G.R. No. 115412 November 19, 1999 HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner, vs.

COURT OF APPEALS and FAR EAST BANK & TRUST CO., INC. respondents. BUENA, J.: 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 Appeals 2 dated January 21, 1994 in CA-G.R. SP No. 29725, dismissing the petition for certiorari filed by petitioner to annul 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, denying petitioner's motion to dismiss and the second, dated October 1, 1992 denying petitioner's motion for reconsideration thereof. The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in Civil Case No. 92-145, issued Home Bankers Savings and Trust Company (HBSTC) check No. 193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00 and P8,100,000.00, respectively, the three checks amounting to P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient Funds." On October 15, 1991, HBSTC sent Arriesgado's three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received the notice of dishonor on October 21, 1991 but refused to accept the checks and on October 22, 1991, returned them to FEBTC through the PCHC for the reason "Beyond Reglementary Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be withdrawn. 4 FEBTC demanded reimbursement for the returned checks and inquired from HBSTC whether it had permitted any withdrawal of funds against the unfunded checks and if so, on what date. HBSTC, however, refused to make any reimbursement and to provide FEBTC with the needed information. Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee, 5 under the PCHC's Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations administered by the PCHC. 6 On January 17, 1992, while the arbitration proceeding was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment 7 against HBSTC, Robert Young, Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A motion to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and accordingly ". . . should be dismissed because it seeks to enforce an arbitral award which as yet does not exist." 8 The trial court issued an omnibus order dated April 30, 1992 denying the motion to dismiss and an order dated October 1, 1992 denying the motion for reconsideration. On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of Appeals contending that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction in denying the motion to dismiss filed by HBSTC. In a Decision 9 dated January 21, 1994, the respondent court dismissed the petition for lack of merit and held that "FEBTC can reiterate its cause of action before the courts which it had already raised in the arbitration case" 10 after finding that the complaint filed by FEBTC ". . . seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an arbitral award." 11 The respondent court observed that "[i]n the Complaint, FEBTC applied for the issuance of a writ of preliminary attachment over HBT's [HBSTC] property" 12 and citing section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that "[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT

[HBSTC]," 13 and that "[t]his prayer for conservatory relief [writ of preliminary attachment] satisfies the requirement of a cause of action which FEBTC may pursue in the courts." 14 Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition requiring prior submission to arbitration before the institution of a court action, the complaint is not to be dismissed but should be suspended for arbitration." 17 Finding no merit in HBSTC's contention that section 7 of the Arbitration Law ". . . contemplates a situation in which a party to an arbitration agreement has filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has initiated arbitration proceedings before filing a court action," the respondent court held that ". . . if the absence of a prior arbitration may stay court action, so too and with more reason, should an arbitration already pending as obtains in this case stay the court action. A party to a pending arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of action although the disposal of that action on the merits cannot as yet be obtained." 18 The respondent court discarded Puromines, Inc. vs. Court of Appeals, 19 stating that ". . . perhaps Puromines may have been decided on a different factual basis." 20 In the instant petition, 21 petitioner contends that first, "no party litigant can file a non-existent complaint," 22 arguing that ". . . one cannot file a complaint in court over a subject that is undergoing arbitration." 23 Second, petitioner submits that "[s]ince arbitration is a special proceeding by a clear provision of law, 24 the civil suit filed below is, without a shadow of doubt, barred by litis pendentia and should be dismissed de plano insofar as HBSTC is concerned." 25 Third, petitioner insists that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed," 26 citing Associated Bank vs. Court of Appeals, 27 Puromines, Inc. vs. Court of Appeals, 28 as and Ledesma vs. Court of Appeals. 29 Petitioner demurs that the Puromines ruling was deliberately not followed by the respondent court which claimed that: xxx xxx xxx It would really be much easier for Us to rule to dismiss the complaint as the petitioner here seeks to do, following Puromines. But with utmost deference to the Honorable Supreme Court, perhaps Puromines may have been decided on a different factual basis. xxx xxx xxx 30 Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse the rulings in National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 31 and Bengson vs. Chan, 32 where this Court suspended the action filed pending arbitration, and argues that "[s]ound policy requires that the conclusion of whether a Supreme Court decision has or has not reversed or modified [a] previous doctrine, should be left to the Supreme Court itself; until then, the latest pronouncement should prevail." 33 Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court is void considering that the case filed before it "is a separate action which cannot exist," 34 and ". . . there is even no need for the attachment as far as HBSTC is concerned because such automatic debit/credit procedure 35 may be regarded as a security for the transactions involved and, as jurisprudence confirms, one requirement in the issuance of an attachment [writ of preliminary attachment] is that the debtor has no sufficient security." 36 Petitioner asserts further that a writ of preliminary attachment is unwarranted because no ground exists for its issuance. According to petitioner, ". . . the only allegations against it [HBSTC] are that it refused to refund the amounts of the checks of FEBTC and that it knew about the fraud perpetrated by the other defendants," 37 which, at best, constitute only "incidental fraud" and not causal fraud which justifies the issuance of the writ of preliminary attachment.

Private respondent FEBTC, on the other hand, contends that ". . . the cause of action for collection [of a sum of money] can coexist in the civil suit and the arbitration [proceeding]" 38 citing section 7 of the Arbitration Law which provides for the stay of the civil action until an arbitration has been had in accordance with the terms of the agreement providing for arbitration. Private respondent further asserts that following section 4(3), article VIII 39 of the 1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 40 and Bengson vs. Chan, 41 hence, private respondent concludes that the prevailing doctrine is that the civil action must be stayed rather than dismissed pending arbitration. In this petition, the lone issue presented for the consideration of this Court is: WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE ADVERSE PARTY IN THE ARBITRATION PROCEEDING. 42 We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration, thus: Sec. 14. Subpoena and subpoena duces tecum. Arbitrators shall have the power to require any person to attend a hearing as a witness. They shall have the power to subpoena witnesses and documents when the relevancy of the testimony and the materiality thereof has been demonstrated to the arbitrators. Arbitrators may also require the retirement of any witness during the testimony of any other witness. All of the arbitrators appointed in any controversy must attend all the hearings in that matter and hear all the allegations and proofs of the parties; but an award by the majority of them is valid unless the concurrence of all of them is expressly required in the submission or contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. (emphasis supplied) Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a "kiting scheme." However, the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law. Petitioner cites the cases of Associated Bank vs. Court of Appeals, 43 Puromines, Inc. vs. Court of Appeals, 44 and Ledesma vs. Court of Appeals 45 in contending that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed." 46 However, the said cases are not in point. In Associated Bank, we affirmed the dismissal of the third-party complaint filed by Associated Bank against Philippine

Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust Company, and Citytrust Banking Corporation for lack of jurisdiction, it being shown that the said parties were bound by the Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation. In Associated Bank, we declared that: . . . . . .. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body. 47 (emphasis supplied) And thus we concluded: Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court. 48 (emphasis supplied) Simply put, participants in the regional clearing operations of the Philippine Clearing House Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from the courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and regulations. Likewise, in the case of Puromines, Inc. vs. Court of Appeals, 49 we have ruled that: In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein. In Puromines, we found the arbitration clause stated in the sales contract to be valid and applicable, thus, we ruled that the parties, being signatories to the sales contract, are obligated to respect the arbitration provisions on the contract and cannot escape from such obligation by filing an action for breach of contract in court without resorting first to arbitration, as agreed upon by the parties. At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes. 50 The Court looks with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. 51 WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED.SO ORDERED.

SECOND DIVISION G.R. No. 179537 October 23, 2009 PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner, vs. EDISON (BATAAN) COGENERATION CORPORATION, Respondent. DECISION CARPIO MORALES, J.: Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration Corporation (respondent) entered into a Power Supply and Purchase Agreement (PSPA or agreement) for a 10-year period effective October 25, 1997 whereby respondent undertook to construct, operate, and maintain a power plant which would sell, supply and deliver electricity to PEZA for resale to business locators in the Bataan Economic Processing Zone. In the course of the discharge of its obligation, respondent requested from PEZA a tariff increase with a mechanism for adjustment of the cost of fuel and lubricating oil, which request it reiterated on March 5, 2004. PEZA did not respond to both requests, however, drawing respondent to write PEZA on May 3, 2004. Citing a tariff increase which PEZA granted to the East Asia Utilities Corporation (EAUC), another supplier of electricity in the Mactan Economic Zone, respondent informed PEZA of a violation of its obligation under Clause 4.9 of the PSPA not to give preferential treatment to other power suppliers. After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder, and demanded P708,691,543.00 as pre-termination fee. PEZA disputed respondents right to terminate the agreement and refused to pay the pre-termination fee, prompting respondent to request PEZA to submit the dispute to arbitration pursuant to the arbitration clause of the PSPA. Petitioner refused to submit to arbitration, however, prompting respondent to file a Complaint against PEZA for specific performance before the Regional Trial Court (RTC) of Pasay, alleging that, inter alia: xxxx 4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved through arbitration before an Arbitration Committee composed of one representative of each party and a third member who shall be mutually acceptable to the parties: x x x xxx 5. Conformably with the Agreement, plaintiff notified defendant in a letter dated September 6, 2004 requesting that the parties submit their dispute to arbitration. In a letter dated September 8, 2004, which defendant received on the same date, defendant unjustifiably refused to comply with the request for arbitration, in violation of its undertaking under the Agreement. Defendant likewise refused to nominate its representative to the Arbitration Committee as required by the Agreement. 6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the Arbitration Law, (a) if either party to the contract fails or refuses to name his arbitrator within 15 days after receipt of the demand for arbitration; or (b) if the arbitrators appointed by each party to the contract, or appointed by one party to the contract and by the proper court, shall fail to agree upon or to select the third arbitrator, then this Honorable Court shall appoint the arbitrator or arbitrators.2 (Emphasis and underscoring supplied) Respondent accordingly prayed for judgment
1

x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third arbitrator who shall act as Chairman of the Arbitration Committee; and (b) referring the attached Request for Arbitration to the Arbitration Committee to commence the arbitration. 3 and for other just and equitable reliefs. In its Answer,4 PEZA (hereafter petitioner): 1. ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6 of the complaint, with the qualification that the alleged dispute subject of the plaintiffs Request for Arbitration dated October 20, 2004 is not an arbitrable issue, considering that the provision on pre-termination fee in the Power Sales and Purchase Agreement (PSPA), is gravely onerous, unconscionable, greatly disadvantageous to the government, against public policy and therefore invalid and unenforceable. 2. ADMIT[TED] the allegation in paragraph 5 of the complaint with the qualification that the refusal of the defendant to arbitrate is justified considering that the provision on the pre-termination fee subject of the plaintiffs Request for Arbitration is invalid and unenforceable. Moreover, the pre-termination of the PSPA is whimsical, has no valid basis and in violation of the provisions thereof, constituting breach of contract on the part of the plaintiff.5 (Emphasis and underscoring supplied) Xxxx Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings,6 contending that since petitioner x x x does not challenge the fact that (a) there is a dispute between the parties; (b) the dispute must be resolved through arbitration before a three-member arbitration committee; and (c) defendant refused to submit the dispute to arbitration by naming its representative in the arbitration committee, judgment may be rendered directing the appointment of the two other members to complete the composition of the arbitration committee that will resolve the dispute of the parties.71avvphi1 By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondents Motion to Render Judgment on the Pleadings, disposing as follows: WHEREFORE, all the foregoing considered, this Court hereby renders judgment in favor of the plaintiff and against the defendant. Pursuant to Section 8 of RA 876, also known as the Arbitration Law, and Power Sales and Purchase Agreement, this Court hereby appoints, subject to their agreement as arbitrators, retired Supreme Court Chief Justice Andres Narvasa, as chairman of the committee, and retired Supreme Court Justices Hugo Gutierrez, and Justice Jose Y. Feria, as defendants and plaintiffs representative, respectively, to the arbitration committee. Accordingly, let the Request for Arbitration be immediately referred to the Arbitration Committee so that it can commence with the arbitration. SO ORDERED.8 (Underscoring supplied) On appeal,9 the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order.10 Its Motion for Reconsideration11 having been denied,12 petitioner filed the present Petition for Review on Certiorari,13 faulting the appellate court

I . . . WHEN IT DISMISSED PETITIONERS APPEAL AND AFFIRMED THE 05 APRIL 2004 ORDER OF THE TRIAL COURT WHICH RENDERED JUDGMENT ON THE PLEADINGS, DESPITE THE FACT THAT PETITIONERS ANSWER TENDERED AN ISSUE. II . . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH REFERRED RESPONDENTS REQUEST FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE PRESENTED BY THE RESPONDENT IS NOT AN ARBITRABLE ISSUE.14 (Underscoring supplied) The petition fails. The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act No. 876, "An Act to Authorize the Making of Arbitration and Submission Agreements, to Provide for the Appointment of Arbitrators and the Procedure for Arbitration in Civil Controversies, and for Other Purposes" which reads: SECTION 6. Hearing by court. A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. x x x x (Underscoring supplied) 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." 15 Given petitioners admission of the material allegations of respondents complaint including the existence of a written agreement to resolve disputes through arbitration, the assailed appellate courts affirmance of the trial courts grant of respondents Motion for Judgment on the Pleadings is in order. Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the pretermination fee clause of the PSPA. Even assuming arguendo that the clause is illegal, it would not affect the agreement between petitioner and respondent to resolve their dispute by arbitration. The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically terminate when the contract of which it is a part comes to an end. The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as the "container" contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration clause/agreement still remains valid and enforceable.16 (Emphasis in the original; underscoring supplied)

Petitioner nevertheless contends that the legality of the pre-termination fee clause is not arbitrable, citing Gonzales v. Climax Mining Ltd. 17 which declared that the therein complaint should be brought before the regular courts, and not before an arbitral tribunal, as it involved a judicial issue. Held the Court: We agree that the case should not be brought under the ambit of the Arbitration Law xxx. The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions. As previously discussed, the complaint should have been filed before the regular courts as it involved issues which are judicial in nature.18 The ruling in Gonzales was, on motion for reconsideration filed by the parties, modified, however, in this wise: x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a partys mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues.19 (Emphasis and underscoring supplied) It bears noting that respondent does not seek to nullify the main contract. It merely submits these issues for resolution by the arbitration committee, viz: a. Whether or not the interest of Claimant in the project or its economic return in its investment was materially reduced as a result of any laws or regulations of the Philippine Government or any agency or body under its control; b. Whether or not the parties failed to reach an agreement on the amendments to the Agreement within 90 days from notice to respondent on May 3, 2004 of the material reduction in claimants economic return under the Agreement; c. Whether or not as a result of (a) and (b) above, Claimant is entitled to terminate the Agreement; d. Whether or not Respondent accorded preferential treatment to EAUC in violation of the Agreement; e. Whether or not as a result of (d) above, Claimant is entitled to terminate the Agreement; f. Whether or not Claimant is entitled to a termination fee equivalent to P708,691,543.00; and g. Who between Claimant and Respondent shall bear the cost and expenses of the arbitration, including arbitrators fees, administrative expenses and legal fees. 20 In fine, the issues raised by respondent are subject to arbitration in accordance with the arbitration clause in the parties agreement. WHEREFORE, the petition is DENIED. SO ORDERED.

FIRST DIVISION

G.R. No. 107918 June 14, 1994 ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, HON. MARINA L. BUZON, as Presiding Judge of RTC, Quezon City, MM, Br. 91, VISITACION SERRA FLORES RTC, Quezon City, MM, Br. 91, MA. ASUNCION FLORES, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., SECURITY BANK & TRUST CO. and CITYTRUST BANKING CORPORATION, respondents. KAPUNAN, J.: This is a petition for review on certiorari seeking the reversal of the decision of the Court of Appeals on November 18, 1992 affirming in toto the Order of the Regional Trial Court of Quezon City, Branch 91 dismissing the petitioners third-party complaint against private respondent banks for lack of jurisdiction. The facts of the case, as found by both the trial court and the Court of Appeals are undisputed: In a complaint for Violation of the Negotiable Instrument Law and Damages, plaintiffs 1 seek the recovery of the amount of P900,913.60 which defendant bank 2 charged against their current account by virtue of the sixteen (16) checks drawn by them despite the apparent alterations therein with respect to the name of the payee, that is, the name Filipinas Shell was erased and substituted with Ever Trading and DBL Trading by their supervisor Jeremias Cabrera, without their knowledge and consent. Answering the complaint, defendant bank claimed that the subject checks appeared to have been regularly issued and free from any irregularity which would excite or arouse any suspicion or warrant their dishonor when the same were negotiated and honored by it; that it observed and exercised the required diligence, care and the prescribed standard verification procedures before finally accepting and honoring the subject checks and that the proximate cause of plaintiffs loss, if any, was their own laxity, negligence and lack of control, due care and diligence in the conduct of their business affairs. With leave of court, defendant bank filed a Third-Party Complaint against Philippine Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust Company and Citytrust Banking Corporation for reimbursement, contribution, indemnity from said third-party defendants for being the collecting banks of the subject checks and by virtue of their bank guarantee for all checks sent for clearing to the Philippine Clearing House Corporation (PCHC), as provided for in Section 17, (PCHC), as provided for in Section 17, PCHC Clearing House Rules and Regulations. In its Answer to the Third-Party Complaint, Citytrust Banking Corporation averred that the subject checks appeared to be complete and regular on their face with no indication that an original payees name was erased and superimposed with another; that plaintiffs fault and negligence in failing to examine their monthly bank statements, together with the returned checks and their own check stubs, put them under estoppel and cannot recover the proceeds of the checks against it, an innocent third-party, and plaintiff must suffer the loss as their negligence was the proximate cause thereof; and that third party plaintiff is barred from recovering from it base on the provisions of Sections 20 and 21 of the Philippine Clearing Rules and Regulations. Philippine Commercial International Bank alleged that the subject check was complete and regular on its face and was paid by it only upon presentment to the drawee bank for clearing who, upon examination thereof, found the same to be complete and

regular on its face; that it was only after said check was cleared by third-party plaintiff for payment that it allowed the payee to withdraw the proceeds of the check from its account; that the cause of action of the third-party plaintiff is barred by estoppel and/or laches for its failure to return the check to it within the period provided for under Clearing House Rules and Regulations; that this Court has no jurisdiction over the suit as it and third-party plaintiff are members of the Philippine Clearing House and bound by the Rules and Regulations thereof providing for arbitration. A Motion To Dismiss was filed by Security Bank and Trust Company on the grounds that third-party plaintiff failed to resort to arbitration as provided for in Section 36 of the Clearing House Rules and Regulations of the Philippine Clearing House Corporation, and that it was released from any liability with the acceptance by third-party plaintiff of the subject check. The record does not show of any Answer to the Third-Party Complaint having been filed by Far East Bank & Trust Company, although a "Reply To FEBTC Answer" was filed by third-party plaintiff. On the other hand, third-party plaintiff maintains that this Court has jurisdiction over the suit as the provisions of the Clearing House Rules and Regulations are applicable only if the suit or action is between participating member banks, whereas the plaintiffs are private persons and the third-party complaint between participating member banks is only a consequence of the original action initiated by the plaintiffs. 3 The trial court dismissed the third-party complaint for lack of jurisdiction citing Section 36 of the Clearing House Rules and Regulations of the PCHC providing for settlement of disputes and controversies involving any check or item cleared through the body with the PCHC. It ruled citing the Arbitration Rules of Procedure that the decision or award of the PCHC through its arbitration committee/arbitrator is appealable only on questions of law to any of the Regional Trial Courts in the National Capital Region where the head office of any of the parties is located. 4 On the plaintiffs contention that jurisdiction vests with the court only if the suit or action is between participating member banks without the involvement of private parties the trial court held: The third-party complaint concerning a dispute or controversy among clearing participants involving the subject checks cleared through PCHC is actually independent of, separate and distinct from the plaintiffs complaint. . . . xxx xxx xxx As the plaintiffs are not parties to the third party complaint, the provisions of the clearing house rules and regulations on arbitration are, therefore, applicable to Third-Party plaintiff and third party defendant. Consequently this court has no jurisdiction over the third party complaint. 5 After the trial court denied plaintiffs Motion for Reconsideration, 6 petitioner appealed to the Court of Appeals which promulgated the challenged decision on November 18, 1992 dismissing the petition for lack of merit. Undaunted, petitioner is now before this Court seeking a review of respondent courts decision on a lone assignment of error:

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER DRAWEE BANKS THIRD PARTY COMPLAINT AGAINST PRIVATE RESPONDENT COLLECTING BANKS FALL WITHIN THE JURISDICTION OF THE PCHC AND NOT THE REGULAR COURT. We find no merit in the petition.

It is the general agreement and understanding, that any participant in the PCHC MICR clearing operations, by the mere act of participation, thereby manifests its agreement to these Rules and Regulations, and its subsequent amendments. xxx xxx xxx Sec. 36 ARBITRATION

The Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation are clearly applicable to petitioner and private respondents, third party plaintiff and defendants, respectively, in the court below. Petitioner Associated Banks third party complaint in the trial court was one for reimbursement, contribution and indemnity against the Philippine Commercial and Industrial Bank (PCIB), the Far East Bank and Trust, Co. (FEBTC), Security Bank and Trust Co. (SBTC), and the CityTrust Banking Corporation (CTBC), in connection with petitioners having honored sixteen checks which said respondent banks supposedly endorsed to the former for collection in 1989. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. 7 As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body. Since claims relating to the regularity of checks cleared by banking institutions are among those claims which should first be submitted for resolution by the PCHCs Arbitration Committee, petitioner Associated Bank, having voluntarily bound itself to abide by such rules and regulations, is estopped from seeking relief from the Regional Trial Court on the coattails of a private claim and in the guise of a third party complaint without first having obtained a decision adverse to its claim from the said body. It cannot bypass the arbitration process on the basis of its averment that its third party complaint is inextricably linked to the original complaint in the Regional Trial Court. Under its Articles of Incorporation, the PCHC provides "an effective, convenient, efficient, economical and relevant exchange and facilitate service limited to check processing and sorting by way of assisting member banks, entities in clearing checks and other clearing items as defined and existing in future Central Bank of the Philippines Circulars, memoranda, circular letters rules and regulations and policies in pursuance of Section 107 of RA 265." Pursuant to its function involving the clearing of checks and other clearing items, the PCHC has adopted rules and regulations designed to provide member banks with a procedure whereby disputes involving the clearance of checks and other negotiable instruments undergo a process of arbitration prior to submission to the courts below. This procedure not only ensures a uniformity of rulings relating to factual disputes involving checks and other negotiable instruments but also provides a mechanism for settling minor disputes among participating and member banks which would otherwise go directly to the trial courts. While the PCHC Rules and Regulations allow appeal to the Regional Trial Courts only on questions of law, this does not preclude our lower courts from dealing with questions of fact already decided by the PCHC arbitration when warranted and appropriate. In Banco de Oro Savings and Mortgage Banks vs. Equitable Banking Corporation this Court had the occasion to rule on the validity of these rules as well as the jurisdiction of the PCHC as a forum for resolving disputes and controversies involving checks and other clearing items when it held that "the participation of two banks. . . in the Clearing Operations of the PCHC (was) a manifestation of its submission to its jurisdiction." 9 The applicable PCHC provisions on the question of jurisdiction provide: Sec. 3 AGREEMENT TO THESE RULES
8

36.1 Any dispute or controversy between two or more clearing participants involving any check/item cleared thru PCHC shall be submitted to the Arbitration Committee, upon written complaint of any involved participant by filing the same with the PCHC serving the same upon the other party or parties, who shall within fifteen (15) days after receipt thereof, file with the Arbitration Committee its written answer to such written complaint and also within the same period serve the same upon the complaining participant. This period of fifteen (15) days may be extended by the Committee not more than once for another period of fifteen (15) days, but upon agreement in writing of the complaining party, said extension may be for such period as the latter may agree to. Section 36.6 is even more emphatic: 36.6 The fact that a bank participates in the clearing operations of PCHC shall be deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with Section 4 of the Republic Act No. 876 otherwise known as the Arbitration Law. Thus, not only do the parties manifest by mere participation their consent to these rules, but such participation is deemed (their) written and subscribed consent to the binding effect of arbitration agreements under the PCHC rules. Moreover, a participant subject to the Clearing House Rules and Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in the National Capital Region where the head office of any of the parties is located only after a decision or award has been rendered by the arbitration committee or arbitrator on questions of law. 10 Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court. Finally, the contention that the third party complaint should not have been dismissed for being a necessary and inseparable offshoot of the main case over which the court a quo had already exercised jurisdiction misses the fundamental point about such pleading. A third party complaint is a mere procedural device which under the Rules of Court is allowed only with the courts permission. It is an action "actually independent of, separate and distinct from the plaintiffs complaint" (s)uch that, were it not for the Rules of Court, it would be necessary to file the action separately from the original complaint by the defendant against the third party. 11 IN VIEW OF THE FOREGOING, the petition is DENIED for lack of merit. With costs against petitioner. SO ORDERED.

THIRD DIVISION [G.R. No. 121171. December 29, 1998] ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock Holders of Marinduque Mining and Industrial Corporation, respondents. DECISION KAPUNAN, J.: The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, including interest). Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latters failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP). The antecedent facts of the case The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao mineral reservation.[1] MMIC is a domestic corporation engaged in mining with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders. The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP and/or other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million.[2] DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various amounts. On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement[3] whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto. Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due.[4] Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the mortgaged properties.[5] In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC

invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB. By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount of P8,789,028,249.38 as of July 15, 1984 or a total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred ThirtySeven Thousand Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine Currency.[6] Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm.[7] On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC.[8] However, the proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.[9] In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement.[10] The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the Asset Privatization Trust (APT).[11] On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and Damages.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages, attorneys fees, litigation expenses and costs. In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement, stipulating, inter alia: NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein, the parties agreed as follows: 1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this Compromise and Arbitration Agreement. In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed that: (a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of, be discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case No. 9900.[13] The Compromise and Arbitration Agreement limited the issues to the following: 5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith.[14] This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 62, issued an order, to wit: WHEREFORE, this Court orders: Substituting PNB and DBP with the Asset Privatization Trust as party defendant. 2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of the Omnibus Motion. 3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and 4. The Complaint is hereby DISMISSED.[15] The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows: Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds and so declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null and void. The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is P22,668,537,770.05, more or less. Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC. x x x. 1.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest. DISPOSITION WHEREFORE, premises considered, judgment is hereby rendered: 1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as and for moral damages; and 4. Ordering the defendant to pay arbitration costs. This Decision is FINAL and EXECUTORY. IT IS SO ORDERED.[16] Motions for reconsiderations were filed by both parties, but the same were denied. On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment raising the following grounds: 1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB);

2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not necessarily with this Honorable Court) for an order confirming the award; 3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs; 4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject matter submitted to them was not made.[17] Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the submission of the controversy to arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration Committee had exceeded its powers. In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The dispositive portion of said order reads: WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED: (a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The Balance of the award, after the escrow funds are fully applied, shall be executed against the APT; (b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and exemplary damages; (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages; and (d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration costs. In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and Arbitration Agreement, and the final edict of the Arbitration Committees decision, and with this Courts Confirmation, the issuance of the Arbitration Committees Award shall henceforth be final and executory. SO ORDERED.[18]

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto. On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for lack of merit and for having been filed out of time. The trial court declared that considering that the defendant APT through counsel, officially and actually received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of any court in all cases, and by necessary implication for the filling of a motion for reconsideration thereof. On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of Custodian of Proceeds of Execution dated February 6, 1995. Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion.[19] As ground therefor, petitioner alleged that: I THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED. II THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD. III THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSELS COPY THEREOF.[20] On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and dismissed the petition for certiorari. Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors. ASSIGNMENT OF ERRORS I THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC. II THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED

FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD. IV THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD V THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION.[21] The petition is impressed with merit. I The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

that jurisdiction, this matter being legislative in character.[25] As a rule the, neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances.[26] One such exception was enunciated in Tijam vs. Sibonghanoy,[27] where it was held that after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for the loser to question the jurisdiction or power of the court." Petitioners situation is different because from the outset, it has consistently held the position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the courts jurisdiction. III Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the Order of the trial court dated October 14, 1992 stated in no uncertain terms: 4. The Complaint is hereby DISMISSED.[22] The term dismiss has a precise definition in law. To dispose of an action suit, or motion without trial on the issues involved. Conclude, discontinue, terminate, quash.[23] Admittedly the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order dismissing the case. While Branch 62 should have merely suspended the case and not dismissed it,[24] neither of the parties questioned said dismissal. Thus, both parties as well as said court are bound by such error. It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge that the case was merely stayed until arbitration finished, as again, the order of Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the vase. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. Consequently, as there was no pending action to speak of, the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court. II Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

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

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated. The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation of this defense may de done at any time. It is neither for the courts nor for the parties to violate or disregard that rule, let alone to confer

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

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. (Underscoring ours). xxx. Section 25 which enumerates the grounds for modifying the award provides: SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property referred to in the award; or (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioners report, the defect could have been amended or disregarded by the court. x x x. Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award must be vacated.[40] In the same manner, an award must be vacated if it was made in manifest disregard of the law.[41] Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with an award in excess of their powers and palpably devoid of factual and legal basis. V There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the banks right to foreclose. As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan agreement. Restructuring simply connotes that the obligations are past due that is why it is restructurable; 2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming; 3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus himself opposed the FRP; 4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move to save MMIC itself. Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither precipitate nor arbitrary? : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that we have received, and listening to the prospects which reported to us that we had assumed would be the premises of the financial rehabilitation plan was not materialized nor expected to materialized. : And this statement that it was premised upon the known fact that means, it was referring to the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible, just what is meant by no longer feasible? : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the market. : And I supposed that was you were referring to when you stated that the production targets and assumed prices of MMICs products, among other projections, used in the financial reorganization program that will make it viable were not met nor expected to be met? : Yes. xxx Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing the mortgages? In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan, it only meant that these loans were already due and unpaid. If these loans were restructurable because they were already due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps to take. The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to

foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegation in this regard.[42] Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree read as follows: SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institutions concerned. This shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them under their respective contracts with their debtor, including the right to foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%). SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. (Underscoring supplied.) Private respondents thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed.[43] VI Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators in making the award went beyond the arbitration agreement. In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor: 1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof; 2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization plan which was approved at the annual stockholders meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of the loss of value of their investment amounting to not less than P80,000,000.00, the damnum emerges and lucrum cessans in such amount as may be establish during the trial, moral damages in such amount as this Honorable Court may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court may consider appropriate for the purpose of setting an example for the public good, attorneys fees and litigation expenses in such amounts as may be proven during the trial, and the costs legally taxable in this litigation. Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises.[44] Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited the issues to the following: (a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith.[45] Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the nature thereof: 8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of its constitution. In the event the committee finds that PLAINTIFFS have the personality to file this suit and extrajudicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative and not exclusive of each other. On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of APT.[46] The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr. The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

money claims. There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of the parties thereto.[47] The contract must bind both contracting parties.[48] Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans of MMIC had not yet been converted into equity.[49] However, the arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC into equity raising the equity of DBP to 87%.[50] The Arbitration Committee ruled that there was a commitment to carry out the FRP[51] on the ground of promissory estoppel. Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that the government (that is Alfredo Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the government executed no formal agreement, the fact remains that the DBP itself which made representations that the FRP constituted a way out for MMIC. The Committee believes that although the DBP did not formally agree (assuming that the board and stockholders approvals were not formal enough), it is bound nonetheless if only for its conspicuous representations. Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that time) and as MMICs creditor-the DBP can not validly renege on its commitments simply because at the same time, it held interest against the MMIC. The fact, of course, is that as APT itself asserted, the FRP was being carried out although apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP-and so this Committee holds-can not, in any event, brook any denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the government is still bound by virtue of its acts. The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity in MMIC to 87%. It is not excuse, however, for the government to deny its commitments.[52] Atty. Sison, however, did not agree and correctly observed that: But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and DBP have different boards with different members who may have different decisions. It is unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular situation. Otherwise the rights of entirely separate, distinct and autonomous legal entities like PNB and DBP with thousands of stockholders will be suppressed and rendered nugatory.[53] As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent, should not exceed his authority.[54] In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of, and gave effect to, the proposed FRP. In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the validity of the foreclosure and to transform the relief s prayed for therein into pure

Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it: Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done, MMICs credit reputation was no longer a desirable one. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So it could not be said that there was a reputation besmirches by the act of foreclosure.[55] The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the Corporation Law xxx; (3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned; (4) it would produce wasteful multiplicity of suits; and (5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages recoverable by the corporation for the same act.[58] If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality separate and distinct from its individual stockholders or members. DBPs alleged equity, even if it were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right over said corporate property being a mere expectancy or inchoate right.[59]Notably, the stipulation even had the effect of prejudicing the other creditors of MMIC. The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity. Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporations behalf is only nomi nal party. The corporation should be included as a party in the suit. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. x x x.[56] It is a condition sine qua non that the corporation be impleaded as a party becausex x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with process. The reason given is that the judgment must be made binding upon the corporation and in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the corporations must be joined as party because it is its cause of action that is being litigated and because judgment must be a res ajudicata against it.[57] The reasons given for not allowing direct individual suit are: (1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of the stockholders. In other words, to allow shareholders to sue separately would conflict with the separate corporate entity principle; (2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista v. Santos, that the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to an individual stockholder, to wit: WHEREFORE, premises considered, judgment is hereby rendered: xxx. 3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for moral damages; x x x[60] The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus had already recovered said assets in the RTC, but that he won no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that specific foreclosure, damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded in this proceeding.[61] Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he was barred res judicata from filing a similar case in another court, this time asking for moral damages which he failed to get from the earlier case.[62] Worse, private respondents violated the rule against non-forum shopping. It is a basic postulate that s corporation has a personality separate and distinct from its

stockholders.[63] The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the appropriation by, and the distribution to, him part of the corporations assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action had already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr. Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S. Cabarrus, Sr.: It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC. Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not the co-owner of corporate property. Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am constrained to dissent from the award of moral damages to Cabarrus.[64] From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and in manifest disregard of the law. We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being the case, there is sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us.[65] WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED. SO ORDERED

THIRD DIVISION [G.R. No. 141833. March 26, 2003] LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent. DECISION PANGANIBAN, J.: Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve their disputes amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationships.[1] The Case

latter had taken over.[15] Hence, this Petition.[16] The Issues In its Memorandum, petitioner raises the following issues for the Courts consideration: A Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding the interpretation and implementation of the Sub-Contract Agreement dated February 22, 1983 that requires prior recourse to voluntary arbitration; B In the affirmative, whether or not the requirements provided in Article III [1] of CIAC Arbitration Rules regarding request for arbitration ha[ve] been complied with[.][17] The Courts Ruling The Petition is unmeritorious. First Issue: Whether Dispute Is Arbitrable Petitioner claims that there is no conflict regarding the interpretation or the implementation of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect the value of the services it rendered through an ordinary action for the collection of a sum of money from respondent. On the other hand, the latter contends that there is a need for prior arbitration as provided in the Agreement. This is because there are some disparities between the parties positions regarding the extent of the work done, the amount of advances and billable accomplishments, and the set off of expenses incurred by respondent in its take-over of petitioners work. We side with respondent. Essentially, the dispute arose from the parties ncongruent positions on whether certain provisions of their Agreement could be applied to the facts. The instant case involves technical discrepancies that are better left to an arbitral body that has expertise in those areas. In any event, the inclusion of an arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because the awards are still judicially reviewable under certain conditions.[18] In the case before us, the Subcontract has the following arbitral clause: 6. The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation of this Agreement which cannot be settled between [respondent] and [petitioner] amicably shall be settled by means of arbitration x x x.[19] Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of their Agreement. Within the scope of the arbitration clause are discrepancies as to the amount of advances and billable accomplishments, the application of the provision on termination, and the consequent set-off of expenses. A review of the factual allegations of the parties reveals that they differ on the following questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by respondent in the take-over be set off against the amounts it owed petitioner? (3) How much were the advances and billable accomplishments? The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement. According to respondent, the take-over was caused by petitioners delay in completing the work. Such delay was in violation of the provision in the Agreement as to time schedule: G. TIME SCHEDULE [Petitioner] shall adhere strictly to the schedule related to the WORK and

Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court, seeking to set aside the January 28, 2000 Decision of the Court of Appeals[3] (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision reads as follows: WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are ORDERED to present their dispute to arbitration in accordance with their Sub-contract Agreement. The surety bond posted by [respondent] is [d]ischarged.[4] The Facts On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction Groups Inc. entered into a Subcontract Agreement involving electrical work at the Third Port of Zamboanga.[5] On April 25, 1985, respondent took over some of the work contracted to petitioner.[6] Allegedly, the latter had failed to finish it because of its inability to procure materials.[7] Upon completing its task under the Contract, petitioner billed respondent in the amount of P6,711,813.90.[8] Contesting the accuracy of the amount of advances and billable accomplishments listed by the former, the latter refused to pay. Respondent also took refuge in the termination clause of the Agreement.[9] That clause allowed it to set off the cost of the work that petitioner had failed to undertake -- due to termination or take-over -- against the amount it owed the latter. Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint[10] for the collection of the amount representing the alleged balance due it under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss,[11] alleging that the Complaint was premature, because there was no prior recourse to arbitration. In its Order[12] dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did not involve the interpretation or the implementation of the Agreement and was, therefore, not covered by the arbitral clause.[13] After trial on the merits, the RTC[14] ruled that the take-over of some work items by respondent was not equivalent to a termination, but a mere modification, of the Subcontract. The latter was ordered to give full payment for the work completed by petitioner. Ruling of the Court of Appeals On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate court held as arbitrable the issue of whether 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 two other issues: whether petitioner was liable under the warranty clause of the Agreement, and whether it should reimburse respondent for the work the

complete the WORK within the period set forth in Annex C hereof. NO time extension shall be granted by [respondent] to [petitioner] unless a corresponding time extension is granted by [the Ministry of Public Works and Highways] to the CONSORTIUM.[20] Because of the delay, respondent alleges that it took over some of the work contracted to petitioner, pursuant to the following provision in the Agreement: K. TERMINATION OF AGREEMENT [Respondent] has the right to terminate and/or take over this Agreement for any of the following causes: 6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in accordance with this Agreement, or persistently or flagrantly neglects to carry out [its] obligations under this Agreement.[21] Supposedly, as a result of the take-over, respondent incurred expenses in excess of the contracted price. It sought to set off those expenses against the amount claimed by petitioner for the work the latter accomplished, pursuant to the following provision: If the total direct and indirect cost of completing the remaining part of the WORK exceed the sum which would have been payable to [petitioner] had it completed the WORK, the amount of such excess [may be] claimed by [respondent] from either of the following: 1. Any amount due [petitioner] from [respondent] at the time of the termination of this Agreement.[22] The issue as to the correct amount of petitioners advances and billable accomplishments involves an evaluation of the manner in which the parties completed the work, the extent to which they did it, and the expenses each of them incurred in connection therewith. Arbitrators also need to look into the computation of foreign and local costs of materials, foreign and local advances, retention fees and letters of credit, and taxes and duties as set forth in the Agreement. These data can be gathered from a review of the Agreement, pertinent portions of which are reproduced hereunder: C. CONTRACT PRICE AND TERMS OF PAYMENT All progress payments to be made by [respondent] to [petitioner] shall be subject to a retention sum of ten percent (10%) of the value of the approved quantities. Any claims by [respondent] on [petitioner] may be deducted by [respondent] from the progress payments and/or retained amount. Any excess from the retained amount after deducting [respondents] claims shall be released by [respondent] to [petitioner] after the issuance of [the Ministry of Public Works and Highways] of the Certificate of Completion and final acceptance of the WORK by [the Ministry of Public Works and Highways]. D. IMPORTED MATERIALS AND EQUIPMENT [Respondent shall open the letters of credit for the importation of equipment and materials listed in Annex E hereof after the drawings, brochures, and other technical data of each items in the list have been formally approved by [the

Ministry of Public Works and Highways]. However, petitioner will still be fully responsible for all imported materials and equipment. All expenses incurred by [respondent], both in foreign and local currencies in connection with the opening of the letters of credit shall be deducted from the Contract Prices. N. OTHER CONDITIONS 2. All customs duties, import duties, contractors taxes, income taxes, and other taxes that may be required by any government agencies in connection with this Agreement shall be for the sole account of [petitioner].[23] Being an inexpensive, speedy and amicable method of settling disputes,[24] arbitration - along with mediation, conciliation and negotiation -- is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind.[25] It is thus regarded as the wave of the future in international civil and commercial disputes.[26] Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.[27] Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be granted.[28] Any doubt should be resolved in favor of arbitration.[29] Second Issue: Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a formal request for arbitration with the Construction Industry Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction over the question. To bolster its position, petitioner even cites our ruling in Tesco Services Incorporated v. Vera.[30] We are not persuaded. Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the submission of a request for arbitration, as follows: SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to have recourse to arbitration by the Construction Industry Arbitration Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to the Secretariat of the CIAC; PROVIDED, that in the case of government construction contracts, all administrative remedies available to the parties must have been exhausted within 90 days from the time the dispute arose. Tesco was promulgated by this Court, using the foregoing provision as reference. On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration has dispensed with this requirement and recourse to the CIAC may now be availed of whenever a contract contains a clause for the submission of a future co ntroversy to arbitration, in this wise: SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When a contract

contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-93.[31] The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al. [32] (an extended unsigned Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,[33] from which we quote thus: Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary arbitration Unlike in the original version of Section 1, as applied in the Tesco case, the law as it now stands does not provide that the parties should agree to submit disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested upon each party by law, i.e., E.O. No. 1008.[34] Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a construction dispute. The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the disputes covered therein. Because that clause is binding, they are expected to abide by it in good faith.[35] And because it covers the dispute between the parties in the present case, either of them may compel the other to arbitrate.[36] Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such action, as provided under RA 876 [the Arbitration Law].[37] WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

SECOND DIVISION [G.R. No. 146717. November 22, 2004] TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, respondents. DECISION TINGA, J.: Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international trade. A creation of commerce and businessmen, the letter of credit is also unique in the number of parties involved and its supranational character. Petitioner has appealed from the Decision[1] of the Court of Appeals in CA-G.R. SP No. 61901 entitled Transfield Philippines, Inc. v. Hon. Oscar Pimentel, et al., promulgated on 31 January 2001.[2] On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey Contract[3] whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project.[4] The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself.[5] Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract.[6] To secure performance of petitioners obligation on or bef ore the target completion date, or such time for completion as may be determined by the parties agreement, petitioner opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as the Securities), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank)[7] and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC)[8] each in the amount of US$8,988,907.00.[9] In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between the parties which culminated in the instant petition. The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) on 1 June 1999.[10] This was followed by another Request for Arbitration, this time filed by petitioner before the International Chamber of Commerce (ICC)[11] on 3 November 2000. In both arbitration proceedings, the common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date. Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract,[12] petitionerin two separate letters[13] both dated 10 August 2000advised respondent banks of the arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release, or

disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages. As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.2[14] of the Turnkey Contract, it failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however, both banks informed petitioner that they would pay on the Securities if and when LHC calls on them.[15] LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in default/delay in the performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of US$75,000.00 for each day of delay beginning 28 June 2000 until actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time, LHC served notice that it would call on the securities for the payment of liquidated damages for the delay.[16] On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of Makati.[17] Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. The RTC issued a seventy-two (72)-hour temporary restraining order on the same day. The case was docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati. After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary restraining order for a period of seventeen (17) days or until 26 November 2000.[18] The RTC, in its Order[19] dated 24 November 2000, denied petitioners application for a writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of independent contract in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It debunked petitioners contention that the principle of independent contract could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims. Dissatisfied with the trial courts denial of its application for a writ of preliminary injunction, petitioner elevated the case to the Court of Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a temporary restraining order and writ of preliminary injunction.[20] Petitioner submitted to the appellate court that LHCs call on the Securities was premature considering that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC. It asserted that until the fact of delay could be established, LHC had no right to draw on the Securities for liquidated damages. Refuting petitioners contentions, LHC claimed that petitioner had no right to restrain its call on and use of the Securities as payment for liquidated damages. It averred that the Securities are independent of the main contract between them as shown on the face of the two Standby Letters of Credit which both provide that the banks have no responsibility to investigate the authenticity or accuracy of the certificates or the declarants capacity or entitlement to so certify. In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining order, enjoining LHC from calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from transferring, paying or in any manner disposing of the Securities. However, the appellate court failed to act on the application for preliminary injunction until the temporary restraining order expired on 27 January 2001. Immediately thereafter,

representatives of LHC trooped to ANZ Bank and withdrew the total amount of US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00. On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed conformity with the trial courts decision that LHC could call on th e Securities pursuant to the first principle in credit law that the credit itself is independent of the underlying transaction and that as long as the beneficiary complied with the credit, it was of no moment that he had not complied with the underlying contract. Further, the appellate court held that even assuming that the trial courts denial of petitioners application for a writ of preliminary injunction was erroneous, it constituted only an error of judgment which is not correctible by certiorari, unlike error of jurisdiction. Undaunted, petitioner filed the instant Petition for Review raising the following issues for resolution: WHETHER THE INDEPENDENCE PRINCIPLE ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY THEREOF WHERE THE BENEFICIARYS CALL THEREON IS WRONGFUL OR FRAUDULENT. WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE RESOLUTION OF PETITIONERS AND LHCS DISPUTES BY THE APPROPRIATE TRIBUNAL. WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER THE SECURITIES DESPITE BEING NOTIFIED THAT LHCS CALL THEREON IS WRONGFUL. WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT THAT: A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK ARE ALLOWED TO RELEASE, THE REMAINING BALANCE OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC. B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES.[21]

In its Manifestation dated 8 September 2003,[24] LHC contends that the supplemental pleadings filed by petitioner present erroneous and misleading information which would change petitioners theory on appeal. In yet another Manifestation dated 12 April 2004,[25] petitioner alleges that on 18 February 2004, the ICC handed down its Third Partial Award, declaring that LHC wrongfully drew upon the Securities and that petitioner was entitled to the return of the sums wrongfully taken by LHC for liquidated damages. LHC filed a Counter-Manifestation dated 29 June 2004,[26] stating that petitioners Manifestation dated 12 April 2004 enlarges the scope of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. LHC notes that the Petition for Review essentially dealt only with the issue of whether injunction could issue to restrain the beneficiary of an irrevocable letter of credit from drawing thereon. It adds that petitioner has filed two other proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled Transfield Philippines Inc. v. Luzon Hydro Corporation, in which the parties made claims and counterclaims arising from petitioners performance/misperformance of its obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled Transfield Philippines, Inc. v. Luzon Hydro Corporation before Branch 56 of the RTC of Makati, which is an action to enforce and obtain execution of the ICCs partial award mentioned in petitioners Manifestation of 12 April 2004. In its Comment to petitioners Motion for Leave to File Addendum to Petitioners Memorandum, LHC stresses that the question of whether the funds it drew on the subject letters of credit should be returned is outside the issue in this appeal. At any rate, LHC adds that the action to enforce the ICCs partial award is now fully within the Makati RTCs jurisdiction in Civil Case No. 04-332. LHC asserts that petitioner is engaged in forum-shopping by keeping this appeal and at the same time seeking the suit for enforcement of the arbitral award before the Makati court. Respondent SBC in its Memorandum, dated 10 March 2003[27] contends that the Court of Appeals correctly dismissed the petition for certiorari. Invoking the independence principle, SBC argues that it was under no obligation to look into the validity or accuracy of the certification submitted by respondent LHC or into the latters capacity or entitlement to so certify. It adds that the act sought to be enjoined by petitioner was already fait accompli and the present petition would no longer serve any remedial purpose. In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 2003[28] posits that its actions could not be regarded as unjustified in view of the prevailing independence principle under which it had no obligation to ascertain the truth of LHCs allegations that petitioner defaulted in its obligations. Moreover, it points out that since the Standby Letter of Credit No. E001126/8400 had been fully drawn, petitioners prayer for preliminary injunction had been rendered moot and academic. At the core of the present controversy is the applicability of the independence principle and fraud exception rule in letters of cre dit. Thus, a discussion of the nature and use of letters of credit, also referred to simply as credits, would provide a better perspective of the case. The letter of credit evolved as a mercantile specialty, and the only way to understand all its facets is to recognize that it is an entity unto itself. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are lacking, yet strict compliance with its terms is an enforceable right. Nor is it a third-party beneficiary contract, because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract. Since the banks customer cannot draw on the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if properly used, is it a contract of suretyship or guarantee, because it entails a primary liability following a default. Finally, it is not in itself a negotiable instrument, because it is not payable to order or bearer and is generally conditional, yet the draft presented under it is often negotiable.[29]

Petitioner contends that the courts below imprope rly relied on the independence principle on letters of credit when this case falls squarely within the fraud exception rule. Respondent LHC deliberately misrepresented the supposed existence of delay despite its knowledge that the issue was still pending arbitration, petitioner continues. Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle against unjust enrichment and that, under the premises, injunction was the appropriate remedy obtainable from the competent local courts. On 25 August 2003, petitioner filed a Supplement to the Petition[22] and Supplemental Memorandum,[23] alleging that in the course of the proceedings in the ICC Arbitration, a number of documentary and testimonial evidence came out through the use of different modes of discovery available in the ICC Arbitration. It contends that after the filing of the petition facts and admissions were discovered which demonstrate that LHC knowingly misrepresented that petitioner had incurred delays notwithstanding its knowledge and admission that delays were excused under the Turnkey Contractto be able to draw against the Securities. Reiterating that fraud constitutes an exception to the independence principle, petitioner urges that this warrants a ruling from this Court that the call on the Securities was wrongful, as well as contrary to law and basic principles of equity. It avers that it would suffer grave irreparable damage if LHC would be allowed to use the proceeds of the Securities and not ordered to return the amounts it had wrongfully drawn thereon.

In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying.[30] The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in non-sale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby credits.[31] There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a party's nonperformance of the agreement. The documents that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his obligor has not performed the contract.[32] By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee.[33] A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto.[34] Since letters of credit have gained general acceptability in international trade transactions, the ICC has published from time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the letter of credit area. The vast majority of letters of credit incorporate the UCP.[35] First published in 1933, the UCP for Documentary Credits has undergone several revisions, the latest of which was in 1993.[36] In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc .,[37] this Court ruled that the observance of the UCP is justified by Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally observed. More recently, in Bank of America, NT & SA v. Court of Appeals,[38] this Court ruled that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit, not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the UCP is undeniable. Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank. Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called independence principle assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any

documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.[39] The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.[40] Can the beneficiary invoke the independence principle? Petitioner insists that the independence principle does not apply to the instant case and assuming it is so, it is a defense available only to respondent banks. LHC, on the other hand, contends that it would be contrary to common sense to deny the benefit of an independent contract to the very party for whom the benefit is intended. As beneficiary of the letter of credit, LHC asserts it is entitled to invoke the principle. As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented and the conditions of the credit are complied with.[41] Precisely, the independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the principles nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In brief, the letter of credit is separate and distinct from the underlying transaction. Given the nature of letters of credit, petitioners argumentthat it is only the issuing bank that may invoke the independence principle on letters of credit does not impress this Court. To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the beneficiary. Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. With the letter of credit from the issuing bank, the party who applied for and obtained it may confidently present the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the business transaction. On the other hand, the other party to the business transaction, i.e., the beneficiary of the letter of credit, can be rest assured of being empowered to call on the letter of credit as a security in case the commercial transaction does not push through, or the applicant fails to perform his part of the transaction. It is for this reason that the party who is entitled to the proceeds of the letter of credit is appropriately called beneficiary. Petitioners argument that any dispute must first be resolved by the parties, whether through negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical and beneficial use for letters of credit in commercial transactions. Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue: The standby credit is an attractive commercial device for many of the same reasons that

commercial credits are attractive. Essentially, these credits are inexpensive and efficient. Often they replace surety contracts, which tend to generate higher costs than credits do and are usually triggered by a factual determination rather than by the examination of documents. Because parties and courts should not confuse the different functions of the surety contract on the one hand and the standby credit on the other, the distinction between surety contracts and credits merits some reflection. The two commercial devices share a common purpose. Both ensure against the obligors nonperformance. They function, however, in distinctly different ways. Traditionally, upon the obligors default, the surety undertakes to complete the obligors performance, usually by hiring someone to complete that performance. Surety contracts, then, often involve costs of determining whether the obligor defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance. The benefit of the surety contract to the beneficiary is obvious. He knows that the surety, often an insurance company, is a strong financial institution that will perform if the obligor does not. The beneficiary also should understand that such performance must await the sometimes lengthy and costly determination that the obligor has defaulted. In addition, the suretys performance takes time. The standby credit has different expectations. He reasonably expects that he will receive cash in the event of nonperformance, that he will receive it promptly, and that he will receive it before any litigation with the obligor (the applicant) over the nature of the applicants performance takes place. The standby credit has this opposite effect of the surety contract: it reverses the financial burden of parties during litigation. In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary establishes the fact of the obligors performance. The beneficiary may have to establish that fact in litigation. During the litigation, the surety holds the money and the beneficiary bears most of the cost of delay in performance. In the standby credit case, however, the beneficiary avoids that litigation burden and receives his money promptly upon presentation of the required documents. It may be that the applicant has, in fact, performed and that the beneficiarys presentation of those documents is not rightful. In that case, the applicant may sue the beneficiary in tort, in contract, or in breach of warranty; but, during the litigation to determine whether the applicant has in fact breached the obligation to perform, the beneficiary, not the applicant, holds the money. Parties that use a standby credit and courts construing such a credit should understand this allocation of burdens. There is a tendency in some quarters to overlook this distinction between surety contracts and standby credits and to reallocate burdens by permitting the obligor or the issuer to litigate the performance question before payment to the beneficiary.[42] While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask the bank to honor the credit by allowing him to draw thereon. The situation itself emasculates petitioners posture that LHC cannot in voke the independence principle and highlights its puerility, more so in this case where the banks concerned were impleaded as parties by petitioner itself. Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under the Securities. Owing to the nature and purpose of the standby letters of credit, this Court rules that the respondent banks were left with little or no alternative but to honor the credit and both of them in fact submitted that it was ministerial for them to honor the call for payment.[43] Furthermore, LHC has a right rooted in the Contract to call on the Securities. The

relevant provisions of the Contract read, thus: 4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at its cost shall on the Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters of credit (the Securities), each in the amount of US$8,988,907, issued and confirmed by banks or financial institutions acceptable to the Employer. Each of the Securities must be in form and substance acceptable to the Employer and may be provided on an annually renewable basis.[44] 8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer by way of liquidated damages (Liquidated Damages for Delay) the amount of US$75,000 for each and every day or part of a day that shall elapse between the Target Completion Date and the Completion Date, provided that Liquidated Damages for Delay payable by the Contractor shall in the aggregate not exceed 20% of the Contract Price. The Contractor shall pay Liquidated Damages for Delay for each day of the delay on the following day without need of demand from the Employer. 8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due to the Contractor and/or by drawing on the Security.[45] A contract once perfected, binds the parties not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature, may be in keeping with good faith, usage, and law.[46] A careful perusal of the Turnkey Contract reveals the intention of the parties to make the Securities answerable for the liquidated damages occasioned by any delay on the part of petitioner. The call upon the Securities, while not an exclusive remedy on the part of LHC, is certainly an alternative recourse available to it upon the happening of the contingency for which the Securities have been proffered. Thus, even without the use of the independence principle, the Turnkey Contract itself bestows upon LHC the right to call on the Securities in the event of default. Next, petitioner invokes the fraud exception principle. It avers that LHCs call on the Securities is wrongful because it fraudulently misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract knowing fully well that this is yet to be determined by the arbitral tribunals. It asserts that the fraud exception exists when the beneficiary, for the purpose of drawing on the credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. In such a situation, petitioner insists, injunction is recognized as a remedy available to it. Citing Dolans treatise on letters of credit, petitioner argues that the independence principle is not without limits and it is important to fashion those limits in light of the principles purpose, which is to serve the commercial function of the credit. If it does not serve those functions, application of the principle is not warranted, and the commonlaw principles of contract should apply. It is worthy of note that the propriety of LHCs call on the Securities is largely intertwined with the fact of default which is the self-same issue pending resolution before the arbitral tribunals. To be able to declare the call on the Securities wrongful or fraudulent, it is imperative to resolve, among others, whether petitioner was in fact guilty of delay in the performance of its obligation. Unfortunately for petitioner, this Court is not called upon to rule upon the issue of defaultsuch issue having been submitted by the parties to the jurisdiction of the arbitral tribunals pursuant to the terms embodied in their agreement.[47] Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities?

Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient to support an injunction against payment.[48] The remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged.[49] In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total extension of two hundred fifty-three (253) days which would move the target completion date. It argued that if its claims for extension would be found meritorious by the ICC, then LHC would not be entitled to any liquidated damages.[50] Generally, injunction is a preservative remedy for the protection of ones substantive right or interest; it is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit. The issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law.[51] Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right.[52] It must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.[53] Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.[54] In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHCs call on the Securities which would justify the issuance of preliminary injunction. By petitioners own admission, the right of LHC to call on the Securities was contractually rooted and subject to the express stipulations in the Turnkey Contract.[55] Indeed, the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default, as provided in Clause 4.2.5, in relation to Clause 8.7.2, thus: 4.2.5 The Employer shall give the Contractor seven days notice of calling upon any of the Securities, stating the nature of the default for which the claim on any of the Securities is to be made, provided that no notice will be required if the Employer calls upon any of the Securities for the payment of Liquidated Damages for Delay or for failure by the Contractor to renew or extend the Securities within 14 days of their expiration in accordance with Clause 4.2.2.[56] 8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due, to the Contractor and/or by drawing on the Security.[57] The pendency of the arbitration proceedings would not per se make LHCs draws on the Securities wrongful or fraudulent for there was nothing in the Contract which would indicate that the parties intended that all disputes regarding delay should first be settled through arbitration before LHC would be allowed to call upon the Securities. It is therefore premature and absurd to conclude that the draws on the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with finality on the existence of default. Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did petitioner invoke the fraud exception rule as a ground to justify the issuance of an injunction.[58] What petitioner did assert before the courts below was the fact

that LHCs draws on the Securities would be premature and without basis in view of the pending disputes between them. Petitioner should not be allowed in this instance to bring into play the fraud exception rule to sustain its claim for the issuance of an injunctive relief. Matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court as they cannot be raised for the first time on appeal.[59] The lower courts could thus not be faulted for not applying the fraud exception rule not only because the existence of fraud was fundamentally interwoven with the issue of default still pending before the arbitral tribunals, but more so, because petitioner never raised it as an issue in its pleadings filed in the courts below. At any rate, petitioner utterly failed to show that it had a clear and unmistakable right to prevent LHCs call upon the Securities. Of course, prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals prior to taking action to enforce the Securities. But, as earlier stated, the Turnkey Contract did not require LHC to do so and, therefore, it was merely enforcing its rights in accordance with the tenor thereof. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[60] More importantly, pursuant to the principle of autonomy of contracts embodied in Article 1306 of the Civil Code,[61] petitioner could have incorporated in its Contract with LHC, a proviso that only the final determination by the arbitral tribunals that default had occurred would justify the enforcement of the Securities. However, the fact is petitioner did not do so; hence, it would have to live with its inaction. With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the Securities, this Court reiterates that pursuant to the independence principle the banks were under no obligation to determine the veracity of LH Cs certification that default has occurred. Neither were they bound by petitioners declaration that LHCs call thereon was wrongful. To repeat, respondent banks undertaking was simply to pay once the required documents are presented by the beneficiary. At any rate, should petitioner finally prove in the pending arbitration proceedings that LHCs draws upon the Securities were wrongful due to the non-existence of the fact of default, its right to seek indemnification for damages it suffered would not normally be foreclosed pursuant to general principles of law. Moreover, in a Manifestation,[62] dated 30 March 2001, LHC informed this Court that the subject letters of credit had been fully drawn. This fact alone would have been sufficient reason to dismiss the instant petition. Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait accompli or an accomplished or consummated act.[63] In Ticzon v. Video Post Manila, Inc.[64] this Court ruled that where the period within which the former employees were prohibited from engaging in or working for an enterprise that competed with their former employerthe very purpose of the preliminary injunction has expired, any declaration upholding the propriety of the writ would be entirely useless as there would be no actual case or controversy between the parties insofar as the preliminary injunction is concerned. In the instant case, the consummation of the act sought to be restrained had rendered the instant petition mootfor any declaration by this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no practical effect on the existing controversy.[65] The other issues raised by petitioner particularly with respect to its right to recover the amounts wrongfully drawn on the Securities, according to it, could properly be threshed out in a separate proceeding. One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two occasions. First, in its Counter-Manifestation dated 29 June 2004[66] LHC alleges that petitioner presented before this Court the same claim for money which it has filed in two other proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case No. 04-332 before the RTC of Makati. LHC argues that petitioners acts constitutes forum-shopping which should be punished

by the dismissal of the claim in both forums. Second, in its Comment to Petitioners Motion for Leave to File Addendum to Petitioners Memorandum dated 8 October 2004, LHC alleges that by maintaining the present appeal and at the same time pursuing Civil Case No. 04-332wherein petitioner pressed for judgment on the issue of whether the funds LHC drew on the Securities should be returnedpetitioner resorted to forum-shopping. In both instances, however, petitioner has apparently opted not to respond to the charge. Forum-shopping is a very serious charge. It exists when a party repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely, by some other court.[67] It may also consist in the act of a party against whom an adverse judgment has been rendered in one forum, of seeking another and possibly favorable opinion in another forum other than by appeal or special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court might look with favor upon the other party.[68] To determine whether a party violated the rule against forum-shopping, the test applied is whether the elements of litis pendentia are present or whether a final judgment in one case will amount to res judicata in another.[69] Forum-shopping constitutes improper conduct and may be punished with summary dismissal of the multiple petitions and direct contempt of court.[70] Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation, the Court will refrain from making any definitive ruling on this issue until after petitioner has been given ample opportunity to respond to the charge. WHEREFORE, the instant petition is DENIED, with costs against petitioner. Petitioner is hereby required to answer the charge of forum-shopping within fifteen (15) days from notice. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

SECOND DIVISION STANFILCO EMPLOYEES AGRARIAN REFORM BENEFICIARIES MULTIPURPOSE COOPERATIVE, Petitioner, versus G.R. No. 154048 Present: CARPIO, J., Chairperson, LEONARDO-DE CASTRO, BRION, DEL CASTILLO, and ABAD, JJ.

practices designed to produce banana of quality having the standards hereinafter set forth for the duration of this Banana Production and Purchase Agreement.

SEARBEMCO bound and obliged itself, inter alia, to do the following: V. SPECIFIC OBLIGATIONS OF THE SELLER xxx p.) Sell exclusively to the BUYER all bananas produced from the subject plantation, except those rejected by the BUYER for failure to meet the specifications and conditions contained in Exhibit A hereof. In the case of any such rejected bananas, the SELLER shall have the right to sell such rejected bananas to third parties, for domestic non-export consumption. The SELLER shall only sell bananas produced from the plantation and not from any other source. [Emphasis supplied.]

DOLE PHILIPPINES, INC. (STANFILCO DIVISION), ORIBANEX SERVICES, INC. and SPOUSES ELLY AND MYRNA ABUJOS, Respondents. Promulgated: November 27, 2009 x ------------------------------------------------------------------------------------------x DECISION BRION, J.: Before this Court is the petition for review on certiorari[1] filed by petitioner Stanfilco Employees Agrarian Reform Beneficiaries Multi-Purpose Cooperative (SEARBEMCO). It assails: (a) the decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 66148 dated November 27, 2001; and (b) the CAs resolution[3] of June 13, 2002 in the same case, denying SEARBEMCOs motion for reconsideration. THE FACTUAL ANTECEDENTS On January 29, 1998, SEARBEMCO, as seller, and respondent DOLE Philippines, Inc. (Stanfilco Division) (DOLE), as buyer, entered into a Banana Production and Purchase Agreement[4] (BPPA). The BPPA provided that SEARBEMCO shall sell exclusively to DOLE, and the latter shall buy from the former, all Cavendish bananas of required specifications to be planted on the land owned by SEARBEMCO. The BPPA states: The SELLER agrees to sell exclusively to the BUYER, and the BUYER agrees to buy all Cavendish Banana of the Specifications and Quality described in EXHIBIT A hereof produced on the SELLERS plantation covering an area of 351.6367 hectares, more or less, and which is planted and authorized under letter of instruction no. 790 as amended on November 6, 1999 under the terms and conditions herein stipulated. The SELLER shall not increase or decrease the area(s) stated above without the prior written approval of the BUYER. However, the SELLER may reduce said area(s) provided that if the SELLER replaces the reduction by planting bananas on an equivalent area(s) elsewhere, it is agreed that such replacement area(s) shall be deemed covered by the Agreement. If the SELLER plants an area(s) in excess of said 351.6367 hectares, the parties may enter into a separate agreement regarding the production of said additional acreage. SELLER will produce banana to the maximum capacity of the plantation, as much as practicable, consistent with good agricultural

Any dispute arising from or in connection with the BPPA between the parties shall be finally settled through arbitration. To quote the BPPA:

IX. ARBITRATION OF DISPUTE All disputes arising in connection with this Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three (3) Arbitrators appointed in accordance with said Rules. The Arbitration shall be held in a venue to be agreed by the parties. Judgment upon the award rendered may be entered in any Philippine Court having jurisdiction or application may be made to such court for judicial acceptance of the award and as order of enforcement, as the case may be.

On December 11, 2000, DOLE filed a complaint with the Regional Trial Court[5] ( RTC) against SEARBEMCO, the spouses Elly and Myrna Abujos ( spouses Abujos), and Oribanex Services, Inc. (Oribanex) for specific performance and damages, with a prayer for the issuance of a writ of preliminary injunction and of a temporary restraining order. DOLE alleged that SEARBEMCO sold and delivered to Oribanex, through the spouses Abujos, the bananas rejected by DOLE, in violation of paragraph 5(p), Article V of the BPPA which limited the sale of rejected bananas for domestic non-export consumption. DOLE further alleged that Oribanex is likewise an exporter of bananas and is its direct competitor. DOLE narrated in its complaint how SEARBEMCO sold and delivered the rejected bananas to Oribanex through the spouses Abujos: 9.) That, however, on April 12, 2000 at about 5:00 oclock in the afternoon, [DOLE] through its authorized security personnel discovered that defendant SEARBEMCO, in violation of Section 5(p) Article V of the Banana Production and Purchase Agreement, packed the bananas rejected by [DOLE] in boxes marked CONSUL in Packing Plant 32 in DAPCO Panabo and sold and delivered them to defendant Abujos; 10.) That about 373 CONSUL marked boxes were packed and

knowingly sold by defendant SEARBEMCO to ORIBANEX SERVICES, INC. through defendants Abujos who carried and loaded the same on board a blue Isuzu Canter bearing plate no. LDM 976 and delivered to defendant ORIBANEX for export at the TEFASCO Wharf covered by Abujos Delivery Receipt, a copy of which is hereto attached as Annex B; 11.) That the following day, April 13, 2000, again the same security found that defendant SEARBEMCO continued to pack the bananas rejected by plaintiff in boxes marked as CONSUL and, in violation of paragraph 5(p) Article V of the Banana Production and Purchase Agreement, sold and delivered them to defendant ORIBANEX SERVICES, INC., for export, through defendants Abujos; 12.) That about 648 CONSUL marked boxes were packed and knowingly sold by defendant SEARBEMCO to ORIBANEX SERVICES, INC., through defendants Abujos who carried and loaded the same on board a red Isuzu Forwarder, bearing plate no. LCV 918, and delivered to defendant ORIBANEX for export at the TEFASCO Wharf covered by Abujos Delivery Receipt, a copy of which is hereto attached and marked as Annex C; 13.) That the sale of a total of 712 boxes of rejected bananas covering April 12 and 13, 2000, or any other dates prior thereto or made thereafter by defendant SEARBEMCO to defendant ORIBANEX SERVICES, INC. through defendant Abujos is in utter violation of the Agreement between plaintiff [DOLE] and defendant SEARBEMCO that SEARBEMCO may sell bananas rejected by plaintiff to parties for domestic non-export consumption only. SEARBEMCO responded with a motion to dismiss on the grounds of lack of jurisdiction over the subject matter of the claim, lack of cause of action, failure to submit to arbitration which is a condition precedent to the filing of a complaint, and the complaints defective verification and certification of non-forum shopping.[6] SEARBEMCO argued that: 1) the Department of Agrarian Reform Adjudication Board ( DARAB) has exclusive jurisdiction over the action filed by DOLE, pursuant to Sections 1 and 3(e) of Administrative Order No. 09, Series of 1998[7] (AO No. 9-98) and Section 5(a) and (c) of Administrative Order No. 02, Series of 1999[8] (AO No. 2-99) of the Department of Agrarian Reform (DAR), since the dispute between the parties is an agrarian dispute within the exclusive competence of the DARAB to resolve; the filing of the complaint is premature, as the dispute between DOLE and SEARBEMCO has not been referred to and resolved by arbitration, contrary to Article IX of the BPPA and Article V, Sec. 30(g)[9] of AO No. 9-98 of the DAR; it did not violate Section 5(p), Article V of the BPPA, since the rejected bananas were sold to the spouses Abujos who were third-party buyers and not exporters of bananas; and the complaint is fatally defective as the Board of Directors of DOLE did not approve any resolution authorizing Atty. Reynaldo Echavez to execute the requisite Verification and Certification Against Forum Shopping and, therefore, the same is fatally defective.

SEARBEMCO, DOLE impleaded other parties (i.e., the spouses Abujos and Oribanex who are not parties to the BPPA) as defendants.[11] Subsequently, DOLE filed on February 2, 2001 an amended complaint,[12] the amendment consisting of the Verification and Certification against forum shopping for DOLE executed by Danilo C. Quinto, DOLEs Zone Manager. THE RTC RULING The RTC denied SEARBEMCOs motion to dismiss in an Order dated May 16, 2001.[13] The trial court stated that the case does not involve an agrarian conflict and is a judicial matter that it can resolve. SEARBEMCO moved for the reconsideration of the RTC Order.[14] The RTC denied the motion for lack of merit in its Order of July 12, 2001.[15] THE CA RULING On July 26, 2001, SEARBEMCO filed a special civil action for certiorari[16] with the CA alleging grave abuse of discretion on the part of the RTC for denying its motion to dismiss and the subsequent motion for reconsideration. SEARBEMCO argued that the BPPA the parties executed is an agri-business venture agreement contemplated by DARs AO No. 9-98. Thus, any dispute arising from the interpretation and implementation of the BPPA is an agrarian dispute within the exclusive jurisdiction of the DARAB. In a decision dated November 27, 2001,[17] the CA found that the RTC did not gravely abuse its discretion in denying SEARBEMCOs motion to dismiss and motion for reconsideration. The CA ruled that the [DAR] has no jurisdiction, under said [AO No. 9-98], over actions between [SEARBEMCO] and [DOLE] for enforcement of the said Agreement when one commits a breach thereof and for redress by way of specific performance and damages inclusive of injunctive relief.[18] It held that the case is not an agrarian dispute within the purview of Section 3(d) of RA No. 6657,[19] but is an action to compel SEARBEMCO to comply with its obligations under the BPPA; it called for the application of the provisions of the Civil Code, not RA No. 6657. The CA likewise disregarded SEARBEMCOs emphatic argument that DOLEs complaint was prematurely filed because of its failure to first resort to arbitration. The arbitration clause under the BPPA, said the CA, applies only when the parties involved are parties to the agreement; in its complaint, DOLE included the spouses Abujos and Oribanex as defendants. According to the CA, if [DOLE] referred its dispute with [SEARBEMCO] to a Panel of Arbitrators, any judgment rendered by the latter, whether for or against [DOLE] will not be binding on the [spouses Abujos] and [Oribanex], as case law has it that only the parties to a suit, as well as their successors-in-interest, are bound by the judgment of the Court or quasi-judicial bodies.[20] On SEARBEMCOs argument that the Verification and Certification Against Forum Shopping under DOLEs amended complaint is defective for failure to state that this was based on personal knowledge, the CA ruled that the omission of the word personal did not re nder the Verification and Certification defective. SEARBEMCO moved for reconsideration of the decision, but the CA denied the motion for lack of merit in its resolution of June 13, 2002.[21] ASSIGNMENT OF ERRORS In the present petition, SEARBEMCO submits that the CA erred in ruling that: 1.) the RTC has jurisdiction over the subject matter of the complaint of DOLE,

2)

3) 4)

DOLE opposed SEARBEMCOs motion to dismiss alleging, among others, that: 1) the dispute between the parties is not an agrarian dispute within the exclusive jurisdiction of the DARAB under Republic Act No. 6657[10] ( RA No. 6657); and 2) the Arbitration Clause of the BPPA is not applicable as, aside from

considering that the case involves an agrarian dispute within the exclusive jurisdiction of the DARAB; 2.) the complaint of DOLE states a cause of action, despite the fact that SEARBEMCO has not violated any provision of the BPPA; and 3.) the filing of the complaint is not premature, despite DOLEs failure to submit its claim to arbitration a condition precedent to any juridical recourse. THE COURTS RULING We do not find the petition meritorious. DOLEs complaint falls within the jurisdiction of the regular courts, not the DARAB.

where Section 1, Rule II[26] enumerates the instances where the DARAB shall have primary and exclusive jurisdiction. A notable feature of RA No. 6657 and its implementing rules is the focus on agricultural lands and the relationship over this land that serves as the basis in the determination of whether a matter falls under DARAB jurisdiction. In Heirs of the Late Hernan Rey Santos v. Court of Appeals,[27] we held that: For DARAB to have jurisdiction over a case, there must exist a tenancy relationship between the parties. x x x. In Vda. De Tangub v. Court of Appeals (191 SCRA 885), we held that the jurisdiction of the Department of Agrarian Reform is limited to the following: a.) adjudication of all matters involving implementation of agrarian reform; b.) resolution of agrarian conflicts and land tenure related problems; and c.) approval and disapproval of the conversion, restructuring or readjustment of agricultural lands into residential, commercial, industrial, and other non-agricultural uses. [Emphasis supplied]. The case of Pasong Bayabas Farmers Association, Inc. v. Court of Appeals[28] lists down the indispensable elements for a tenancy relationship to exist: (1) the parties are the landowner and the tenant or agricultural lessee; (2) the subject matter of the relationship is an agricultural land; (3) there is consent between the parties to the relationship; (4) the purpose of the relationship is to bring about agricultural production; (5) there is personal cultivation on the part of the tenant or agricultural lessee; and (6) the harvest is shared between the landowner and the tenant or the agricultural lessee. The parties in the present case have no tenurial, leasehold, or any other agrarian relationship that could bring their controversy within the ambit of agrarian reform laws and within the jurisdiction of the DARAB. In fact, SEARBEMCO has no allegation whatsoever in its motion to dismiss regarding any tenancy relationship between it and DOLE that gave the present dispute the character of an agrarian dispute. We have always held that tenancy relations cannot be presumed. The elements of tenancy must first be proved by substantial evidence which can be shown through records, documents, and written agreements between the parties. A principal factor, too, to consider in determining whether a tenancy relationship exists is the intent of the parties.[29] SEARBEMCO has not shown that the above-mentioned indispensable elements of tenancy relations are present between it and DOLE. It also cannot be gleaned from the intention of the parties that they intended to form a tenancy relationship between them. In the absence of any such intent and resulting relationship, the DARAB cannot have jurisdiction. Instead, the present petition is properly cognizable by the regular courts, as the CA and the RTC correctly ruled. Notably, the requirement of the existence of tenurial relationship has been relaxed in the cases of Islanders CARP-Farmers Beneficiaries Muti-Purpose Cooperative, Inc. v. Lapanday Agricultural and Devt. Corporation[30] and Cubero v. Laguna West Multi-Purpose Cooperative, Inc.[31] The Court, speaking through former Chief Justice Panganiban, declared in Islanders that: [The definition of agrarian dispute in RA No. 6657 is] broad enough to include disputes arising from any tenurial arrangement beyond the traditional landowner-tenant or lessor-lessee relationship. xxx [A]grarian reform extends beyond the mere acquisition and redistribution of land, the law acknowledges other modes of tenurial arrangements to effect the implementation of CARP.[32] While Islanders and Cubero may seem to serve as precedents to the present case, a close analysis of these cases, however, leads us to conclude that significant differences exist in the factual circumstances between those cases and the present case, thus rendering the rulings

SEARBEMCO mainly relies on Section 50[22] of RA No. 6657 and the characterization of the controversy as an agrarian dispute or as an agrarian reform matter in contending that the present controversy falls within the competence of the DARAB and not of the regular courts. The BPPA, SEARBEMCO claims, is a joint venture and a production, processing and marketing agreement, as defined under Section 5 (c) (i) and (ii) of DAR AO No. 2-99;[23] hence, any dispute arising from the BPPA is within the exclusive jurisdiction of the DARAB. SEARBEMCO also asserts that the parties relationship in the present case is not only that of buyer and seller, but also that of supplier of land covered by the CARP and of manpower on the part of SEARBEMCO, and supplier of agricultural inputs, financing and technological expertise on the part of DOLE. Therefore, SEARBEMCO concludes that the BPPA is not an ordinary contract, but one that involves an agrarian element and, as such, is imbued with public interest. We clarify at the outset that what we are reviewing in this petition is the legal question of whether the CA correctly ruled that the RTC committed no grave abuse discretion in denying SEARBEMCOs motion to dismiss. In ruling for legal correctness, we have to view the CA decision in the same context that the petition for certiorari it ruled upon was presented to the appellate court; we have to examine the CA decision from the prism of whether it correctly determined the presence or absence of grave abuse of discretion in the RTC ruling before it, not on the basis of whether the RTC ruling on the merits of the case was correct. In other words, we have to be keenly aware that the CA undertook a Rule 65 review, not a review on appeal, of the challenged RTC ruling. A court acts with grave abuse of discretion amounting to lack or excess of jurisdiction when its action was performed in a capricious and whimsical exercise of judgment equivalent to lack of discretion. The abuse of discretion must be so patent and gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of the law, as where the power is exercised in an arbitrary and despotic manner by reason or passion or personal hostility.[24] As the CA found, the RTCs action was not attended by any grave abuse of discretion and the RTC correctly ruled in denying SEARBEMCOs motion to dismiss. We fully agree with the CA. Section 3(d) of RA No. 6657 is clear in defining an agrarian dispute: any controversy relating to tenurial arrangements, whether leasehold, tenancy, stewardship or otherwise, over lands devoted to agriculture, including dispute concerning farm-workers associations or representations of persons in negotiating, fixing, maintaining, changing or seeking to arrange terms or conditions of such tenurial arrangements. It includes any controversy relating to compensation of lands acquired under this Act and other terms and conditions of transfer of ownership from landowners to farmworkers, tenants and other agrarian reform beneficiaries, whether the disputants stand in the proximate relation of farm operator and beneficiary, landowner and tenant, or lessor and lessee.[25] RA No. 6657 is procedurally implemented through the 2003 DARAB Rules of Procedure

in these cited cases inapplicable. Islanders questioned (through a petition for declaration of nullity filed before the RTC of Tagum City) the lack of authority of the farmer-beneficiaries alleged representative to enter into a Joint Production Agreement with Lapanday. The farmers-beneficiaries assailed the validity of the agreement by additionally claiming that its terms contravened RA No. 6657. Cubero likewise involved a petition to declare the nullity of a Joint Venture Agreement between the farmer-beneficiaries and Laguna West Multi-Purpose Cooporative, Inc. The successors of the farmer-beneficiaries assailed the agreement before the RTC of Tanauan, Batangas for having been executed within the 10-year prohibitory period under Section 27 of RA No. 6657. In both cases, the Court ruled that the RTC lacked jurisdiction to hear the complaint and declared the DARAB as the competent body to resolve the dispute. The Court declared that when the question involves the rights and obligations of persons engaged in the management, cultivation, and use of an agricultural land covered by CARP, the case falls squarely within the jurisdictional ambit of the DAR. Carefully analyzed, the principal issue raised in Islanders and Cubero referred to the management, cultivation, and use of the CARP-covered agricultural land; the issue of the nullity of the joint economic enterprise agreements in Islanders and Cubero would directly affect the agricultural land covered by CARP. Those cases significantly did not pertain to postharvest transactions involving the produce from CARP-covered agricultural lands, as the case before us does now. Moreover, the resolution of the issue raised in Islanders and Cubero required the interpretation and application of the provisions of RA No. 6657, considering that the farmerbeneficiaries claimed that the agreements contravened specific provisions of that law. In the present case, DOLEs complaint for specific performance and damages before the RTC did not question the validity of the BPPA that would require the application of the provisions of RA No. 6657; neither did SEARBEMCOs motion to dismiss nor its other pleadings assail the validity of the BPPA on the ground that its provisions violate RA No. 6657. The resolution of the present case would therefore involve, more than anything else, the application of civil law provisions on breaches of contract, rather than agrarian reform principles. Indeed, in support of their arguments, the parties have capitalized and focused on their relationship as buyer and seller. DOLE, the buyer, filed a complaint against SEARBEMCO, the seller, to enforce the BPPA between them and to compel the latter to comply with its obligations. The CA is thus legally correct in its declaration that the action before the RTC does not involve an agrarian dispute, nor does it call for the application of Agrarian Reform laws. x x x. The action of [DOLE] involves and calls for the application of the New Civil Code, in tandem with the terms and conditions of the [BPPA] of [SEARBEMCO] and [DOLE].[33] We find SEARBEMCOs reliance on DAR AO No. 9-98 and AO No. 2-99 as bases for DARABs alleged expanded jurisdiction over all disputes arising from the interpretation of agribusiness ventures to be misplaced. DARABs jurisdiction under Section 50 of RA No. 6657 should be read in conjunction with the coverage of agrarian reform laws; administrative issuances like DAR AO Nos. 9-98 and 2-99 cannot validly extend the scope of the jurisdiction set by law. In so ruling, however, we do not pass upon the validity of these administrative issuances. We do recognize the possibility that disputes may exist between parties to joint economic enterprises that directly pertain to the management, cultivation, and use of CARPcovered agricultural land. Based on our above discussion, these disputes will fall within DARABs jurisdiction. Even assuming that the present case can be classified as an agrarian dispute involving the interpretation or implementation of agribusiness venture agreements, DARAB still cannot validly acquire jurisdiction, at least insofar as DOLEs cause of action against the third parties the spouses Abujos and Oribanex is concerned. To prevent multiple actions, we hold that the present case is best resolved by the trial court. DOLEs complaint validly states a cause of action SEARBEMCO asserts that the pleading containing DOLEs claim against it states no cause of action. It contends that it did not violate any of the provisions of the BPPA, since the bananas rejected by DOLE were sold to the spouses Abujos who are third-party buyers and are not exporters of bananas transactions that the BPPA allows. Since the sole basis of DOLEs complaint was SEARBEMCOs alleged violation of the BPPA, which SEARBEMCO insists did not take place, the complaint therefore did not state a cause of action. Due consideration of the basic rules on lack of cause of action as a ground for a motion to dismiss weighs against SEARBEMCOs argument. In the case of Jimenez, Jr. v. Jordana,[34] this Court had the opportunity to discuss the sufficiency of the allegations of the complaint to uphold a valid cause of action, as follows: In a motion to dismiss, a defendant hypothetically admits the truth of the material allegations of the plaintiffs complaint. This hypothetical admission extends to the relevant and material facts pleaded in, and the inferences fairly deductible from, the complaint. Hence, to determine whether the sufficiency of the facts alleged in the complaint constitutes a cause of action, the test is as follows: admitting the truth of the facts alleged, can the court render a valid judgment in accordance with the prayer? To sustain a motion to dismiss, the movant needs to show that the plaintiffs claim for relief does not exist at all. On the contrary, the complaint is sufficient if it contains sufficient notice of the cause of action even though the allegations may be vague or indefinite, in which event, the proper recourse would be, not a motion to dismiss, but a motion for a bill of particulars.[35] In applying this authoritative test, we must hypothetically assume the truth of DOLEs allegations, and determine whether the RTC can render a valid judgment in accordance with its prayer. We find the allegations in DOLEs complaint to be sufficient basis for the judgment prayed for. Hypothetically admitting the allegations in DOLEs complaint that SEARBEMCO sold the rejected bananas to Oribanex, a competitor of DOLE and also an exporter of bananas, through the spouses Abujos, a valid judgment may be rendered by the RTC holding SEARBEMCO liable for breach of contract. That the sale had been to the spouses Abujos who are not exporters is essentially a denial of DOLEs allegations and is not therefore a material consideration in weighing the merits of the alleged lack of cause of action. What SEARBEMCO stated is a counter-statement of fact and conclusion, and is a defense that it will have to prove at the trial. At this point, the material consideration is merely what the complaint expressly alleged. Hypothetically assuming DOLEs allegations of ultimate sale to Oribanex, through the spouses Abujos, to be true, we hold following the test of sufficiency in Jordana that DOLEs prayer for specific performance and damages may be validly granted; hence, a cause of action exists. The filing of the complaint is not premature since arbitration proceedings are not necessary in the present case

SEARBEMCO argues that DOLE failed to comply with a condition precedent before the filing of its complaint with the RTC, i.e., DOLE did not attempt to settle their controversy

through arbitration proceedings. SEARBEMCO relies on Article V, Section 30(g) of DAR AO No. 998[36] and Section 10 of DAR AO No. 2-99[37] which provide that as a rule, voluntary methods such as mediation or conciliation, shall be preferred in resolving disputes involving joint economic enterprises. SEARBEMCO also cites Section IX of the BPPA which provides that all disputes arising out of or in connection with their agreement shall be finally settled through arbitration. Following our conclusion that agrarian laws find no application in the present case, we find as the CA did that SEARBEMCOs arguments anchored on these laws are completely baseless. Furthermore, the cited DAR AO No. 2-99, on its face, only mentions a preference, not a strict requirement of referral to arbitration. The BPPA-based argument deserves more and closer consideration. We agree with the CA ruling that the BPPA arbitration clause does not apply to the present case since third parties are involved. Any judgment or ruling to be rendered by the panel of arbitrators will be useless if third parties are included in the case, since the arbitral ruling will not bind them; they are not parties to the arbitration agreement. In the present case, DOLE included as parties the spouses Abujos and Oribanex since they are necessary parties, i.e., they were directly involved in the BPPA violation DOLE alleged, and their participation are indispensable for a complete resolution of the dispute. To require the spouses Abujos and Oribanex to submit themselves to arbitration and to abide by whatever judgment or ruling the panel of arbitrators shall make is legally untenable; no law and no agreement made with their participation can compel them to submit to arbitration. In support of its position, SEARBEMCO cites the case of Toyota Motor Philippines Corp. v. Court of Appeals[38] which holds that, the contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable. Contracts are respected as the law between the contracting parties. As such, the parties are thereby expected to abide with good faith in their contractual commitments. SEARBEMCO argues that the presence of third parties in the complaint does not affect the validity of the provisions on arbitration. Unfortunately, the ruling in the Toyota case has been superseded by the more recent cases of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation[39] and Del Monte Corporation-USA v. Court of Appeals.[40] Heirs of Salas involved the same issue now before us: whether or not the complaint of petitioners-heirs in that case should be dismissed for their failure to submit the matter to arbitration before filing their complaint. The petitioners-heirs included as respondents third persons who were not parties to the original agreement between the petitioners-heirs and respondent Laperal Realty. In ruling that prior resort to arbitration is not necessary, this Court held: Respondent Laperal Realty, as a contracting party to the Agreement, has the right to compel petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot buyers, or to hold trial in abeyance pending arbitration between petitioners and respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein respondents and adjudicates petitioners rights as against theirs in a single and complete proceeding.[41] The case of Del Monte is more direct in stating that the doctrine held in the Toyota case has already been abandoned: The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to submit

to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as between them, their assigns and heirs. Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, and private respondents MMI and its Managing Director Lily Sy are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs of the parties, are not bound by the Agreement and the arbitration clause therein. Consequently, referral to arbitration in the State of California pursuant to the arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called for but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and Lily Sy, and not as to other parties in this case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, which superseded that of [sic] Toyota Motor Philippines Corp. v. Court of Appeals. xxxx The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.[42] Following these precedents, the CA was therefore correct in its conclusion that the parties agreement to refer their dispute to arbitration applies only where the parties to the BPPA are solely the disputing parties. Additionally, the inclusion of third parties in the complaint supports our declaration that the present case does not fall under DARABs jurisdiction. DARABs quasijudicial powers under Section 50 of RA No. 6657 may be invoked only when there is prior certification from the Barangay Agrarian Reform Committee (or BARC) that the dispute has been submitted to it for mediation and conciliation, without any success of settlement.[43] Since the present dispute need not be referred to arbitration (including mediation or conciliation) because of the inclusion of third parties, neither SEARBEMCO nor DOLE will be able to present the requisite BARC certification that is necessary to invoke DARABs jurisdiction; hence, there will be no compliance with Section 53 of RA No. 6657. WHEREFORE, premises considered, we hereby DENY the petition for certiorari for lack of merit. The Regional Trial Court, Branch 34, Panabo City, is hereby directed to proceed with the case in accordance with this Decision. Costs against petitioner SEARBEMCO. SO ORDERED.

SECOND DIVISION G.R. No. 185582 February 29, 2012 TUNA PROCESSING, INC., Petitioner, vs.PHILIPPINE KINGFORD, INC., Respondent. DECISION PEREZ, J.: Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the Philippines, sue here to enforce a foreign arbitral award? In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc. (TPI), a foreign corporation not licensed to do business in the Philippines, prays that the Resolution 2 dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be declared void and the case be remanded to the RTC for further proceedings. In the assailed Resolution, the RTC dismissed petitioners Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award3 against respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized and existing under the laws of the Philippines, 4 on the ground that petitioner lacked legal capacity to sue.5 The Antecedents On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred to as the "Yamaoka Patent"),6 and five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford (collectively referred to as the "sponsors"/"licensees")7 entered into a Memorandum of Agreement (MOA),8 pertinent provisions of which read: 1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his three aforementioned patents, granting licenses under those patents, and collecting royalties. The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes claimed in those patents in the United States, the Philippines, and Indonesia, enforce those patents and collect royalties in conjunction with Licensor. xxx 4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of Tuna Processors, Inc. ("TPI"), a corporation established in the State of California, in order to implement the objectives of this Agreement. 5. Bank account. TPI shall open and maintain bank accounts in the United States, which will be used exclusively to deposit funds that it will collect and to disburse cash it will be obligated to spend in connection with the implementation of this Agreement. 6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be assigned one share of TPI for the purpose of being elected as member of the board of directors. The remaining shares of TPI shall be held by the Sponsors according to their respective equity shares. 9 xxx

The parties likewise executed a Supplemental Memorandum of Agreement 10 dated 15 January 2003 and an Agreement to Amend Memorandum of Agreement 11 dated 14 July 2003. Due to a series of events not mentioned in the petition, the licensees, including respondent Kingford, withdrew from petitioner TPI and correspondingly reneged on their obligations. 12 Petitioner submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of California, United States and won the case against respondent. 13 Pertinent portions of the award read: 13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the terms of this award, the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10). (A) For breach of the MOA by not paying past due assessments, RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS ($229,355.90) which is 20% of MOA assessments since September 1, 2005[;] (B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS AND TWENTY CENTS ($271,490.20)[;]14 and (C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT, RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($1,250,000.00). xxx xxx15 To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo M. Alameda. At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied the motion for lack of merit,17 respondent sought for the inhibition of Judge Alameda and moved for the reconsideration of the order denying the motion. 18 Judge Alameda inhibited himself notwithstanding "[t]he unfounded allegations and unsubstantiated assertions in the motion." 19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn, granted respondents Motion for Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the Philippines.20 Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the order of the trial court dismissing its Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award. Issue The core issue in this case is whether or not the court a quo was correct in so dismissing the petition on the ground of petitioners lack of legal capacity to sue. Our Ruling

The petition is impressed with merit. The Corporation Code of the Philippines expressly provides: Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus: Herein plaintiff TPIs "Petition, etc." acknowledges that it "is a foreign corporation established in the State of California" and "was given the exclusive right to license or sublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce the said patent and collect corresponding royalties" in the Philippines. TPI likewise admits that it does not have a license to do business in the Philippines. There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the Philippines, but sans a license to do so issued by the concerned government agency of the Republic of the Philippines, when it collected royalties from "five (5) Philippine tuna processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc." This being the real situation, TPI cannot be permitted to maintain or intervene in any action, suit or proceedings in any court or administrative agency of the Philippines." A priori, the "Petition, etc." extant of the plaintiff TPI should be dismissed for it does not have the legal personality to sue in the Philippines.21 The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),22 the Convention on the Recognition and Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL Model Law on International Commercial Arbitration (Model Law),23 as none of these specifically requires that the party seeking for the enforcement should have legal capacity to sue. It anchors its argument on the following: In the present case, enforcement has been effectively refused on a ground not found in the [Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for this reason that TPI has brought this matter before this most Honorable Court, as it [i]s imperative to clarify whether the Philippines international obligations and State policy to strengthen arbitration as a means of dispute resolution may be defeated by misplaced technical considerations not found in the relevant laws.24 Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention and the Model Law on the other? In several cases, Corporation Code v. Arcenas, Jr.,25 New Central Bank this Court had the occasion to discuss the nature and applicability of the of the Philippines, a general law, viz-a-viz other special laws. Thus, in Koruga this Court rejected the application of the Corporation Code and applied the Act. It ratiocinated:

with similar antecedents, we ruled that: "The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act regulates specifically banks and other financial institutions, including the dissolution and liquidation thereof. As between a general and special law, the latter shall prevail generalia specialibus non derogant." (Emphasis supplied)26 Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform Council,27 this Court held: Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and special law, the latter shall prevail generalia specialibus non derogant.28 Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other Purposes - would suggest, is a law especially enacted "to actively promote party autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes."29 It specifically provides exclusive grounds available to the party opposing an application for recognition and enforcement of the arbitral award.30 Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition, we do not see the need to discuss compliance with international obligations under the New York Convention and the Model Law. After all, both already form part of the law. In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act by specifically providing: SEC. 42. Application of the New York Convention. - The New York Convention shall govern the recognition and enforcement of arbitral awards covered by the said Convention. xxx SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may oppose an application for recognition and enforcement of the arbitral award in accordance with the procedural rules to be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York Convention. Any other ground raised shall be disregarded by the regional trial court. It also expressly adopted the Model Law, to wit: Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International commercial arbitration shall be governed by the Model Law on International Commercial Arbitration (the "Model Law") adopted by the United Nations Commission on International Trade Law on June 21, 1985 xxx." Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004? We answer in the affirmative.

Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and enforcement of the arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention, to wit: Article V 1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the award. Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31 which was promulgated by the Supreme Court, likewise support this position. Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition the court to recognize and enforce a foreign arbitral award." The contents of such petition are enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in the Rule on local arbitral awards or arbitrations in instances where "the place of arbitration is in the Philippines,"33 it is specifically required that a petition "to determine any question concerning

the existence, validity and enforceability of such arbitration agreement" 34 available to the parties before the commencement of arbitration and/or a petition for "judicial relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining its jurisdiction" 35 after arbitration has already commenced should state "[t]he facts showing that the persons named as petitioner or respondent have legal capacity to sue or be sued." 36 Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we deny availment by the losing party of the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in our courts. When a party enters into a contract containing a foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of arbitration, conceding thereby the capacity of the other party to enter into the contract, participate in the arbitration and cause the implementation of the result. Although not on all fours with the instant case, also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of Appeals,37 to wit: xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested mechanism can simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and actively participated in the arbitration proceedings from the very beginning, it will destroy the very essence of mutuality inherent in consensual contracts.38 Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored over domestic laws and procedures, but because Republic Act No. 9285 has certainly erased any conflict of law question. Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that the Model Law, not the New York Convention, governs the subject arbitral award,39 petitioner may still seek recognition and enforcement of the award in Philippine court, since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement.40 Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004. II The remaining arguments of respondent Kingford are likewise unmeritorious. First. There is no need to consider respondents contention that petitioner TPI improperly raised a question of fact when it posited that its act of entering into a MOA should not be considered "doing business" in the Philippines for the purpose of determining capacity to sue. We reiterate that the foreign corporations capacity to sue in the Philippines is not material insofar as the recognition and enforcement of a foreign arbitral award is concerned. Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed Resolution dated 21 November 2008 dismissing the case. We have, time and again, ruled that the prior filing of a motion for reconsideration is not required in certiorari under Rule 45.41 Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which, under ordinary circumstances, warrants the outright dismissal of the case, 42 we opt to

relax the rules following the pronouncement in Chua v. Ang,43 to wit: [I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving conflicting factual allegations. Cases which depend on disputed facts for decision cannot be brought immediately before us as we are not triers of facts. 44 A strict application of this rule may be excused when the reason behind the rule is not present in a case, as in the present case, where the issues are not factual but purely legal. 1wphi1 In these types of questions, this Court has the ultimate say so that we merely abbreviate the review process if we, because of the unique circumstances of a case, choose to hear and decide the legal issues outright.45 Moreover, the novelty and the paramount importance of the issue herein raised should be seriously considered.46 Surely, there is a need to take cognizance of the case not only to guide the bench and the bar, but if only to strengthen arbitration as a means of dispute resolution, and uphold the policy of the State embodied in the Alternative Dispute Resolution Act of 2004, to wit: Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes. Towards this end, the State shall encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court dockets. xxx Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we leave its determination to the court a quo where its recognition and enforcement is being sought. Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for time to file petition for review on certiorari before the petition was filed with this Court.47 We, however, find petitioners reply in order. Thus: 26. Admittedly, reference to "Branch 67" in petitioner TPIs "Motion for Time to File a Petition for Review on Certiorari under Rule 45" is a typographical error. As correctly pointed out by respondent Kingford, the order sought to be assailed originated from Regional Trial Court, Makati City, Branch 61. 27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of petitioner TPIs motion was received by the Metropolitan Trial Court, Makati City, Branch 67. On 8 January 2009, the motion was forwarded to the Regional Trial Court, Makati City, Branch 61. 48 All considered, petitioner TPI, although a foreign corporation not licensed to do business in the Philippines, is not, for that reason alone, precluded from filing the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a Philippine court. WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61, Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for further proceedings. SO ORDERED.

FIRST DIVISION INSULAR SAVINGS BANK, Petitioner, - versus FAR EAST BANK AND TRUST COMPANY, Respondent. G.R. No. 141818

WHEREFORE, the Omnibus Order dated 30 April 1992 is hereby reconsidered by deleting the phrase since the complaint also seeks exemplary damages, attorneys fees, litigation expenses and costs of suit against HBT, on page 4 thereof and par. C of its dispositive portion is amended to read: (c) Procedings against Home Bankers and Trust Co. are suspended pending award/decision in the arbitration proceedings while those against individual defendants be immediately reinstated and continued. HBT and Tancuans separate Motions Reconsiderations are hereby denied, for lack of merit. SO ORDERED.[11] On February 2, 1998, the PCHC Arbitration Committee rendered its decision in favor of respondent,[12] thus: IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendant sentencing the latter to pay the plaintiff the sum of P25.2 million as principal. In view of the fact, however, that this amount was split between the plaintiff and the defendant in the course of the proceedings, the amount to be paid by the defendant to the plaintiff should only be P12,600,000.00 plus interest on this latter amount at the rate of 12% per annum from February 11, 1992, the date when the total amount of P25.2 Million was split between plaintiff and defendant up to the date of payment. In view of the facts found by the committee, no attorneys fees nor other damages are awarded. SO ORDERED.[13] The motion for reconsideration filed by petitioner was denied by the Arbitration Committee.[14] Consequently, to appeal the decision of the Arbitration Committee in Arbicom Case No. 91-069, petitioner filed a petition for review in the earlier case filed by respondent in Branch 135 of the RTC of Makati and docketed as Civil Case No. 92-145.[15] In an order dated January 20, 1999, the RTC directed both petitioner and respondent to file their respective memoranda, after which, said petition would be deemed submitted for resolution.[16] Both parties filed several pleadings. On February 8, 1999, respondent filed a Motion to Dismiss Petition for Review for Lack of Jurisdiction,[17] which was opposed by the petitioner.[18] Respondent then filed its Reply to the opposition,[19] to which petitioner filed a Rejoinder.[20] On August 16, 1999, respondent submitted its Surrejoinder.[21] On November 9, 1999, the RTC rendered the assailed Order which held, thus: Acting on plaintiff Far East Bank and Trust Companys Motion To Dismiss Petition For Review For Lack Of Jurisdiction, considering that the petition for review is a separate and distinct case, the same must comply with all the requirements for filing initiatory pleadings for civil actions before this Court so that since the commencement of the subject petition lacks the mandatory requirements provided for, except the payment of docket fees, for lack of jurisdiction, the petition for review is hereby dismissed. SO ORDERED.[22] for

Promulgated:

June 22, 2006 x ---------------------------------------------------------------------------------------- x DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari[1] assails the November 9, 1999 Order[2] of the Regional Trial Court of Makati City, Branch 135, in Civil Case No. 92-145 which dismissed the petition for review for lack of jurisdiction and its February 1, 2000 Order[3] denying reconsideration thereof. The antecedent facts are as follows: On December 11, 1991, Far East Bank and Trust Company (Respondent) filed a complaint against Home Bankers Trust and Company (HBTC)[4] with the Philippine Clearing House Corporations (PCHC) Arbitration Committee docketed as 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, respondent dishonored the checks for insufficiency of funds and 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] Meanwhile, on January 17, 1992, before the termination of the arbitration proceedings, respondent filed another complaint but this time with the Regional Trial Court (RTC) in Makati City docketed as Civil Case No. 92-145 for Sum of Money and Damages with Preliminary Attachment. The complaint was filed not only against HBTC but also against Robert Young, Eugene Arriesgado and Victor Tancuan (collectively known as Defendants), who were the president and depositors of HBTC respectively.[7] Aware of the arbitration proceedings between respondent and petitioner, the RTC, in an Omnibus Order dated April 30, 1992,[8] suspended the proceedings in the case against all the defendants pending the decision of the Arbitration Committee, to wit: WHEREFORE, the Court hereby orders: (a) Home Bankers & Trust Co. to produce and permit plaintiff to inspect, copy and/or photograph the checking account deposit ledger of Victor Tancuans Account No. 1803-00605-3; (b) The Motions to Dismiss filed by all defendants denied, for lack of merit; and (c) Proceedings in this case against all defendants be suspended pending award/decision in the arbitration proceedings against Home Bankers and Trust Co. SO ORDERED.[9] (Emphasis supplied) The above Omnibus Order was amended by the trial court in its October 1, 1992 Order,[10] the dispositive portion of which reads as follows:

The RTC denied petitioners motion for reconsideration,[23] hence, this petition on the sole ground, to wit: THE REGIONAL TRIAL COURT ERRED IN DISMISSING THE PETITION OF PETITIONER FOR LACK OF JURISDICTION ON THE GROUND THAT IT SHOULD HAVE BEEN DOCKETED AS A SEPARATE CASE.[24] Petitioner contends that Civil Case No. 92-145 was merely suspended to await the outcome of the arbitration case pending before the PCHC. Thus, any petition questioning the decision of the Arbitration Committee must be filed in Civil Case No. 92-145 and should not be docketed as a separate action. Likewise, petitioner avers that had it filed a separate action, this would have resulted in a multiplicity of suits, which is abhorred in procedure. Meanwhile respondent avers that the RTC correctly dismissed the appeal from the award of private arbitrators since there is no statutory basis for such appeal. Respondent argues that petitioners claim that the parties by agreement had conferred on the RT C appellate jurisdiction over decisions of private arbitrators is erroneous because they cannot confer a nonexistent jurisdiction on the RTC or any court. Furthermore, the petition for review filed by petitioner violated the rule on commencing an original action under Section 5, Rule 1, and the raffle of cases under Section 2, Rule 20 of the Rules of Court, when it filed the same in Branch 135 of the RTC of Makati where there was already a pending original action, i.e., Civil Case No. 92-145. The petition lacks merit. The Philippine Clearing House Corporation was created to facilitate the clearing of checks of member banks. Among these member banks exists a compromissoire,[25] or an arbitration agreement embedded in their contract wherein they consent that any future dispute or controversy between its PCHC participants involving any check would be submitted to the Arbitration Committee for arbitration. Petitioner and respondent are members of PCHC, thus they underwent arbitration proceedings. The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules). However, this is governed by Republic Act No. 876, also known as The Arbitration Law[26] and supplemented by the Rules of Court.[27] Thus, we first thresh out the remedy of petition for review availed of by the petitioner to appeal the order of the Arbitration Committee. Sections 23, 24 and 29 of The Arbitration Law, and Section 13 of the PCHC Rules, provide: SEC. 23. Confirmation of award. At any time within one month after the award is made, any party to the controversy which was arbitrated may apply to the court having jurisdiction , as provided in Section 28, for an order confirming the award; and thereupon the court must grant such order unless the award is vacated, modified or corrected, as prescribed herein. Notice of such motion must be served upon the adverse party or his attorney as prescribed by law for the service of such notice upon an attorney in action in the same court. SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud or other undue means; or

(b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualification or of any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. xxxx SEC. 25. Grounds for modifying or correcting award. In any one of the following cases, the court must make an order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property referred to in the award; or (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioners report, the defect could have been amended or disregarded by the court. The order may modify and correct the award so as to effect the intent thereof and promote justice between the parties. SEC. 29. Appeals. An appeal may be taken from an order made in a proceeding under this Act, or from judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon such an appeal, including the judgment thereon shall be governed by the Rules of Court insofar as they are applicable. AMENDED ARBITRATION RULES OF PROCEDURE OF PCHC Sec. 13. The findings of facts of the decision or award rendered by the Arbitration Committee or by the sole Arbitrator as the case may be shall be final and conclusive upon all the parties in said arbitration dispute. The decision or award of the Arbitration Committee or of the Sole Arbitrator or of the Board of Directors, as the case may be, shall be appealable only on questions of law to any of the Regional Trial Courts in the National Capital Region where the Head Office of any of the parties is located. The appellant shall perfect his appeal by filing a notice of appeal to the Arbitration Secretariat and filing a Petition with the Regional Trial Court of the National Capital Region for the review of the decision or award of the committee or sole arbitrator or of the Board of Directors, as the case may be, within a non-extendible period of 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 fifteen (15) days from and after its

receipt of the order denying or granting said motion for reconsideration or of the decision rendered after the new trial if one had been granted. x x x x. (Emphasis supplied) As provided in the PCHC Rules, the findings of facts of the decision or award rendered by the Arbitration Committee shall be final and conclusive upon all the parties in said arbitration dispute.[28] Under Article 2044[29] of the New Civil Code, the validity of any stipulation on the finality of the arbitrators award or decision is recognized. However, where the conditions described in Articles 2038,[30] 2039[31] and 2040[32] applicable to both compromises and arbitrations are obtaining, the arbitrators award may be annulled or rescinded.[33] Consequently, the decision of the Arbitration Committee is subject to judicial review. Furthermore, petitioner had several judicial remedies available at its disposal after the Arbitration Committee denied its Motion for Reconsideration. It may petition the proper RTC to issue an order vacating the award on the grounds provided for under Section 24 of the Arbitration Law.[34] Petitioner likewise has the option to file a petition for review under Rule 43 of the Rules of Court with the Court of Appeals on questions of fact, of law, or mixed questions of fact and law.[35] Lastly, petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the ground that the Arbitrator Committee acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction. Since this case involves acts or omissions of a quasi-judicial agency, the petition should be filed in and cognizable only by the Court of Appeals.[36] In this instance, petitioner did not avail of any of the abovementioned remedies available to it. Instead it filed a petition for review with the RTC where Civil Case No. 92-145 is pending pursuant to Section 13 of the PCHC Rules to sustain its action. Clearly, it erred in the procedure it chose for judicial review of the arbitral award. Having established that petitioner failed to avail of the abovementioned remedies, we now discuss the issue of the jurisdiction of the trial court with respect to the petition for review filed by petitioner. Jurisdiction is the authority to hear and determine a cause - the right to act in a case.[37] Jurisdiction over the subject matter is the power to hear and determine the general class to which the proceedings in question belong. Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of any or all of the parties or by erroneous belief of the court that it exists.[38] In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern in case of controversy. However, since the PCHC Rules came about only as a result of an agreement between and among member banks of PCHC and not by law, it cannot confer jurisdiction to the RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to review arbitral awards, only on questions of law, cannot be given effect. Consequently, the proper recourse of petitioner from the denial of its motion for reconsideration by the Arbitration Committee is to file either a motion to vacate the arbitral award with the RTC, a petition for review with the Court of Appeals under Rule 43 of the Rules of Court, or a petition for certiorari under Rule 65 of the Rules of Court. In the case at bar, petitioner filed a petition for review with the RTC when the same should have been filed with the Court of Appeals under Rule 43 of the Rules of Court. Thus, the RTC of Makati did not err in dismissing the petition for review for lack of jurisdiction but not on the ground that petitioner should have filed a separate case from Civil Case No. 92-145 but on the necessity of filing the correct petition in the proper court. It is immaterial whether petitioner filed the petition for review in Civil Case No. 92-145 as an appeal of the arbitral award or whether it filed a separate case in the RTC, considering that the RTC will only have jurisdiction over an arbitral award in cases of motions to vacate the same. Otherwise, as elucidated herein, the Court of Appeals

retains jurisdiction in petitions for review or in petitions for certiorari. Consequently, petitioners arguments, with respect to the filing of separate action from Civil Case No. 92-145 resulting in a multiplicity of suits, cannot be given due course. Alternative dispute resolution methods or ADRs like arbitration, mediation, negotiation and conciliation are encouraged by the Supreme Court. By enabling parties to resolve their disputes amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationships.[39] It must be borne in mind that arbitration proceedings are mainly governed by the Arbitration Law and suppletorily by the Rules of Court. WHEREFORE, in light of the foregoing, the petition is DENIED. The November 9, 1999 Order of the Regional Trial Court of Makati City, Branch 135, in Civil Case No. 92-145 which dismissed the petition for review for lack of jurisdiction and the February 1, 2000 Order denying its reconsideration, are AFFIRMED. SO ORDERED.