G.R. No. 91228. March 22, 1993.

PUROMINES, INC., petitioner, vs. COURT OF APPEAL and PHILIPP BROTHERS OCEANIC,
INC., respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS OF VENDOR; DAMAGES ARISING FROM CARRIAGE AND
DELIVERY. We agree with the court a quo that the sales contract is comprehensive enough to
include claims for damages arising from carriage and delivery of the goods. As a general rule, the
seller has the obligation to transmit the goods to the buyer, and concomitant thereto, the contracting
of a carrier to deliver the same.
2. COMMERCIAL LAW; MARITIME TRANSPORTATION; MARITIME COMMERCE; CHARTER
PARTIES, CONSTRUED. American jurisprudence defines charter party as a contract by which an
entire ship or some principal part thereof is let by the owner to another person for a specified time or
use. Charter or charter parties are of two kinds. Charter of demise or bareboat and contracts of
affreightment.
3. ID.; ID.; ID.; ID.; KINDS; CHARTER OF DEMISE, CONSTRUED. Under the demise or
bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or
service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the
owner pro hac vice, subject to liability to others for damages caused by negligence. To create a
demise the owner of a vessel must completely and exclusively relinquish possession, anything short
of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a
charter party at all.
4. ID.; ID.; ID.; ID.; ID.; CONTRACT OF AFFREIGNMENT, CONSTRUED. A contract of
affreightment is in which the owner of the vessel leases part or all of its space to haul goods for
others. It is a contract for a special service to be rendered by the owner of the vessel and under such
contract the general owner retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in return for his payment of the
charter hire. If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on the
owner and the charterer is usually free from liability to third persons in respect of the ship.
5. ID.; ID.; ID.; ID.; LIABILITY TO THIRD PERSONS FOR GOODS SHIPPED ON BOARD A
VESSEL. Responsibility to third persons for goods shipped on board a vessel follows the vessel's
possession and employment; and if possession is transferred to the charterer by virtue of a demise,
the charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself
or by the master with third persons, and is answerable for loss, damage or non-delivery of goods
received for transportation. An owner who retains possession of the ship, though the hold is the
property of the charterer, remains liable as carrier and must answer for any breach of duty as to the
care, loading or unloading of the cargo.
6. ID.; ID.; ID.; ID.; BILLS OF LADING; ARBITRATION PROVISION THEREOF, CONSIDERED
AND RESPECTED. Whether the liability of respondent should be based on the same contract or
that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on
the sales contract and/or the 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. Arbitration has been
held valid and constitutional. Even before the enactment of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. The rule now is that unless the

agreement is such as absolutely to close the doors of the courts against the parties, which
agreement would be void, the courts will look with favor upon such amicable arrangements and will
only interfere with great reluctance to anticipate or nullify the action of the arbitrator. As pointed out
in the case of Mindanao Portland Cement Corp. v. McDough Construction Company of Florida 18
wherein the plaintiff sued defendant for damages arising from a contract, the Court said: "Since there
obtains herein a written provision for arbitration as well as failure on respondent's part to comply
therewith, the court a quo rightly ordered the parties to proceed to their arbitration in accordance with
the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments touching upon the
merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This
proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court
in this case is not to resolve the merits of the parties' claims but only to determine if they should
proceed to arbitration or not. And although it has been ruled that a privolous or patently baseless
claim should not be ordered to arbitration it is also recognized that the mere fact that a defense exist
against a claim does not make it frivolous or baseless."
7. REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS; COMPLAINT; ANNEXES ATTACHED
THEREOF, PART OF THE RECORD. Petitioner contend that the arbitration provision in the bills
of lading should not have been discussed as an issue in the decision of the Court of Appeals since it
was not raised as a special or affirmative defense. The three bills of lading were attached to the
complaint as Annexes "A," "B," and "C," and are therefore parts thereof and may be considered as
evidence although not introduced as such. Hence, it was then proper for the court a quo to discuss
the contents of the bills of lading, having been made part of the record.
DECISION
NOCON, J p:
This is a special civil action for certiorari and prohibition to annul and set aside the Decision of the
respondent Court of Appeals dated November 16, 1989 1 reversing the order of the trial court and
dismissing petitioner's compliant in Civil Case No. 89-47403, entitled Puromines, Inc. v. Maritime
Factors, Inc. and Philipp Brothers Oceanic, Inc.
Culled from the records of this case, the facts show that petitioner, Puromines, Inc. (Puromines for
brevity) and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with private
respondents Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract
No. S151.8.01018 provided, among others an arbitration clause which states, thus:
"9. Arbitration
"Any disputes arising under this contract shall be settled by arbitration in London in accordance with
the Arbitration Act 1950 and any statutory amendment or modification thereof. Each party is to
appoint an Arbitrator, and should they be unable to agree, the decision of an Umpire appointed by
them to be final. The Arbitrators and Umpire are all to be commercial men and resident in London.
This submission may be made a rule of the High Court of Justice in England by either party." 2
On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a
shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and condition for
transport to Iloilo and Manila, to be delivered to petitioner. Three bills of lading were issued by the
ship-agent in the Philippines, Maritime Factors Inc., namely: Bill of Lading No. dated May 12, 1988
covering 10,000 metric tons for discharge Manila; Bill of Lading No. 2 of even date covering 4,000
metric tons for unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering
1,500 metric tons likewise for discharged in Manila

The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good
order and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were
discharged in Manila in bad order and condition, caked, hardened and lumpy, discolored and
contaminated with rust and dirt. Damages were valued at P683, 056. 29 including additional
discharging expenses.
Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of carriage
against Maritime Factors Inc. (which was not included as respondent in this petition) as ship-agent in
the Philippines for the owners of the vessel MV "Liliana Dimitrova," while private respondent, Philipp
Brothers Oceanic Inc., was impleaded as charterer of the said vessel and proper party to accord
petitioner complete relief. Maritime Factors, Inc. filed its Answer 5 to the complaint, while private
respondent filed a motion to dismiss, dated February 9, 1989, on the grounds that the complaint
states no cause of action; that it was prematurely filed; and that petitioner should comply with the
arbitration clause in the sales contract. 6
The motion to dismiss was opposed by petitioner contending the inapplicability of the arbitration
clause inasmuch as the cause of action did not arise from a violation of the terms of the sales
contract but rather for claims of cargo damages where there is no arbitration agreement. On April 26,
1989, the trial court denied respondent's motion to dismiss in this wise:
"The sales contract in question states in part:
'Any disputes arising under this contract shall be settled by arbitration . . .(emphasis supplied)
"A perusal of the facts alleged in the complaint upon which the question of sufficiency of the cause of
action of the complaint arose from a breach of contract of carriage by the vessel chartered by the
defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration clause cannot apply to
the dispute in the present action which concerns plaintiff's claim for cargo loss/damage arising from
breach of contract of carriage.
"That the defendant is not the ship owner or common carrier and therefore plaintiff does not have
legal right against it since every action must be brought against the real party in interest has no merit
either for by the allegations in the complaint the defendant herein has been impleaded as charterer
of the vessel, hence, a proper party." 7
Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The appellate
court found that the arbitration provision in the sales contract and/or the bills of lading is applicable in
the present case. Said the court:
"An examination of the sales contract No. S151.8.01018 shows that it is broad enough to include the
claim for damages arising from the carriage and delivery of the goods subject-matter thereof.
"It is also noted that the bills of lading attached as Annexes 'A', 'B' and 'C' to the complaint state, in
part, 'any dispute arising under this Bill of Lading shall be referred to arbitration of the Maritime
Arbitration Commission at the USSR Chamber of Commerce and Industry, 6 Kuibyshevskaia Str.,
Moscow, USSR, in accordance with the rules of procedure of said commission.'
Considering that the private respondent was one of the signatories to the sales contract . . . all
parties are obliged o respect the terms and conditions of the said sales contract, including the
provision thereof on 'arbitration.' "

Hence, this petition The issue raised is: Whether the phrase "any dispute arising under this contract"
in the arbitration clause of the sales contract covers a cargo claim against the vessel (owner and/or
charterers) for breach of contract of carriage.
Petitioner states in its complainants that Philipp Brothers "was the charterer of the vessel MV 'Liliana
Dimitrova' which transported the shipment from Yuzhny USSR to Manila." Petitioner further alleged
that the caking and hardening, wetting and melting, and contamination by rust and dirt of the
damaged portions of the shipment were due to the improper ventilation and inadequate storage
facilities of the vessel; that the wetting of the cargo was attributable to the failure of the crew to close
the hatches before and when it rained while the shipment was being unloaded in the Port of Manila;
and that as a direct and natural consequence of the unseaworthiness and negligence of the vessel
(sic), petitioner suffered damages in the total amount of P683, 056.29 Philippine currency." 8
(Emphasis supplied)
Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of action of the
complaint arose from breach of contract of carriage by the vessel that was chartered by defendant
Philipp Brothers." 9
In the present petition, petitioner argues that the sales contract does not include the contract of
carriage which is a different contract entered into by the carrier with the cargo owners. That it was an
error for the respondent court to touch upon the arbitration provision of the bills lading in its decision
inasmuch as the same was not raised as an issue by private respondent who was not a party in the
bills of lading (emphasis Ours). Petitioner contradicts itself.
We agree with the court a quo that the sales contract is comprehensive enough to include claims for
damages arising from carriage and delivery of the goods. As a general rule, the seller has the
obligation to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to
deliver the same. Art. 1523 of the Civil Code provides:
"Art. 1523. Where in pursuance of a contract of sale, the seller in authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in
the cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent
appear.
"Unless otherwise authorized by the buyer, the seller must take such contract with the carrier on
behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other
circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of
transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself,, or may hold
the seller responsible in damages."
xxx xxx xxx
The disputed sales contact provides for conditions relative to the delivery of goods, such as date of
shipment, demurrage, weight as determined by the bill of lading at load port and more particularly
the following provisions:
"3. Intention is to ship in one bottom, approximately 5,000 metrics tons to Puromines and
approximately 15,000 metric tons to Makati Agro. However, Sellers to have right to ship material as
partial shipment or co-shipment in addition to above. In the event of co-shipment to a third party
within Philippines same to be discussed with and acceptable to both Puromines and Makati Agro.

"4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at first
discharge port and final survey at last discharge port. Surveyors results to be binding and final. In
the event draft survey results show a quantity less than the combined Bills of Lading quantity for
both Puromines and Makati Agro, Sellers to refund the difference. In the event that draft survey
results show a quantity in excess of combined Bills of Lading of quantity of both Puromines and
Makati Agro then Buyers to refund the difference.
"5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have any liability to
separate cargo or to deliver cargo separately or to deliver minimum/maximum quantities stated on
individual Bills of Lading. At each port vessel is to discharge in accordance with Buyers local
requirements and it is Buyer's responsibility to separate individual quantities required by each of
them at each port during or after discharged."
As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo from
the bill of lading which is the contract of affreightment together with the sales contract.
Consequently, the (petitioner) is bound by the provisions and terms of said bill of lading and of the
arbitration clause incorporated in the sales contract."
Assuming arguendo that the liability of respondent is not based on the sales contract, but rather on
the contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would, therefore,
be material to show what kind of charter party the respondent had with the shipowner to determine
respondent's liability.
American jurisprudence defines charter party as a contract by which an entire ship or some principal
part thereof is let by the owner to another person for a specified time or use. 10 Charter or charter
parties are of two kinds. Charter of demise or bareboat and contracts of affreightment.
Under the demise or bareboat charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by
negligence. 11 To create a demise the owner of a vessel must completely and exclusively relinquish
possession, anything short of such a complete transfer is a contract of affreightment (time or voyage
charter party) or not a charter party at all.
On the other hand, a contract of affreightment is in which the owner of the vessel leases part or all of
its space to haul goods for others. It is a contract for a special service to be rendered by the owner of
the vessel 12 and under such contract the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely having use of the space in the vessel in
return for his payment of the charter hire. 13 If the charter is a contract of affreightment, which
leaves the general owner in possession of the ship as owner for the voyage, the rights,
responsibilities of ownership rest on the owner and the charterer is usually free from liability to third
persons in respect of the ship. 14
Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession
and employment; and if possession is transferred to the charterer by virtue of a demise, the
charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself or
by the master with third persons, and is answerable for loss, damage or non-delivery of goods
received for transportation. An owner who retains possession of the ship, though the hold is the
property of the charterer, remains liable as carrier and must answer for any breach of duty as to the
care, loading or unloading of the cargo. 15

Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp
Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the
other hand, if the contract between respondent and the owner of the vessel MV "Liliana Dimitrova"
was merely that of affreightment, then it cannot be held liable for the damages caused by the breach
of contract of carriage, the evidence of which is the bills of lading
In any case, whether the liability of respondent should be based on the same contract or that of the
bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales
contract and/or the 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.
Neither can petitioner contend that the arbitration provision in the bills of lading should not have
been discussed as an issue in the decision of the Court of Appeals since it was not raised as a
special or affirmative defense. The three bills of lading were attached to the complaint as Annexes
"A," "B," and "C," and are therefore parts thereof and may be considered as evidence although not
introduced as such. 16 Hence, it was then proper for the court a quo to discuss the contents of the
bills of lading, having been made part of the record.
Going back to the main subject of this case, arbitration has been held valid and constitutional. Even
before the enactment of Republic Act No. 876, this Court has countenanced the settlement of
disputes through arbitration. The rule now is that unless the agreement is such as absolutely to close
the doors of the courts against the parties, which agreement would be void, the courts will look with
favor upon such amicable arrangements and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. 17
As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction
Company of Florida 18 wherein the plaintiff sued defendant for damages arising from a contract, the
Court said:
"Since there obtains herein a written provision for arbitration as well as failure on respondent's part
to comply therewith, the court a quo rightly ordered the parties to proceed to their arbitration in
accordance with the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments
touching upon the merits of the dispute are improperly raised herein. They should be addressed to
the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate.
The duty of the court in this case is not to resolve the merits of the parties' claims but only to
determine if they should proceed to arbitration or not. And although it has been ruled that a frivolous
or patently baseless claim should not be ordered to arbitration it is also recognized that the mere fact
that a defense exist against a claim does not make it frivolous or baseless." 19
In the case of Bengson v. Chan, 20 We upheld the provision of a contract which required the parties
to submit their disputes to arbitration and We held as follows:
"The trial court sensibly said that 'all the causes of action alleged in the plaintiffs amended complaint
are based upon the supposed violations committed by the defendants of the 'Contract of
Construction of a Building' and that 'the provisions of paragraph 15 hereof leave a very little room for
doubt that the said causes of action are embraced within the phrase 'any and all questions, disputes
or differences between the parties hereto relative to the construction of the building,' which must be
determined by arbitration of two persons and such determination by the arbitrators shall be 'final,
conclusive and binding upon both parties unless they to court, in which the case the determination
by arbitration is a condition precedent 'for taking any court action."
xxx xxx xxx

"We hold that the terms of paragraph 15 clearly express the intention of the parties that all disputes
between them should first be arbitrated before court action can be taken by the aggrieved party." 21
Premises considered, We uphold the validity and applicability of the arbitration clause as stated in
Sales Contract No. S151.8.01018 to the present dispute.
WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is AFFIRMED.
SO ORDERED.
Narvasa, C . J ., Padilla, Regalado and Campos, Jr., JJ., concur.
G.R. No. 96283 February 25, 1992
CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG KUOCHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B.
AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN and VIRGILIO M.
DEL ROSARIO, petitioners,
vs.
COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of
Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC., respondents.

ROMERO, J.:
This is a special civil action for certiorari seeking to annul the Resolutions of the Court of
Appeals* dated October 22, 1990 and December 3, 1990 upholding the Orders of July 31, 1990 and
August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in Civil Case No. 90-1335.
Respondent Court of Appeals affirmed the ruling of the trial court that herein petitioners, after
submitting themselves for arbitration and agreeing to the terms and conditions thereof, providing that
the arbitration award shall be final and unappealable, are precluded from seeking judicial review of
subject arbitration award.
It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity)
and private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a construction
agreement 1 whereby respondent contractor committed to construct and finish on December 31, 1989,
petitioner corporation's industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of
P42,000,000.00. In the event of disputes arising from the performance of subject contract, it was
stipulated therein that the issue(s) shall be submitted for resolution before a single arbitrator chosen by
both parties.

Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two (2) other
ancillary contracts, to wit: one dated June 23, 1989, for the construction of a dormitory and support
facilities with a contract price of P3,875,285.00, to be completed on or before October 31,
1989; 2 and the other dated August 12, 1989, for the installation of electrical, water and hydrant systems
at the plant site, commanding a price of P12.1 million and requiring completion thereof one month after
civil works have been finished. 3

However, respondent Roblecor failed to complete the work despite the extension of time allowed it
by Chung Fu. Subsequently, the latter had to take over the construction when it had become evident
that Roblecor was not in a position to fulfill its obligation.
Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23,
Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with prayer for Temporary
Restraining Order before respondent Regional Trial Court, pursuant to the arbitration clause in the
construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing
of the restraining order.
Subsequent negotiations between the parties eventually led to the formulation of an arbitration
agreement which, among others, provides:
2. The parties mutually agree that the arbitration shall proceed in accordance with
the following terms and conditions:
xxx xxx xxx
d. The parties mutually agree that they will abide by the decision of
the arbitrator including any amount that may be awarded to either
party as compensation, consequential damage and/or interest
thereon;
e. The parties mutually agree that the decision of the arbitrator shall
be final and unappealable. Therefore, there shall be no further judicial
recourse if either party disagrees with the whole or any part of the
arbitrator's award.
f. As an exception to sub-paragraph (e) above, the parties mutually
agree that either party is entitled to seek judicial assistance for
purposes of enforcing the arbitrator's award;
xxx xxx xxx 4
(Emphasis supplied)

Respondent Regional Trial Court approved the arbitration agreement thru its Order of May 30, 1990.
Thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator.
On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor,
the sum of P16,108,801.00. He further declared the award as final and unappealable, pursuant to
the Arbitration Agreement precluding judicial review of the award.
Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu
moved to remand the case for further hearing and asked for a reconsideration of the judgment award
claiming that Arbitrator Asuncion committed twelve (12) instances of grave error by disregarding the
provisions of the parties' contract.
Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek
reconsideration therefrom but to no avail. The trial court granted Roblecor's Motion for Confirmation

of Award and accordingly, entered judgment in conformity therewith. Moreover, it granted the motion
for the issuance of a writ of execution filed by respondent.
Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On October
22,1990 the assailed resolution was issued. The respondent appellate court concurred with the
findings and conclusions of respondent trial court resolving that Chung Fu and its officers, as
signatories to the Arbitration Agreement are bound to observe the stipulations thereof providing for
the finality of the award and precluding any appeal therefrom.
A motion for reconsideration of said resolution was filed by petitioner, but it was similarly denied by
respondent Court of Appeals thru its questioned resolution of December 3, 1990.
Hence, the instant petition anchored on the following grounds:
First
Respondents Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice to
petitioners, (a) by refusing to exercise their judicial authority and legal duty to
review the arbitration award, and (b) by declaring that petitioners are estopped from
questioning the arbitration award allegedly in view of the stipulations in the parties'
arbitration agreement that "the decision of the arbitrator shall be final and
unappealable" and that "there shall be no further judicial recourse if either party
disagrees with the whole or any part of the arbitrator's award."
Second
Respondent Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice to
petitioner, by not vacating and annulling the award dated 30 June 1990 of the
Arbitrator, on the ground that the Arbitrator grossly departed from the terms of the
parties' contracts and misapplied the law, and thereby exceeded the authority and
power delegated to him. (Rollo, p. 17)
Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of dispute
settlement.
Because conflict is inherent in human society, much effort has been expended by men and
institutions in devising ways of resolving the same. With the progress of civilization, physical combat
has been ruled out and instead, more specific means have been evolved, such as recourse to the
good offices of a disinterested third party, whether this be a court or a private individual or
individuals.
Legal history discloses that "the early judges called upon to solve private conflicts were primarily the
arbiters, persons not specially trained but in whose morality, probity and good sense the parties in
conflict reposed full trust. Thus, in Republican Rome, arbiter and judge (judex) were synonymous.
The magistrate or praetor, after noting down the conflicting claims of litigants, and clarifying the
issues, referred them for decision to a private person designated by the parties, by common
agreement, or selected by them from an apposite listing (the album judicium) or else by having the
arbiter chosen by lot. The judges proper, as specially trained state officials endowed with own power
and jurisdiction, and taking cognizance of litigations from beginning to end, only appeared under the
Empire, by the so-called cognitio extra ordinem." 5

Such means of referring a dispute to a third party has also long been an accepted alternative to
litigation at common law. 6
Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it
was nonetheless recognized in the Spanish Civil Code; specifically, the provisions on compromises
made applicable to arbitrations under Articles 1820 and 1821. 7 Although said provisions were
repealed by implication with the repeal of the Spanish Law of Civil Procedure, 8 these and additional ones were
reinstated in the present Civil Code.

Arbitration found a fertile field in the resolution of labor-management disputes in the Philippines.
Although early on, Commonwealth Act 103 (1936) provided for compulsory arbitration as the state
policy to be administered by the Court of Industrial Relations, in time such a modality gave way to
voluntary arbitration. While not completely supplanting compulsory arbitration which until today is
practiced by government officials, the Industrial Peace Act which was passed in 1953 as Republic
Act No. 875, favored the policy of free collective bargaining, in general, and resort to grievance
procedure, in particular, as the preferred mode of settling disputes in industry. It was accepted and
enunciated more explicitly in the Labor Code, which was passed on November 1, 1974 as
Presidential Decree No. 442, with the amendments later introduced by Republic Act No. 6715
(1989).
Whether utilized in business transactions or in employer-employee relations, arbitration was gaining
wide acceptance. A consensual process, it was preferred to orders imposed by government upon
the disputants. Moreover, court litigations tended to be time-consuming, costly, and inflexible due to
their scrupulous observance of the due process of law doctrine and their strict adherence to rules of
evidence.
As early as the 1920's, this Court declared:
In the Philippines fortunately, the attitude of the courts toward arbitration agreements
is slowly crystallizing into definite and workable form. . . . The rule now is that unless
the agreement is such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only with great reluctance interfere to anticipate or
nullify the action of the arbitrator. 10
That there was a growing need for a law regulating arbitration in general was acknowledged when
Republic Act No. 876 (1953), otherwise known as the Arbitration Law, was passed. "Said Act was
obviously adopted to
supplement not to supplant the New Civil Code on arbitration. It expressly declares that "the
provisions of chapters one and two, Title XIV, Book IV of the Civil Code shall remain in force." 11
In recognition of the pressing need for an arbitral machinery for the early and expeditious settlement
of disputes in the construction industry, a Construction Industry Arbitration Commission (CIAC) was
created by Executive Order No. 1008, enacted on February 4, 1985.
In practice nowadays, absent an agreement of the parties to resolve their disputes via a particular
mode, it is the regular courts that remain the fora to resolve such matters. However, the parties may
opt for recourse to third parties, exercising their basic freedom to "establish such stipulation, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy." 12In such a case, resort to the arbitration process may be
spelled out by them in a contract in anticipation of disputes that may arise between them. Or this may be
stipulated in a submission agreement when they are actually confronted by a dispute. Whatever be the

case, such recourse to an extrajudicial means of settlement is not intended to completely deprive the
courts of jurisdiction. In fact, the early cases on arbitration carefully spelled out the prevailing doctrine at
the time, thus: ". . . a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitrators and to them alone is contrary to public policy and cannot oust the courts of
Jurisdiction." 13

But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing
dispute to one is valid. Being part of a contract between the parties, it is binding and enforceable in
court in case one of them neglects, fails or refuses to arbitrate. Going a step further, in the event that
they declare their intention to refer their differences to arbitration first before taking court action, this
constitutes a condition precedent, such that where a suit has been instituted prematurely, the court
shall suspend the same and the parties shall be directed forthwith to proceed to arbitration. 14
A court action may likewise be proven where the arbitrator has not been selected by the parties. 15
Under present law, may the parties who agree to submit their disputes to arbitration further provide
that the arbitrators' award shall be final, unappealable and executory?
Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:
Any stipulation that the arbitrators' award or decision shall be final is valid, without
prejudice to Articles 2038, 2039 and 2040.
Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and
inappealable except on questions of law which shall be appealable to the Supreme Court." 16
Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable
and executory. "However, voluntary arbitration awards or decisions on money claims, involving an
amount exceeding One Hundred Thousand Pesos (P100,000.00) or forty-percent (40%) of the paidup capital of the respondent employer, whichever is lower, maybe appealed to the National Labor
Relations Commission on any of the following grounds: (a) abuse of discretion; and (b) gross
incompetence." 17 It is to be noted that the appeal in the instances cited were to be made to the National
Labor Relations Commission and not to the courts.

With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary
arbitrator is now mandated to render an award or decision within twenty (20) calendar days from the
date of submission of the dispute and such decision shall be final and executory after ten (10)
calendar days from receipt of the copy of the award or decision by the parties. 18
Where the parties agree that the decision of the arbitrator shall be final and unappealable as in the
instant case, the pivotal inquiry is whether subject arbitration award is indeed beyond the ambit of
the court's power of judicial review.
We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the
arbitrators' award is not absolute and without exceptions. Where the conditions described in Articles
2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded. 19 Additionally, under Sections 24 and 25 of the Arbitration Law,
there are grounds for vacating, modifying or rescinding an arbitrator's award. 20 Thus, if and when the
factual circumstances referred to in the above-cited provisions are present, judicial review of the award is
properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine
whether it is in accordance with law or within the scope of his authority? How may the power of
judicial review be invoked?
This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be
borne in mind, however, that this action will lie only where a grave abuse of discretion or an act
without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly shown. For "the
writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with
appellate jurisdiction. In a special civil action ofcertiorari, the Court will not engage in a review of the
facts found nor even of the law as interpreted or applied by the arbitrator unless the supposed errors
of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion
or an exces de pouvoir on the part of the arbitrator." 21
Even decisions of administrative agencies which are declared "final" by law are not exempt from
judicial review when so warranted. Thus, in the case of Oceanic Bic Division (FFW), et al. v. Flerida
Ruth P. Romero, et al., 22this Court had occasion to rule that:
. . . Inspite of statutory provisions making "final" the decisions of certain
administrative agencies, we have taken cognizance of petitions questioning these
decisions where want of jurisdiction, grave abuse of discretion, violation of due
process, denial of substantial justice or erroneous interpretation of the law were
brought to our attention . . . 23 (Emphasis ours).
It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasijudicial capacity. 24 It stands to reason, therefore, that their decisions should not be beyond the scope of
the power of judicial review of this Court.

In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which
allege error on the part of the arbitrator in granting compensation for various items which apparently
are disputed by said petitioners:
1. The Honorable Arbitrator committed grave error in failing to apply the terms and
conditions of the Construction Agreement, Dormitory Contract and Electrical
Contract, and in using instead the "practices" in the construction industry;
2. The Honorable Arbitrator committed grave error in granting extra compensation to
Roblecor for loss of productivity due to adverse weather conditions;
3. The Honorable Arbitrator committed grave error in granting extra compensation to
Roblecor for loss due to delayed payment of progress billings;
4. The Honorable Arbitrator committed grave error in granting extra compensation to
Roblecor for loss of productivity due to the cement crisis;
5. The Honorable Arbitrator committed grave error in granting extra compensation to
Roblecor for losses allegedly sustained on account of the failed coup d'tat;
6. The Honorable Arbitrator committed grave error in granting to Roblecor the
amount representing the alleged unpaid billings of Chung Fu;

7. The Honorable Arbitrator committed grave error in granting to Roblecor the

amount representing the alleged extended overhead expenses;
8. The Honorable Arbitrator committed grave error in granting to Roblecor the
amount representing expenses for change order for site development outside the
area of responsibility of Roblecor;
9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of
warehouse No. 2;
10. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct change in dimension;
11. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct plastering; and
12. The Honorable Arbitrator committed grave error in awarding to Roblecor
attorney's fees.
After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion
to Remand Case For Further Hearing and Reconsideration and Opposition to Motion for
Confirmation of Award, we find that petitioners have amply made out a case where the voluntary
arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of
the law applicable as between the parties, thus committing a grave abuse of discretion. Furthermore,
in granting unjustified extra compensation to respondent for several items, he exceeded his powers
all of which would have constituted ground for vacating the award under Section 24 (d) of the
Arbitration Law.
But the respondent trial court's refusal to look into the merits of the case, despite prima
facie showing of the existence of grounds warranting judicial review, effectively deprived petitioners
of their opportunity to prove or substantiate their allegations. In so doing, the trial court itself
committed grave abuse of discretion. Likewise, the appellate court, in not giving due course to the
petition, committed grave abuse of discretion. Respondent courts should not shirk from exercising
their power to review, where under the applicable laws and jurisprudence, such power may be
rightfully exercised; more so where the objections raised against an arbitration award may properly
constitute grounds for annulling, vacating or modifying said award under the laws on arbitration.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated October
22, 1990 and December 3, 1990 as well as the Orders of respondent Regional Trial Court dated July
31, 1990 and August 23, 1990, including the writ of execution issued pursuant thereto, are hereby
SET ASIDE. Accordingly, this case is REMANDED to the court of origin for further hearing on this
matter. All incidents arising therefrom are reverted to the status quo ante until such time as the trial
court shall have passed upon the merits of this case. No costs.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.
G.R. No. 120105 March 27, 1998

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

ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the contract for the
construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la
Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in the
implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the
latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping
mall complex in the City of Mandaluyong. The construction work was in progress when SPI decided
to expand the project by engaging the services of petitioner again. Thus, the parties entered into an
agreement for the main contract works after which construction work began.
However, petitioner incurred delay in the construction work that SPI considered as "serious and
substantial." 1On the other hand, according to petitioner, the construction works "progressed in faithful
compliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I" of
the Project. 2 Hence, SPI proposed the re-negotiation of the agreement between them.

Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated
as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement
would cover the construction work on said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner "failed to complete the construction works and abandoned the
project." 3 This resulted in disagreements between the parties as regards their respective liabilities under
the contract. On July 12, 1993, upon SPI's initiative, the parties' respective representatives met in
conference but they failed to come to an agreement. 4

Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a
complaint for collection of the balance due under the construction agreement. Named defendants
therein were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco,
Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing
an answer. The motion was anchored on defendants' allegation that the formal trade contract for the
construction of the project provided for a clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the contract. The following day, SPI
submitted a copy of the conditions of the contract containing the arbitration clause that it failed to
append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no formal contract between the parties
although they entered into an agreement defining their rights and obligations in undertaking the
project. It emphasized that the agreement did not provide for arbitration and therefore the court could
not be deprived of jurisdiction conferred by law by the mere allegation of the existence of an
arbitration clause in the agreement between the parties.

In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing
contract between petitioner and SPI. It alleged that suspension of proceedings would not necessarily
deprive the court of its jurisdiction over the case and that arbitration would expedite rather than delay
the settlement of the parties' respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract
between the parties. It averred that granting that such a clause indeed formed part of the contract,
suspension of the proceedings was no longer proper. It added that defendants should be declared in
default for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of
the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI
president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the
agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R.
Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register. 5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court 6 denied the motion
to suspend proceedings, thus:

It appears from the said document that in the letter-agreement dated May 30, 1991
(Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed
upon the terms and conditions of the Builders Work for the EDSA Plaza Project
(Phases I, II and Carpark), subject to the execution by the parties of a formal trade
contract. Defendants have submitted a copy of the alleged trade contract, which is
entitled "Contract Documents For Builder's Work Trade Contractor" dated 01 May
1991, page 2 of which is entitled "Contents of Contract Documents" with a list of the
documents therein contained, and Section A thereof consists of the abovementioned
Letter-Agreement dated May 30, 1991. Section C of the said Contract Documents is
entitled "Articles of Agreement and Conditions of Contract" which, per its Index,
consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said
Articles of Agreement appears to have been duly signed by President Rufo B.
Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and
their witnesses, and was thereafter acknowledged before Notary Public Nilberto R.
Briones of Makati, Metro Manila on November 15, 1991. The said Articles of
Agreement also provides that the "Contract Documents" therein listed "shall be
deemed an integral part of this Agreement", and one of the said documents is the
"Conditions of Contract" which contains the Arbitration Clause relied upon by the
defendants in their Motion to Suspend Proceedings.
This Court notes, however, that the 'Conditions of Contract' referred to, contains the following
provisions:
3. Contract Document.
Three copies of the Contract Documents referred to in the Articles of
Agreement shall be signed by the parties to the contract and
distributed to the Owner and the Contractor for their safe keeping."
(emphasis supplied).
And it is significant to note further that the said "Conditions of Contract" is not duly
signed by the parties on any page thereof although it bears the initials of BF's

representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials

thereon of any representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was not
duly executed or signed by the parties, and the failure of the defendants to submit
any signed copy of the said document, this Court entertains serious doubt whether or
not the arbitration clause found in the said Conditions of Contract is binding upon the
parties to the Articles of Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it
was "too late in the day for defendants to invoke arbitration." It quoted the following provision of the
arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other
party to the contract and a copy filed with the Project Manager. The demand for
arbitration shall be made within a reasonable time after the dispute has arisen and
attempts to settle amicably have failed; in no case, however, shall the demand he
made be later than the time of final payment except as otherwise expressly stipulated
in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project
was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each
day of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of
the total contract price."
The lower court also found that after the project was completed in accordance with the agreement
that contained a provision on "progress payment billing," SPI "took possession and started
operations thereof by opening the same to the public in November, 1991." SPI, having failed to pay
for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand
letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its
own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The
conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that "Notice of the demand for arbitration of a dispute shall
be filed in writing with the other party . . . . in no case . . . . later than the time of final
payment . . . "which apparently, had elapsed, not only because defendants had taken
possession of the finished works and the plaintiff's billings for the payment thereof
had remained pending since November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed to file any written notice of
any demand for arbitration during the said long period of one year and eight months,
this Court finds that it cannot stay the proceedings in this case as required by Sec. 7
of Republic Act No. 876, because defendants are in default in proceeding with such
arbitration.
The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other
defendants to file their responsive pleading or answer within fifteen (15) days from notice.
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the
Rules of Court before the Court of Appeals. Said appellate court granted the petition, annulled and

set aside the orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals
held:
The reasons given by the respondent Court in denying petitioners' motion to suspend
proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners'
reply dated August 26, 1993, has been submitted by them to the respondent Court
(Annex G, petition). It bears the signature of petitioner Rufo B. Colayco, president of
petitioner Shangri-La Properties, Inc., and of Bayani Fernando, president of
respondent Corporation (Annex G-1, petition). At page D/4 of said articles of
agreement it is expressly provided that the conditions of contract are "deemed an
integral part" thereof (page 188, rollo). And it is at pages D/42 to D/44 of the
conditions of contract that the provisions for arbitration are found (Annexes G-3 to G5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall arise
between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or
as to any matter or thing of whatsoever nature arising thereunder or
in connection therewith (including any matter or being left by this
Contract to the discretion of the Project Manager or the withholding
by the Project Manager of any certificate to which the Contractor may
claim to be entitled or the measurement and valuation mentioned in
clause 30 (5) (a) of these Conditions' or the rights and liabilities of the
parties under clauses 25, 26, 32 or 33 of these Conditions), the
Owner and the Contractor hereby agree to exert all efforts to settle
their differences or dispute amicably. Failing these efforts then such
dispute or difference shall be referred to Arbitration in accordance
with the rules and procedures of the Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear only
the initials of respondent Corporation's representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La
Properties, Inc. does not militate against its effectivity. Said petitioner having
categorically admitted that the document, Annex A to its reply dated August 26, 1993
(Annex G, petition), is the agreement between the parties, the initial or signature of
said petitioner's representative to signify conformity to arbitration is no longer
necessary. The parties, therefore, should be allowed to submit their dispute to
arbitration in accordance with their agreement.
2. The respondent Court held that petitioners "are in default in proceeding with such
arbitration." It took note of "the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that "Notice of the demand for arbitration of a
dispute shall be filed in writing with the other party . . . in no case . . . later than the
time of final payment," which apparently, had elapsed, not only because defendants
had taken possession of the finished works and the plaintiff's billings for the payment
thereof had remained pending since November, 1991 up to the filing of this case on
July 14, 1993, but also for the reason that defendants have failed to file any written
notice of any demand for arbitration during the said long period of one year and eight
months, . . . ."

Respondent Court has overlooked the fact that under the arbitration
clause
Notice of the demand for arbitration dispute shall be filed in writing
with the other party to the contract and a copy filed with the Project
Manager. The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle
amicably had failed; in no case, however, shall the demand be made
later than the time of final payment except as otherwise expressly
stipulated in the contract (emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the
final demand to pay the amount of P110,883,101.52, instead of paying, petitioners
set up its own claim against respondent Corporation in the amount of
P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference
proved futile. The next day, July 14, 1993, respondent Corporation filed its complaint
against petitioners. On August 13, 1993, petitioners wrote to respondent Corporation
requesting arbitration. Under the circumstances, it cannot be said that petitioners'
resort to arbitration was made beyond reasonable time. Neither can they be
considered in default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:
A
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT
OF CERTIORARIALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO
RESPONDENTS.
B
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION
IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN
AGREEMENT TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER
INTO THE AGREEMENT TO ARBITRATE,
RESPONDENTS ARE ALREADY IN DEFAULT IN
INVOKING THE AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower court denying the motion
to suspend proceedings "is a resolution of an incident on the merits." As such, upon the continuation
of the proceedings, the lower court would appreciate the evidence adduced in their totality and
thereafter render a decision on the merits that may or may not sustain the existence of an arbitration
clause. A decision containing a finding that the contract has no arbitration clause can then be
elevated to a higher court "in an ordinary appeal" where an adequate remedy could be obtained.
Hence, to petitioner, the Court of Appeals should have dismissed the petition forcertiorari because
the remedy of appeal would still be available to private respondents at the proper time. 7

The above contention is without merit.

The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of
appeal is succinctly reiterated in Ongsitco v. Court of Appeals 8 as follows:
. . . . Countless times in the past, this Court has held that "where appeal is the proper
remedy,certiorari will not lie." The writs of certiorari and prohibition are remedies to
correct lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of
jurisdiction committed by a lower court. "Where the proper remedy is appeal, the
action for certiorari will not be entertained. . . . Certiorari is not a remedy for errors of
judgment. Errors of judgment are correctible by appeal, errors of jurisdiction are
reviewable by certiorari."
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition
and mandamus are available only when "there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law . . . ." That is why they are referred to
as "extraordinary." . . . .
The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special civil action of certiorari." 9
This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of
the lower court over the controversy, the issue posed basically is whether the lower court
prematurely assumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction
over the case, then it becomes an error of jurisdiction which is a proper subject of a petition
for certiorari before the Court of Appeals. And if the lower court does not have jurisdiction over the
controversy, then any decision or order it may render may be annulled and set aside by the
appellate court.
However, the question of jurisdiction, which is a question of law depends on the determination of the
existence of the arbitration clause, which is a question of fact. In the instant case, the lower court
found that there exists an arbitration clause. However, it ruled that in contemplation of law, said
arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the
Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is not
proper in a petition forcertiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of
fact, the Court of Appeals interpreted the construction of the subject contract documents containing
the Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing
jurisprudence which will be extensively discussed hereunder. In effect, the issue posed before the
Court of Appeals was likewise a question of law. Being a question of law, the private respondents
rightfully invoked the special civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is being
questioned by the petitioners before this Court. But at the heart of said issue is the question of
whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before the Court of Appeals.

For this Court to be able to resolve the question of whether private respondents took the proper
mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of
whether there exists an Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will
result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are
technical rules may be relaxed. 10 As we shall show hereunder, had the Court of Appeals dismissed the
petition forcertiorari, the issue of whether or not an arbitration clause exists in the contract would not have
been resolved in accordance with evidence extant in the record of the case. Consequently, this would
have resulted in a judicial rejection of a contractual provision agreed by the parties to the contract.

In the same vein, this Court holds that the question of the existence of the arbitration clause in the
contract between petitioner and private respondents is a legal issue that must be determined in this
petition for review oncertiorari.
Petitioner, while not denying that there exists an arbitration clause in the contract in question,
asserts that in contemplation of law there could not have been one considering the following
points. First, the trial court found that the "conditions of contract" embodying the arbitration clause is
not duly signed by the parties. Second, private respondents misrepresented before the Court of
Appeals that they produced in the trial court a notarized duplicate original copy of the construction
agreement because what were submitted were mere photocopies thereof. The contract(s)
introduced in court by private respondents were therefore "of dubious authenticity" because: (a) the
Agreement for the Execution of Builder's Work for the EDSA Plaza Project does not contain an
arbitration clause, (b) private respondents "surreptitiously attached as Annexes "G-3" to "G-5" to
their petition before the Court of Appeals but these documents are not parts of the Agreement of the
parties as "there was no formal trade contract executed," (c) if the entire compilation of documents
"is indeed a formal trade contract," then it should have been duly notarized, (d) the certification from
the Records Management and Archives Office dated August 26, 1993 merely states that "the notarial
record of Nilberto Briones . . . is available in the files of (said) office as Notarial Registry Entry only,"
(e) the same certification attests that the document entered in the notarial registry pertains to the
Articles of Agreement only without any other accompanying documents, and therefore, it is not a
formal trade contract, and (f) the compilation submitted by respondents are a "mere hodge-podge of
documents and do not constitute a single intelligible agreement."
In other words, petitioner denies the existence of the arbitration clause primarily on the ground that
the representatives of the contracting corporations did not sign the "Conditions of Contract" that
contained the said clause. Its other contentions, specifically that insinuating fraud as regards the
alleged insertion of the arbitration clause, are questions of fact that should have been threshed out
below.
This Court may as well proceed to determine whether the arbitration clause does exist in the parties'
contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as
follows:
Sec. 4. Form of arbitration agreement. A contract to arbitrate a controversy
thereafter arising between the parties, as well as a submission to arbitrate an existing
controversy, shall be in writing and subscribed by the party sought to be charged, or
by his lawful agent.
The making of a contract or submission for arbitration described in section two
hereof, providing for arbitration of any controversy, shall be deemed a consent of the

parties of the province or city where any of the parties resides, to enforce such
contract of submission. (Emphasis supplied.).
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in
writing and (b) it must be subscribed by the parties or their representatives. There is no denying that
the parties entered into a written contract that was submitted in evidence before the lower court. To
"subscribe" means to write underneath, as one's name; to sign at the end of a document. 11 That
word may sometimes be construed to mean to give consent to or to attest. 12

The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with
in the contract in question. The Articles of Agreement, which incorporates all the other contracts and
agreements between the parties, was signed by representatives of both parties and duly notarized.
The failure of the private respondent's representative to initial the "Conditions of Contract" would
therefor not affect compliance with the formal requirements for arbitration agreements because that
particular portion of the covenants between the parties was included by reference in the Articles of
Agreement.
Petitioner's contention that there was no arbitration clause because the contract incorporating said
provision is part of a "hodge-podge" document, is therefore untenable. A contract need not be
contained in a single writing. It may be collected from several different writings which do not conflict
with each other and which, when connected, show the parties, subject matter, terms and
consideration, as in contracts entered into by correspondence. 13 A contract may be encompassed in
several instruments even though every instrument is not signed by the parties, since it is sufficient if the
unsigned instruments are clearly identified or referred to and made part of the signed instrument or
instruments. Similarly, a written agreement of which there are two copies, one signed by each of the
parties, is binding on both to the same extent as though there had been only one copy of the agreement
and both had signed it. 14

The flaw in petitioner's contentions therefore lies in its having segmented the various components of
the whole contract between the parties into several parts. This notwithstanding, petitioner ironically
admits the execution of the Articles of Agreement. Notably, too, the lower court found that the said
Articles of Agreement "also provides that the 'Contract Documents' therein listed 'shall be deemed
an integral part of this Agreement,' and one of the said documents is the 'Conditions of Contract'
which contains the Arbitration Clause.'" It is this Articles of Agreement that was duly signed by Rufo
B. Colayco, president of private respondent SPI, and Bayani F. Fernando, president of petitioner
corporation. The same agreement was duly subscribed before notary public Nilberto R. Briones. In
other words, the subscription of the principal agreement effectively covered the other documents
incorporated by reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling that private respondents
were not in default in invoking the provisions of the arbitration clause which states that "(t)he
demand for arbitration shall be made within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed." Under the factual milieu, private respondent SPI should have
paid its liabilities tinder the contract in accordance with its terms. However, misunderstandings
appeared to have cropped up between the parties ostensibly brought about by either delay in the
completion of the construction work or by force majeure or the fire that partially gutted the project.
The almost two-year delay in paying its liabilities may not therefore be wholly ascribed to private
respondent SPI.
Besides, private respondent SPI's initiative in calling for a conference between the parties was a
step towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint
before the lower court. Thus, while private respondent SPI's request for arbitration on August 13,

1993 might appear an afterthought as it was made after it had filed the motion to suspend
proceedings, it was because petitioner also appeared to act hastily in order to resolve the
controversy through the courts.
The arbitration clause provides for a "reasonable time" within which the parties may avail of the relief
under that clause. "Reasonableness" is a relative term and the question of whether the time within
which an act has to be done is reasonable depends on attendant circumstances. 15 This Court finds
that under the circumstances obtaining in this case, a one-month period from the time the parties held a
conference on July 12, 1993 until private respondent SPI notified petitioner that it was invoking the
arbitration clause, is a reasonable time. Indeed, petitioner may not be faulted for resorting to the court to
claim what was due it under the contract. However, we find its denial of the existence of the arbitration
clause as an attempt to cover up its misstep in hurriedly filing the complaint before the lower court.

In this connection, it bears stressing that the lower court has not lost its jurisdiction over the case.
Section 7 of Republic Act No. 876 provides that proceedings therein have only been stayed. After
the special proceeding of arbitration 16 has been pursued and completed, then the lower court may
confirm the award17 made by the arbitrator.

It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even
before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the
settlement of disputes through arbitration. 18 Republic Act No. 876 was adopted to supplement the New
Civil Code's provisions on arbitration. 19 Its potentials as one of the alternative dispute resolution methods
that are now rightfully vaunted as "the wave of the future" in international relations, is recognized
worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward.

WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the
petition forcertiorari DENIED. This Decision is immediately executory. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., Kapunan and Purisima, JJ., concur.
G.R. No. 161957

January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

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

January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the
REGIONAL TRIAL COURT of MAKATI CITY, and CLIMAX-ARIMCO MINING
CORPORATION, Respondents.
RESOLUTION

TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into
by the parties. In G.R. No. 161957, the Court in its Decision of 28 February 20051 denied the Rule 45
petition of petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of Arbitrators had no
jurisdiction over the complaint for the annulment of the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action should have been brought before the regular courts
as it involved judicial issues. Both parties filed separate motions for reconsideration. Gonzales avers
in his Motion for Reconsideration2 that the Court erred in holding that the DENR Panel of Arbitrators
was bereft of jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the Panels authority. Gonzales adds that the Court failed to rule on
other issues he raised relating to the sufficiency of his complaint before the DENR Panel of
Arbitrators and the timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration
and/or Clarification3 seeking reconsideration of that part of the Decision holding that the case should
not be brought for arbitration under Republic Act (R.A.) No. 876, also known as the Arbitration
Law.4 Respondents, citing American jurisprudence5 and the UNCITRAL Model Law,6 argue that the
arbitration clause in the Addendum Contract should be treated as an agreement independent of the
other terms of the contract, and that a claimed rescission of the main contract does not avoid the
duty to arbitrate. Respondents add that Gonzaless argument relating to the alleged invalidity of the
Addendum Contract still has to be proven and adjudicated on in a proper proceeding; that is, an
action separate from the motion to compel arbitration. Pending judgment in such separate action, the
Addendum Contract remains valid and binding and so does the arbitration clause therein.
Respondents add that the holding in the Decision that "the case should not be brought under the
ambit of the Arbitration Law" appears to be premised on Gonzaless having "impugn[ed] the
existence or validity" of the addendum contract. If so, it supposedly conveys the idea that Gonzaless
unilateral repudiation of the contract or mere allegation of its invalidity is all it takes to avoid
arbitration. Hence, respondents submit that the courts holding that "the case should not be brought
under the ambit of the Arbitration Law" be understood or clarified as operative only where the
challenge to the arbitration agreement has been sustained by final judgment.
Both parties were required to file their respective comments to the other partys motion for
reconsideration/clarification.7 Respondents filed their Comment on 17 August 2005,8 while Gonzales
filed his only on 25 July 2006.9
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions
for reconsideration in G.R. No. 16195710 were pending, wherein Gonzales challenged the orders of
the Regional Trial Court (RTC) requiring him to proceed with the arbitration proceedings as sought
by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the
recommendation of the Assistant Division Clerk of Court since the cases are rooted in the same
Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to
compel arbitration filed by respondent Climax-Arimco before the RTC of Makati City on 31 March
2000 while the complaint for the nullification of the Addendum Contract was pending before the
DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a Demand for
Arbitration pursuant to Clause 19.111 of the Addendum Contract and also in accordance with Sec. 5
of R.A. No. 876. The petition for arbitration was subsequently filed and Climax-Arimco sought an
order to compel the parties to arbitrate pursuant to the said arbitration clause. The case, docketed as

Civil Case No. 00-444, was initially raffled to Br. 132 of the RTC of Makati City, with Judge Herminio
I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the
application to compel arbitration for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On
15 May 2000, he filed an Answer with Counterclaim,12 questioning the validity of the Addendum
Contract containing the arbitration clause. Gonzales alleged that the Addendum Contract containing
the arbitration clause is void in view of Climax-Arimcos acts of fraud, oppression and violation of the
Constitution. Thus, the arbitration clause, Clause 19.1, contained in the Addendum Contract is also
null and void ab initio and legally inexistent.
1awphi1.net

On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss moot and
academic in view of the filing of his Answer with Counterclaim.13
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.14 This the RTC denied on 16
June 2000, holding that the petition for arbitration is a special proceeding that is summary in
nature.15 However, on 7 July 2000, the RTC granted Gonzaless motion for reconsideration of the 16
June 2000 Order and set the case for pre-trial on 10 August 2000, it being of the view that Gonzales
had raised in his answer the issue of the making of the arbitration agreement.16
Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC
denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not
possessing the cold neutrality of an impartial judge."17 On 5 August 2000, Judge Benito issued an
Order granting the Motion to Inhibit and ordered the re-raffling of the petition for arbitration.18 The
case was raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000
Order.19 Climax-Arimco argued that R.A. No. 876 does not authorize a pre-trial or trial for a motion to
compel arbitration but directs the court to hear the motion summarily and resolve it within ten days
from hearing. Judge Pimentel granted the motion and directed the parties to arbitration. On 13
February 2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed with
arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole arbitrator.20
Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7
March 2005.21
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March
2005 of Judge Pimentel. Gonzales contends that public respondent Judge Pimentel acted with grave
abuse of discretion in immediately ordering the parties to proceed with arbitration despite the proper,
valid, and timely raised argument in his Answer with Counterclaim that the Addendum Contract,
containing the arbitration clause, is null and void. Gonzales has also sought a temporary restraining
order to prevent the enforcement of the assailed orders directing the parties to arbitrate, and to direct
Judge Pimentel to hold a pre-trial conference and the necessary hearings on the determination of
the nullity of the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such agreement. Five days notice in

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

Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers
on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a)
whether or not the parties have a written contract to arbitrate, and (b) if the defendant has failed to
comply with that contract. Respondent cites La Naval Drug Corporation v. Court of Appeals,22 which
holds that in a proceeding to compel arbitration, "[t]he arbitration law explicitly confines the courts
authority only to pass upon the issue of whether there is or there is no agreement in writing providing
for arbitration," and "[i]n the affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in accordance with the terms
thereof."23 Climax-Arimco argues that R.A. No. 876 gives no room for any other issue to be dealt
with in such a proceeding, and that the court presented with an application to compel arbitration may
order arbitration or dismiss the same, depending solely on its finding as to those two limited issues.
If either of these matters is disputed, the court is required to conduct a summary hearing on it.
Gonzaless proposition contradicts both the trial courts limited jurisdiction and the summary nature
of the proceeding itself.
Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum Contract also
is not a ground to deny effect to the arbitration clause in the Contract. The arbitration agreement is
separate and severable from the contract evidencing the parties commercial or economic
transaction, it stresses. Hence, the alleged defect or failure of the main contract is not a ground to
deny enforcement of the parties arbitration agreement. Even the party who has repudiated the main
contract is not prevented from enforcing its arbitration provision. R.A. No. 876 itself treats the
arbitration clause or agreement as a contract separate from the commercial, economic or other
transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2 thereof, considers the
arbitration stipulation an independent contract in its own right whose enforcement may be prevented
only on grounds which legally make the arbitration agreement itself revocable, thus:
Sec. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to
the arbitration of one or more arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.
xxxx
The grounds Gonzales invokes for the revocation of the Addendum Contractfraud and oppression
in the execution thereofare also not grounds for the revocation of the arbitration clause in the
Contract, Climax-Arimco notes. Such grounds may only be raised by way of defense in the
arbitration itself and cannot be used to frustrate or delay the conduct of arbitration proceedings.
Instead, these should be raised in a separate action for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A.
No. 876 should not be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No.
876 refers to an application to compel arbitration where the courts authority is limited to resolving
the issue of whether there is or there is no agreement in writing providing for arbitration, while Sec.
24 of R.A. No. 9285 refers to an ordinary action which covers a matter that appears to be arbitrable
or subject to arbitration under the arbitration agreement. In the latter case, the statute is clear that
the court, instead of trying the case, may, on request of either or both parties, refer the parties to
arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of
being performed. Arbitration may even be ordered in the same suit brought upon a matter covered
by an arbitration agreement even without waiting for the outcome of the issue of the validity of the
arbitration agreement. Art. 8 of the UNCITRAL Model Law24 states that where a court before which

an action is brought in a matter which is subject of an arbitration agreement refers the parties to
arbitration, the arbitral proceedings may proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the
proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate even though
the defendant therein has raised the twin issues of validity and nullity of the Addendum Contract
and, consequently, of the arbitration clause therein as well. The resolution of both Climax-Arimcos
Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzaless Petition
for Certiorari in G.R. No. 167994 essentially turns on whether the question of validity of the
Addendum Contract bears upon the applicability or enforceability of the arbitration clause contained
therein. The two pending matters shall thus be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It
deserves to be dismissed on procedural grounds, as it was filed in lieu of appeal which is the
prescribed remedy and at that far beyond the reglementary period. It is elementary in remedial law
that the use of an erroneous mode of appeal is cause for dismissal of the petition for certiorari and it
has been repeatedly stressed that a petition for certiorari is not a substitute for a lost appeal. As its
nature, a petition for certiorari lies only where there is "no appeal," and "no plain, speedy and
adequate remedy in the ordinary course of law."25 The Arbitration Law specifically provides for an
appeal by certiorari, i.e., a petition for review under certiorari under Rule 45 of the Rules of Court
that raises pure questions of law.26 There is no merit to Gonzaless argument that the use of the
permissive term "may" in Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount
the filing of a petition for certiorari under Rule 65.27 Proper interpretation of the aforesaid provision of
law shows that the term "may" refers only to the filing of an appeal, not to the mode of review to be
employed. Indeed, the use of "may" merely reiterates the principle that the right to appeal is not part
of due process of law but is a mere statutory privilege to be exercised only in the manner and in
accordance with law.
Neither can BF Corporation v. Court of Appeals28 cited by Gonzales support his theory. Gonzales
argues that said case recognized and allowed a petition for certiorari under Rule 65 "appealing the
order of the Regional Trial Court disregarding the arbitration agreement as an acceptable
remedy."29 The BF Corporation case had its origins in a complaint for collection of sum of money
filed by therein petitioner BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to
suspend the proceedings alleging that the construction agreement or the Articles of Agreement
between the parties contained a clause requiring prior resort to arbitration before judicial
intervention. The trial court found that an arbitration clause was incorporated in the Conditions of
Contract appended to and deemed an integral part of the Articles of Agreement. Still, the trial court
denied the motion to suspend proceedings upon a finding that the Conditions of Contract were not
duly executed and signed by the parties. The trial court also found that SPI had failed to file any
written notice of demand for arbitration within the period specified in the arbitration clause. The trial
court denied SPI's motion for reconsideration and ordered it to file its responsive pleading. Instead of
filing an answer, SPI filed a petition for certiorari under Rule 65, which the Court of Appeals,
favorably acted upon. In a petition for review before this Court, BF Corporation alleged, among
others, that the Court of Appeals should have dismissed the petition for certiorari since the order of
the trial court denying the motion to suspend proceedings "is a resolution of an incident on the
merits" and upon the continuation of the proceedings, the trial court would eventually render a
decision on the merits, which decision could then be elevated to a higher court "in an ordinary
appeal."30
The Court did not uphold BF Corporations argument. The issue raised before the Court was
whether SPI had taken the proper mode of appeal before the Court of Appeals. The question before
the Court of Appeals was whether the trial court had prematurely assumed jurisdiction over the
controversy. The question of jurisdiction in turn depended on the question of existence of the

arbitration clause which is one of fact. While on its face the question of existence of the arbitration
clause is a question of fact that is not proper in a petition for certiorari, yet since the determination of
the question obliged the Court of Appeals as it did to interpret the contract documents in accordance
with R.A. No. 876 and existing jurisprudence, the question is likewise a question of law which may
be properly taken cognizance of in a petition for certiorari under Rule 65, so the Court held.31
The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F.
Corporation led to the conclusion that in order that the question of jurisdiction may be resolved, the
appellate court had to deal first with a question of law which could be addressed in a certiorari
proceeding. In the present case, Gonzaless petition raises a question of law, but not a question of
jurisdiction. Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876
when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making
the determination that there was indeed an arbitration agreement. It has been held that as long as a
court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more than an error of judgment reviewable by
a timely appeal and not assailable by a special civil action of certiorari.32 Even if we overlook the
employment of the wrong remedy in the broader interests of justice, the petition would nevertheless
be dismissed for failure of Gonzalez to show grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in
our jurisdiction. The Civil Code is explicit on the matter.33 R.A. No. 876 also expressly authorizes
arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of
an international character, was likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958,"
under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration agreements between parties of different nationalities
within a contracting state.34 The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized
the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.
Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrators
decision. Necessarily, a contract is required for arbitration to take place and to be binding. R.A. No.
876 recognizes the contractual nature of the arbitration agreement, thus:
Sec. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to
the arbitration of one or more arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations, appraisals or other
controversies which may be collateral, incidental, precedent or subsequent to any issue between the
parties.
A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a
person judicially declared to be incompetent, unless the appropriate court having jurisdiction approve
a petition for permission to submit such controversy to arbitration made by the general guardian or
guardian ad litem of the infant or of the incompetent. [Emphasis added.]
Thus, we held in Manila Electric Co. v. Pasay Transportation Co.35 that a submission to arbitration is
a contract. A clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract,36 and in Del Monte Corporation-USA v. Court of Appeals37 that

"[t]he provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law
between the contracting parties and produce effect as between them, their assigns and heirs."38
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration
clauses or agreements. It provides:
Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such agreement. Five days notice in
writing of the hearing of such application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue, shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding
be that no agreement in writing providing for arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision
for arbitration was made and there is a default in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act,
within ten days after such motions, petitions, or applications have been heard by it. [Emphasis
added.]
This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate.
The jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of the
proceedings therein was expounded upon in La Naval Drug Corporation v. Court of Appeals.39 There
it was held that R.A. No. 876 explicitly confines the court's authority only to the determination of
whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute
ordains that the court shall issue an order "summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof." If the court, upon the other hand, finds that no such
agreement exists, "the proceeding shall be dismissed."40 The cited case also stressed that the
proceedings are summary in nature.41 The same thrust was made in the earlier case of Mindanao
Portland Cement Corp. v. McDonough Construction Co. of Florida42 which held, thus:
Since there obtains herein a written provision for arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the parties to proceed to arbitration in accordance
with the terms of their agreement (Sec. 6, Republic Act 876). Respondent's arguments touching
upon the merits of the dispute are improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The
duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if
they should proceed to arbitration or not. x x x x43
Implicit in the summary nature of the judicial proceedings is the separable or independent character
of the arbitration clause or agreement. This was highlighted in the cases of Manila Electric Co. v.
Pasay Trans. Co.44and Del Monte Corporation-USA v. Court of Appeals.45
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 part comes to an end.46

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.47
The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and
Art. 21(2) of the UNCITRAL Arbitration Rules.48
The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood &
Conklin Manufacturing Co.49 In that case, Prima Paint and Flood and Conklin (F & C) entered into a
consulting agreement whereby F & C undertook to act as consultant to Prima Paint for six years,
sold to Prima Paint a list of its customers and promised not to sell paint to these customers during
the same period. The consulting agreement contained an arbitration clause. Prima Paint did not
make payments as provided in the consulting agreement, contending that F & C had fraudulently
misrepresented that it was solvent and able for perform its contract when in fact it was not and had
even intended to file for bankruptcy after executing the consultancy agreement. Thus, F & C served
Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court for rescission of the
consulting agreement on the ground of fraudulent misrepresentation and asked for the issuance of
an order enjoining F & C from proceeding with arbitration. F & C moved to stay the suit pending
arbitration. The trial court granted F & Cs motion, and the U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paints argument that it had been fraudulently
induced by F & C to sign the consulting agreement and held that no court should address this
argument. Relying on Sec. 4 of the Federal Arbitration Actwhich provides that "if a party [claims to
be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he court shall hear the
parties, and upon being satisfied that the making of the agreement for arbitration or the failure to
comply therewith is not in issue, the court shall make an order directing the parties to proceed to
arbitration x x x. If the making of the arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed summarily to the trial thereof"the U.S. High
Court held that the court should not order the parties to arbitrate if the making of the arbitration
agreement is in issue. The parties should be ordered to arbitration if, and only if, they have
contracted to submit to arbitration. Prima Paint was not entitled to trial on the question of whether an
arbitration agreement was made because its allegations of fraudulent inducement were not directed
to the arbitration clause itself, but only to the consulting agreement which contained the arbitration
agreement.50 Prima Paint held that "arbitration clauses are separable from the contracts in which
they are embedded, and that where no claim is made that fraud was directed to the arbitration
clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the
contract itself was induced by fraud."51
There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with
grave abuse of discretion in ordering the parties to proceed with arbitration. Gonzaless argument
that the Addendum Contract is null and void and, therefore the arbitration clause therein is void as
well, is not tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is limited
only to the resolution of the question of whether the arbitration agreement exists. Second, the
separability of the arbitration clause from the Addendum Contract means that validity or invalidity of
the Addendum Contract will not affect the enforceability of the agreement to arbitrate. Thus,
Gonzaless petition for certiorari should be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994
effectively modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now
hold that the validity of the contract containing the agreement to submit to arbitration does not affect

the applicability of the arbitration clause itself. A contrary ruling would suggest that a partys mere
repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was
declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified
that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract on the ground of fraud, as it had already been
determined that the case should have been brought before the regular courts involving as it did
judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the
motion, Gonzales raises the same question of jurisdiction, more particularly that the complaint for
nullification of the Addendum Contract pertained to the DENR Panel of Arbitrators, not the regular
courts. He insists that the subject of his complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and Technical Assistance Agreement (FTAA)
between the parties, and it also involves claimowners. He adds that the Court failed to rule on other
issues he raised, such as whether he had ceded his claims over the mineral deposits located within
the Addendum Area of Influence; whether the complaint filed before the DENR Panel of Arbitrators
alleged ultimate facts of fraud; and whether the action to declare the nullity of the Addendum
Contract on the ground of fraud has prescribed.
1avvphi1.net

These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which
were resolved against him in the Decision of 28 February 2005. Gonzales does not raise any new
argument that would sway the Court even a bit to alter its holding that the complaint filed before the
DENR Panel of Arbitrators involves judicial issues which should properly be resolved by the regular
courts. He alleged fraud or misrepresentation in the execution of the Addendum Contract which is a
ground for the annulment of a voidable contract. Clearly, such allegations entail legal questions
which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum
Area of Influence is a factual question which is not proper for determination before this Court. At all
events, moreover, the question is irrelevant to the issue of jurisdiction of the DENR Panel of
Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a factual finding in its
Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002, that Gonzales
had, "through the various agreements, assigned his interest over the mineral claims all in favor of
[Climax-Arimco]" as well as that without the complainant [Gonzales] assigning his interest over the
mineral claims in favor of [Climax-Arimco], there would be no FTAA to speak of."52 This finding was
affirmed by the Court of Appeals in its Decision dated 30 July 2003 resolving the petition for
certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of the DENR Panel.53
The Court of Appeals likewise found that Gonzaless complaint alleged fraud but did not provide any
particulars to substantiate it. The complaint repeatedly mentioned fraud, oppression, violation of the
Constitution and similar conclusions but nowhere did it give any ultimate facts or particulars relative
to the allegations.54
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the
circumstances constituting fraud must be stated with particularity. This is to enable the opposing
party to controvert the particular facts allegedly constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity the ultimate facts and circumstances constituting
the alleged fraud. It does not state what particulars about Climax-Arimcos financial or technical
capability were misrepresented, or how the misrepresentation was done. Incorporated in the body of
the complaint are verbatim reproductions of the contracts, correspondence and government

issuances that reportedly explain the allegations of fraud and misrepresentation, but these are, at
best, evidentiary matters that should not be included in the pleading.
As to the issue of prescription, Gonzaless claims of fraud and misrepresentation attending the
execution of the Addendum Contract are grounds for the annulment of a voidable contract under the
Civil Code.55 Under Art. 1391 of the Code, an action for annulment shall be brought within four years,
in the case of fraud, beginning from the time of the discovery of the same. However, the time of the
discovery of the alleged fraud is not clear from the allegations of Gonzaless complaint. That being
the situation coupled with the fact that this Court is not a trier of facts, any ruling on the issue of
prescription would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal
effectively renders superfluous formal action on the Motion for Partial Reconsideration and/or
Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH
FINALITY.
SO ORDERED.
DANTE O. TINGA
Associate Justice
G.R. No. 155001

January 21, 2004

DEMOSTHENES P. AGAN, JR., respondents,

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

September 20, 1996 a consortium composed of the Peoples Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium), submitted their competitive proposal to the Prequalification Bids
and Awards Committee (PBAC).
After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal of
AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice of award for the
NAIA IPT III project to the Paircargo Consortium, which later organized into herein respondent
PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile,
and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the BuildOperate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III"
(1997 Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was
superseded by the Amended and Restated Concession Agreement (ARCA) containing certain
revisions and modifications from the original contract. A series of supplemental agreements was also
entered into by the Government and PIATCO. The First Supplement was signed on August 27,
1999, the Second Supplement on September 4, 2000, and the Third Supplement on June 22, 2001
(collectively, Supplements) (the 1997 Concession Agreement, ARCA and the Supplements
collectively referred to as the PIATCO Contracts).
On September 17, 2002, various petitions were filed before this Court to annul the 1997
Concession Agreement, the ARCA and the Supplements and to prohibit the public respondents
DOTC and MIAA from implementing them.
In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997
Concession Agreement, the ARCA and the Supplements null and void.
Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the reversal
of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative, PIATCO
prays that the Court should not strike down the entire 1997 Concession Agreement, the ARCA and
its supplements in light of their separability clause. Respondent-Congressmen and NMTAI also pray
that in the alternative, the cases at bar should be referred to arbitration pursuant to the provisions of
the ARCA. PIATCO-Employees pray that the petitions be dismissed and remanded to the trial courts
for trial on the merits or in the alternative that the 1997 Concession Agreement, the ARCA and the
Supplements be declared valid and binding.
I
Procedural Matters
a. Lack of Jurisdiction
Private respondents and respondents-intervenors reiterate a number of procedural issues which
they insist deprived this Court of jurisdiction to hear and decide the instant cases on its merits. They
continue to claim that the cases at bar raise factual questions which this Court is ill-equipped to
resolve, hence, they must be remanded to the trial court for reception of evidence. Further, they
allege that although designated as petitions for certiorari and prohibition, the cases at bar are
actually actions for nullity of contracts over which the trial courts have exclusive jurisdiction. Even
assuming that the cases at bar are special civil actions for certiorari and prohibition, they contend
that the principle of hierarchy of courts precludes this Court from taking primary jurisdiction over
them.
We are not persuaded.

There is a question of fact when doubt or difference arises as to the truth or falsity of the facts
alleged.5 Even a cursory reading of the cases at bar will show that the Court decided them by
interpreting and applying the Constitution, the BOT Law, its Implementing Rules and other relevant
legal principles on the basis of clearly undisputed facts. All the operative facts were settled,
hence, there is no need for a trial type determination of their truth or falsity by a trial court.
We reject the unyielding insistence of PIATCO Employees that the following factual issues are
critical and beyond the capability of this Court to resolve, viz: (a) whether the National Economic
Development Authority- Investment Coordinating Committee (NEDA-ICC) approved the
Supplements; (b) whether the First Supplement created ten (10) new financial obligations on the part
of the government; and (c) whether the 1997 Concession Agreement departed from the draft
Concession Agreement contained in the Bid Documents.6
The factual issue of whether the NEDA-ICC approved the Supplements is hardly relevant. It is clear
in our Decision that the PIATCO contracts were invalidated on other and more substantial grounds.
It did not rely on the presence or absence of NEDA-ICC approval of the Supplements. On the other
hand, the last two issues do not involve disputed facts. Rather, they involve contractual provisions
which are clear and categorical and need only to be interpreted. The interpretation of contracts
and the determination of whether their provisions violate our laws or contravene any public policy is
a legal issue which this Court may properly pass upon.
Respondents corollary contention that this Court violated the hierarchy of courts when it
entertained the cases at bar must also fail. The rule on hierarchy of courts in cases falling within the
concurrent jurisdiction of the trial courts and appellate courts generally applies to cases involving
warring factual allegations. For this reason, litigants are required to repair to the trial courts at the
first instance to determine the truth or falsity of these contending allegations on the basis of the
evidence of the parties. Cases which depend on disputed facts for decision cannot be brought
immediately before appellate courts as they are not triers of facts.
It goes without saying that when cases brought before the appellate courts do not involve factual
but legal questions, a strict application of the rule of hierarchy of courts is not necessary. As the
cases at bar merely concern the construction of the Constitution, the interpretation of the BOT Law
and its Implementing Rules and Regulations on undisputed contractual provisions and government
actions, and as the cases concern public interest, this Court resolved to take primary jurisdiction
over them. This choice of action follows the consistent stance of this Court to settle any controversy
with a high public interest component in a single proceeding and to leave no root or branch that
could bear the seeds of future litigation. The suggested remand of the cases at bar to the trial court
will stray away from this policy.7
b. Legal Standing
Respondent PIATCO stands pat with its argument that petitioners lack legal personality to file the
cases at bar as they are not real parties in interest who are bound principally or subsidiarily to the
PIATCO Contracts. Further, respondent PIATCO contends that petitioners failed to show any legally
demandable or enforceable right to justify their standing to file the cases at bar.
These arguments are not difficult to deflect. The determination of whether a person may institute an
action or become a party to a suit brings to fore the concepts of real party in interest, capacity to sue
and standing to sue. To the legally discerning, these three concepts are different although commonly
directed towards ensuring that only certain parties can maintain an action.8 As defined in the Rules
of Court, a real party in interest is the party who stands to be benefited or injured by the judgment in
the suit or the party entitled to the avails of the suit.9Capacity to sue deals with a situation where a

person who may have a cause of action is disqualified from bringing a suit under applicable law or is
incompetent to bring a suit or is under some legal disability that would prevent him from maintaining
an action unless represented by a guardian ad litem. Legal standing is relevant in the realm of public
law. In certain instances, courts have allowed private parties to institute actions challenging the
validity of governmental action for violation of private rights or constitutional principles.10 In these
cases, courts apply the doctrine of legal standing by determining whether the party has a direct and
personal interest in the controversy and whether such party has sustained or is in imminent
danger of sustaining an injury as a result of the act complained of, a standard which is distinct
from the concept of real party in interest.11Measured by this yardstick, the application of the doctrine
on legal standing necessarily involves a preliminary consideration of the merits of the case and is not
purely a procedural issue.12
Considering the nature of the controversy and the issues raised in the cases at bar, this Court
affirms its ruling that the petitioners have the requisite legal standing. The petitioners in G.R. Nos.
155001 and 155661 are employees of service providers operating at the existing international
airports and employees of MIAA while petitioners-intervenors are service providers with existing
contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO
Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the
commencement of operations at the NAIA IPT III, NAIA Passenger Terminals I and II will cease to
be used as international passenger terminals.13 Further, the ARCA provides:
(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession
agreement relative to any service or operation currently being undertaken at the Ninoy
Aquino International Airport Passenger Terminal I, or extend any concession agreement
which may expire subsequent hereto, except to the extent that the continuation of the
existing services and operations shall lapse on or before the In-Service Date.14
Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and
petitioners-intervenors denounce as unconstitutional and illegal, would deprive them of their sources
of livelihood. Under settled jurisprudence, one's employment, profession, trade, or calling is a
property right and is protected from wrongful interference.15 It is also self evident that the petitioning
service providers stand in imminent danger of losing legitimate business investments in the event
the PIATCO Contracts are upheld.
Over and above all these, constitutional and other legal issues with far-reaching economic and social
implications are embedded in the cases at bar, hence, this Court liberally granted legal standing to
the petitioning members of the House of Representatives. First, at stake is the build-operate-and
transfer contract of the countrys premier international airport with a projected capacity of 10 million
passengers a year. Second, the huge amount of investment to complete the project is estimated to
be P13,000,000,000.00. Third, the primary issues posed in the cases at bar demand a discussion
and interpretation of the Constitution, the BOT Law and its implementing rules which have not been
passed upon by this Court in previous cases. They can chart the future inflow of investment under
the BOT Law.
Before writing finis to the issue of legal standing, the Court notes the bid of new parties to participate
in the cases at bar as respondents-intervenors, namely, (1) the PIATCO Employees and (2) NMTAI
(collectively, the New Respondents-Intervenors). After the Courts Decision, the New RespondentsIntervenors filed separate Motions for Reconsideration-In-Intervention alleging prejudice and direct
injury. PIATCO employees claim that "they have a direct and personal interest [in the controversy]...
since they stand to lose their jobs should the governments contract with PIATCO be declared null
and void."16 NMTAI, on the other hand, represents itself as a corporation composed of responsible
tax-paying Filipino citizens with the objective of "protecting and sustaining the rights of its members

to civil liberties, decent livelihood, opportunities for social advancement, and to a good,
conscientious and honest government."17
The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides that a
Motion to Intervene should be filed "before rendition of judgment...." The New RespondentsIntervenors filed their separate motions after a decision has been promulgated in the present cases.
They have not offered any worthy explanation to justify their late intervention. Consequently, their
Motions for Reconsideration-In-Intervention are denied for the rules cannot be relaxed to await
litigants who sleep on their rights. In any event, a sideglance at these late motions will show that
they hoist no novel arguments.
c. Failure to Implead an Indispensable Party
PIATCO next contends that petitioners should have impleaded the Republic of the Philippines as an
indispensable party. It alleges that petitioners sued the DOTC, MIAA and the DPWH in their own
capacities or as implementors of the PIATCO Contracts and not as a contract party or as
representatives of the Government of the Republic of the Philippines. It then leapfrogs to the
conclusion that the "absence of an indispensable party renders ineffectual all the proceedings
subsequent to the filing of the complaint including the judgment."18
PIATCOs allegations are inaccurate. The petitions clearly bear out that public respondents DOTC
and MIAA were impleaded as parties to the PIATCO Contracts and not merely as their
implementors. The separate petitions filed by the MIAA employees19 and members of the House of
Representatives20 alleged that "public respondents are impleaded herein because they
either executed the PIATCO Contracts or are undertaking acts which are related to the PIATCO
Contracts. They are interested and indispensable parties to this Petition."21 Thus, public respondents
DOTC and MIAA were impleaded as parties to the case for having executed the contracts.
More importantly, it is also too late in the day for PIATCO to raise this issue. If PIATCO seriously
views the non-inclusion of the Republic of the Philippines as an indispensable party as fatal to the
petitions at bar, it should have raised the issue at the onset of the proceedings as a ground to
dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise, litigations shall be like a
shore that knows no end. In any event, the Solicitor General, the legal counsel of the Republic,
appeared in the cases at bar in representation of the interest of the government.
II
Pre-qualification of PIATCO
The Implementing Rules provide for the unyielding standards the PBAC should apply to determine
the financial capability of a bidder for pre-qualification purposes: (i) proof of the ability of the project
proponent and/or the consortium to provide a minimum amount of equity to the project and (ii) a
letter testimonial from reputable banks attesting that the project proponent and/or members of
the consortium are banking with them, that they are in good financial standing, and that they
have adequate resources.22 The evident intent of these standards is to protect the integrity and
insure the viability of the project by seeing to it that the proponent has the financial capability to carry
it out. As a further measure to achieve this intent, it maintains a certain debt-to-equity ratio for
the project.
At the pre-qualification stage, it is most important for a bidder to show that it has the financial
capacity to undertake the project by proving that it can fulfill the requirement on minimum amount of
equity. For this purpose, the Bid Documents require in no uncertain terms:

The minimum amount of equity to which the proponents financial capability will be based
shall be thirty percent (30%) of the project cost instead of the twenty percent (20%)
specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required
debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt
portion of the project financing should not exceed 70% of the actual project cost.23
In relation thereto, section 2.01 (a) of the ARCA provides:
Section 2.01 Project Scope.
The scope of the project shall include:
(a) Financing the project at an actual Project cost of not less than Three Hundred Fifty Million
United States Dollars (US$350,000,000.00) while maintaining a debt-to-equity ratio of 70:30,
provided that if the actual Project costs should exceed the aforesaid amount, Concessionaire
shall ensure that the debt-to-equity ratio is maintained;24
Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT III Project up
to 70% of the project cost. Thirty percent (30%) of the cost must come in the form of equity or
investment by the bidder itself. It cannot be overly emphasized that the rules require a minimum
amount of equity to ensure that a bidder is not merely an operator or implementor of the project but
an investor with a substantial interest in its success. The minimum equity requirement also
guarantees the Philippine government and the general public, who are the ultimate beneficiaries of
the project, that a bidder will not be indifferent to the completion of the project. The discontinuance of
the project will irreparably damage public interest more than private interest.
In the cases at bar, after applying the investment ceilings provided under the General Banking Act
and considering the maximum amounts that each member of the consortium may validly invest in
the project, it is daylight clear that the Paircargo Consortium, at the time of pre-qualification, had a
net worth equivalent to only6.08% of the total estimated project cost.25 By any reckoning, a
showing by a bidder that at the time of pre-qualification its maximum funds available for investment
amount to only 6.08% of the project cost is insufficient to satisfy the requirement prescribed by the
Implementing Rules that the project proponent must have the ability to provide at least 30% of the
total estimated project cost. In peso and centavo terms, at the time of pre-qualification, the Paircargo
Consortium had maximum funds available for investment to the NAIA IPT III Project only in the
amount of P558,384,871.55, when it had to show that it had the ability to provide at least
P2,755,095,000.00. The huge disparity cannot be dismissed as of de minimis importance
considering the high public interest at stake in the project.
PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited financial
statements but also testimonial letters from reputable banks attesting to the good financial standing
of the Paircargo Consortium. It contends that in adjudging whether the Paircargo Consortium is a
pre-qualified bidder, the PBAC should have considered not only its financial statements but other
factors showing its financial capability.
Anent this argument, the guidelines provided in the Bid Documents are instructive:
3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS
Minimum Amount of Equity

Each member of the proponent entity is to provide evidence of networth in cash and assets
representing the proportionate share in the proponent entity. Audited financial
statements for the past five (5) years as a company for each member are to be provided.
Project Loan Financing
Testimonial letters from reputable banks attesting that each of the members of the
ownership entity are banking with them, in good financial standing and having adequate
resources are to be provided.26
It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the amount of
at least P2,755,095,000.00, or 30% of the estimated project cost. Its submission of testimonial
letters attesting to its good financial standing will not cure this failure. At best, the said letters merely
establish its credit worthiness or its ability to obtain loans to finance the project. They do not,
however, prove compliance with the aforesaid requirement of minimum amount of equity in relation
to the prescribed debt-to-equity ratio. This equity cannot be satisfied through possible loans.
In sum, we again hold that given the glaring gap between the net worth of Paircargo and PAGS
combined with the amount of maximum funds that Security Bank may invest by equity in a non-allied
undertaking, Paircargo Consortium, at the time of pre-qualification, failed to show that it had the
ability to provide 30% of the project cost and necessarily, its financial capability for the project cannot
pass muster.
III
Concession Agreement
Again, we brightline the principle that in public bidding, bids are submitted in accord with the
prescribed terms, conditions and parameters laid down by government and pursuant to the
requirements of the project bidded upon. In light of these parameters, bidders formulate competing
proposals which are evaluated to determine the bid most favorable to the government. Once the
contract based on the bid most favorable to the government is awarded, all that is left to be done by
the parties is to execute the necessary agreements and implement them. There can be no
substantial or material change to the parameters of the project, including the essential terms and
conditions of the contract bidded upon, after the contract award. If there were changes and the
contracts end up unfavorable to government, the public bidding becomes a mockery and the
modified contracts must be struck down.
Respondents insist that there were no substantial or material amendments in the 1997 Concession
Agreement as to the technical aspects of the project, i.e., engineering design, technical soundness,
operational and maintenance methods and procedures of the project or the technical proposal of
PIATCO. Further, they maintain that there was no modification of the financial features of the project,
i.e., minimum project cost, debt-to-equity ratio, the operations and maintenance budget, the
schedule and amount of annual guaranteed payments, or the financial proposal of PIATCO. A
discussion of some of these changes to determine whether they altered the terms and conditions
upon which the bids were made is again in order.
a. Modification on Fees and Charges to be collected by PIATCO
PIATCO clings to the contention that the removal of the groundhandling fees, airline office rentals
and porterage fees from the category of fees subject to MIAA regulation in the 1997 Concession
Agreement does not constitute a substantial amendment as these fees are not really public utility

fees. In other words, PIATCO justifies the re-classification under the 1997 Concession
Agreement on the ground that these fees are non-public utility revenues.
We disagree. The removal of groundhandling fees, airline office rentals and porterage fees from the
category of "Public Utility Revenues" under the draft Concession Agreement and its re-classification
to "Non-Public Utility Revenues" under the 1997 Concession Agreement is significant and has far
reaching consequence. The 1997 Concession Agreement provides that with respect to Non-Public
Utility Revenues, which include groundhandling fees, airline office rentals and porterage
fees,27 "[PIATCO] may make any adjustments it deems appropriatewithout need for the consent of
GRP or any government agency."28 In contrast, the draft Concession Agreement specifies these
fees as part of Public Utility Revenues and can be adjusted "only once every two years and in
accordance with the Parametric Formula" and "the adjustments shall be made effective only after
the written express approval of the MIAA."29 The Bid Documents themselves clearly provide:
4.2.3 Mechanism for Adjustment of Fees and Charges
4.2.3.1 Periodic Adjustment in Fees and Charges
Adjustments in the fees and charges enumerated hereunder, whether or not falling
within the purview of public utility revenues, shall be allowed only once every two
years in accordance with the parametric formula attached hereto as Annex 4.2f.
Provided that the adjustments shall be made effective only after the written express
approval of MIAA. Provided, further, that MIAAs approval, shall be contingent only
on conformity of the adjustments to the said parametric formula. V
The fees and charges to be regulated in the above manner shall consist of the following:
....
c) groundhandling fees;
d) rentals on airline offices;
....
(f) porterage fees;
. . . .30
The plain purpose in re-classifying groundhandling fees, airline office rentals and porterage fees as
non-public utility fees is to remove them from regulation by the MIAA. In excluding these fees
from government regulation, the danger to public interest cannot be downplayed.
We are not impressed by the effort of PIATCO to depress this prejudice to public interest by its
contention that in the 1997 Concession Agreement governing Non-Public Utility Revenues, it is
provided that "[PIATCO] shall at all times be judicious in fixing fees and charges constituting NonPublic Utility Revenues in order to ensure that End Users are not unreasonably deprived of
services."31 PIATCO then peddles the proposition that the said provision confers upon MIAA "full
regulatory powers to ensure that PIATCO is charging non-public utility revenues
atjudicious rates."32 To the trained eye, the argument will not fly for it is obviously non sequitur. Fairly
read, it is PIATCO that wields the power to determine the judiciousness of the said fees and

charges. In the draft Concession Agreement the power was expressly lodged with the MIAA and any
adjustment can only be done once every two years. The changes are not insignificant specks as
interpreted by PIATCO.
PIATCO further argues that there is no substantial change in the 1997 Concession Agreement with
respect to fees and charges PIATCO is allowed to impose which are not covered by Administrative
Order No. 1, Series of 199333 as the "relevant provision of the 1997 Concession Agreement is
practically identical with the draft Concession Agreement."34
We are not persuaded. Under the draft Concession Agreement, PIATCO may impose fees and
charges other than those fees and charges previously imposed or collected at the Ninoy Aquino
International Airport Passenger Terminal I, subject to the written approval of MIAA.35 Further, the
draft Concession Agreement provides that MIAA reserves the right to regulate these new fees and
charges if in its judgment the users of the airport shall be deprived of a free option for the services
they cover.36 In contrast, under the 1997 Concession Agreement,the MIAA merely retained the
right to approve any imposition of new fees and charges which were not previously collected at
the Ninoy Aquino International Airport Passenger Terminal I. The agreement did not contain an
equivalent provision allowing MIAA to reserve the right to regulate the adjustments of these
new fees and charges.37 PIATCO justifies the amendment by arguing that MIAA can establish terms
before approval of new fees and charges, inclusive of the mode for their adjustment.
PIATCOs stance is again a strained one. There would have been no need for an amendment if
there were no change in the power to regulate on the part of MIAA. The deletion of MIAAs
reservation of its right to regulate the price adjustments of new fees and charges can have no other
purpose but to dilute the extent of MIAAs regulation in the collection of these fees. Again, the
amendment diminished the authority of MIAA to protect the public interest in case of abuse by
PIATCO.
b. Assumption by the Government of the liabilities of PIATCO in the event of the latters
default
PIATCO posits the thesis that the new provisions in the 1997 Concession Agreement in case of
default by PIATCO on its loans were merely meant to prescribe and limit the rights of PIATCOs
creditors with regard to the NAIA Terminal III. PIATCO alleges that Section 4.04 of the 1997
Concession Agreement simply provides that PIATCOs creditors have no right to foreclose the NAIA
Terminal III.
We cannot concur. The pertinent provisions of the 1997 Concession Agreement state:
Section 4.04 Assignment.
....
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and
the default has resulted in the acceleration of the payment due date of the Attendant Liability
prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall
immediately inform GRP in writing of such default. GRP shall, within one hundred eighty
(180) Days from receipt of the joint written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire
and operator of the Development Facility in accordance with the terms and conditions hereof,
or designate a qualified operator acceptable to GRP to operate the Development Facility,

likewise under the terms and conditions of this Agreement; Provided that if at the end of the
180-day period GRP shall not have served the Unpaid Creditors and Concessionaire written
notice of its choice, GRP shall be deemed to have elected to take over the Development
Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to take
over the operation of the Development Facility. If the concession company should elect to
designate an operator for the Development Facility, the concession company shall in good
faith identify and designate a qualified operator acceptable to GRP within one hundred eighty
(180) days from receipt of GRPs written notice. If the concession company, acting in good
faith and with due diligence, is unable to designate a qualified operator within the aforesaid
period, then GRP shall at the end of the 180-day period take over the Development
Facility and assume Attendant Liabilities.
A plain reading of the above provision shows that it spells out in limpid language the obligation of
government in case of default by PIATCO on its loans. There can be no blinking from the fact that in
case of PIATCOs default, the government will assume PIATCOs Attendant Liabilities as defined in
the 1997 Concession Agreement.38 This obligation is not found in the draft Concession Agreement
and the change runs roughshod to the spirit and policy of the BOT Law which was crafted precisely
to prevent government from incurring financial risk.
In any event, PIATCO pleads that the entire agreement should not be struck down as the 1997
Concession Agreement contains a separability clause.
The plea is bereft of merit. The contracts at bar which made a mockery of the bidding process
cannot be upheld and must be annulled in their entirety for violating law and public policy. As
demonstrated, the contracts were substantially amended after their award to the successful bidder
on terms more beneficial to PIATCO and prejudicial to public interest. If this flawed process would be
allowed, public bidding will cease to be competitive and worse, government would not be favored
with the best bid. Bidders will no longer bid on the basis of the prescribed terms and conditions in the
bid documents but will formulate their bid in anticipation of the execution of a future contract
containing new and better terms and conditions that were not previously available at the time of the
bidding. Such a public bidding will not inure to the public good. The resulting contracts cannot be
given half a life but must be struck down as totally lawless.
IV.
Direct Government Guarantee
The respondents further contend that the PIATCO Contracts do not contain direct government
guarantee provisions. They assert that section 4.04 of the ARCA, which superseded sections 4.04(b)
and (c), Article IV of the 1997 Concession Agreement, is but a "clarification and explanation"39 of the
securities allowed in the bid documents. They allege that these provisions merely provide for
"compensation to PIATCO"40 in case of a government buy-out or takeover of NAIA IPT III. The
respondents, particularly respondent PIATCO, also maintain that the guarantee contained in the
contracts, if any, is an indirect guarantee allowed under the BOT Law, as amended.41
We do not agree. Section 4.04(c), Article IV42 of the ARCA should be read in conjunction with section
1.06, Article I,43 in the same manner that sections 4.04(b) and (c), Article IV of the 1997 Concession
Agreement should be related to Article 1.06 of the same contract. Section 1.06, Article I of the ARCA
and its counterpart provision in the 1997 Concession Agreement define in no uncertain terms the
meaning of "attendant liabilities." They tell us of the amounts that the Government has to pay in the

event respondent PIATCO defaults in its loan payments to its Senior Lenders and no qualified
transferee or nominee is chosen by the Senior Lenders or is willing to take over from respondent
PIATCO.
A reasonable reading of all these relevant provisions would reveal that the ARCA made the
Government liable to pay "all amounts ... from time to time owed or which may become owing by
Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have
provided, loaned, or advanced funds or provided financial facilities to Concessionaire
[PIATCO] for the Project [NAIA Terminal 3]."44 These amounts include "without limitation, all
principal, interest, associated fees, charges, reimbursements, and other related expenses...
whether payable at maturity, by acceleration or otherwise."45 They further include amounts owed by
respondent PIATCO to its "professional consultants and advisers, suppliers, contractors and subcontractors" as well as "fees, charges and expenses of any agents or trustees" of the Senior
Lenders or any other persons or entities who have provided loans or financial facilities to respondent
PIATCO in relation to NAIA IPT III.46 The counterpart provision in the 1997 Concession Agreement
specifying the attendant liabilities that the Government would be obligated to pay should PIATCO
default in its loan obligations is equally onerous to the Government as those contained in the ARCA.
According to the 1997 Concession Agreement, in the event the Government is forced to prematurely
take over NAIA IPT III as a result of respondent PIATCOs default in the payment of its loan
obligations to its Senior Lenders, it would be liable to pay the following amounts as "attendant
liabilities":
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in
the books of the Concessionaire as owing to Unpaid Creditors who have provided,
loaned or advanced funds actually used for the Project, including all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by Concessionaire to its suppliers,
contractors and sub-contractors.47
These provisions reject respondents contention that what the Government is obligated to pay, in the
event that respondent PIATCO defaults in the payment of its loans, is merely termination payment or
just compensation for its takeover of NAIA IPT III. It is clear from said section 1.06 that what the
Government would pay is the sum total of all the debts, including all interest, fees and
charges, that respondent PIATCO incurred in pursuance of the NAIA IPT III Project. This reading is
consistent with section 4.04 of the ARCA itself which states that the Government "shall make a
termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter
defined) of the Development Facility [NAIA Terminal III] or the sum of the Attendant Liabilities, if
greater." For sure, respondent PIATCO will not receive any amount less than sufficient to
cover its debts, regardless of whether or not the value of NAIA IPT III, at the time of its turn
over to the Government, may actually be less than the amount of PIATCOs debts. The
scheme is a form of direct government guarantee for it is undeniable that it leaves the government
no option but to pay the "attendant liabilities" in the event that the Senior Lenders are unable or
unwilling to appoint a qualified nominee or transferee as a result of PIATCOs default in the payment
of its Senior Loans. As we stressed in our Decision, this Court cannot depart from the legal maxim
that "those that cannot be done directly cannot be done indirectly."
This is not to hold, however, that indirect government guarantee is not allowed under the BOT Law,
as amended. The intention to permit indirect government guarantee is evident from the Senate
deliberations on the amendments to the BOT Law. The idea is to allow for reasonable government
undertakings, such as to authorize the project proponent to undertake related ventures within the

project area, in order to encourage private sector participation in development projects.48 An

example cited by then Senator Gloria Macapagal-Arroyo, one of the sponsors of R.A. No. 7718, is
the Mandaluyong public market which was built under the Build-and-Transfer ("BT") scheme wherein
instead of the government paying for the transfer, the project proponent was allowed to operate the
upper floors of the structure as a commercial mall in order to recoup their investments.49 It was
repeatedly stressed in the deliberations that in allowing indirect government guarantee, the law
seeks to encourage both the government and the private sector to formulate reasonable and
innovative government undertakings in pursuance of BOT projects. In no way, however, can the
government be made liable for the debts of the project proponent as this would be tantamount to a
direct government guarantee which is prohibited by the law. Such liability would defeat the very
purpose of the BOT Law which is to encourage the use of private sector resources in the
construction, maintenance and/or operation of development projects with no, or at least minimal,
capital outlay on the part of the government.
The respondents again urge that should this Court affirm its ruling that the PIATCO Contracts
contain direct government guarantee provisions, the whole contract should not be nullified. They rely
on the separability clause in the PIATCO Contracts.
We are not persuaded.
The BOT Law and its implementing rules provide that there are three (3) essential requisites for an
unsolicited proposal to be accepted: (1) the project involves a new concept in technology and/or is
not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is
required, and (3) the government agency or local government unit has invited by publication other
interested parties to a public bidding and conducted the same.50 The failure to fulfill any of the
requisites will result in the denial of the proposal. Indeed, it is further provided that a direct
government guarantee, subsidy or equity provision will "necessarily disqualify a proposal from being
treated and accepted as an unsolicited proposal."51 In fine, the mere inclusion of a direct government
guarantee in an unsolicited proposal is fatal to the proposal. There is more reason to invalidate a
contract if a direct government guarantee provision is inserted later in the contract via a backdoor
amendment. Such an amendment constitutes a crass circumvention of the BOT Law and renders
the entire contract void.
Respondent PIATCO likewise claims that in view of the fact that other BOT contracts such as the
JANCOM contract, the Manila Water contract and the MRT contract had been considered valid, the
PIATCO contracts should be held valid as well.52 There is no parity in the cited cases. For instance,
a reading of Metropolitan Manila Development Authority v. JANCOM Environmental
Corporation53 will show that its issue is different from the issues in the cases at bar. In the JANCOM
case, the main issue is whether there is a perfected contract between JANCOM and the
Government. The resolution of the issue hinged on the following: (1) whether the conditions
precedent to the perfection of the contract were complied with; (2) whether there is a valid notice of
award; and (3) whether the signature of the Secretary of the Department of Environment and Natural
Resources is sufficient to bind the Government. These issue and sub-issues are clearly
distinguishable and different. For one, the issue of direct government guarantee was not considered
by this Court when it held the JANCOM contract valid, yet, it is a key reason for invalidating the
PIATCO Contracts. It is a basic principle in law that cases with dissimilar facts cannot have similar
disposition.
This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT III
facility are almost complete and that funds have been spent by PIATCO in their construction. For the
government to take over the said facility, it has to compensate respondent PIATCO as builder of the

said structures. The compensation must be just and in accordance with law and equity for the
government can not unjustly enrich itself at the expense of PIATCO and its investors.
II.
Temporary takeover of business affected with public interest in times of national emergency
Section 17, Article XII of the 1987 Constitution grants the State in times of national emergency the
right to temporarily take over the operation of any business affected with public interest. This right is
an exercise of police power which is one of the inherent powers of the State.
Police power has been defined as the "state authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare."54 It consists of two essential
elements. First, it is an imposition of restraint upon liberty or property. Second, the power is
exercised for the benefit of the common good. Its definition in elastic terms underscores its allencompassing and comprehensive embrace.55 It is and still is the "most essential, insistent, and
illimitable"56 of the States powers. It is familiar knowledge that unlike the power of eminent
domain, police power is exercised without provision for just compensation for its paramount
consideration is public welfare.57
It is also settled that public interest on the occasion of a national emergency is the primary
consideration when the government decides to temporarily take over or direct the operation of a
public utility or a business affected with public interest. The nature and extent of the emergency is
the measure of the duration of the takeover as well as the terms thereof. It is the State that
prescribes such reasonable terms which will guide the implementation of the temporary takeover as
dictated by the exigencies of the time. As we ruled in our Decision, this power of the State can not
be negated by any party nor should its exercise be a source of obligation for the State.
Section 5.10(c), Article V of the ARCA provides that respondent PIATCO "shall be entitled to
reasonable compensation for the duration of the temporary takeover by GRP, which compensation
shall take into account the reasonable cost for the use of the Terminal and/or Terminal Complex."58 It
clearly obligates the government in the exercise of its police power to compensate respondent
PIATCO and this obligation is offensive to the Constitution. Police power can not be diminished, let
alone defeated by any contract for its paramount consideration is public welfare and interest.59
Again, respondent PIATCOs reliance on the case of Heirs of Suguitan v. City of
Mandaluyong60 to justify its claim for reasonable compensation for the Governments temporary
takeover of NAIA IPT III in times of national emergency is erroneous. What was involved in Heirs of
Suguitan is the exercise of the states power of eminent domain and not of police power, hence, just
compensation was awarded. The cases at bar will not involve the exercise of the power of eminent
domain.
III.
Monopoly
Section 19, Article XII of the 1987 Constitution mandates that the State prohibit or regulate
monopolies when public interest so requires. Monopolies are not per se prohibited. Given its
susceptibility to abuse, however, the State has the bounden duty to regulate monopolies to protect
public interest. Such regulation may be called for, especially in sensitive areas such as the operation
of the countrys premier international airport, considering the public interest at stake.
By virtue of the PIATCO contracts, NAIA IPT III would be the only international passenger airport
operating in the Island of Luzon, with the exception of those already operating in Subic Bay Freeport

Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City.
Undeniably, the contracts would create a monopoly in the operation of an international commercial
passenger airport at the NAIA in favor of PIATCO.
The grant to respondent PIATCO of the exclusive right to operate NAIA IPT III should not exempt it
from regulation by the government. The government has the right, indeed the duty, to protect the
interest of the public. Part of this duty is to assure that respondent PIATCOs exercise of its right
does not violate the legal rights of third parties. We reiterate our ruling that while the service
providers presently operating at NAIA Terminals I and II do not have the right to demand for the
renewal or extension of their contracts to continue their services in NAIA IPT III, those who have
subsisting contracts beyond the In-Service Date of NAIA IPT III can not be arbitrarily or
unreasonably treated.
Finally, the Respondent Congressmen assert that at least two (2) committee reports by the House of
Representatives found the PIATCO contracts valid and contend that this Court, by taking cognizance
of the cases at bar, reviewed an action of a co-equal body.61 They insist that the Court must respect
the findings of the said committees of the House of Representatives.62 With due respect, we cannot
subscribe to their submission. There is a fundamental difference between a case in court and an
investigation of a congressional committee. The purpose of a judicial proceeding is to settle the
dispute in controversy by adjudicating the legal rights and obligations of the parties to the case. On
the other hand, a congressional investigation is conducted in aid of legislation.63 Its aim is to assist
and recommend to the legislature a possible action that the body may take with regard to a particular
issue, specifically as to whether or not to enact a new law or amend an existing one. Consequently,
this Court cannot treat the findings in a congressional committee report as binding because the facts
elicited in congressional hearings are not subject to the rigors of the Rules of Court on admissibility
of evidence. The Court in assuming jurisdiction over the petitions at bar simply performed its
constitutional duty as the arbiter of legal disputes properly brought before it, especially in this
instance when public interest requires nothing less.
WHEREFORE, the motions for reconsideration filed by the respondent PIATCO, respondent
Congressmen and the respondents-in-intervention are DENIED with finality.
SO ORDERED.
Davide, Jr., C.J., Austria-Martinez, Corona, and Carpio-Morales, JJ., concur.
Vitug, J., maintains his separate opinion in the main ponencia, promulgated on 05 May 2003.
Panganiban, J., reiterate his separate opinion in the main case, promulgated on May 5, 2003.
Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, and Azcuna, JJ., joins J. Vitugs opinion.
Carpio, and Tinga, JJ., no part.
Callejo, Sr., J., joins J. Panganiban in his concurring opinion
G.R. No. 114323 July 23, 1998
OIL AND NATURAL GAS COMMISSION, petitioner,
vs.
COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC., respondents.

MARTINEZ, J.:
This proceeding involves the enforcement of a foreign judgment rendered by the Civil Judge of
Dehra Dun, India in favor of the petitioner, OIL AND NATURAL GAS COMMISSION and against the
private respondent, PACIFIC CEMENT COMPANY, INCORPORATED.
The petitioner is a foreign corporation owned and controlled by the Government of India while the
private respondent is a private corporation duly organized and existing under the laws of the
Philippines. The present conflict between the petitioner and the private respondent has its roots in a
contract entered into by and between both parties on February 26, 1983 whereby the private
respondent undertook to supply the petitioner FOUR THOUSAND THREE HUNDRED (4,300) metric
tons of oil well cement. In consideration therefor, the petitioner bound itself to pay the private
respondent the amount of FOUR HUNDRED SEVENTY-SEVEN THOUSAND THREE HUNDRED
U.S. DOLLARS ($477,300.00) by opening an irrevocable, divisible, and confirmed letter of credit in
favor of the latter. The oil well cement was loaded on board the ship MV SURUTANA NAVA at the
port of Surigao City, Philippines for delivery at Bombay and Calcutta, India. However, due to a
dispute between the shipowner and the private respondent, the cargo was held up in Bangkok and
did not reach its point destination. Notwithstanding the fact that the private respondent had already
received payment and despite several demands made by the petitioner, the private respondent
failed to deliver the oil well cement. Thereafter, negotiations ensued between the parties and they
agreed that the private respondent will replace the entire 4,300 metric tons of oil well cement with
Class "G" cement cost free at the petitioner's designated port. However, upon inspection, the Class
"G" cement did not conform to the petitioner's specifications. The petitioner then informed the private
respondent that it was referring its claim to an arbitrator pursuant to Clause 16 of their contract which
stipulates:
Except where otherwise provided in the supply order/contract all questions and
disputes, relating to the meaning of the specification designs, drawings and
instructions herein before mentioned and as to quality of workmanship of the items
ordered or as to any other question, claim, right or thing whatsoever, in any way
arising out of or relating to the supply order/contract design, drawing, specification,
instruction or these conditions or otherwise concerning the materials or the execution
or failure to execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole arbitration of the
persons appointed by Member of the Commission at the time of dispute. It will be no
objection to any such appointment that the arbitrator so appointed is a Commission
employer (sic) that he had to deal with the matter to which the supply or contract
relates and that in the course of his duties as Commission's employee he had
expressed views on all or any of the matter in dispute or difference.
The arbitrator to whom the matter is originally referred being transferred or vacating
his office or being unable to act for any reason the Member of the Commission shall
appoint another person to act as arbitrator in accordance with the terms of the
contract/supply order. Such person shall be entitled to proceed with reference from
the stage at which it was left by his predecessor. Subject as aforesaid the provisions
of the Arbitration Act, 1940, or any Statutory modification or re-enactment there of
and the rules made there under and for the time being in force shall apply to the
arbitration proceedings under this clause.
The arbitrator may with the consent of parties enlarge the time, from time to time, to
make and publish the award.

The venue for arbitration shall be at Dehra dun. 1*

On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the dispute in petitioner's
favor setting forth the arbitral award as follows:
NOW THEREFORE after considering all facts of the case, the evidence, oral and
documentarys adduced by the claimant and carefully examining the various written
statements, submissions, letters, telexes, etc. sent by the respondent, and the oral
arguments addressed by the counsel for the claimants, I, N.N. Malhotra, Sole
Arbitrator, appointed under clause 16 of the supply order dated 26.2.1983, according
to which the parties, i.e. M/S Oil and Natural Gas Commission and the Pacific
Cement Co., Inc. can refer the dispute to the sole arbitration under the provision of
the Arbitration Act. 1940, do hereby award and direct as follows:
The Respondent will pay the following to the claimant:
1. Amount received by the Respondent
against the letter of credit No. 11/19
dated 28.2.1983 US $ 477,300.00
2. Re-imbursement of expenditure incurred
by the claimant on the inspection team's
visit to Philippines in August 1985 US $ 3,881.00
3. L.C. Establishment charges incurred
by the claimant US $ 1,252.82
4. Loss of interest suffered by claimant
from 21.6.83 to 23.7.88 US $ 417,169.95
Total amount of award US $ 899,603.77
In addition to the above, the respondent would also be liable to pay to the claimant
the interest at the rate of 6% on the above amount, with effect from 24.7.1988 up to
the actual date of payment by the Respondent in full settlement of the claim as
awarded or the date of the decree, whichever is earlier.
I determine the cost at Rs. 70,000/- equivalent to US $5,000 towards the expenses
on Arbitration, legal expenses, stamps duly incurred by the claimant. The cost will be
shared by the parties in equal proportion.
Pronounced at Dehra Dun to-day, the 23rd of July 1988. 2

To enable the petitioner to execute the above award in its favor, it filed a Petition before the
Court of the Civil Judge in Dehra Dun. India (hereinafter referred to as the foreign court for
brevity), praying that the decision of the arbitrator be made "the Rule of Court" in India. The
foreign court issued notices to the private respondent for filing objections to the petition. The
private respondent complied and sent its objections dated January 16, 1989. Subsequently,
the said court directed the private respondent to pay the filing fees in order that the latter's
objections could be given consideration. Instead of paying the required filing fees, the private
respondent sent the following communication addressed to the Civil judge of Dehra Dun:
The Civil Judge
Dehra Dun (U.P.) India
Re: Misc. Case No. 5 of 1989
M/S Pacific Cement Co.,
Inc. vs. ONGC Case
Sir:
1. We received your letter dated 28 April 1989 only
last 18 May 1989.
2. Please inform us how much is the court fee to be
paid. Your letter did not mention the amount to be
paid.
3. Kindly give us 15 days from receipt of your letter
advising us how much to pay to comply with the
same.
Thank you for your kind consideration.
Pacific Cement Co., Inc.
By:
Jose Cortes, Jr.
President 3
Without responding to the above communication, the foreign court refused to admit the private
respondent's objections for failure to pay the required filing fees, and thereafter issued an Order on
February 7, 1990, to wit:
ORDER
Since objections filed by defendant have been rejected through Misc. Suit No. 5 on
7.2.90, therefore, award should be made Rule of the Court.

ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of
conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the
decree. The plaintiff shall also be entitled to get from defendant (US$ 899,603.77
(US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven
only) along with 9% interest per annum till the last date of realisation.4
Despite notice sent to the private respondent of the foregoing order and several demands by the
petitioner for compliance therewith, the private respondent refused to pay the amount adjudged by
the foreign court as owing to the petitioner. Accordingly, the petitioner filed a complaint with Branch
30 of the Regional Trial Court (RTC) of Surigao City for the enforcement of the aforementioned
judgment of the foreign court. The private respondent moved to dismiss the complaint on the
following grounds: (1) plaintiffs lack of legal capacity to sue; (2) lack of cause of action; and (3)
plaintiffs claim or demand has been waived, abandoned, or otherwise extinguished. The petitioner
filed its opposition to the said motion to dismiss, and the private respondent, its rejoinder thereto. On
January 3, 1992, the RTC issued an order upholding the petitioner's legal capacity to sue, albeit
dismissing the complaint for lack of a valid cause of action. The RTC held that the rule prohibiting
foreign corporations transacting business in the Philippines without a license from maintaining a suit
in Philippine courts admits of an exception, that is, when the foreign corporation is suing on an
isolated transaction as in this case. 5 Anent the issue of the sufficiency of the petitioner's cause of
action, however, the RTC found the referral of the dispute between the parties to the arbitrator under
Clause 16 of their contract erroneous. According to the RTC,

[a] perusal of the shove-quoted clause (Clause 16) readily shows that the matter
covered by its terms is limited to "ALL QUESTIONS AND DISPUTES, RELATING TO
THE MEANING OF THE SPECIFICATION, DESIGNS, DRAWINGS AND
INSTRUCTIONS HEREIN BEFORE MENTIONED and as to the QUALITY OF
WORKMANSHIP OF THE ITEMS ORDERED or as to any other questions, claim,
right or thing whatsoever, but qualified to "IN ANY WAY ARISING OR RELATING TO
THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING, SPECIFICATION, etc.,"
repeating the enumeration in the opening sentence of the clause.
The court is inclined to go along with the observation of the defendant that the
breach, consisting of the non-delivery of the purchased materials, should have been
properly litigated before a court of law, pursuant to Clause No. 15 of the
Contract/Supply Order, herein quoted, to wit:
"JURISDICTION
All questions, disputes and differences, arising under out of or in
connection with this supply order, shall be subject to the EXCLUSIVE
JURISDICTION OF THE COURT, within the local limits of whose
jurisdiction and the place from which this supply order is situated." 6
The RTC characterized the erroneous submission of the dispute to the arbitrator as a
"mistake of law or fact amounting to want of jurisdiction". Consequently, the proceedings had
before the arbitrator were null and void and the foreign court had therefore, adopted no legal
award which could be the source of an enforceable right. 7
The petitioner then appealed to the respondent Court of Appeals which affirmed the dismissal of the
complaint. In its decision, the appellate court concurred with the RTC's ruling that the arbitrator did

not have jurisdiction over the dispute between the parties, thus, the foreign court could not validly
adopt the arbitrator's award. In addition, the appellate court observed that the full text of the
judgment of the foreign court contains the dispositive portion only and indicates no findings of fact
and law as basis for the award. Hence, the said judgment cannot be enforced by any Philippine
court as it would violate the constitutional provision that no decision shall be rendered by any court
without expressing therein clearly and distinctly the facts and the law on which it is based. 8 The
appellate court ruled further that the dismissal of the private respondent's objections for non-payment of
the required legal fees, without the foreign court first replying to the private respondent's query as to the
amount of legal fees to be paid, constituted want of notice or violation of due process. Lastly, it pointed
out that the arbitration proceeding was defective because the arbitrator was appointed solely by the
petitioner, and the fact that the arbitrator was a former employee of the latter gives rise to a presumed
bias on his part in favor of the petitioner. 9

A subsequent motion for reconsideration by the petitioner of the appellate court's decision was
denied, thus, this petition for review on certiorari citing the following as grounds in support thereof:
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE
LOWER COURT'S ORDER OF DISMISSAL SINCE:
A. THE NON-DELIVERY OF THE CARGO WAS A MATTER PROPERLY
COGNIZABLE BY THE PROVISIONS OF CLAUSE 16 OF THE CONTRACT;
B. THE JUDGMENT OF THE CIVIL COURT OF DEHRADUN, INDIA WAS AN
AFFIRMATION OF THE FACTUAL AND LEGAL FINDINGS OF THE ARBITRATOR
AND THEREFORE ENFORCEABLE IN THIS JURISDICTION;
C. EVIDENCE MUST BE RECEIVED TO REPEL THE EFFECT OF A
PRESUMPTIVE RIGHT UNDER A FOREIGN JUDGMENT. 10
The threshold issue is whether or not the arbitrator had jurisdiction over the dispute between the
petitioner and the private respondent under Clause 16 of the contract. To reiterate, Clause 16
provides as follows:
Except where otherwise provided in the supply order/contract all questions and
disputes, relating to the meaning of the specification designs, drawings and
instructions herein before mentioned and as to quality of workmanship of the items
ordered or as to any other question, claim, right or thing whatsoever, in any way
arising out of or relating to the supply order/contract design, drawing, specification,
instruction or these conditions or otherwise concerning the materials or the execution
or failure to execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole arbitration of the
persons appointed by Member of the Commission at the time of dispute. It will be no
objection to any such appointment that the arbitrator so appointed is a Commission
employer (sic) that he had to deal with the matter to which the supply or contract
relates and that in the course of his duties as Commission's employee he had
expressed views on all or any of the matter in dispute or difference. 11
The dispute between the parties had its origin in the non-delivery of the 4,300 metric tons of oil well
cement to the petitioner. The primary question that may be posed, therefore, is whether or not the
non-delivery of the said cargo is a proper subject for arbitration under the above-quoted Clause 16.
The petitioner contends that the same was a matter within the purview of Clause 16, particularly the
phrase, ". . . or as to any other questions, claim, right or thing whatsoever, in any way arising or

relating to the supply order/contract, design, drawing, specification, instruction . . .". 12 It is argued that
the foregoing phrase allows considerable latitude so as to include non-delivery of the cargo which was a
"claim, right or thing relating to the supply order/contract". The contention is bereft of merit. First of all, the
petitioner has misquoted the said phrase, shrewdly inserting a comma between the words "supply
order/contract" and "design" where none actually exists. An accurate reproduction of the phrase reads, ". .
. or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to
the supply order/contract design, drawing, specification, instruction or these conditions . . .". The absence
of a comma between the words "supply order/contract" and "design" indicates that the former cannot be
taken separately but should be viewed in conjunction with the words "design, drawing, specification,
instruction or these conditions". It is thus clear that to fall within the purview of this phrase, the "claim,
right or thing whatsoever" must arise out of or relate to the design, drawing, specification, or instruction of
the supply order/contract. The petitioner also insists that the non-delivery of the cargo is not only covered
by the foregoing phrase but also by the phrase, ". . . or otherwise concerning the materials or the
execution or failure to execute the same during the stipulated/extended period or after
completion/abandonment thereof . . .".

The doctrine of noscitur a sociis, although a rule in the construction of statutes, is equally applicable
in the ascertainment of the meaning and scope of vague contractual stipulations, such as the
aforementioned phrase. According to the maxim noscitur a sociis, where a particular word or phrase
is ambiguous in itself or is equally susceptible of various meanings, its correct construction may be
made clear and specific by considering the company of the words in which it is found or with which it
is associated, or stated differently, its obscurity or doubt may be reviewed by reference to associated
words. 13 A close examination of Clause 16 reveals that it covers three matters which may be submitted
to arbitration namely,

(1) all questions and disputes, relating to the meaning of the specification designs, drawings and
instructions herein before mentioned and as to quality of workmanship of the items ordered; or
(2) any other question, claim, right or thing whatsoever, in any way arising out of or relating to the
supply order/contract design, drawing, specification, instruction or these conditions; or
(3) otherwise concerning the materials or the execution or failure to execute the same during
stipulated/extended period or after the completion/abandonment thereof.
The first and second categories unmistakably refer to questions and disputes relating to the design,
drawing, instructions, specifications or quality of the materials of the supply/order contract. In the
third category, the clause, "execution or failure to execute the same", may be read as "execution or
failure to execute the supply order/contract". But in accordance with the doctrine of noscitur a sociis,
this reference to the supply order/contract must be construed in the light of the preceding words with
which it is associated, meaning to say, as being limited only to the design, drawing, instructions,
specifications or quality of the materials of the supply order/contract. The non-delivery of the oil well
cement is definitely not in the nature of a dispute arising from the failure to execute the supply
order/contract design, drawing, instructions, specifications or quality of the materials. That Clause 16
should pertain only to matters involving the technical aspects of the contract is but a logical inference
considering that the underlying purpose of a referral to arbitration is for such technical matters to be
deliberated upon by a person possessed with the required skill and expertise which may be
otherwise absent in the regular courts.
This Court agrees with the appellate court in its ruling that the non-delivery of the oil well cement is a
matter properly cognizable by the regular courts as stipulated by the parties in Clause 15 of their
contract:

All questions, disputes and differences, arising under out of or in connection with this
supply order, shall be subject to the exclusive jurisdiction of the court, within the local
limits of whose jurisdiction and the place from which this supply order is situated. 14
The following fundamental principles in the interpretation of contracts and other instruments
served as our guide in arriving at the foregoing conclusion:
Art. 1373. If some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it
effectual. 15
Art. 1374. The various stipulations of a contract shall be interpreted together, attributing
the doubtful ones that sense which may result from all of them taken jointly. 16
Sec. 11. Instrument construed so as to give effect to all provisions. In the construction of
an instrument, where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all. 17

Thus, this Court has held that as in statutes, the provisions of a contract should not be read in
isolation from the rest of the instrument but, on the contrary, interpreted in the light of the other
related provisions. 18 The whole and every part of a contract must be considered in fixing the meaning of
any of its harmonious whole. Equally applicable is the canon of construction that in interpreting a statute
(or a contract as in this case), care should be taken that every part thereof be given effect, on the theory
that it was enacted as an integrated measure and not as a hodge-podge of conflicting provisions. The rule
is that a construction that would render a provision inoperative should be avoided; instead, apparently
inconsistent provisions should be reconciled whenever possible as parts of a coordinated and
harmonious whole. 19

The petitioner's interpretation that Clause 16 is of such latitude as to contemplate even the nondelivery of the oil well cement would in effect render Clause 15 a mere superfluity. A perusal of
Clause 16 shows that the parties did not intend arbitration to be the sole means of settling disputes.
This is manifest from Clause 16 itself which is prefixed with the proviso, "Except where otherwise
provided in the supply order/contract . . .", thus indicating that the jurisdiction of the arbitrator is not
all encompassing, and admits of exceptions as may be provided elsewhere in the supply
order/contract. We believe that the correct interpretation to give effect to both stipulations in the
contract is for Clause 16 to be confined to all claims or disputes arising from or relating to the design,
drawing, instructions, specifications or quality of the materials of the supply order/contract, and for
Clause 15 to cover all other claims or disputes.
The petitioner then asseverates that granting, for the sake of argument, that the non-delivery of the
oil well cement is not a proper subject for arbitration, the failure of the replacement cement to
conform to the specifications of the contract is a matter clearly falling within the ambit of Clause 16.
In this contention, we find merit. When the 4,300 metric tons of oil well cement were not delivered to
the petitioner, an agreement was forged between the latter and the private respondent that Class "G"
cement would be delivered to the petitioner as replacement. Upon inspection, however, the
replacement cement was rejected as it did not conform to the specifications of the contract. Only
after this latter circumstance was the matter brought before the arbitrator. Undoubtedly, what was
referred to arbitration was no longer the mere non-delivery of the cargo at the first instance but also
the failure of the replacement cargo to conform to the specifications of the contract, a matter clearly
within the coverage of Clause 16.

The private respondent posits that it was under no legal obligation to make replacement and that it
undertook the latter only "in the spirit of liberality and to foster good business relationship". 20 Hence,
the undertaking to deliver the replacement cement and its subsequent failure to conform to specifications
are not anymore subject of the supply order/contract or any of the provisions thereof. We disagree.

As per Clause 7 of the supply order/contract, the private respondent undertook to deliver the 4,300
metric tons of oil well cement at "BOMBAY (INDIA) 2181 MT and CALCUTTA 2119 MT". 21 The
failure of the private respondent to deliver the cargo to the designated places remains undisputed.
Likewise, the fact that the petitioner had already paid for the cost of the cement is not contested by the
private respondent. The private respondent claims, however, that it never benefited from the transaction
as it was not able to recover the cargo that was unloaded at the port of Bangkok. 22 First of all, whether or
not the private respondent was able to recover the cargo is immaterial to its subsisting duty to make good
its promise to deliver the cargo at the stipulated place of delivery. Secondly, we find it difficult to believe
this representation. In its Memorandum filed before this Court, the private respondent asserted that the
Civil Court of Bangkok had already ruled that the non-delivery of the cargo was due solely to the fault of
the carrier. 23 It is, therefore, but logical to assume that the necessary consequence of this finding is the
eventual recovery by the private respondent of the cargo or the value thereof. What inspires credulity is
not that the replacement was done in the spirit of liberality but that it was undertaken precisely because of
the private respondent's recognition of its duty to do so under the supply order/contract, Clause 16 of
which remains in force and effect until the full execution thereof.

We now go to the issue of whether or not the judgment of the foreign court is enforceable in this
jurisdiction in view of the private respondent's allegation that it is bereft of any statement of facts and
law upon which the award in favor of the petitioner was based. The pertinent portion of the judgment
of the foreign court reads:
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of
conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the
decree. The plaintiff shall also be entitled to get from defendant (US$ 899,603.77
(US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven
only) along with 9% interest per annum till the last date of realisation.24
As specified in the order of the Civil Judge of Dehra Dun, "Award Paper No. 3/B-1 shall be a part of
the decree". This is a categorical declaration that the foreign court adopted the findings of facts and
law of the arbitrator as contained in the latter's Award Paper. Award Paper No. 3/B-1, contains an
exhaustive discussion of the respective claims and defenses of the parties, and the arbitrator's
evaluation of the same. Inasmuch as the foregoing is deemed to have been incorporated into the
foreign court's judgment the appellate court was in error when it described the latter to be a
"simplistic decision containing literally, only the dispositive portion". 25
The constitutional mandate that no decision shall be rendered by any court without expressing
therein dearly and distinctly the facts and the law on which it is based does not preclude the validity
of "memorandum decisions" which adopt by reference the findings of fact and conclusions of law
contained in the decisions of inferior tribunals. In Francisco v. Permskul, 26 this Court held that the
following memorandum decision of the Regional Trial Court of Makati did not transgress the requirements
of Section 14, Article VIII of the Constitution:

MEMORANDUM DECISION
After a careful perusal, evaluation and study of the records of this case, this Court
hereby adopts by reference the findings of fact and conclusions of law contained in

the decision of the Metropolitan Trial Court of Makati, Metro Manila, Branch 63 and
finds that there is no cogent reason to disturb the same.
WHEREFORE, judgment appealed from is hereby affirmed in toto. 27 (Emphasis
supplied.)

This Court had occasion to make a similar pronouncement in the earlier case of Romero v.
Court of Appeals, 28 where the assailed decision of the Court of Appeals adopted the findings
and disposition of the Court of Agrarian Relations in this wise:

We have, therefore, carefully reviewed the evidence and made a re-assessment of

the same, and We are persuaded, nay compelled, to affirm the correctness of the
trial court's factual findings and the soundness of its conclusion. For judicial
convenience and expediency, therefore, We hereby adopt by way of reference, the
findings of facts and conclusions of the court a quo spread in its decision, as integral
part of this Our decision. 29 (Emphasis supplied)
Hence, even in this jurisdiction, incorporation by reference is allowed if only to avoid the
cumbersome reproduction of the decision of the lower courts, or portions thereof, in the
decision of the higher court. 30This is particularly true when the decision sought to be
incorporated is a lengthy and thorough discussion of the facts and conclusions arrived at, as in
this case, where Award Paper No. 3/B-1 consists of eighteen (18) single spaced pages.

Furthermore, the recognition to be accorded a foreign judgment is not necessarily affected by the
fact that the procedure in the courts of the country in which such judgment was rendered differs from
that of the courts of the country in which the judgment is relied on. 31 This Court has held that matters
of remedy and procedure are governed by the lex fori or the internal law of the forum. 32 Thus, if under the
procedural rules of the Civil Court of Dehra Dun, India, a valid judgment may be rendered by adopting the
arbitrator's findings, then the same must be accorded respect. In the same vein, if the procedure in the
foreign court mandates that an Order of the Court becomes final and executory upon failure to pay the
necessary docket fees, then the courts in this jurisdiction cannot invalidate the order of the foreign court
simply because our rules provide otherwise.

The private respondent claims that its right to due process had been blatantly violated, first by
reason of the fact that the foreign court never answered its queries as to the amount of docket fees
to be paid then refused to admit its objections for failure to pay the same, and second, because of
the presumed bias on the part of the arbitrator who was a former employee of the petitioner.
Time and again this Court has held that the essence of due process is to be found in the reasonable
opportunity to be heard and submit any evidence one may have in support of one's defense 33 or
stated otherwise, what is repugnant to due process is the denial of opportunity to be heard. 34 Thus, there
is no violation of due process even if no hearing was conducted, where the party was given a chance to
explain his side of the controversy and he waived his right to do so. 35

In the instant case, the private respondent does not deny the fact that it was notified by the foreign
court to file its objections to the petition, and subsequently, to pay legal fees in order for its
objections to be given consideration. Instead of paying the legal fees, however, the private
respondent sent a communication to the foreign court inquiring about the correct amount of fees to
be paid. On the pretext that it was yet awaiting the foreign court's reply, almost a year passed
without the private respondent paying the legal fees. Thus, on February 2, 1990, the foreign court
rejected the objections of the private respondent and proceeded to adjudicate upon the petitioner's
claims. We cannot subscribe to the private respondent's claim that the foreign court violated its right
to due process when it failed to reply to its queries nor when the latter rejected its objections for a

clearly meritorious ground. The private respondent was afforded sufficient opportunity to be heard. It
was not incumbent upon the foreign court to reply to the private respondent's written communication.
On the contrary, a genuine concern for its cause should have prompted the private respondent to
ascertain with all due diligence the correct amount of legal fees to be paid. The private respondent
did not act with prudence and diligence thus its plea that they were not accorded the right to
procedural due process cannot elicit either approval or sympathy from this Court. 36
The private respondent bewails the presumed bias on the part of the arbitrator who was a former
employee of the petitioner. This point deserves scant consideration in view of the following
stipulation in the contract:
. . . . It will be no objection any such appointment that the arbitrator so appointed is a
Commission employer (sic) that he had to deal with the matter to which the supply or
contract relates and that in the course of his duties as Commission's employee he
had expressed views on all or any of the matter in dispute or difference. 37 (Emphasis
supplied.)

Finally, we reiterate hereunder our pronouncement in the case of Northwest Orient Airlines, Inc. v.
Court of Appeals 38 that:
A foreign judgment is presumed to be valid and binding in the country from which it
comes, until the contrary is shown. It is also proper to presume the regularity of the
proceedings and the giving of due notice therein.
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in
personam of a tribunal of a foreign country having jurisdiction to pronounce the same
is presumptive evidence of a right as between the parties and their successors-ininterest by a subsequent title. The judgment may, however, be assailed by evidence
of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of
law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or
elsewhere, enjoys the presumption that it was acting in the lawful exercise of
jurisdiction and has regularly performed its official duty. 39
Consequently, the party attacking a foreign judgment, the private respondent herein, had the
burden of overcoming the presumption of its validity which it failed to do in the instant case.
The foreign judgment being valid, there is nothing else left to be done than to order its enforcement,
despite the fact that the petitioner merely prays for the remand of the case to the RTC for further
proceedings. As this Court has ruled on the validity and enforceability of the said foreign judgment in
this jurisdiction, further proceedings in the RTC for the reception of evidence to prove otherwise are
no longer necessary.
WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals
sustaining the trial court's dismissal of the OIL AND NATURAL GAS COMMISSION's complaint in
Civil Case No. 4006 before Branch 30 of the RTC of Surigao City is REVERSED, and another in its
stead is hereby rendered ORDERING private respondent PACIFIC CEMENT COMPANY, INC. to
pay to petitioner the amounts adjudged in the foreign judgment subject of said case.
SO ORDERED.
Regalado, Melo and Puno, JJ., concur.