrator award final and executory after ten calendar days from receipt
would be final, executory and inappealable. In fact, even without of the copy of the award or decision by the
this stipulation, the first decision had already become so by parties. 4 Presumably, the decision may still be reconsidered by
virtue of Article 263 of the Labor Code making voluntary the Voluntary Arbitrator on the basis of a motion for
arbitration awards or decisions final and executory. reconsideration duly filed during that period. Such a provision,
being procedural, may be applied retroactively to pending
actions as we have held in a number of cases. 5 However, it
The philosophy underlying this rule was explained by Judge
cannot be applied to a case in which the decision had become
Freedman in the case of La Vale Plaza, Inc., v. R.S. Noonan,
final before the new provision took effect, as in the case at
Inc., 2 thus:
bar. 6 R.A. 6715, which introduced amended Article 262-A of the
Labor Code, became effective on March 21, 1989. The first
It is an equally fundamental common law principle that decision of the Voluntary Arbitrator was rendered on July 12,
once an arbitrator has made and published a final award, his 1988, when the law in force was Article 263 of the Labor Code,
authority is exhausted and be is functus officio and can do which provided that:
nothing more in regard to the subject matter of the arbitration.
The policy which lies behind this is an unwillingness to permit
Voluntary arbitration awards or decisions shall
one who not a is judicial officer and who acts informally and
be final, inappealable, and executory.
sporadically, to re-examine a final decision which he has already
rendered, because of the potential evil of outside
communication and unilateral influence which might affect a The above-quoted provision did not expressly fix the time when
new conclusion. The continuity of judicial office and the tradition the Voluntary Arbitrator's decision or award would become final.
which surround judicial conduct is lacking in the isolated activity We have held, however, that it would assume the attribute of
of an arbitrator, although even here the vast increase in the finality upon its issuance, subject only to judicial review in
arbitration of labor disputes has created the office of the appropriate cases. 7
specialized provisional arbitrator. (Washington-Baltimore N.G.,
Loc. 35 v. Washington Post Co., 442 F. 2d 1234 (1971], pp. 1238- The public respondent exceeded his authority when he acted on
1239) the Union's motion for reconsideration and reversed his original
decision. Corollarily his second decision dated December 14,
151
1988, having been rendered in violation of law, must be 2. The parties mutually agree that the arbitration shall
considered null and void and of no force and effect whatsoever. 8 proceed in accordance with the following terms and
conditions:
WHEREFORE, the decision of the Voluntary Arbitrator dated
December 14, 1988, is SET ASIDE for lack of jurisdiction and his xxx xxx xxx
decision dated July 12, 1988, is REINSTATED.
d. The parties mutually agree that they will abide by the
SO ORDERED. decision of the arbitrator including any amount that may be
awarded to either party as compensation, consequential
damage and/or interest thereon;
THIRD DIVISIONG.R. No. 96283 February 25, 1992
Claiming an unsatisfied account of P10,500,000.00 and unpaid Hence, the instant petition anchored on the following grounds:
progress billings of P2,370,179.23, Roblecor on May 18, 1990,
filed a petition for Compulsory Arbitration with prayer for
First
Temporary Restraining Order before respondent Regional Trial
Court, pursuant to the arbitration clause in the construction
agreement. Chung Fu moved to dismiss the petition and further Respondents Court of Appeals and trial Judge gravely
prayed for the quashing of the restraining order. abused their discretion and/or exceeded their jurisdiction,
as well as denied due process and substantial justice to
petitioners, (a) by refusing to exercise their judicial
Subsequent negotiations between the parties eventually led to
authority and legal duty to review the arbitration award,
the formulation of an arbitration agreement which, among
and (b) by declaring that petitioners are estopped from
others, provides:
questioning the arbitration award allegedly in view of the
152
stipulations in the parties' arbitration agreement that "the tended to be time-consuming, costly, and inflexible due to their
decision of the arbitrator shall be final and unappealable" scrupulous observance of the due process of law doctrine and
and that "there shall be no further judicial recourse if their strict adherence to rules of evidence.
either party disagrees with the whole or any part of the
arbitrator's award." As early as the 1920's, this Court declared:
Whether utilized in business transactions or in employer- Any stipulation that the arbitrators' award or
employee relations, arbitration was gaining wide acceptance. A decision shall be final is valid, without
consensual process, it was preferred to orders imposed by prejudice to Articles 2038, 2039 and 2040.
government upon the disputants. Moreover, court litigations
153
Similarly, the Construction Industry Arbitration Law provides that It should be stressed, too, that voluntary arbitrators, by the
the arbitral award "shall be final and inappealable except on nature of their functions, act in a quasi-judicial capacity. 24 It
questions of law which shall be appealable to the Supreme stands to reason, therefore, that their decisions should not be
Court." 16 beyond the scope of the power of judicial review of this Court.
Under the original Labor Code, voluntary arbitration awards or In the case at bar, petitioners assailed the arbitral award on the
decisions were final, unappealable and executory. "However, following grounds, most of which allege error on the part of the
voluntary arbitration awards or decisions on money claims, arbitrator in granting compensation for various items which
involving an amount exceeding One Hundred Thousand Pesos apparently are disputed by said petitioners:
(P100,000.00) or forty-percent (40%) of the paid-up capital of
the respondent employer, whichever is lower, maybe appealed 1. The Honorable Arbitrator committed grave error in failing
to the National Labor Relations Commission on any of the to apply the terms and conditions of the Construction
following grounds: (a) abuse of discretion; and (b) gross Agreement, Dormitory Contract and Electrical Contract, and
incompetence." 17 It is to be noted that the appeal in the in using instead the "practices" in the construction industry;
instances cited were to be made to the National Labor Relations
Commission and not to the courts.
2. The Honorable Arbitrator committed grave error in
granting extra compensation to Roblecor for loss of
With the subsequent deletion of the above-cited provision from productivity due to adverse weather conditions;
the Labor Code, the voluntary arbitrator is now mandated to
render an award or decision within twenty (20) calendar days
from the date of submission of the dispute and such decision 3. The Honorable Arbitrator committed grave error in
shall be final and executory after ten (10) calendar days from granting extra compensation to Roblecor for loss due to
receipt of the copy of the award or decision by the parties. 18 delayed payment of progress billings;
Where the parties agree that the decision of the arbitrator shall 4. The Honorable Arbitrator committed grave error in
be final and unappealable as in the instant case, the pivotal granting extra compensation to Roblecor for loss of
inquiry is whether subject arbitration award is indeed beyond productivity due to the cement crisis;
the ambit of the court's power of judicial review.
5. The Honorable Arbitrator committed grave error in
We rule in the negative. It is stated explicitly under Art. 2044 of granting extra compensation to Roblecor for losses
the Civil Code that the finality of the arbitrators' award is not allegedly sustained on account of the failed coup d'tat;
absolute and without exceptions. Where the conditions
described in Articles 2038, 2039 and 2040 applicable to both 6. The Honorable Arbitrator committed grave error in
compromises and arbitrations are obtaining, the arbitrators' granting to Roblecor the amount representing the alleged
award may be annulled or rescinded. 19 Additionally, under unpaid billings of Chung Fu;
Sections 24 and 25 of the Arbitration Law, there are grounds for
vacating, modifying or rescinding an arbitrator's award. 20 Thus,
7. The Honorable Arbitrator committed grave error in
if and when the factual circumstances referred to in the above-
granting to Roblecor the amount representing the alleged
cited provisions are present, judicial review of the award is
extended overhead expenses;
properly warranted.
THIRD DIVISIONG.R. No. 121171 December 29, 1998 Article V of the Mortgage Trust Agreement prescribes in detail,
and in addition to the enumerated events of defaults,
circumstances by which the mortgagor may be declared in
ASSET PRIVATIZATION TRUST, petitioner, default, the procedure therefor, waiver of period to foreclose,
vs. authority of Trustee before, during and after foreclosure,
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. including taking possession of the mortgaged properties. 5
CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U.
MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock- In various requests for advances/remittances of loans if huge
Holders of Marinduque Mining and Industrial amounts, Deeds of Undertaking, Promissory Notes, Loan
Corporation, respondents. Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the
loans and accommodations secured from or guaranteed by both
KAPUNAN, J.: DBP and PNB.
The petition for review on certiorari before us seeks to reverse By 1984, DBP and PNB's financial both in loans and in equity in
and set aside the decision of the Court of Appeals which denied MMIC had reached tremendous proportions, and MMIC was
due course to the petition for certiorari filed by the Asset having a difficult time meeting its financial obligations. MMIC
Privatization Trust (APT) assailing the order of the Regional Trial had an outstanding loan with DBP in the amount of
Court (RTC) Branch 62, Makati City. The Makati RTC's order P13,792,607,565.92 as of August 31, 1984 and with PNB in the
upheld and confirmed the award made by the Arbitration amount of P8,789,028,249.38 as July 15, 1984 or a total
Committee in favor of Marinduque Mining and Industrial Government expose of Twenty Two Billion Six Hundred Sixty-
Corporation (MMIC) and against the Government, represented
Eight Million Five Hundred Thirty-Seven Hundred Seventy and
by herein petitioner APT for damages in the amount of P2.5 05/100 (P22, 668,537,770.05), Philippine Currency. 6 Thus, a
BILLION (or approximately P4.5 BILLION, including interest). financial restructuring plan (FRP) designed to reduce MMIC's
interest expense through debt conversion to equity was drafted
Ironically, the staggering amount of damages was imposed on by the Sycip Gorres Velayo accounting firm. 7 On April 30, 1984,
the Government for exercising its legitimate right of foreclosure the FRP was approved by the Board of Directors of the
as creditor against the debtor MMIC as a consequence of the MMIC. 8 However, the proposed FRP had never been formally
latter's failure to pay its overdue and unpaid obligation of P22 adopted, approved or ratified by either PNB or DBP. 9
billion to the Philippine National Bank (PNB) and the
Development Bank of the Philippines (DBP). In August and September 1984, as the various loans and
advances made by DBP and PNB to MMIC had become overdue
The antecedent facts and since any restructuring program relative to the loans was no
of the case. longer feasible, and in compliance with the directive of
Presidential Decree No. 385, DBP and PNB as mortgagees of
MMIC assets, decided to exercise their right to extrajudicially
The development, exploration and utilization of the mineral
foreclose the mortgages in accordance with the Mortgage Trust
deposits in the Surigao Mineral Reservation have been
Agreement. 10
authorized by Republic Act No. 1528, as amended by Republic
Acts Nos. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby The foreclosed assets were sold to PNB as the lone bidder and
the Republic of the Philippines thru the Surigao Mineral were assigned to three newly formed corporations, namely,
Reservation Board, granted MMIC the exclusive right to explore, Nonoc Mining Corporation, Maricalum Mining and Industrial
develop and exploit nickel, cobalt and other minerals in the Corporation, and Island Cement Corporation. In 1986, these
Surigao mineral reservation. 1 MMIC is a domestic corporation assets were transferred to the Asset Privatization Trust (APT). 11
engaged in mining with respondent Jesus S. Cabarrus, Sr. as
President and among its original stockholders. On February 28, 1985, Jesus S. Cabarrus, Sr., together with the
other stockholders of MMIC, filed a derivative suit against DBP
The Philippine Government undertook to support the financing and PNB before the RTC of Makati, Branch 62, for Annulment of
of MMIC by purchase of MMIC debenture bonds and extension of Foreclosures, Specific Performance and Damages. 12 The suit,
guarantees. Further, the Philippine Government obtained a firm docketed as Civil Case No. 9900, prayed that the court: (1)
commitment form the DBP and/or other government financing annul the foreclosures, restore the foreclosed assets to MMIC,
155
and require the banks to account for their use and operation in 3. Approving the Transformation of the reliefs prayed for [by]
the interim; (2) direct the banks to honor and perform their the plaintiffs in this case into pure money claims; and
commitments under the alleged FRP; and (3) pay moral and
exemplary damages, attorney's fees, litigation expenses and 15
4. The Complaint is hereby DISMISSED.
costs.
This agreement was presented for approval to the trial court. 1. Ordering the defendant to pay to the Marinduque Mining
On October 14, 1992, the Makati RTC, Branch 61, issued an and Industrial Corporation, except the DBP, the sum of
order, to wit: P2,531,635,425.02 with interest thereon at the legal rate of
six per cent (6%) per annum reckoned from August 3, 9, and
24, 1984, pari passu, as and for actual damages. Payment of
WHEREFORE, this Court orders:
these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB,
1. Substituting PNB and DBP with the Asset Privatization which have not been converted into equity. Should there be
Trust as party defendant. any balance due to MMIC after the offsetting, the same shall
be satisfied from the funds representing the purchase price of
2. Approving the Compromise and Arbitration Agreement the sale of the shares of Island Cement Corporation in the
dated October 6, 1997, attached as Annex "C" of the amount of P503,000,000.00 held under escrow pursuant to
Omnibus Motion. the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it
156
pursuant to paragraph (9) of the Compromise and Arbitration Private respondents filed a "REPLY AND OPPOSITION" dated
Agreement; November 10, 1984, arguing that a dismissal of Civil Case No.
9900 was merely a "qualified dismissal" to pave the way for the
submission of the controversy to arbitration and operated simply
2. Ordering the defendant to pay to the Marinduque Mining
as "a mere suspension of the proceedings" They denied that the
and Industrial Corporation, except the DBP, the sum of
Arbitration Committee had exceeded its powers.
P13,000.000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC In an Order dated November 28, 1993, the trial court confirmed
with DBP and PNB, which have not been converted into equity. the award of the Arbitration Committee. The dispositive portion
Should there be any balance due to MMIC after the offsetting, of said order reads:
the same shall be satisfied from the funds representing the
purchase price of the sale of the shares of Island Cement WHEREFORE, premises considered, and in the light of the
Corporation in the amount of P503,000,000.00 held under parties [sic] Compromise and Arbitration Agreement dated
escrow pursuant to the Escrow Agreement dated April 22, October 6, 1992, the Decision of the Arbitration Committee
1988 or to such subsequent escrow agreement that would promulgated on November 24, 1993, as affirmed in a
supercede [sic] it pursuant to paragraph (9) of the Resolution dated July 26, 1994, and finally settled and
Compromise and Arbitration Agreement; clarified in the Separate Opinion dated September 2, 1994 of
Committee Member Elma, and the pertinent provisions of RA
3. Ordering the defendant to pay to the plaintiff, Jesus S. 876, also known as the Arbitration Law, this Court GRANTS
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied PLAINTIFFS' APPLICATION AND THUS CONFIRMS THE
likewise from the funds held under escrow pursuant to the ARBITRATION AWARD, AND JUDGMENT IS HEREBY
Escrow Agreement dated April 22, 1988 or to such subsequent RENDERED:
escrow agreement that would supersede it, pursuant to
paragraph (9) of the Compromise and Arbitration Agreement, (a) Ordering the defendant APT to the Marinduque Mining
as and for moral damages; and and Industrial Corporation (MMIC), except the DBP, the sum
of P3,811,757,425.00, as and for actual damages, which
4. Ordering the defendant to pay arbitration costs. shall be partially satisfied from the funds held under escrow
in the amount of P503,000,000.00 pursuant to the Escrow
Agreement dated April 22, 1988. The balance of the award,
This Decision is FINAL and EXECUTORY.
after the escrow funds are fully applied, shall be executed
against the APT;
16
IT IS SO ORDERED.
On October 17, 1993, private respondents filed in the same Civil (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr.,
Case No. 9900 an "Application/Motion for Confirmation of the sum of P10,000,000.00 as and for moral damages; and
Arbitration Award." Petitioner countered with an "Opposition and
Motion to Vacate Judgment" raising the following grounds.
(d) Ordering the defendant to pay the herein
plaintiffs/applicants/movants the sum of P1,705,410.23 as
1. The plaintiffs Application/Motion is improperly filed with arbitration costs.
this branch of the Court, considering that the said motion is
neither a part nor the continuation of the proceedings in
In reiteration of the mandates of Stipulation No. 10 and
Civil Case No. 9900 which was dismissed upon motion of
Stipulation No. 8 paragraph 2 of the Compromise and
the parties. In fact, the defendants in the said Civil Case No.
Arbitration Agreement, and the final edict of the Arbitration
9900 were the Development Bank of the Philippines and the
Committee's decision, and with this Court's Confirmation, the
Philippine National Bank (PNB);
issuance of the Arbitration Committee's Award shall
henceforth be final and executory.
2. Under Section 71 of Rep. Act 876, an arbitration under a
contract or submission shall be deemed a special 18
SO ORDERED.
proceedings and a party to the controversy which was
arbitrated may apply to the court having jurisdiction, (not
necessarily with this Honorable Court) for an order On December 27, 1994, petitioner filed its motion for
confirming the award; reconsideration of the Order dated November 28, 1994. Private
respondents, in turn, submitted their reply and opposition
thereto.
3. The issues submitted for arbitration have been limited to
two: (1) propriety of the plaintiffs filing the derivative suit
and (2) the regularity of the foreclosure proceedings. The On January 18, 1995, the trial court handed down its order
arbitration award sought to be confirmed herein, far denying APT's motion for reconsideration for lack of merit and
exceeded the issues submitted and even granted moral for having been filed out of time. The trial court declared that
damages to one of the herein plaintiffs; "considering that the defendant APT, through counsel, officially
and actually received a copy of the Order of this Court dated
November 28, 1994 on December 6, 1994, the Motion for
4. Under Section 24 of Rep. Act 876, the Court must make
Reconsideration thereof filed by the defendant APT on
an order vacating the award where the arbitrators exceeded
December 27, 1994, or after the lapse of 21 days, was clearly
their powers, or so imperfectly executed them, that a
filed beyond the 15-day reglementary period prescribed
mutual, final and definite award upon the subject matter
or provided for by law for the filing of an appeal from final
submitted to them was not made. 17
orders, resolutions, awards, judgments or decisions of any court
in all cases, and by necessary implication for the filing of a
motion for reconsideration thereof."
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED The petition is impressed with merit.
JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO
CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE
ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN I
DISMISSED.
The RTC of Makati, Branch 62, did not have jurisdiction to
II confirm the arbitral award.
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF The use of the term "dismissed" is not "a mere semantic
DISCRETION AND ACTED WITHOUT OR IN EXCESS OF imperfection". The dispositive portion of the Order of the trial
JURISDICTION, IN ISSUING THE QUESTIONED ORDERS court dated October 14, 1992 stated in no uncertain terms:
CONFIRMING THE ARBITRAL AWARD AND DENYING THE
MOTION FOR RECONSIDERATION OF ORDER OF AWARD. 4. The Complaint is hereby DISMISSED. 22
III The rule is that "Where the court itself clearly has no jurisdiction
over the subject matter or the nature of the action, the
invocation of this defense may be done at any time. It is neither
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
for the courts nor for the parties to violate or disregard that rule,
RESPONDENT TRIAL COURT SHOULD HAVE EITHER
let alone to confer that jurisdiction this matter being legislative
DISMISSED/DENIED PRIVATE RESPONDENTS'
in character." 25 As a rule then, neither waiver nor estoppel shall
MOTION/PETITION FOR CONFIRMATION OF ARBITRATION
apply to confer jurisdiction upon a court barring highly
AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF
meritorious and exceptional circumstances. 26 One such
THE MOTION TO VACATE ARBITRAL AWARD.
exception was enunciated in Tijam vs. Sibonghanoy, 27 where it
was held that "after voluntarily submitting a cause and
IV encountering an adverse decision on the merits, it is too late for
the loser to question the jurisdiction or power of the court."
158
Petitioner's situation is different because from the outset, it has judgment of the arbitrators, are insufficient to invalidate an
consistently held the position that the RTC, Branch 62 had no award fairly and honestly made. 32 Judicial review of an
jurisdiction to confirm the arbitral award; consequently, it arbitration is thus, more limited than judicial review of a trial. 33
cannot be said that it was estopped from questioning the RTC's
jurisdiction. Petitioner's prayer for the setting aside of the Nonetheless, the arbitrators' award is not absolute and without
arbitral award was not inconsistent with its disavowal of the exceptions. The arbitrators cannot resolve issues beyond the
court's jurisdiction. scope of the submission agreement. 34 The parties to such an
agreement are bound by the arbitrators' award only to the
III extent and in the manner prescribed by the contract and only if
the award is rendered in conformity thereto. 35 Thus, Sections 24
and 25 of the Arbitration Law provide grounds for vacating,
Appeal of petitioner to the Court of Appeals thru certiorari under
rescinding or modifying an arbitration award. Where the
Rule 65 was proper.
conditions described in Articles 2038, 36
2039, 37 and 1040 38 of the Civil Code applicable to compromises
The Court of Appeals in dismissing APT's petition and arbitration are attendant, the arbitration award may also be
for certiorari upheld the trial court's denial of APT's motion for annulled.
reconsideration of the trial court's order confirming the arbitral
award, on the ground that said motion was filed beyond the 15- 39
In Chung Fu Industries (Phils.) vs. Court of Appeals, we held:
day reglementary period; consequently, the petition
for certiorari could not be resorted to as substitute to the lost
right of appeal. . . . . It is stated explicitly under Art. 2044 of the Civil Code that
the finality of the arbitrators' award is not absolute and without
exceptions. Where the conditions described in Articles 2038,
We do not agree.
2039 and 2040 applicable to both compromises and arbitrations
are obtaining, the arbitrator's award may be annulled or
28
Section 99 of Republic Act No. 876, provides that: rescended. Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or
. . . An appeal may be taken from an order rescinding an arbitrator's award. Thus, if and when the factual
made in a proceeding under this Act, or from a circumstances referred to the above-cited provisions are
judgment entered upon an award present, judicial review of the award is properly warranted.
through certiorari proceedings, but such
appeals shall be limited to questions of According, Section 20 of R.A. 876 provides:
law. . . ..
Sec 1. Petition for Certiorari: When any tribunal, The arbitrators shall have the power to decide only those
board or officer exercising judicial functions, has acted without matters which have been submitted to them. The terms of the
or in excess of its or his jurisdiction, or with grave abuse of award shall be confined to such disputes. (Emphasis ours).
discretion and there is no appeal, nor any plain, speed, and
adequate remedy in the ordinary course of law, a person
xxx xxx xxx
aggrieved thereby may file a verified petition in the proper court
alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings, as the law Sec. 24 of the same law enumerating the grounds for vacating
requires, of such tribunal, board or officer. an award states:
In the instant case, the respondent court erred in dismissing the Sec. 24. Grounds for vacating award. In any one of the
special civil action for certiorari, it being clear from the following cases, the court must make an order vacating the
pleadings and the evidence that the trial court lacked award upon the petition of any party to the controversy
jurisdiction and/or committed grave abuse of discretion in taking when such party proves affirmatively that in the arbitration
cognizance of private respondents' motion to confirm the proceeding:
arbitral award and, worse, in confirming said award which is
grossly and patently not in accord with the arbitration (a) The award was procured by corruption, fraud, or other
agreement, as will be hereinafter demonstrated. undue means; or
IVThe nature and limits of the Arbitrators' power. (b) That there was evident partiality or corruption in the
arbitrators or any of them; or
As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the (c) That the arbitrators were guilty of misconduct in refusing
facts. 29 Courts are without power to amend or overrule merely to postpone the hearing upon sufficient cause shown, or in
because of disagreement with matters of law or facts refusing to hear evidence pertinent and material to the
determined by the arbitrators. 30 They will not review the controversy; that one or more of the arbitrators was
findings of law and fact contained in an award, and will not disqualified to act as such under section nine hereof, and
undertake to substitute their judgment for that of the willfully refrained from disclosing such disqualifications or
arbitrators, since any other rule would make an award the any other misbehavior by which the rights of any party
commencement, not the end, of litigation. 31 Errors of law and have been materially prejudiced; or
fact, or an erroneous decision of matters submitted to the
159
(d) That the arbitrators exceeded their powers, or so foreclosure. Cabarrus, who filed this case supposedly in
imperfectly executed them, that a mutual, final and definite behalf of MMIC should have insisted on the FRP. Yet Cabarrus
award upon the subject matter submitted to them was not himself opposed the FRP;
made. (Emphasis ours)
4. So when PNB-DBP proceeded with the foreclosure, it was
xxx xxx xxx. done without bad faith but with the honest and sincere belief
that foreclosure was the only alternative; a decision further
explained by Dr. Placido Mapa who testified that foreclosure
Section 25 which enumerates the grounds for modifying the
was, in the judgment of PNB, the best move to save MMIC
award provides:
itself.
There was no financialM structuring program: foreclosure of Which brings me to my last point in this separate opinion.
mortgage was fully justified. Was PNB and DBP absolutely unjustified in foreclosing the
mortgages?
The point need not be belabored that PNB and DBP had the
legitimate right to foreclose of the mortgages of MMIC whose In this connection, it can readily be seen and it cannot quite
obligations were past due. The foreclosure was not a wrongful be denied that MMIC accounts in PNB-DBP were past due.
act of the banks and, therefore, could not be the basis of any The drawing up of the FRP is the best proof of this. When
award of damages. There was no financial restructuring MMIC adopted a restructuring program for its loan, it only
agreement to speak of that could have constituted an meant that these loans were already due and unpaid. If
impediment to the exercise of the banks' right to foreclose. these loans were restructurable because they were already
due and unpaid, they are likewise "forecloseable". The option
As correctly stated by Mr. Jose C. Sison, a member of the is with the PNB-DBP on what steps to take.
Arbitration Committee who wrote a separate opinion:
The mere fact that MMIC adopted the FRP does not mean
1. The various loans and advances made by DBP and PNB to that DBP-PNB lost the option to foreclose. Neither does it
MMIC have become overdue and remain unpaid. The fact mean that the FRP is legally binding and implementable. It
that a FRP was drawn up is enough to establish that MMIC must be pointed that said FRP will, in effect, supersede the
has not been complying with the terms of the loan existing and past due loans of MMIC with PNB-DBP. It will
agreement. Restructuring simply connotes that the become the new loan agreement between the lenders and
obligations are past due that is why it is "restructurable"; the borrowers. As in all other contracts, there must therefore
be a meeting of minds of the parties; the PNB and DBP must
have to validly adopt and ratify such FRP before they can be
2. When MMIC thru its board and the stockholders agreed bound by it; before it can be implemented. In this case, not
and adopted the FRP, it only means that MMIC had been an iota of proof has been presented by the PLAINTIFFS
informed or notified that its obligations were past due and showing that PNB and DBP ratified and adopted the FRP.
that foreclosure is forthcoming; PLAINTIFFS simply relied on a legal doctrine of promissory
estoppel to support its allegations in this regard. 42
3. At that stage, MMIC also knew that PNB-DBP had the
option of either approving the FRP or proceeding with the
160
Moreover, PNB and DBP had to initiate foreclosure proceedings consider appropriate for the purpose of setting an example
as mandated by P.D. No. 385, which took effect on January 31, for the public good, attorney's fees and litigation expenses in
1974. The decree requires government financial institutions to such amounts as may be proven during the trial, and the
foreclose collaterals for loans where the arrearages amount to costs legally taxable in this litigation.
20% of the total outstanding obligations. The pertinent
provisions of said decree read as follow: Further, plaintiffs pray for such other reliefs as may be just
and equitable in the premises. 44
Sec. 1. It shall be mandatory for government financial
institutions, after the lapse of sixty (60) days from the Upon submission for arbitration, the Compromise and
issuance of this Decree, to foreclose the collaterals and/or Arbitration Agreement of the parties clearly and explicitly
securities for any loan, credit, accommodation, and/or defined and limited the issues to the following:
guarantees granted by them whenever the arrearages on
such account, including accrued interest and other charges,
amount to at least twenty percent (20%) of the total (a) whether PLAINTIFFS have the capacity or the personality
outstanding obligations, including interest and other charges, to institute this derivative suit in behalf of the MMIC or its
as appearing in the books of account and/or related records directors;
of the financial institutions concerned. This shall be without
prejudice to the exercise by the government financial (b) whether or not the actions leading to, and including, the
institutions of such rights and/or remedies available to them PNB-DBP foreclosure of the MMIC assets were proper, valid
under their respective contracts with their debtors, including and in good faith. 45
the right to foreclosure on loans, credits, accommodations
and/or guarantees on which the arrearages are less than
Item No. 8 of the Agreement provides for the period by which
twenty percent (20%).
the Committee was to render its decision, as well as the
nature thereof:
Sec. 2. No restraining order temporary or permanent
injunction shall be issued by the court against any
8. Decision. The committee shall issue a decision on the
government financial institution in any action taken by such
controversy not later than six (6) months from the date of its
institution in compliance with the mandatory foreclosure
constitution.
provided in Section 1 hereof, whether such restraining order,
temporary or permanent injunction is sought by the
borrower(s) or any third party or parties, except after due In the event the committee finds that PLAINTIFFS have the
hearing in which it is established by the borrower and personality to file this suit and the extra-judicial foreclosure
admitted by the government financial institution concerned of the MMIC assets wrongful, it shall make an award in favor
that twenty percent (20%) of the outstanding arrearages has of the PLAINTIFFS (excluding DBP), in an amount as may be
been paid after the filing of foreclosure proceedings. established or warranted by the evidence which shall be
(Emphasis supplied.) payable in Philippine Pesos at the time of the award. Such
award shall be paid by the APT or its successor-in-interest
within sixty (60) days from the date of the award in
Private respondents' thesis that the foreclosure proceedings
accordance with the provisions of par. 9 hereunder. . . . . The
were null and void because of lack of publication in the
PLAINTIFFS' remedies under this Section shall be in addition
newspaper is nothing more than a mere unsubstantiated
to other remedies that may be available to the PLAINTIFFS,
aliegation not borne out by the evidence. In any case, a
all such remedies being cumulative and not exclusive of each
disputable presumption exists in favor of petitioner that official
other.
duty has been regularly performed and ordinary course of
business has been followed. 43
On the other hand, in case the arbitration committee finds
that PLAINTIFFS have no capacity to sue and/or that the
VI
extra-judicial foreclosure is valid and legal, it shall also make
an award in favor of APT based on the counterclaims of DBP
Not only was the foreclosure rightfully exercised by the PNB and and PNB in an amount as may be established or warranted
DBP, but also, from the facts of the case, the arbitrators in by the evidence. This decision of the arbitration committee in
making the award went beyond the arbitration agreement. favor of APT shall likewise finally settle all issues regarding
the foreclosure of the MMIC assets so that the funds held in
In their complaint filed before the trial court, private respondent escrow mentioned in par. 9 hereunder will thus be released
Cabarrus, et al. prayed for judgment in their favor: in full in favor of
APT. 46
2. Directing the defendants DBP and PNB to honor and The arbiters overstepped their powers by declaring as valid the
perform their commitments under the financial proposed Financial Restructuring Program.
reorganization plan which was approved at the annual
stockholders' meeting of MMIC on 30 April 1984; The Arbitration Committee went beyond its mandate and thus
acted in excess of its powers when it ruled on the validity of,
3. Condemning the defendants DBP and PNB, jointly and and gave effect to, the proposed FRP.
severally to pay the plaintiffs actual damages consisting of
the loss of value of their investments amounting to not less In submitting the case to arbitration, the parties had mutually
than P80,000,000, the damnum emergens and lucrum agreed to limit the issue to the "validity of the foreclosure" and
cessans in such amount as may be established during the to transform the relief prayed for therein into pure money
trial, moral damages in such amount as this Honorable Court claims.
may deem just and equitable in the premises, exemplary
damages in such amount as this Honorable Court may
161
There is absolutely no evidence that the DBP and PNB agreed, into a debt-for-equity swap. And if they had such authority, there
expressly or impliedly, to the proposed FRP. It cannot be was no showing that the banks, through their board of directors,
overemphasized that a FRP, as a contract, requires the consent had ratified the FRP.
of the parties thereto. 47 The contract must bind both
contracting parties. 48 Private respondents even by their own Further, how could the MMIC be entitled to a big amount of
admission recognized that the FRP had yet not been carried out moral damages when its credit reputation was not exactly
and that the loans of MMIC had not yet been converted into something to be considered sound and wholesome. Under
equity. 49 Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly suffer.
However, the Arbitration Committee not only declared the FRP A corporation whose overdue and unpaid debts to the
valid and effective, but also converted the loans of MMIC into Government alone reached a tremendous amount of P22 Billion
equity raising the equity of DBP to 87%. 50 Pesos cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively put it:
The Arbitration Committee ruled that there was "a commitment
to carry out the FRP" 51 on the ground of promissory estoppel. Besides, it is not yet a well settled jurisprudence that
corporations are entitled to moral damages. While the Supreme
Court may have awarded moral damages to a corporation for
Similarly, the principle of promissory estoppel applies in the
besmirched reputation in Mambulao vs. PNB, 22 SCRA 359, such
present case considering as we observed, the fact that the
ruling cannot find application in this case. It must be pointed out
government (that is, Alfredo Velayo) was the FRP's
that when the supposed wrongful act of foreclosure was done,
proponent. Although the plaintiffs are agreed that the
MMIC's credit reputation was no longer a desirable one. The
government executed no formal agreement, the fact
company then was already suffering from serious financial crisis
remains that the DBP itself which made representations that
which definitely projects an image not compatible with good and
the FRP constituted a "way out" for MMIC. The Committee
wholesome reputation. So it could not be said that there was a
believes that although the DBP did not formally agree
"reputation" besmirched by the act of foreclosure. 55
(assuming that the board and stockholders' approvals were
not formal enough), it is bound nonetheless if only for its
conspicuous representations. The arbiters exceeded their
Although the DBP sat in the board in a dual capacity as authority in awarding damages
holder of 36% of MMIC's equity (at that time) and as MMIC's
creditor the DBP can not validly renege on its to MMIC, which is not impleaded
commitments simply because at the same time, it held
interests against the MMIC.
as a party to the derivative suit.
The reasons given for not allowing direct individual suit are:
As a rule, a corporation exercises its powers, including the
power to enter into contracts, through its board of directors.
(1) . . . "the universally recognized doctrine that a stockholder
While a corporation may appoint agents to enter into a contract
in a corporation has no title legal or equitable to the corporate
in its behalf, the agent should not exceed his authority. 54 In the
property; that both of these are in the corporation itself for
case at bar, there was no showing that the representatives of
the benefit of the stockholders." In other words, to allow
PNB and DBP in MMIC even had the requisite authority to enter
162
shareholders to sue separately would conflict with the asking for moral damages which he failed to get from the earlier
separate corporate entity principle; case. 62 Worse, private respondents violated the rule against
non-forum shopping.
(2) . . . that the prior rights of the creditors may be prejudiced.
Thus, our Supreme Court held in the case of Evangelista v. It is a basic postulate that a corporation has a personality
Santos, that "the stockholders may not directly claim those separate and distinct from its stockholders. 63 The properties
damages for themselves for that would result in the foreclosed belonged to MMIC, not to its stockholders. Hence, if
appropriation by, and the distribution among them of part of wrong was committed in the foreclosure, it was done against the
the corporate assets before the dissolution of the corporation corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot
and the liquidation of its debts and liabilities, something which directly claim those damages for himself that would result in the
cannot be legally done in view of section 16 of the appropriation by, and the distribution to, him part of the
Corporation Law . . .; corporation's assets before the dissolution of the corporation
and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters nor submitted to it.
(3) the filing of such suits would conflict with the duty of the
Moreover, said cause of action had already been decided in a
management to sue for the protection of all concerned;
separate case. It is thus quite patent that the arbitration
committee exceeded the authority granted to it by the parties'
(4) it would produce wasteful multiplicity of suits; and Compromise and Arbitration Agreement by awarding moral
damages to Jesus S. Cabarrus, Sr.
(5) it would involve confusion in a ascertaining the effect of
partial recovery by an individual on the damages recoverable Atty. Sison, in his separate opinion, likewise expressed
by the corporation for the same act. 58 befuddlement to the award of moral damages to Jesus S.
Cabarrus, Sr.:
If at all an award was due MMIC, which it was not, the same
should have been given sans deduction, regardless of whether It is clear and it cannot be disputed therefore that based
or not the party liable had equity in the corporation, in view of on these stipulated issues, the parties themselves
the doctrine that a corporation has a personality separate and have agreed that the basic ingredient of the causes of
distinct from its individual stockholders or members. DBP's action in this case is the wrong committed on the
alleged equity, even if it were indeed 87%, did not give it corporation (MMIC) for the alleged illegal foreclosure of its
ownership over any corporate property, including the monetary assets. By agreeing to this
award, its right over said corporate property being a mere stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit
expectancy or inchoate right. 59 Notably, the stipulation even that the cause of action pertains only to the corporation
had the effect of prejudicing the other creditors of MMIC. (MMIC) and that they are filing this for and in behalf of
MMIC.
The arbiters, likewise, exceeded their authority in awarding
moral damages to Jesus Cabarrus, Sr. Perforce this has to be so because it is the basic rule in
Corporation Law that "the shareholders have no title, legal
It is perplexing how the Arbitration Committee can in one breath or equitable to the property which is owned by the
rule that the case before it is a derivative suit, in which the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil.
aggrieved party or the real party in interest is supposedly the 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373,
MMIC, and at the same time award moral damages to an the rule has been reiterated that "a stockholder is not the
individual stockholder, to wit: co-owner of corporate property." Since the property or
assets foreclosed belongs [sic] to MMIC, the wrong
committed, if any, is done against the corporation. There
WHEREFORE, premises considered, judgment is therefore no direct injury or direct violation of the rights
is hereby rendered: of Cabarrus et al. There is no way, legal or equitable, by
which Cabarrus et al. could recover damages in their
xxx xxx xxx personal capacities even assuming or just because the
foreclosure is improper or invalid. The Compromise and
Arbitration Agreement itself and the elementary principles
3. Ordering the defendant to pay to the plaintiff, Jesus S.
of Corporation Law say so. Therefore, I am constrained to
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
dissent from the award of moral damages to Cabarrus. 64
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to From the foregoing discussions, it is evident that, not only did
paragraph (9), Compromise and Arbitration Agreement, as and the arbitration committee exceed its powers or so imperfectly
for moral damages; . . . 60 execute them, but also, its findings and conclusions are palpably
devoid of any factual basis, and in manifest disregard of the law.
The majority decision of the Arbitration Committee sought to
justify its award of moral damages to Jesus S. Cabarrus, Sr. by We do not find it necessary to remand this case to the RTC for
pointing to the fact that among the assets seized by the appropriate action. The pleadings and memoranda filed with this
government were assets belonging to Industrial Enterprise Inc. Court, as well as in the Court of Appeals, raised and extensively
(IEI), of which Cabarrus is the majority stockholder. It then discussed the issues on the merits. Such being the case, there is
acknowledged that Cabarrus had already recovered said assets sufficient basis for us to resolve the controversy between the
in the RTC, but that "he won no more than actual damages. parties anchored on the records and the pleadings before us. 65
While the Committee cannot possibly speak for the RTC, there is
no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on WHEREFORE, the Decision of the Court of Appeals dated July 17,
account of that specific foreclosure, damages the Committee 1995, as well as the Orders of the Regional Trial Court of Makati,
believes and so holds, he, Jesus S. Cabarrus, Sr., may be Branch 62, dated November 28, 1994 and January 19, 1995, is
awarded in this proceeding." 61 hereby REVERSED and SET ASIDE, and the decision of the
Arbitration Committee is hereby VACATED.SO ORDERED.
Cabarrus cause of action for the seizure of the assets belonging
to IEI, of which he is the majority stockholder, having been SECOND DIVISIONG.R. No. 196723 August 28,
ventilated in a complaint he previously filed with the RTC, from 2013
which he obtained actual damages, he was barred by res
judicata from filing a similar case in another court, this time
163
ASIAN CONSTRUCTION AND DEVELOPMENT The Proceedings Before the Arbitral Tribunal
CORPORATION, Petitioner,
vs. On September 2, 2008, Asian Construction filed a
SUMITOMO CORPORATION, Respondent. complaint22 with the CIAC, docketed as CIAC Case No. 28-2008,
seeking payment for its alleged losses and reimbursements
PERLAS-BERNABE, J.: amounting to US$9,501,413.13, plus attorneys fees in the
amount of P2,000,000.00.23 As a matter of course, an Arbitral
Tribunal was constituted, with Alfredo F. Tadiar being designated
Before the Court are consolidated petitions for review on
as Chairman, and Salvador P. Castro and Jesse B. Grove as
certiorari which assail separate issuances of the Court of
Members.24
Appeals (C A) in relation to the partial and final awards rendered
by the Construction Industry Arbitration Commission's (CIAC)
Arbitral Tribunal (Arbitral Tribunal) in CIAC Case No. 28-2008. For its part, Sumitomo filed a Motion to Dismiss,25 questioning
the CIACs jurisdiction over the dispute on the ground that the
arbitration should proceed in accordance with the Commercial
In particular, the petition in G.R. No. 196723 1 filed by Asian
Arbitration Rules of Japan.26 However, the aforesaid motion was
Construction and Development Corporation (Asian Construction)
denied.27 As such, Sumitomo filed an Answer,28 reiterating the
seeks to annul and set aside the CAs Resolutions dated July 23,
CIACs alleged lack of jurisdiction and further asserting that the
20102 and April 18, 20113 in CA-G.R. SP No. 112127 which
claim was already time-barred. It added that had Asian
dismissed its appeal from the Arbitral Tribunals Partial
Construction discharged its obligations under the Agreement to
Award4 dated December 15, 2009 (Partial Award) on the ground
itemize and justify its claims, the same could have been
of forum shopping; while the petition in G.R. No. 196728 5 filed
amicably settled years ago. In this respect, it made a
by Sumitomo Corporation (Sumitomo) seeks to annul and set
counterclaim for the unutilized portion of the advance
aside the CAs Decision6 dated January 26, 2011 and
payments, attorneys fees and costs of litigation in the amount
Resolution7dated April 29, 2011 in CA-G.R. SP No. 113828 which
of at least P10,000,000.00.29
modified the Arbitral Tribunals Final Award 8 dated March 17,
2010 (Final Award) by way of deleting the award of attorneys
fees in Sumitomos favor. Subsequently, the parties signed a TOR,30 stipulating the
admitted facts and defining the issues to be determined in the
arbitration proceedings.
The Facts
To begin, Executive Order No. (EO) 1008, 58 which vests upon the Hence, finding the CAs review of the Final Award and its
CIAC original and exclusive jurisdiction over disputes arising consequent deletion of the award of attorneys fees to be
from, or connected with, contracts entered into by parties proper, the Court similarly denies Sumitomos petition in G.R.
involved in construction in the Philippines, plainly states that the No. 196728.
arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Court." 59 Later, WHEREFORE, the petitions are DENIED. The Resolutions dated
however, the Court, in Revised Administrative Circular (RAC) No. July 23, 2010 and April 18, 2011 of the Court of Appeals in CA-
1-95,60 modified this rule, directing that the appeals from the G.R. SP No. 112127, as well as its Decision dated January 26,
arbitral award of the CIAC be first brought to the CA on 2011 and Resolution dated April 29, 2011 in CA-G.R. SP No.
"questions of fact, law or mixed questions of fact and law." This 113828 are hereby AFFIRMED.SO ORDERED.
amendment was eventually transposed into the present CIAC
Revised Rules which direct that "a petition for review from a final
award may be taken by any of the parties within fifteen (15) FIRST DIVISION G.R. No. 169332 February 11, 2008
days from receipt thereof in accordance with the provisions of
Rule 43 of the Rules of Court." 61 Notably, the current provision is ABS-CBN BROADCASTING CORPORATION,Petitioner, - v e r
s u s - WORLD INTERACTIVENETWORK SYSTEMS
in harmony with the Courts pronouncement that "despite
(WINS)JAPAN CO., LTD.,Respondent.
statutory provisions making the decisions of certain
x-----------------------------------------
administrative agencies final, the Court still takes cognizance
---------x
of petitions showing want of jurisdiction, grave abuse of CORONA, J.:
discretion, violation of due process, denial of substantial justice
or erroneous interpretation of the law" and that, in particular, This petition for review on certiorari under Rule 45 of the Rules
"voluntary arbitrators, by the nature of their functions, act in a of Court seeks to set aside the February 16, 2005 decision [1] and
quasi-judicial capacity, such that their decisions are within the August 16, 2005 resolution[2] of the Court of Appeals (CA) in CA-
scope of judicial review."62 G.R. SP No. 81940.
After a careful scrutiny of the records, the Court observes that 3. If so, was the breach seasonably cured under
there was no gross and evident bad faith on the part of Asian the same contractual provision of Section 13
Construction in filing its complaint against Sumitomo since it (a)?
was merely seeking payment of its unpaid works done pursuant
to the Agreement. Neither can its subsequent refusal to accept 4. Which party is entitled to the payment of
damages they claim and to the other reliefs
Sumitomos offered compromise be classified as a badge of bad
prayed for?
faith since it was within its right to either accept or reject the
same owing to its contractual nature.67 Verily, absent any other
166
xxx xxx xxx 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 for
certiorari under Rule 65 of the Rules of Court, instead of filing a
The arbitrator found in favor of respondent.[7] He held that petition to vacate the award in the RTC when the grounds
petitioner gave its approval to respondent for the airing of WINS invoked to overturn the arbitrators decision are other than those
WEEKLY as shown by a series of written exchanges between the for a petition to vacate an arbitral award enumerated under RA
parties. He also ruled that, had there really been a material 876.
breach of the agreement, petitioner should have terminated the
same instead of sending a mere notice to terminate said RA 876 itself mandates that it is the Court of First
agreement. The arbitrator found that petitioner threatened to Instance, now the RTC, which has jurisdiction over questions
terminate the agreement due to its desire to compel respondent relating to arbitration,[9] such as a petition to vacate an arbitral
to re-negotiate the terms thereof for higher fees. He further award.
stated that even if respondent committed a breach of the
agreement, the same was seasonably cured. He then allowed Section 24 of RA 876 provides for the specific grounds for a
respondent to recover temperate damages, attorney's fees and petition to vacate an award made by an arbitrator:
one-half of the amount it paid as arbitrator's fee.
Sec. 24. Grounds for vacating award. - In any one of
Petitioner filed in the CA a petition for review under Rule 43 of the following cases, the court must make an
the Rules of Court or, in the alternative, a petition for certiorari order vacating the award upon the petition of any
under Rule 65 of the same Rules, with application for temporary party to the controversy when such party proves
restraining order and writ of preliminary injunction. It was affirmatively that in the arbitration proceedings:
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 (a) The award was procured by corruption, fraud, or
or excess of jurisdiction on the part of the arbitrator. other undue means; or
Respondent, on the other hand, filed a petition for confirmation (b) That there was evident partiality or corruption in the
of arbitral award before the Regional Trial Court (RTC) of Quezon arbitrators or any of them; or
City, Branch 93, docketed as Civil Case No. Q-04-51822. (c) That the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient cause
Consequently, petitioner filed a supplemental petition in the CA shown, or in refusing to hear evidence pertinent and
seeking to enjoin the RTC of Quezon City from further material to the controversy; that one or more of the
proceeding with the hearing of respondent's petition for arbitrators was disqualified to act as such under section
confirmation of arbitral award. After the petition was admitted nine hereof, and willfully refrained from disclosing such
by the appellate court, the RTC of Quezon City issued an order disqualifications or of any other misbehavior by which
holding in abeyance any further action on respondent's petition the rights of any party have been materially prejudiced;
as the assailed decision of the arbitrator had already become or
the subject of an appeal in the CA. Respondent filed a motion for (d) That the arbitrators exceeded their powers, or so
reconsideration but no resolution has been issued by the lower imperfectly executed them, that a mutual, final and
court to date.[8] definite award upon the subject matter submitted to
them was not made.
On February 16, 2005, the CA rendered the assailed decision
dismissing ABS-CBNs 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 Based on the foregoing provisions, the law itself clearly
reconsideration shall be filed, then the petition for review must provides that the RTC must issue an order vacating an arbitral
fail. It ruled that it is the RTC which has jurisdiction over award only in any one of the . . . cases enumerated therein.
questions relating to arbitration. It held that the only instance it Under the legal maxim in statutory construction expressio unius
can exercise jurisdiction over an arbitral award is an appeal from est exclusio alterius, the explicit mention of one thing in a
the trial court's decision confirming, vacating or modifying the statute means the elimination of others not specifically
arbitral award. It further stated that a petition for certiorari mentioned. As RA 876 did not expressly provide for errors of fact
under Rule 65 of the Rules of Court is proper in arbitration cases and/or law and grave abuse of discretion (proper grounds for a
only if the courts refuse or neglect to inquire into the facts of an petition for review under Rule 43 and a petition for certiorari
arbitrator's award. The dispositive portion of the CA decision under Rule 65, respectively) as grounds for maintaining a
read: petition to vacate an arbitral award in the RTC, it necessarily
follows that a party may not avail of the latter remedy on the
WHEREFORE, the instant petition is grounds of errors of fact and/or law or grave abuse of discretion
hereby DISMISSED for lack of jurisdiction. The to overturn an arbitral award.
application for a writ of injunction and temporary
restraining order is likewise DENIED. The Regional Trial Adamson v. Court of Appeals [10] gave ample warning that a
Court of Quezon City Branch 93 is directed to proceed petition to vacate filed in the RTC which is not based on the
with the trial for the Petition for Confirmation of Arbitral grounds enumerated in Section 24 of RA 876 should be
Award. dismissed. In that case, the trial court vacated the arbitral award
seemingly based on grounds included in Section 24 of RA 876
SO ORDERED. 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:
Petitioner moved for reconsideration. The same was denied. The Court of Appeals, in reversing the trial court's
Hence, this petition. decision held that the nullification of the decision of the
Arbitration Committee was not based on the grounds
Petitioner contends that the CA, in effect, ruled that: (a) it provided by the Arbitration Law and that xxx private
should have first filed a petition to vacate the award in the RTC respondents (petitioners herein) have failed to
and only in case of denial could it elevate the matter to the CA substantiate with any evidence their claim of partiality.
via a petition for review under Rule 43 and (b) the assailed Significantly, even as respondent judge ruled against
decision implied that an aggrieved party to an arbitral award the arbitrator's award, he could not find fault with their
does not have the option of directly filing a petition for review impartiality and integrity. Evidently, the nullification
under Rule 43 or a petition for certiorari under Rule 65 with the of the award rendered at the case at bar was not
CA even if the issues raised pertain to errors of fact and law or made on the basis of any of the grounds
grave abuse of discretion, as the case may be, and not provided by law.
dependent upon such grounds as enumerated under Section 24
(petition to vacate an arbitral award) of RA 876 (the Arbitration xxx xxx xxx
Law). Petitioner alleged serious error on the part of the CA.
167
It is clear, therefore, that the award was vacated contention that it may avail of a petition for review under Rule
not because of evident partiality of the 43 under the circumstances of this case is correct.
arbitrators but because the latter interpreted the As to petitioner's arguments that a petition for certiorari under
contract in a way which was not favorable to herein Rule 65 may also be resorted to, we hold the same to be in
petitioners and because it considered that herein accordance with the Constitution and jurisprudence.
private respondents, by submitting the controversy to
arbitration, was seeking to renege on its obligations Section 1 of Article VIII of the 1987 Constitution provides that:
under the contract.
SECTION 1. The judicial power shall be vested in one
xxx xxx xxx Supreme Court and in such lower courts as may be
established by law.
It is clear then that the Court of Appeals reversed
the trial court not because the latter reviewed the Judicial power includes the duty of the courts of
arbitration award involved herein, but because the justice to settle actual controversies involving rights
respondent appellate court found that the trial which are legally demandable and enforceable, and to
court had no legal basis for vacating the determine whether or not there has been a grave
award. (Emphasis supplied). abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or
In cases not falling under any of the aforementioned grounds to instrumentality of the Government. (Emphasis
vacate an award, the Court has already made several supplied)
pronouncements that a petition for review under Rule 43 or a As may be gleaned from the above stated provision, it is well
petition for certiorari under Rule 65 may be availed of in the CA. within the power and jurisdiction of the Court to inquire whether
Which one would depend on the grounds relied upon by any instrumentality of the Government, such as a voluntary
petitioner. arbitrator, has gravely abused its discretion in the exercise of its
In Luzon Development Bank v. Association of Luzon functions and prerogatives. Any agreement stipulating that the
Development Bank Employees,[11] the Court held that a decision of the arbitrator shall be final and unappealable and
voluntary arbitrator is properly classified as a quasi-judicial that no further judicial recourse if either party disagrees with the
instrumentality and is, thus, within the ambit of Section 9 (3) of whole or any part of the arbitrator's award may be availed of
the Judiciary Reorganization Act, as amended. Under this cannot be held to preclude in proper cases the power of judicial
section, the Court of Appeals shall exercise: review which is inherent in courts. [16] We will not hesitate to
review a voluntary arbitrator's award where there is a showing
xxx xxx xxx of grave abuse of authority or discretion and such is properly
raised in a petition for certiorari [17] and there is no appeal, nor
(3) Exclusive appellate jurisdiction over all any plain, speedy remedy in the course of law. [18]
final judgments, decisions, resolutions, orders or Significantly, Insular Savings Bank v. Far East Bank and
awards of Regional Trial Courts and quasi-judicial Trust Company[19] definitively outlined several judicial remedies
agencies, instrumentalities, boards or commissions, an aggrieved party to an arbitral award may undertake:
including the Securities and Exchange Commission, the
Employees Compensation Commission and the Civil (1) a petition in the proper RTC to issue an
Service Commission, except those falling within the order to vacate the award on the grounds
appellate jurisdiction of the Supreme Court in provided for in Section 24 of RA 876;
accordance with the Constitution, the Labor Code of the (2) a petition for review in the CA under Rule
Philippines under Presidential Decree No. 442, as 43 of the Rules of Court on questions of fact,
amended, the provisions of this Act and of of law, or mixed questions of fact and law; and
subparagraph (1) of the third paragraph and (3) a petition for certiorari under Rule 65 of the
subparagraph (4) of the fourth paragraph of Section 17 Rules of Court should the arbitrator have acted
of the Judiciary Act of 1948. (Emphasis supplied) without or in excess of his jurisdiction or with
grave abuse of discretion amounting to lack or
excess of jurisdiction.
As such, decisions handed down by voluntary arbitrators fall
within the exclusive appellate jurisdiction of the CA. This Nevertheless, although petitioners position on the judicial
decision was taken into consideration in approving Section 1 of remedies available to it was correct, we sustain the dismissal of
Rule 43 of the Rules of Court.[12] Thus: its petition by the CA. The remedy petitioner availed of,
entitled alternative petition for review under Rule 43 or petition
SECTION 1. Scope. - This Rule shall apply to appeals for certiorari under Rule 65, was wrong.
from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or Time and again, we have ruled that the remedies of appeal and
resolutions of or authorized by any quasi-judicial certiorari are mutually exclusive and not alternative or
agency in the exercise of its quasi-judicial functions. successive.[20]
Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Proper issues that may be raised in a petition for review under
Securities and Exchange Commission, Office of the Rule 43 pertain to errors of fact, law or mixed questions of fact
President, Land Registration Authority, Social Security and law.[21] While a petition for certiorari under Rule 65 should
Commission, Civil Aeronautics Board, Bureau of only limit itself to errors of jurisdiction, that is, grave abuse of
Patents, Trademarks and Technology Transfer, National discretion amounting to a lack or excess of jurisdiction.
[22]
Electrification Administration, Energy Regulatory Board, Moreover, it cannot be availed of where appeal is the proper
National Telecommunications Commission, Department remedy or as a substitute for a lapsed appeal. [23]
of Agrarian Reform under Republic Act Number 6657,
Government Service Insurance System, Employees In the case at bar, the questions raised by petitioner in
Compensation Commission, Agricultural Inventions its alternative petition before the CA were the following:
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
Industry Arbitration Commission, and voluntary AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING
arbitrators authorized by law. (Emphasis supplied) THAT THE BROADCAST OF WINS WEEKLY WAS DULY
AUTHORIZED BY ABS-CBN.
f. Whether or not Claimant is entitled to a KRDC, through a letter on October 20, 2000, asked ALI
termination fee equivalent to to reconsider its decision to terminate the contract and
P708,691,543.00; and requested that it be allowed to continue with the
project. On October 27, 2000, ALI replied [6] with regrets that it
g. Who between Claimant and Respondent stands by its earlier decision to terminate the construction
shall bear the cost and expenses of the contract.
arbitration, including arbitrators fees,
administrative expenses and legal fees.[20]
Through a letter[7] dated November 29, 2001, or
In fine, the issues raised by respondent are subject to exactly one (1) year after the expiration date in the performance
arbitration in accordance with the arbitration clause in the bond, ALI reiterated its claim against the performance bond
parties agreement. issued by PGAI amounting to P3,852,800.84. PGAI however did
not respond to the letter.
WHEREFORE, the petition is DENIED.SO ORDERED.
THIRD DIVISION September 8, 2010 G.R. No. 177240
On February 7, 2002, ALI commenced arbitration
PRUDENTIAL GUARANTEE AND ASSURANCE INC.,Petitioner, - proceedings against KRDC and PGAI in the CIAC.PGAI answered
versus - with cross-claim contending that it was not a party to the
ANSCOR LAND, INC.,Respondent. construction contract and that the claim of ALI against the
bonds was filed beyond the expiration period.
In fine, there are two (2) main issues for this Court to
resolve, to wit:
Petitioner PGAI now comes to this Court to seek relief.
I.
Petitioner argues that the CIAC had no jurisdiction over
the dispute as regards the claim of ALI against the performance Whether or not the CIAC had jurisdiction over the
bond because petitioner was not a party to the construction dispute.
contract. It maintains that Executive Order (EO) No. 1008 [13] did
not vest jurisdiction on the CIAC to settle disputes between a II.
party to a construction contract on one hand and a non-party on
the other. Whether or not the respondent made its claim on the
performance bond within the period allowed by
the time-bar provision.
The petitioner contends that CIACs jurisdiction was
limited to the construction industry and cannot extend to surety First Issue Jurisdiction of the CIAC
or guarantee contracts. By reason of the lack of jurisdiction of
Section 4 of EO No. 1008 defines the jurisdiction of the
the CIAC over the dispute, the September 2,
CIAC:
2002 judgment[14] of the CIAC was void with regard to the
liability of PGAI. Sec. 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in
As to the award made by the CIAC on ALIs claims, the Philippines, whether the dispute arises before or after the
petitioner maintains that it cannot be held liable under the completion of the contract, or after the abandonment or
performance bond because clearly, under the time-bar breach thereof. These disputes may involve government or
provision in the said bond, the claim made by ALI in its letter to private contracts. For the Board to acquire jurisdiction, the
PGAI dated November 29, 2001 was submitted one (1) year parties to a dispute must agree to submit the same to
late. Petitioner points out that such letter was the first and only voluntary arbitration.
definite claim that ALI made against the performance bond and
unfortunately, it was filed beyond the allowed period. Hence, the The jurisdiction of the CIAC may include but is not limited to
Decision of the CA declaring PGAI solidarily liable with KRDC violation of specifications for materials and workmanship;
under the performance bond is erroneous and should be struck violation of the terms of agreement; interpretation and/or
down. application of contractual time and delays; maintenance and
defects; payment, default of employer or contractor and
changes in contract cost.
On the other hand, respondent avers that the Excluded from the coverage of this law are disputes arising
construction contract itself provided that the performance and from employer-employee relationships which shall continue
surety bond shall be deemed part of the construction contract, to be covered by the Labor Code of the Philippines. (Italics
to wit: supplied.)
Article 1
CONTRACT DOCUMENTS
EO No. 1008 expressly vests in the CIAC original and
1.1 The following shall form part of this Contract and exclusive jurisdiction over disputes arising from or connected
together with this Contract, are known as the with construction contracts entered into by parties that have
Contract Documents: agreed to submit their dispute to voluntary arbitration. Under
the aforequoted provision, it is apparent that a dispute must
a. Bid Proposal
meet two (2) requirements in order to fall under the jurisdiction
xxxx of the CIAC: first, the dispute must be somehow connected to a
construction contract; and second, the parties must have agreed
d. Notice to proceed to submit the dispute to arbitration proceedings.
xxxx
As regards the first requirement, the Performance Bond
j. Appendices A & B (respectively, Surety Bond
issued by the petitioner was meant to guarantee the supply of
for Performance and, Supply of Materials by
labor, materials, tools, equipment, and necessary supervision to
the Developer)[15]
complete the project. A guarantee or a surety contract under
Article 2047[16] of the Civil Code of the Philippines is an
accessory contract because it is dependent for its existence
By reason of this express provision in the construction upon the principal obligation guaranteed by it.[17]
contract, respondent maintains that petitioner PGAI became a
party to such contract when it submitted its Surety and
Performance bonds. Consequently, petitioners argument that In fact, the primary and only reason behind the
CIAC has not acquired jurisdiction over PGAI because the latter acquisition of the performance bond by KRDC was to guarantee
was not a party to the construction contract, is untenable. to ALI that the construction project would proceed in accordance
with the contract terms and conditions. In effect, the
performance bond becomes liable for the completion of the
As to the alleged lack of jurisdiction of CIAC over the construction project in the event KRDC fails in its contractual
dispute arising from the surety contract, respondent cites EO undertaking.
No. 1008, which provides that any dispute connected with a
construction contract comes within the original and exclusive
jurisdiction of the CIAC. The surety bond being an integral part Because of the performance bond, the construction
of the construction contract, it is necessarily connected thereto contract between ALI and KRDC is guaranteed to be performed
which brings it under the jurisdiction of the CIAC. even if KRDC fails in its obligation. In practice, a performance
bond is usually a condition or a necessary component of
construction contracts. In the case at bar, the performance bond
172
was so connected with the construction contract that the former contract. The construction contract breathes life into the
was agreed by the parties to be a condition for the latter to push performance bond. We are not ready to assume that the
through and at the same time, the former is reliant on the latter performance bond contains reservations with regard to some of
for its existence as an accessory contract. the terms and conditions in the construction contract where in
fact it is silent.On the other hand, it is more reasonable to
assume that the party who issued the performance bond
Although not the construction contract itself, the carefully and meticulously studied the construction contract that
performance bond is deemed as an associate of the main it guaranteed, and if it had reservations, it would have and
construction contract that it cannot be separated or severed should have mentioned them in the surety contract.
from its principal. The Performance Bond is significantly and
substantially connected to the construction contract that there
can be no doubt it is the CIAC, under Section 4 of EO No. 1008, Second Issue Petitioners Liability Under the Performance
which has jurisdiction over any dispute arising from or Bond
connected with it. On the second issue, the crux of the controversy revolves upon
a letter dated October 16, 2000 sent by ALI to PGAI. It reads:
On the second requirement that the parties to a dispute
must have previously agreed to submit to arbitration, it is clear xxxx
from Article 24 of the Construction Contract itself that the
parties have indeed agreed to submit their disputes to This pertains to the contract between Kraft Realty
arbitration, to wit: Development Corp. and Anscor Land, Inc., which is
covered by surety and performance bonds by your
Article 24 good company.
DISPUTES AND ARBITRATION
Please be advised that we are now terminating the
All disputes, controversies, or differences between the contract of Kraft due to the breach by Kraft of the
parties arising out of or in connection with this terms and conditions of the construction contract. More
Contract, or arising out of or in connection with the specifically, the project has accumulated very serious
execution of the WORK shall be settled in accordance delays, in spite of the full cooperation that this
with the procedures laid down by the Construction company has extended to Kraft.
Industry Arbitration Commission. The cost of arbitration
shall be borne jointly by both CONTRACTOR and Kindly refer to the attached letter of termination
DEVELOPER on a fifty-fifty (50-50) basis.[18] dated 16 October 2000.
Petitioner however argues that such provision in the Anscor Land [Inc.] may be making claims against the
construction contract does not bind it because it is not a party to said bonds and in this regard, kindly coordinate with
such contract and in effect did not give its consent to submit to the following for any matter with which we can assist
arbitration in case of any dispute on the performance you with.
bond. Such argument is untenable. The Performance Bond
issued by petitioner states that PGAI agreed -- Engr. Teodelito de Vera
Anscor Land, Inc.
To guarantee the supply of labor, materials, tools, Tel. 812-7941 to 48 Fax 813-5301
equipment and necessary supervision to complete the
construction of Proposed Sigma Townhouses of the Thank you for your kind attention.[22] (Italics supplied.)
Obligee as per Notice to Proceed dated November 23,
1999, copy of which is hereto attached and made an
integral part of this bond.[19]
The question really is whether or not the foregoing letter
constituted a valid claim and effectively complied with the time-
bar provision in the performance bond.
When it executed the performance bond, PGAIs
undertaking thereunder was that of a surety to the obligation of
It is clear that ALI communicated two (2) important points to PGAI
KRDC, the principal under the construction contract. PGAI should
in the letter. First, that ALI is terminating the construction contract
not be allowed now to insist that it had nothing to do with the
with KRDC and second, that ALI may be making a claim on the
construction contract and should be viewed as a non-party.
bonds issued by PGAI.
Since the liability of petitioner as surety is solidary with that of
KRDC, it was properly impleaded as it would be the party
ultimately answerable under the bond should KRDC be adjudged The time-bar provision in the Performance Bond provides that
liable for breach of contract. Furthermore, it is well settled that any claim against the bond should be discovered and presented
accessory contracts should not be read independently of the to the company within ten days from the expiration of this bond
main contract. They should be construed together in order to or from the occurrence of the default or failure of the principal,
arrive at their true meaning.[20] In Velasquez v. Court of Appeals, whichever is the earliest. The purpose of this provision in the
[21]
the Court labeled such rule as the complementary contracts performance bond is to give the issuer, in this case PGAI, notice
construed together doctrine. It states: of the claim at the earliest possible time and to afford the issuer
sufficient time to evaluate, and examine the validity of the claim
That the complementary contracts construed together while the evidence or indicators of breach are fresh. In the
doctrine applies in this case finds support in the construction industry, time is precious, delay costs money and
principle that the surety contract is merely an postponement in making a claim could cause additional
accessory contract and must be interpreted with its expenses.
principal contract, which in this case was the loan
agreement. This doctrine closely adheres to the spirit of
Art. 1374 of the Civil Code which states that In line with the rationale behind the time-bar provision, we rule
that the letter dated October 16, 2000 was a sufficient
Art. 1374. The various stipulations of a claim. The tenor of the letter adequately put PGAI on notice that
contract shall be interpreted together, ALI has terminated the contract because of serious delays
attributing to the doubtful ones that sense tantamount to breach by KRDC of its obligations. The letter
which may result from all of them taken jointly. timely informed PGAI that ALI was in fact terminating the
construction contract and thereby giving rise to the obligation of
In the case at bar, the performance bond was silent with regard PGAI under the performance bond. PGAI was informed within
to arbitration. On the other hand, the construction contract was the time-bar provision and had all the opportunity to conduct its
clear as to arbitration in the event of disputes. Applying the said evaluation and examination as to the validity of the termination.
doctrine, we rule that the silence of the accessory contract in
this case could only be construed as acquiescence to the main
173
The CA thus correctly ruled that: The October 16, 2000 letter was the presentation of the
claim. ALIs intent to recover its claim was communicated clearly
The fact of contract termination had been made known to PGAI. By informing PGAI of the termination of the contract
to PGAI as early as October 16, 2000. This with KRDC, ALI in effect presented a situation where PGAI is put
terminationconsequently meant that the principal on notice that ALI in fact has a right to payment by virtue of the
KRDC would no longer be able to supply labor, performance bond and it intends to recover it. Undeniably, ALI
materials, tools, equipment and necessary has substantially complied with the time-bar provision of the
supervision to complete the project. It was at this time, performance bond.
therefore, that PGAIs obligation guaranteeing the
project completion arose, although the amount of
payment was still undetermined. WHEREFORE, the petition is DENIED and the Decision
dated April 28, 2006 of the Court of Appeals in CA-G.R. SP No.
72854 is hereby AFFIRMED.
That ALI merely used the word may in expressing its
intent to proceed against the bond does not make its
claim any less categorical as argued by PGAI. The point
With costs against the petitioner.SO ORDERED.
is the very condition giving rise to the obligation to pay,
i.e. KRDCs default and the resulting contract
termination, was clearly mentioned in the 16 October FIRST DIVISIONG.R. No. 189563 April 7, 2014
2000 letter. The citation of this fact is more than
sufficient to place PGAI in notice that ALI shall be
making claims on the bonds. GILAT SATELLITE NETWORKS, LTD., Petitioner,
vs.
xxxx UNITED COCONUT PLANTERS BANK GENERAL INSURANCE
CO., INC., Respondent.
But the important consideration is that ALI, by its 16
October 2000 letter, was informing PGAI of the contract
SERENO, CJ:
termination, the very condition for its liabilities under
the performance bond to accrue. ALI had no other
purpose in sending the letter than to notify PGAI This is an appeal via a Petition for Review on Certiorari 1 filed 6
that it was intending to proceed against the November 2009 assailing the Decision 2 and Resolution3 of the
performance bond. PGAI makes much out of ALIs Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed
failure to identify the particular bond against which it the Decision4 of the Regional Trial Court (RTC), Branch 141,
would be claiming. But the contract termination Makati City in Civil Case No. 02-461, ordering respondent to pay
necessarily implies that there would be hiatus in the petitioner a sum of money.
supply of labor and materials.
Surely, no bond would answer for the non- The antecedent facts, as culled from the CA, are as follows:
implementation of contractual provisions other than the
performance bond.Further, the surety bond only
On September 15, 1999, One Virtual placed with GILAT a
guarantees reimbursement of the portion of the
purchase order for various telecommunications equipment (sic),
downpayment and not the supply of labor, materials
and equipment.[23] (Emphasis supplied, italics in the accessories, spares, services and software, at a total purchase
original.) price of Two Million One Hundred Twenty Eight Thousand Two
Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase
price for the goods delivered, One Virtual promised to pay a
In interpreting the time-bar provision, the absence of any portion thereof totalling US$1.2 Million in accordance with the
ambiguity in the words used would lead to the conclusion that payment schedule dated 22 November 1999. To ensure the
the generally accepted meaning of the words shall control. In prompt payment of this amount, it obtained defendant UCPB
the time-bar provision, the word claim does not give rise to any General Insurance Co., Inc.s surety bond dated 3 December
ambiguity in interpretation and does not call for a stretched 1999, in favor of GILAT.
understanding.
During the period between [sic] September 1999 and June 2000,
In Finasia Investments and Finance Corporation v. Court of GILAT shipped and delivered to One Virtual the purchased
Appeals,[24] the Court had the occasion to rule that: products and equipment, as evidenced by airway bills/Bill of
Lading (Exhibits "F", "F-1" to "F-8"). All of the equipment
The word claim is also defined as: (including the software components for which payment was
secured by the surety bond, was shipped by GILAT and duly
Right to payment, whether or not such right is reduced received by One Virtual. Under an endorsement dated
to judgment, liquidated, unliquidated, fixed, contingent, December 23, 1999 (Exhibit "E"), the surety issued, with One
matured, unmatured, disputed, undisputed, legal, Virtuals conformity, an amendment to the surety bond, Annex
equitable, secured, or unsecured; or right to an "A" thereof, correcting its expiry date from May 30, 2001 to July
equitable remedy for breach of performance if such 30, 2001.
breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, One Virtual failed to pay GILAT the amount of Four Hundred
disputed, undisputed, secured, unsecured. Thousand Dollars (US$400,000.00) on the due date of May 30,
2000 in accordance with the payment schedule attached as
In conflicts of law, a receiver may be appointed in any Annex "A" to the surety bond, prompting GILAT to write the
state which has jurisdiction over the defendant who surety defendant UCPB on June 5, 2000, a demand letter
owes a claim.[25] (Italics supplied.) (Exhibit "G") for payment of the said amount of US$400,000.00.
No part of the amount set forth in this demand has been paid to
date by either One Virtual or defendant UCPB. One Virtual
In the case at bar, the claim of ALI against PGAI arose from the likewise failed to pay on the succeeding payment instalment
failure of KRDC to perform its obligation under the construction date of 30 November 2000 as set out in Annex "A" of the surety
contract. ALI therefore already had the claim or right to payment bond, prompting GILAT to send a second demand letter dated
against PGAI in the maximum amount of P4,700,000.00 from the January 24, 2001, for the payment of the full amount of
moment KRDC failed to comply with its obligation. According to US$1,200,000.00 guaranteed under the surety bond, plus
the time-bar provision, in order to enforce such claim or recover interests and expenses (Exhibits "H") and which letter was
the said amount, ALI shall present its claim within ten (10) days
received by the defendant surety on January 25, 2001. However,
from the occurrence of the default or failure of KRDC.
defendant UCPB failed to settle the amount of US$1,200,000.00
174
or a part thereof, hence, the instant complaint." 5 (Emphases in SO ORDERED. (Emphasis in the original)
the original)
The CA ruled that in "enforcing a surety contract, the
On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a complementary-contracts-construed-together doctrine finds
Complaint6 against respondent UCPB General Insurance Co., application." According to this doctrine, the accessory contract
Inc., to recover the amounts supposedly covered by the surety must be construed with the principal agreement. 15In this case,
bond, plus interests and expenses. After due hearing, the RTC the appellate court considered the Purchase Agreement entered
rendered its Decision,7 the dispositive portion of which is herein into between petitioner and One Virtual as the principal
quoted: contract,16 whose stipulations are also binding on the parties to
the suretyship.17 Bearing in mind the arbitration clause
contained in the Purchase Agreement18 and pursuant to the
WHEREFORE, premises considered, the Court hereby renders
policy of the courts to encourage alternative dispute resolution
judgment for the plaintiff, and against the defendant, ordering,
methods,19 the trial courts Decision was vacated; petitioner and
to wit:
One Virtual were ordered to proceed to arbitration.
2. The defendant surety to pay the plaintiff the amount On 31 August 2010, respondent filed a Comment21 on the
of Forty Four Thousand Four Dollars and Four Cents Petition for Review. On 24 November 2010, petitioner filed a
(US$44,004.04) representing attorneys fees and Reply.22
litigation expenses.
ISSUES
Accordingly, defendants counterclaim is hereby dismissed for
want of merit. From the foregoing, we reduce the issues to the following:
SO ORDERED. (Emphasis in the original) 1. Whether or not the CA erred in dismissing the case
and ordering petitioner and One Virtual to arbitrate;
In so ruling, the RTC reasoned that there is "no dispute that and
plaintiff [petitioner] delivered all the subject equipments [sic]
and the same was installed. Even with the delivery and 2. Whether or not petitioner is entitled to legal interest
installation made, One Virtual failed to pay any of the payments due to the delay in the fulfilment by respondent of its
agreed upon. Demand notwithstanding, defendant failed and obligation under the Suretyship Agreement.
refused and continued to fail and refused to settle the
obligation."8
THE COURTS RULING
On 18 October 2007, respondent appealed to the CA. 13 The On the other hand, respondent maintains that a surety contract
appellate court rendered a Decision14 in the following manner: is merely an accessory contract, which cannot exist without a
valid obligation.29 Thus, the surety may avail itself of all the
WHEREFORE, this appealed case is DISMISSED for lack of defenses available to the principal debtor and inherent in the
jurisdiction. The trial courts Decision dated December 28, 2006 debt30 that is, the right to invoke the arbitration clause in the
is VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and Purchase Agreement.
One Virtual are ordered to proceed to arbitration, the outcome of
which shall necessary bind the parties, including the surety, We agree with petitioner.
defendant-appellant United Coconut Planters Bank General
Insurance Co., Inc.
In suretyship, the oft-repeated rule is that a suretys liability is
joint and solidary with that of the principal debtor. This
175
undertaking makes a surety agreement an ancillary contract, as delay in discharging its monetary obligation. 47 Citing Article
it presupposes the existence of a principal 1169 of the Civil Code, petitioner insists that the delay started
contract.31 Nevertheless, although the contract of a surety is in to run from the time it demanded the fulfilment of respondents
essence secondary only to a valid principal obligation, its obligation under the suretyship contract. Significantly,
liability to the creditor or "promise" of the principal is said to be respondent does not contest this point, but instead argues that
direct, primary and absolute; in other words, a surety is directly it is only liable for legal interest of 6% per annum from the date
and equally bound with the principal.32 He becomes liable for the of petitioners last demand on 24 January 2001.
debt and duty of the principal obligor, even without possessing a
direct or personal interest in the obligations constituted by the In rejecting petitioners position, the RTC stated that interests
latter.33Thus, a surety is not entitled to a separate notice of may only accrue when the delay or the refusal of a party to pay
default or to the benefit of excussion. 34 It may in fact be sued is without any justifiable cause.48 In this case, respondents
separately or together with the principal debtor. 35 failure to heed the demand was due to the advice of One Virtual
that petitioner allegedly breached its undertakings as stated in
After a thorough examination of the pieces of evidence the Purchase Agreement.49 The CA, however, made no
presented by both parties,36 the RTC found that petitioner had pronouncement on this matter.
delivered all the goods to One Virtual and installed them.
Despite these compliances, One Virtual still failed to pay its We sustain petitioner.
obligation,37 triggering respondents liability to petitioner as the
formers surety.1wphi1 In other words, the failure of One
Virtual, as the principal debtor, to fulfill its monetary obligation Article 2209 of the Civil Code is clear: "[i]f an obligation consists
to petitioner gave the latter an immediate right to pursue in the payment of a sum of money, and the debtor incurs a
respondent as the surety. delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest."
Consequently, we cannot sustain respondents claim that the
Purchase Agreement, being the principal contract to which the
Suretyship Agreement is accessory, must take precedence over Delay arises from the time the obligee judicially or
arbitration as the preferred mode of settling disputes. extrajudicially demands from the obligor the performance of the
obligation, and the latter fails to comply. 50 Delay, as used in
Article 1169, is synonymous with default or mora, which means
First, we have held in Stronghold Insurance Co. Inc. v. Tokyu delay in the fulfilment of obligations.51 It is the nonfulfillment of
Construction Co. Ltd.,38 that "[the] acceptance [of a surety an obligation with respect to time.52 In order for the debtor (in
agreement], however, does not change in any material way the this case, the surety) to be in default, it is necessary that the
creditors relationship with the principal debtor nor does it make following requisites be present: (1) that the obligation be
the surety an active party to the principal creditor-debtor demandable and already liquidated; (2) that the debtor delays
relationship. In other words, the acceptance does not give the performance; and (3) that the creditor requires the performance
surety the right to intervene in the principal contract. The judicially or extrajudicially.53
suretys role arises only upon the debtors default, at which
time, it can be directly held liable by the creditor for payment as
a solidary obligor." Hence, the surety remains a stranger to the Having held that a surety upon demand fails to pay, it can be
Purchase Agreement. We agree with petitioner that respondent held liable for interest, even if in thus paying, its liability
cannot invoke in its favor the arbitration clause in the Purchase becomes more than the principal obligation. 54 The increased
Agreement, because it is not a party to that contract. 39 An liability is not because of the contract, but because of the
arbitration agreement being contractual in nature, 40 it is binding default and the necessity of judicial collection.55
only on the parties thereto, as well as their assigns and heirs.41
However, for delay to merit interest, it must be inexcusable in
Second, Section 24 of Republic Act No. 9285 42 is clear in stating nature. In Guanio v. Makati-Shangri-la Hotel, 56 citing RCPI v.
that a referral to arbitration may only take place "if at least one Verchez,57 we held thus:
party so requests not later than the pre-trial conference, or upon
the request of both parties thereafter." Respondent has not In culpa contractual x x x the mere proof of the existence of the
presented even an iota of evidence to show that either contract and the failure of its compliance justify, prima facie, a
petitioner or One Virtual submitted its contesting claim for corresponding right of relief. The law, recognizing the obligatory
arbitration. force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual
Third, sureties do not insure the solvency of the debtor, but undertaking or a contravention of the tenor thereof. A breach
rather the debt itself. 43 They are contracted precisely to mitigate upon the contract confers upon the injured party a valid cause
risks of non-performance on the part of the obligor. This for recovering that which may have been lost or suffered. The
responsibility necessarily places a surety on the same level as remedy serves to preserve the interests of the promissee that
that of the principal debtor.44 The effect is that the creditor is may include his "expectation interest," which is his interest in
given the right to directly proceed against either principal debtor having the benefit of his bargain by being put in as good a
or surety. This is the reason why excussion cannot be position as he would have been in had the contract been
invoked.45 To require the creditor to proceed to arbitration would performed, or his "reliance interest," which is his interest in
render the very essence of suretyship nugatory and diminish its being reimbursed for loss caused by reliance on the contract by
value in commerce. At any rate, as we have held in Palmares v. being put in as good a position as he would have been in had
Court of Appeals,46 "if the surety is dissatisfied with the degree the contract not been made; or his "restitution interest," which
of activity displayed by the creditor in the pursuit of his is his interest in having restored to him any benefit that he has
principal, he may pay the debt himself and become subrogated conferred on the other party. Indeed, agreements can
to all the rights and remedies of the creditor." accomplish little, either for their makers or for society, unless
they are made the basis for action. The effect of every infraction
is to create a new duty, that is, to make RECOMPENSE to the
Interest, as a form of indemnity, may be awarded to a creditor one who has been injured by the failure of another to observe
for the delay incurred by a debtor in the payment of the latters his contractual obligation unless he can show extenuating
obligation, provided that the delay is inexcusable. circumstances, like proof of his exercise of due diligence x x x or
of the attendance of fortuitous event, to excuse him from his
Anent the issue of interests, petitioner alleges that it deserves ensuing liability. (Emphasis ours)
to be paid legal interest of 12% per annum from the time of its
first demand on respondent on 5 June 2000 or at most, from the We agree with petitioner that records are bereft of proof to show
second demand on 24 January 2001 because of the latters that respondents delay was indeed justified by the
176
circumstances that is, One Virtuals advice regarding money, the interest due should be that which may have been
petitioners alleged breach of obligations. The lower courts stipulated in writing. Furthermore, the interest due shall itself
Decision itself belied this contention when it said that "plaintiff is earn legal interest from the time it is judicially
not disputing that it did not complete commissioning work on demanded.1wphi1 In the absence of stipulation, the rate of
one of the two systems because One Virtual at that time is interest shall be 6% per annum to be computed from default,
already in default and has not paid GILAT." 58 Assuming arguendo i.e., from judicial or extrajudicial demand under and subject to
that the commissioning work was not completed, respondent the provisions of Article 1169 of the Civil Code.
has no one to blame but its principal, One Virtual; if only it had
paid its obligation on time, petitioner would not have been xxxx
forced to stop operations. Moreover, the deposition of Mr. Erez
Antebi, vice president of Gilat, repeatedly stated that petitioner
had delivered all equipment, including the licensed software; 3. When the judgment of the court awarding a sum of money
and that the equipment had been installed and in fact, gone into becomes final and executory, the rate of legal interest, whether
operation.59 Notwithstanding these compliances, respondent still the case falls under paragraph 1 or paragraph 2, above, shall be
failed to pay. 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.
As to the issue of when interest must accrue, our Civil Code is
explicit in stating that it accrues from the time judicial or
extrajudicial demand is made on the surety. This ruling is in Applying the above-discussed concepts and in the absence of an
accordance with the provisions of Article 1169 of the Civil Code agreement as to interests, we are hereby compelled to award
and of the settled rule that where there has been an extra- petitioner legal interest at the rate of 6% per annum from 5 June
judicial demand before an action for performance was filed, 2000, its first date of extra judicial demand, until the satisfaction
interest on the amount due begins to run, not from the date of of the debt in accordance with the revised guidelines enunciated
the filing of the complaint, but from the date of that extra- in Nacar.
judicial demand.60 Considering that respondent failed to pay its
obligation on 30 May 2000 in accordance with the Purchase WHEREFORE, the Petition for Review on Certiorari is hereby
Agreement, and that the extrajudicial demand of petitioner was GRANTED. The assailed Decision and Resolution of the Court of
sent on 5 June 2000,61 we agree with the latter that interest Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of
must start to run from the time petitioner sent its first demand the Regional Trial Court, Branch 141, Makati City is REINSTATED,
letter (5 June 2000), because the obligation was already due and with MODIFICATION insofar as the award of legal interest is
demandable at that time. concerned. Respondent is hereby ordered to pay legal interest
at the rate of 6% per annum from 5 June 2000 until the
With regard to the interest rate to be imposed, we take cue from satisfaction of its obligation under the Suretyship Contract and
Nacar v. Gallery Frames,62 which modified the guidelines Purchase Agreement.
established in Eastern Shipping Lines v. CA 63 in relation to
Bangko Sentral-Monetary Board Circular No. 799 (Series of SO ORDERED.
2013), to wit: